The REACT experience: Renewable Energy and Adaptation to Climate Change Technologies

Under the theme “Delivering on Africa’s Promise”, the 23rd World Economic Forum (WEF) on Africa will provide an important platform for regional and global leaders from business, government and civil society to deepen the continent’s integration agenda and renew commitment to a sustainable path of growth and development.

The Africa Enterprise Challenge Fund challenges private businesses to REACTRenewable Energy and Adaptation to Climate Change Technologies. The REACT funding window calls for businesses to propose and test out innovative models (that would be too risky to execute without grant support) to bring sustainable technologies to rural consumers.

The first two windows have been piloted in East Africa, where roughly 118 million people have no access to electricity. That represents 89% of the population.

Renewable energy business models

REACT has awarded approximately $25 million in grants and interest free loans to 33 businesses. These companies can be grouped in “clusters”, as per the figure below, responding with exciting new business models to some of the most pressing challenges facing the sustainable energy distribution chain for low- income consumers…

REACT

The highlighted challenges:

  • End user financing and affordability
  • Traditional fuel alternatives
  • Rural distribution chains
  • Small IPPs and mini grids.

We’ll explore the innovative business models that have responded to these challenges in the next post, but one interesting thing to note when considering the REACT experience is that the funding competitions have been open, with no requirements beyond a focus on sustainable energy and benefits for low-income, rural communities.

Markets with the most potential

The response from the private sector sends important signals regarding which market areas hold the most potential for profitable private investment. Clusters of business models using pay-as-you-go financing, for example, suggest that this will be a promising market segment to watch going forward.

REACT risk capital support will allow these businesses to go through initial high-risk market testing. Further private sector investment will be needed to take viable models to scale.

Demonstration of market success will bring risk profiles down and open avenues to higher profits and more commercial investment in the low-income sustainable energy sector. However, market challenges will continue and it may be years before the sector can stand fully on its own.

Where public support is needed

In the meantime, it will be important for governments and aid agencies to note the market segments in which the private sector is persistently unwilling or unable to invest. This will provide clues regarding where public support is needed the most, where policies need revision, or where perhaps initiatives should be abandoned completely.

As African markets continue to emerge, it will be increasingly important for the public and private sectors to work together to bring light and other resources to those who need them most.

Watch out for my next article detailing the business models taking up the market challenges presented above…

About Rachel Keeler

Rachel manages impact and innovation matters for the IDAS Africa team. This includes capturing the impact of IDAS programmes, as well as researching best practice, industry innovations and development trends to keep IDAS at the cutting edge of development practice in emerging markets. Rachel has extensive experience in research and analysis of business, finance, investment and private sector-led development in sub-Saharan Africa with a focus on East Africa. She has an academic research background at the graduate level in international political economy and African development. Her analytical and research background also includes international journalism and business analysis. Her skills include quantitative and qualitative research, writing, editing and online publishing. Work experience includes independent consulting for various clients including the International Finance Corporation (IFC), Africa Investor, and the MENA Private Equity Association, as well as stints with the Financial Times and the US State Department, among others.

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