Financing climate action and reducing energy poverty: two sides of the same coin?

September 22, 2022

The Signify Foundation has been supporting the D-REC Initiative since 2021 with grant and technical assistance. The initiative, led by South Pole and Powertrust, has created a new market instrument for distributed renewable energy (DRE). This helps channel investment from leading global corporations into impactful DRE projects in emerging markets. The ultimate objective of the D-REC initiative is to reduce energy poverty while scaling corporate climate action.

Increasing access to energy to the over 700 million people living without a connection and corporate climate action, should be two sides of the same coin. The potential is in plain sight: channelling results based finance from corporate climate leaders to distributed renewable energy projects could significantly reduce energy poverty, including access to light, in underprivileged and underserved communities across sub-Saharan Africa and other developing regions.

What has been missing up to this point is the market instrument to channel this kind of finance in a clear and easily verifiable way to communities far away from the electricity grid. This is where Renewable energy certificates, and specifically Distributed Renewable Energy Certificates (D-REC’s), have an exciting role to accelerate energy access.

How it works

1. A project developer in sub-Saharan Africa or Asia instals a distributed renewable energy system, such as a solar home system, commercial rooftop system, community mini-grid, or campus microgrid.
2. Electricity is generated and data from the renewable system is transmitted to the D-REC monitoring and tracking platform.
3. Generation data from multiple DRE systems are aggregated to create a D-REC in accordance with international standards.
4. A corporation buys the D-REC as part of their CO2 emissions reduction targets; this, in turn, provides revenue to the local DRE system provider, attracting new capital to the project.
5. Community infrastructures benefit from affordable, clean, reliable electricity, for example, health centres that currently have unreliable access to energy supply.

Despite progress made in the past decade, the world is not on track to achieve sustainable energy for all by 2030 (SDG7). Small-scale, off-grid renewable electricity generates significant value locally and globally, especially in emerging markets. But under-investment in new DRE capacity is holding back progress. Leading global corporations are a promising source of finance for the accelerated deployment of DRE. But innovation is urgently needed to unlock new sources of finance by customising existing mechanisms for the DRE sector in emerging markets.

This new D-REC market instrument will be widely adopted by the market and will support local renewable energy project developers and entrepreneurs, enabling them to engage in the global climate markets.

Key Learnings

There have been several key learnings that are strengthening the approach of the D-REC initiative going forward. From the initial testing phase, it became clear that DRE developers require hands-on training to connect their assets to the D-REC Technology Platform. A comprehensive technical guidance framework will now be issued to project developers, including sample scripts ready for use and step-by-step guidance to platform integration. This ensures that the process addresses the needs of all stakeholders involved.

Another key insight for the initiative has been that D-RECs could be used to issue carbon credits in the future at significantly lower transaction costs than currently possible. This could enable small-scale DRE projects to access carbon markets, offering them a new source of revenue that can attract more capital to the project – in addition to revenue from the renewable energy certificates. And this ultimately will help light more homes in rural communities.

Impact

By supporting the D-REC initiative, the Signify Foundation acts as an enabler of the wider ecosystem, supporting local renewable energy entrepreneurs across the world. It enables them to engage in the global climate markets and reduce energy poverty in underprivileged and underserved communities across the world. Initial estimates indicate the development of D-RECs can achieve the following impact by 2024:

• 500,000+ livelihoods directly impacted with greater access to electricity
• 100+MW of additional DRE capacity deployed
• 250,000+ tonnes of CO2 avoided
• $300+ million catalyzed by the private sector to invest in DRE projects

More information is available on: https://www.d-recs.energy/