30 October 2014: The UN Development Programme’s (UNDP) MDG Carbon has released a Guidance Paper that describes a model approach for financing the development, implementation and operation of a sector-wide programme for renewable energy rural electrification as a nationally appropriate mitigation action (NAMA).

The paper, titled ‘Finance Structure and its Management for a Rural Electrification NAMA,’ aims to facilitate greater access to electricity by rural communities through the provision of climate finance under a NAMA, given that one of the main challenges facing rural communities in developing countries is lack of access to electricity. UNDP Administrator Helen Clark underlined that “no country ever developed without access to energy.”

The paper is based on the recognition that finding solutions that are cost effective is a challenge, as high costs are evident in sparsely populated countries where distances are great and grid extension costs high. It argues that mini-grids are often attractive solutions, with the use of renewable energy to power such grids becoming increasingly popular. However, the paper warns that: such rural electrification projects are not normally “bankable” since the poor in rural areas have limited financial resources; and subsidy programmes are often required to ensure the establishment and viability of these projects. The paper presents a general method for the financing structure of a rural electrification NAMA in light of the diversity of funders and funds.

The Guidance Paper describes a bottom-up approach to using a NAMA to finance renewable energy rural electrification, and provides stakeholders with a Concept Model for Finance (CMF) for renewable energy NAMAs in the energy sector. In addressing NAMA financing and the CMF, it defines an individual renewable energy mini-grid and its boundary as a ‘model venture,’ and focuses on the renewable energy mini-grid.

The CMF aims to facilitate the involvement of multilateral and bilateral financing institutions in the capacity development and financing of renewable energy rural electrification. The objective of the paper is that it will encourage policy makers, regulators and investors to develop and utilize co-financing schemes, which support the establishment of renewable power generation and mini-grids in rural communities and are designed in a country-specific context.

The CMF’s foundation is built upon: venture business models for rural electrification mini-grids; financial flows and management; renewable energy policies and actions; and institutional and sectoral capacity building.

The paper is geared towards policy makers, regulators and implementers, who view the development of rural electrification as a driver for poverty reduction and climate action through income generation and emission reductions.

UNDP MDG-Carbon, launched in 2007, has the objective of harnessing the carbon market’s resources to bring sustainable development to developing countries, and has helped implement low-carbon interventions and leverage significant private-sector co-investments. [Guidance Paper Website] [Publication: Finance Structure and its Management for a Rural Electrification NAMA] [UNDP MDG-Carbon Website]