We have two broken systems -- energy and finance -- that conspire to support a centralized, coal-based grid that exacerbates climate change and fails to serve the poor in developing countries.
That means 1.3 billion people around the world won't escape the dark (while simultaneously frying the climate) -- unless we disrupt these systems and deploy distributed clean energy.
Three months ago, the Sierra Club worked on a pilot project with SunFunder to promote a potentially disruptive solution: solar crowdfunding for the world's poor. We have a few preliminary lessons we'd like to share about taking it to scale.
Let's start with the good news. In three short months, the clean energy access project is already fully funded. The project raised $15,000 to fund ReadySet Solar Kits from Fenix International for 375 energy entrepreneurs in Uganda who will power mobile phone charging and lighting for up to 19,000 households. SunFunder has also raised $120,000 for eight projects that benefit 28,377 people directly. Not bad for a year's work.
Let's compare that to the World Bank. A 2010 Oil Change International study found that of all fossil fuel projects the World Bank supported, none provided energy access for the poor. The only energy project that actually delivered energy for the poor was a $1.25 million investment in biomass gasifiers that benefited 2,500 people in India (thanks to Husk Power). For those keeping score, that's 28,000 people helped by SunFunder versus 2,500 directly helped by the World Bank.
Not bad on SunFunder's end, but clearly not the scale we're looking for. After engaging SunFunder on this project, and working with off-grid clean energy entrepreneurs demanding $500 million for their sector, we have learned a few lessons that we think have big implications.
Lesson #1: Small is big. There is not a single energy entrepreneur in energy access who is not focused on deploying decentralized clean energy. Talk to entrepreneurs who eat, sleep, breathe this stuff and you'll see they recognized long ago that decentralized, small-scale clean energy is usually always the right tool for the job.
That's why companies like SunFunder that specialize in financing these businesses can outpace entities like the World Bank 10-to-1 when it comes to the number of lives impacted. The best part is that they do it despite having only a fraction of the available capital.
Lesson #2: Small is fast. In the absence of significant resources or media attention, SunFunder was able to raise the money from the crowd in just three months. Ask any entrepreneur who has engaged entities like the World Bank and you'll understand that this is far, far faster than they are capable of. On top of that, entrepreneurs can be turned down at the end of a lengthy process with the World Bank -- meaning they spent time and money for nothing.
Lesson #3: Small is bankable. What companies like SunFunder (and Solar Mosaic, Milaap, Abundance Generation and others) have done is demonstrate that crowdfunders can fill a financing void left by large financial institutions.
They've shown they can reach people where traditional development agencies can't by targeting small-scale entrepreneurs seeking project finance for sub-$100,000 projects. In addition, they can tailor these amounts to previously unbankable projects in incremental amounts. That helps avoid systemic problems by adding energy as needed and circumventing any bubbles created by an over-reliance on a single energy source or enormous investments in unneeded capacity. This also works on the consumer side of the equation, where pay-as-you-go systems are unlocking energy for the poor.
Lesson #4: We are using the wrong yardstick. I've previously written with Carl Pope and Jigar Shah about the pitfalls of using price to determine where and when the poor receive energy. That's because it's energy's presence, not its price, that changes lives.
Although the International Energy Agency has released two reports showing that 70 percent of rural communities worldwide will only be electrified with decentralized clean energy, Very Serious Policymakers are still convinced that the only way to meet the world's energy needs is to pour billions into huge centralized projects. David Roberts describes the thinking pushed by those in this camp like this: "Small is for sissies, and the only solution to energy poverty is expanding and extending the brittle systems of the 20th century to the developing world."
The problem (brittleness aside) is that grid expansion hasn't worked. This leaves poor communities to spend huge portions of their monthly income on dirty kerosene and diesel instead of cheaper, cleaner energy because people want them to wait for the grid to arrive -- a grid that hasn't come for decades and likely won't come for decades more. We need to start measuring energy access in terms of services delivered and human beings impacted in a timeframe that matters: now.
So where to go from here? Already, organizations like the U.K.'s Department for International Development is financing a fund that will support off-grid clean energy, including novel mini-grid approaches like tower power. DFID is also creating a "fund of funds'" through the Commonwealth Development Corporation that can capitalize local financial institutions to invest in clean energy access entrepreneurs. The latter is an excellent example of how an institution like the International Finance Corporation (IFC) could make a big difference in this space.
If a multilateral like the IFC did finally pony up the money, it's clear that crowdfunding-specific products are needed. These could be funds that match money raised from the crowd, or loan guarantees that can help unleash capital for local entrepreneurs at levels that organizations like the IFC can't reach. This marries the nimble ability of crowdfunders to support small-scale projects with the larger pools of capital the development institutions can tap into without forcing them to engage in small scale-projects directly.
Ultimately, we're going to need the big bucks that development institutions and institutional investors can bring to solving this problem. But even if the $500 million clean energy access fund entrepreneurs have been demanding is created, the lessons we've learned will be critical to ensuring impact. Because if there's anything we know for sure, it's that business as usual ensures failure as usual.
Justin Guay leads the Beyond Coal to Clean Energy work for the Sierra Club’s International Climate Program.