EU Seeks ‘Structural’ Change for Rural Electrification Finance

by Rik
October 1, 2014

This week the European Commission hosted a two day workshop in Brussels to discuss new financing strategies for accelerating the pace of rural electrification in developing countries.On the agenda was the Electrification Financing Initiative (ElectriFI), an EU proposal to finance scalable, bankable rural electrification projects that reduce greenhouse gas emissions. ElectriFI aims to give energy providers the equity they need to leverage additional private sector investment. The European Commission views lack of equity as a critical obstacle to rural electrification, which is why it has proposed ElectriFI. Financing through the initiative would be in the form of convertible grants that become subordinated debt when a project is successful. Subordinated debt usually qualifies as a form of equity provided that senior lenders hold default rights and repayment funds would otherwise be used for dividends.

ElectriFI is about funding proven solutions, such as the off-grid technologies that will play a huge role in the future of rural electrification.

ElectriFI is about funding proven solutions such as the off-grid technologies that – as the IEA and others have reported – will play an enormous role in the future of rural electrification. Those of us who are providing off-grid solutions have been calling for greater attention from development finance institutions for a while. A fairly old, yet well-known letter to the World Bank Group asking for $500 million of financing sums up industry sentiment pretty well – we’ve got the business models and technology to solve this problem, but we need more money. The European Commission appears to be answering those calls with a real commitment. It is proposing to award €75 million through ElectriFI initially, but is willing to make much more available over the next several years if the program is successful. According to the latest draft of the ElectriFI Working Document, “a structural solution for lack of equity for rural electrification is being established through ElectriFI,” and the Commission is intent on signalling this to the market. If the European Commission is indeed serious about rural electrification, ElectriFI could be both an immediate and long term boon for Powerhive and the industry in general.