Comparison between a solar lamp, above, and a kerosene lamp below

30 April 2012 – Clever finance models are starting to break down the barriers to bringing low cost renewable fuel to people in developing countries, writes Monique Alfris.

dA key reason 2.7 billion people worldwide rely on traditional biomass for cooking and heating and 1.4 billion have no access to electricity is capital constraints.

Many of the simple energy-access solutions offered (solar lanterns and fuel-efficient wood stoves) claim substantial money savings – but also require large up-front investments. And people simply cannot afford them.

This up-front financial barrier is a key focus of the UN this year, during the International Year of Sustainable Energy for All

The UN has been working to promote some of the clever alternative models which have been tried around the world.

Australian entrepreneur Hugh Whalan of Energy in Common is a prime example. Energy in Common provides loans for solar lanterns to poor people in Ghana.

Energy in Common sources funding through its website – asking individuals in the developed world to provide the financing for loans. Once the loan is paid back, the money can be used to purchase a carbon offset generated through the switch from kerosene to solar.

The institution I work for, Good Return promotes a similar model. We partner with microfinance institutions across the Asia Pacific to develop new loan products for sustainable energy.

These loans are justified financially – the money the family would normally have spent on kerosene or firewood is used to pay back the loan.

Some energy companies provide their own financing. Grameen Shakti, arguably one of the most successful energy providers in the developing world, links loans with installation. The installers go back to collect loan repayments, also giving them the opportunity to address any ongoing technical issues.

Other companies have moved on from a loan for products – instead charging for services rendered. Fabio Rosa in Brazil is one example. Rosa’s company operates on a pay-for-service model for solar home systems. He doesn’t believe people should pay up front, or even own their energy systems. “Who buys food for the next 25 years? You buy food for the next week or month. It should be the same with electricity,” Rosa says.

Kamworks in Cambodia uses a similar model for their solar lantern products. When I visited them recently, I was told that some solar lantern users had been operating this way for years – “When the solar lantern breaks, it is in the interest of Kamworks to replace it – otherwise we stop being paid!”

As to the energy companies serving the poorest, what financing alternatives exist for them? Enter Impact Investing – an approach adopted by both Acumen Fund and E+Co Impact Investing is essentially venture capital – but without the short loan periods and required high-return rates. The Acumen Fund even goes as far as to say that it “hopes” to receive money from its investees “one day.”

Finally, there is Micro Energy Credits – who takes the hard work out of carbon credits. If you are a microfinance institution that can sell 12,000 products in a year, they will organise the carbon credits for you – managing all the compliance, verification and sales.

This last example is one of my favourites, in part because it looks at a question I posed in a previous article in the The Fifth Estate – how can we get carbon credits to work for the poorest? And could a solution for the poorest also work for another segmented market for carbon credits we know of well – the property industry?

This post is a contribution to the UN’s International Year of Sustainable Energy for All. Another article in this series appeared in The Fifth Estate here

Find out more at Good Return to connect with individuals in need of loans, to help better manage fiscal and energy poverty. You can catch Monique on Twitter (@moniquealfris) or on her blog