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January 23, 2012

The $80 Billion Clean Energy Access Opportunity

Clean Energy Remittances
Last month the Durban climate talks established the Green Fund which is billed as the world’s premier source of clean energy finance – once it gets up and running. The problem is innovative entrepreneurs who are trying to deliver on the United Nation’s Sustainable Energy For All goals needed financing yesterday.

Social entrepreneurs are doing amazing work providing energy services to the poor but financing for this segment is incredibly tough to come by. Which is why, much like the Green Fund, delivering energy access for the poor could benefit from innovative sources of finance. Enter Arc Finance, which is pursuing an innovative source with tremendous potential – harnessing the billions of dollars in remittance flows sent each year by immigrants living in developed countries to their relatives in less developed countries.

In a must-read paper, Arc Finance lays out the gargantuan opportunity remittance flows present. Globally they increased 6% to reach $325 billion in 2011. Of that total 10% to 25% were used for household energy purchases in markets they surveyed. If these numbers held true across the global market a clean energy access finance opportunity of $32.5 - $81.25 billion annually exists.

To put that in perspective the Green Fund is supposed to reach $100 billion by 2020 (though its currently empty) and the entire clean energy market was only $260 billion in 2011. If even 1% of that market opportunity were tapped the world could add $3 to $8 billion annually to clean energy access coffers. This would be roughly the size of a World Bank energy portfolio, but dedicated entirely to clean energy access and not costly grid extensions. Most importantly, it would go to those households that need it most.

Combined with rapid innovation in energy service delivery at the bottom of the pyramid it is entirely possible to harness these flows. Mobile banking systems for example enable remittances to be sent directly from a mobile phone anywhere in the world, to one in rural India. Taken one step further - by connecting a mobile phone enabled remittance flow to a pay-as-you-go clean energy system – mobile banking lays the foundation for a truly revolutionary stream of clean energy financing. The best part is these systems exist today.

India’s Leapfrog Opportunity

Nowhere is the opportunity larger than India. In 2010 the subcontinent received an estimated $55 billion in remittance flows. It also just so happens to be home to the largest number of energy poor households in the world, near universal cell phone penetration, and tremendous innovation in energy service delivery for the poor.

In short, India has all the ingredients for success, it just requires a vision that is not limited by the aid trap (that clean energy is too costly for the poor to pay for themselves) or the grid fallacy (that costly grid extensions are the only way to deliver energy for the poor). The global community can continue to talk the talk on energy access or we can put our money and effort where our mouth is. 2012 is the year to make clean energy access happen, innovative sources of financing like harnessing remittance flows are the way to make it happen.

-- Justin Guay, Sierra Club International Program

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