Through an analysis of projected energy finance flows and key financiers’ financing strategies, this paper shows a shift from grant-based climate finance to financial instruments with clear return profiles, such as concessional loans and private capital. It finds that the choice of financial instrument does impact the provision of complementary social services in rural electrification schemes. While grants are associated with higher investments in complementary social services, private financiers are focused on innovation and scale. Electrification projects that are financed purely privately were found to negatively impact social cohesion by increasing the inequality in access to energy.
The authors identify that apart from the financing gap of USD13 billion identified in the national plan as the main roadblock to successful implementation, there exist a whole set of interrelated, mutually reinforcing barriers to successful electrification, such as low institutional capacity, a lack of human capital and technical knowledge, corruption, and a dysfunctional utility. The authors use stakeholder maps and case studies from three rural electrification projects as part of the analysis.
The study concludes that, if only commercially viable energy projects were to be financed going forward, up to 19 million Madagascans might be excluded from future electrification efforts. Thus the paper recommends the need to promote climate finance literacy and the use of multiple electrification pathways. The author provides some examples, such as “grid extensions” through concessional loans, “scalable innovation” using private capital and risk guarantees, or grant-based “social mission” programs. The author suggests that the findings are relevant not only to Madagascar, but to most, if not all, least-developed countries (LDCs) aiming to decarbonize their economies.