The UK’s International Climate Finance

Submission by GOGLA

We are grateful for the opportunity to submit evidence to the International Development Committee’s inquiry into the UK’s International Climate Finance (ICF). As the voice of the off-grid solar industry, GOGLA represents 200 members who are responding to the global challenge of providing universal access to energy via clean, solar solutions such as solar energy kits, communications, irrigation and cooling systems. Through a range of mechanisms, the UK Government has been a critical contributor to the growth of the off-grid solar industry which now serves over half a billion people, reducing CO2e, driving climate resilience and enhancing green growth.

Our submission will respond to two of the Committee’s questions: 

• How should the UK’s ICF be spread between, mitigation, adaptation and loss and damage spend to respond to climate change most efficiently?
• Is the UK using the right and most effective financial instruments to deliver ICF?
• What opportunities and risks do alternative funding instruments, such as private or blended finance, pose for the UK’s ICF?

How should the UK’s ICF be spread between, mitigation, adaptation and loss and damage spend to respond to climate change most efficiently?

While we cannot provide a comprehensive allocation formula across all climate solutions, our expertise in off-grid solar demonstrates that prioritizing multi-benefit solutions should be a key principle in determining ICF allocation. Given the current gap in adaptation funding and the evidence that vulnerable communities are experiencing climate impacts now, adaptation funding should be significantly increased, with preference for solutions that also deliver mitigation and loss and damage benefits. This perspective is informed by our experience with off-grid solar, which illustrates how strategic investments can address multiple climate objectives simultaneously.

Off-grid solar a double-win for people and climate

There is a direct correlation between energy poverty and climate vulnerability. 685 million people lack electricity, with 64% in fragile, conflict-affected, and vulnerable settings. These are the communities that have contributed least to climate change yet face its harshest impacts. Without electricity for irrigation, cooling, communications, or refrigeration, they lack the tools they need to combat the droughts, floods, storms, and climate disasters they face.

Source: Powering Climate Adaptation and Justice. 2023. Acumen, Ashden, Efficiency for Access, IKEA Foundation and GOGLA.

Source: Powering Climate Adaptation and Justice. 2023. Acumen, Ashden, Efficiency for Access, IKEA Foundation and GOGLA.

Resilience and Adaptation

Off-grid solar technologies provide the least-cost solution to power 400 million unelectrified people, 1.87 million schools and 146,000 healthcare facilities by 2030.[1] These solutions are enhancing climate resilience by enabling green jobs and growth, powering critical infrastructure, early warning systems and disaster response, enabling climate-smart knowledge transfer and boosting agricultural production and food security. For example:

• Unlocking Climate Resilient Livelihoods: The off-grid solar industry is supporting tens of thousands of green jobs and powering more than 11 million MSMEs.[2] To date, the industry has enabled more than $22 billions in savings and new income for families and business owners.[3]
• Combatting Drought and Enhancing Food Security: 88% of solar water pump users experience increased productivity, 60% expand cultivated areas, and 88% report increased income, while solar refrigeration units and walk in cold rooms are helping to combat food loss, which is as high as 37% in rural Africa.[4]
• Enabling Access to Clean Water and Sanitation: Solar water pumps are profiled in UNICEF’s ‘Re-imagining WASH: Water Security for All’ research as a critical tool for achieving climate-resilient WASH services.[5]
• Providing Critical Health Infrastructure: Gavi has delivered more than 40,000 solar direct drive (SDD) fridges to 36 African countries. The Head of the organisation’s Health Systems and Immunisations Strengthening team credited the off-grid equipment for achieving a 25% jump in child vaccination rates in Africa between 2010 and 2020.[6]
• Disaster response and planning: Off-grid solar provides resilient power for early warning and emergency communications, as well as medical cold storage, and aid coordination when the grid fails—for example, after Cyclone Idai in Mozambique, solar energy kits were deployed to NGOs to help coordinate relief efforts when the grid stopped operating for several days.[7]
• Off-grid solar enables critical climate adaptation knowledge transfer by powering communications that deliver health, business continuity and agricultural guidance—for example, off-grid pioneer Sun Culture analyzes solar water pump data and weather patterns to send SMS advisories that help farmers to improve yields.[8]

The communities that need off-grid solar solutions are already experiencing loss and damage directly from climate change. Among families benefiting from distributed renewable energy (off-grid solar and mini-grids), 82% report experiencing climate shocks in the last two years and 42% report experiencing more than one climate shock.[9]

Figure 3: Off-grid solar-powering adaptation

Source: Powering Climate Adaptation and Justice. 2023. Acumen, Ashden, Efficiency for Access, IKEA Foundation and GOGLA.

Mitigation and Suppressed Demand

Off-grid solar solutions are also ensuring that those on the front lines of the climate crisis are at the very heart of the clean energy transition. Switching from kerosene lamps to solar has already saved 190 million metric tons of CO2e - equivalent to taking 51 coal fired power plants offline for a year.[10] While most of the emissions avoided to date have come from the avoidance of black carbon or ‘soot’ due to the displacement of kerosene, larger off-grid technologies are now displacing diesel and petrol generators at scale, with even greater emissions reduction potential. 25 million fossil fuel back-up generators were deployed in developing countries in 2016 alone, producing the equivalent power to 700-1000 coal fired power plants.[11]

A sustainable energy access pathway, driven by renewables and off-grid electricity access will ensure that demand for high-carbon fuel is suppressed in countries currently hampered by energy poverty whilst enabling greater energy security, equity and opportunity.

Recommendations:

• Prioritise solutions which meet multiple climate objectives (mitigation, adaptation, loss and damage funding) such as off-grid solar are prioritised, to optimise the efficiency of UK International Climate Finance in reaching climate goals; and
• Recognise the importance of using funding to enhance the resilience of the world’s most vulnerable communities, who are already experiencing the impacts of climate change.

Is the UK using the right and most effective financial instruments to deliver ICF?

The UK is using highly effective financial instruments to deliver ICF in the off-grid solar sector, demonstrating a comprehensive and catalytic approach across the ecosystem. The combination of grant funding, equity investments, blended finance, and technical assistance has successfully supported market creation and helped to scale the industry to serve more than half a billion people around the world. To maintain this effectiveness, the UK should continue this diversified approach in its ICF funding to ensure that holistic systems are supported for priority areas. 

An example from the off-grid industry

The UK Government’s approach to supporting the off-grid solar sector has been wide ranging and highly catalytic. Its grant support, investments and financial instruments have been critical for the rapid growth of the industry. By supporting innovation, industry building blocks, and investment for scale – UK funding has been particularly effective in enabling market creation and early sector maturation.

This support has amplified all areas of the off-grid solar financial ecosystem, as identified by GOGLA in a ‘Financial Vision’ created with development partners, climate and impact investors and off-grid solar companies. The Financial Vision illustrates the interlinking areas of investment ecosystem building needed to develop a sustainable and responsible off-grid solar industry capable of scaling and maintaining access to electricity services for a billion people by 2030 (see Graphic 4).

Investment in these areas concurrently helps to enhance the efficiency of investment and generates greater affordability and satisfaction for customers, more affordable, de-risked capital, more sustainable companies that are able to expand and scale their services to low-income communities and enhanced and extended impacts (see Graphic 5).

Graphic 4: The Off-Grid Solar Financial Vision

Source: The Off-Grid Solar Financial Vision. GOGLA. 2024

Graphic 5: Result of Action, by Financial Vision Area

Source: The Off-Grid Solar Financial Vision. GOGLA. 2024

The UK Government has supported the off-grid solar financial ecosystem through a combination of grant funding, investment, and direct engagement with governments in countries with high energy access deficits. Examples are included in Table 1.

Table 1: Financial Vision Areas and UK Government Activity Examples

Outside of these areas, funding and development of programmes such as Zero Emission Generators (ZE-Gen), designed to displace fossil fuel generators, and Low-Energy Inclusive Appliances (LEIA) which has catalysed the development of low-energy appliances, have proven fundamental to the development of new, high impact technologies. While market development activities deployed via Transforming Energy Access (TEA), Africa Clean Energy (ACE) and through support for market building institutions such as GOGLA, the African Minigrid Developers Association and Global Distributors Collective have helped to lay the foundations of entirely new clean energy industries and services.

Recommendation:

• Ensure that UK ICF is used to support high-impact initiatives holistically, ensuring that funds are used most efficiently and effectively.

What opportunities and risks do alternative funding instruments, such as private or blended finance, pose for the UK’s ICF?

Based on GOGLA's experience in off-grid solar, private finance and blended finance present significant opportunities for the UK's ICF to scale impact and catalyse the impact of public funding. An even deeper focus on how to optimise blended finance and unlock private funding to drive positive outcomes will further increase this impact. Opportunities also exist to align UK activities with other national and international initiatives to leverage greater impact for climate vulnerable communities.

An example from the off-grid industry

The UK Government has been a pioneer in using grants and concessional finance to unlock the impact of the off-grid solar industry. Over the last decade, this has enabled market leaders to grow from organisations serving thousands of customers a year to ones that are serving millions each month. Funding for smaller, often locally led, companies has also led to the development of a vibrant off-grid solar market that is generating jobs and impact in countries around the world. Extending and enhancing private finance, blended finance and other new financial innovations can optimise the use of public funding to achieve reach and impact in the off-grid space.

The provision of blended finance creates a particular opportunity where it is applied to scaling proven business models and mitigating specific risks such as foreign exchange exposure and tenor mismatch. A recent review of blended financing instruments for off-grid solar companies found that blended finance can mobilize $8 worth of private capital for every $1 of public finance.[12]Nithio’s Facility for Adaptation Inclusion and Resilience reported leverage of over 7:1, while Green 4 Access First Loss facility expects to exceed 18:1.

However, on average, the leverage ratio in the industry is currently closer to $2:1.[13]This reflects the fact that many blended finance structures are intentionally deployed in higher-risk markets, to earlier-stage companies, or to reach lower-income and climate-vulnerable customers, where leverage ratios are structurally lower but development and adaptation impacts are higher. As such, leverage alone should not be treated as the primary measure of effectiveness. To more consistently mobilize private capital  through  blended finance in the off-grid space two key areas need to be addressed: (i) the high risk  perception of the industry,  driven by factors such as currency volatility, regulatory uncertainty, and PAYGo receivables risk, and (ii) a lack of sufficiently patient capital with realistic return expectations.

Donors and development financiers, such as the UK Government and BII, have a powerful role to play in helping to address these barriers. The impact of doing so in the next few years will be particularly high. In 2024, the World Bank and African Development Bank launched a major new initiative to unlock energy access – Mission 300 – which has gained the support of governments across Africa. The World Bank expects that almost 50% of the 300 million electricity connections that will be delivered under the programme will be achieved by off-grid solar companies and anticipate that $billions in subsidy investment for off-grid solutions will be rolled out. Supporting the financial industry to engage with and inform the success of M300 will be crucial to achieving its goals and will be transformative for climate- vulnerable communities across the continent.

Donor actions needed to unlock more climate-aligned and commercial finance for off-grid solar via blended finance instruments include:

• Funding NDC and climate-aligned blended finance projects to aid risk sharing and aligning commercial and developmental goals.
• Mobilising greater volumes of concessional capital into blended finance instruments to absorb early losses or provide loss guarantees, further improving risk-return profiles and crowding in commercial capital.
• Supporting blended finance initiatives that direct investment intentionally toward last-mile, fragile, and low-income settings to advance equity and universal access.
• Supporting blended finance mechanisms which are structured to better match the operating realities of OGS businesses e.g., by offering local currency financing, longer tenors and targeted concessional pricing.
• Funding the development of standardized templates, greater data transparency, and development of shared infrastructure like warehousing facilities, which can reduce transaction costs, enabling more investors to enter the market.

Other financing innovations will also be required alongside blended finance support the impact of blended finance structures and provide opportunities to scaling climate impact via off-grid solutions. For example:

• Funding the deployment of subsidies for off-grid solar to address structural gaps where private capital won’t flow, such as in low-income markets or those most vulnerable to climate impacts.
• Working with national governments to share knowledge on the positive impacts of fiscal incentives.
• Exploring how other climate and carbon innovations, such as internationally traded mitigation outcomes, D-RECs (Distributed Renewable Energy Certificate) and debt-swaps for clean energy could be used to support the advancement of energy access via off-grid solar.
• Investing in initiatives to enhance financial innovation within the off-grid space, e.g., securitization and local currency financing instruments.
• Engaging in pilots to provide climate insurance for off-grid companies, investors and customers that de-risk investments, such as those developed by UK non-profit Humanity Insured, and those under review at MIGA, the World Bank Groups Multilateral Investment Guarantee Agency.
• Continuing to support the wider-ecosystem building needed to ensure the long-term sustainability and success of the off-grid solar industry.

Recommendations

• Continue to invest in responsible private sector actors who are achieving powerful climate impacts.
• Ensure that investment strategies continue to take an ecosystem approach.
• Enable funding to be used in a way that best achieves the outcomes intended, even where this requires investments to be more patient and/or concessional.
• Invest in both enhancing and extending blended finance instruments, using lessons gained from early pilots and interventions.
• Invest in piloting of new, bespoke financial innovations appropriate for an era where climate mitigation and adaptation finance must act rapidly to address the urgency of the climate challenge
• Lean into other UK-wide and international initiatives, such as Mission 300, to enhance the value that can be gained through UK ICF funding.

We thank the Committee for the time taken to read this submission and are available to answer any questions, or to share further details in future consultations or convenings.

About GOGLA

GOGLA is the global association for the off-grid solar energy industry, representing over 200 members working to transform lives through clean, affordable, and high-quality solar products and services. More than 560 million climate-vulnerable people already benefit from off-grid solar to power their homes, farms, enterprises and public infrastructure. With the right support, our industry is poised to scale rapidly, aiming to improve the lives of 1 billion people by 2030.

GOGLA drives this progress by serving as a central hub for the sector, offering vital market data, advocating for supportive policies and increased investment, and providing value-added services to our members.

Learn more at gogla.org.