Why impact-driven financing is essential in climate action

As COP27 approaches, we highlight the importance of innovative finance in driving lasting climate action for vulnerable communities.

Impact-driven finance is a crucial strategic approach within the five-year BRILHO programme (2019-2024), which will bring clean energy to millions of people in Mozambique.

Communities in this south-east African nation are already feeling the extreme impacts of the climate crisis. Flooding and drought are commonplace, and a series of devastating cyclones in 2019 caused catastrophic damage in the central and northern regions of the country.

Mozambique is one of the world’s least developed countries, and the lack of access to electricity hinders its progress. Only around 40% of the population has access to electricity, and more than 20 million people rely on inefficient, high-carbon sources of heat and power.

BRILHO – the Portuguese word for ‘bright’ - is catalysing Mozambique’s renewable energy market, including  Improved Cooking Solutions, Solar Home Systems and Green Minigrids to provide clean and affordable energy to the country’s off-grid population and businesses. The programme plans to open up energy access for about 2 million people.

Cleaner energy that tackles deforestation

Javier Ayala is programme manager for BRILHO. He explains the huge opportunity that BRILHO has set out to harness:

'In a typical household in Mozambique, food is cooked on three stones or other inefficient wood or charcoal-fuelled stoves, and the only source of light is from kerosene lamps, candles or torches powered by disposable batteries. People often travel for miles to buy these products and charge their mobile phones.'

'The charcoal industry is huge in this country and is the cause of massive deforestation. Burning biomass not only causes CO2 emissions and smoke pollution that dramatically affects the health of mainly women and children, but it is also extremely energy inefficient. Similarly, the use of non-renewable electrification generates considerable impacts on the environment and the household’s economy. Helping people to access clean, affordable energy improves their daily lives and brings them significant savings and income generation opportunities – they no longer need to buy disposable batteries and significantly reduces or eliminates the need for biomass for cooking .'

The importance of innovative, impact-driven finance

The key to unlocking new clean energy sources is incentivising and supporting energy providers to invest in Mozambique. The BRILHO programme de-risks entry into the market through structured non-reimbursable funding and co-investment.

In the two years since the programme launched its support to selected business initiatives, the number of energy providers active in Mozambique has increased from four to 24, establishing a footprint in every province across the country.

Javier explains further: 'To develop an inclusive and viable market, it is central to ensure that these energy solutions are affordable and sustainable in the long term. Once a home has a solar energy system installed, that’s not the end of the story; instead, it is only the beginning since each customer will be engaged in a PayGo payment schedule and will need a reliable warranty and after-sales support for the years to come. Development funding alone is not enough to achieve universal access to energy, and therefore the key is to leverage the private sector’s capacity to invest in these business initiatives. With this programme, every euro we invest is, on average, matched with about three euros contributed by our private sector partners.'

Furthermore, Javier recognises that to improve the affordability of these solutions, the supported business initiatives are innovating by mobilising carbon credits financing, helping to inject new funding sources from other global locations.

Role of policy frameworks

A further element in ensuring scale and sustainability for the future of the off-grid energy market is to work closely with the government to create an enabling environment through clear regulations and incentives. 'Any new entrant to the market wants clarity around the rules of the game to secure the required private debt and equity investments.'

BRILHO has worked with the Mozambique government to create this enabling environment. The President and his cabinet approved in 2021 a decree which regulates access to energy in off-grid areas in Mozambique, following extensive support from the programme team.

A further focus is on educating the people of Mozambique about the practical benefits of solar energy and alternative cooking methods. A major awareness campaign is now underway across TV, radio and social media to engage local people around the cost savings, health benefits and productive use of energy opportunities available from accessing solar electrification and improved cooking solutions.

Positive progress at the halfway point

Since its launch in 2019, BRILHO has already connected 875,000 Mozambicans with solar home systems and improved cooking solutions, saving more than 175,000 tonnes of CO2 in the process.

Javier commented: 'Despite the initial concerns around the purchasing power of households and the potential operational challenges, we have been positively surprised with the attained market growth rate and sector development in the last two years. The 2022 GOGLA report indicates that Mozambique has one of the highest 2019-2021 growth rates for off-grid solar electrification. We are confident that off-grid energy, mobilising impact-driven finance, will be essential to contributing to reducing climate change impacts and achieving the so-desired universal access to energy in Mozambique by 2030.'