The Future of Financial Inclusion in Sustainable Energy

The Future of financial inclusion in sustainable energy: TFE's journey with UNDP's CAP initiative

In the ever-evolving landscape of sustainable energy finance, the UNDP's CAP initiative aims to propel small-scale, low-carbon energy companies in developing countries towards financial empowerment. TFE has joined the UNDP’s initiative, authoring four reports for the initiative assessing the potential of financial aggregation of distributed renewable energy in East Africa, with a focus on Uganda and Rwanda. 

Financial aggregation, as outlined by the UNDP, is a process by which multiple assets are bundled together, which then receive financing, or refinancing, from investors based on the future cash flows from the assets. The idea is simple yet profound – pooling resources to scale up impact. It is a catalyst for growth of small-scale energy enterprises. Examples include portfolio financing and the securitization of accounts receivable. TFE evaluated the energy landscape in East Africa and assessed the potential of these financial instruments, to grow the markets towards aggregation-readiness.

We started with a comprehensive market assessment. We mapped the energy ecosystem in East Africa, including mini-grid ventures, off-grid solar pioneers, enterprises focusing on productive use, captive power solutions, the e-mobility sector, investors, fund managers and investment funds. Beyond identifying companies and funders; we developed an understanding of the intricate web of relationships between these entities.

The market assessments laid the framework for the identification of key infrastructure, macro-economic conditions, both physical and digital, political contexts, demographic conditions, and political stability, to create a holistic picture of the environment needed to enable DRE financial aggregation.

Regulations often shape the future of industries, so in our analysis, we explored the regulatory environments, examining the landscape of distributed renewable energy and financial instruments, alongside taxation arrangements. Understanding the enabling environment is crucial for fostering an ecosystem conducive to moving towards financial aggregation readiness in both Uganda and Rwanda.

A comprehensive analysis of the capital markets in East African countries illuminated potential avenues for financial aggregation, providing useful insights for achieving aggregation-readiness and supporting actionable recommendations.

50 interviews with diverse stakeholders, ranging from distributed renewable energy companies of all sizes to investors, policymakers, and independent experts, served as the foundation for our exploration beyond the numbers. This human-centric approach anchored our understanding in the realities faced by those on the ground, revealing challenges that statistics alone may not fully capture.

Key Outcomes:

The data and insights gathered informed near, medium, and long-term projections on the potential market size for financial aggregation in each geography. TFE took these insights and developed an action plan. The plan provides clear recommendations on how to address barriers, some of which we implemented as part of this project.

Implemented recommendations included writing a peer-reviewed white paper on best practices for closing financial aggregation deals, covering open-sourced term sheets for DRE financial aggregation, which can also be downloaded here. We worked on elevating small and missing middle distributed renewable energy companies, providing in-country support to improve on financial reporting and data management systems. The goal is to help the companies mature to a level where they can close financial aggregation deals with investors.

Whether you're a DRE company wanting to learn how your fundraising efforts can benefit from financial aggregation instruments, an investor looking to find new ways of investing into the DRE sector, or just curious about financial innovation, these reports are for you: Access and download the reports here.