The Nordic Environment Finance Corporation (Nefco) and Sweden (through the Swedish International Development Agency, Sida, and the Swedish Embassy in Zambia) have undertaken an initiative, the Scaling of Clean Cooking Solutions Programme. A detailed scoping exercise was carried out in Zambia, Zimbabwe, Kenya, Mozambique, DRC and Tanzania, looking into ways to test the use of results-based financing and associated finance to incentivise the rollout of innovative, clean cooking solutions at scale. Nefco commissioned Open Capital Advisors (OCA or Open Capital) to support the programme through focused research undertaken between autumn 2020 and summer 2021. This article summarises the findings and lessons learnt from the research.
The journey to cleaner fuels requires funders to shift their focus
There is low access to high quality, Tier 4-5 cookstoves and Tier 3+ briquette/pellet stoves (higher tier cookstoves) across Sub-Saharan Africa (SSA). Within the focus countries, Zimbabwe, Zambia and Kenya have the highest access rates for clean cooking solutions at 30%, 16% and 13% of the population, respectively. On the other hand, DRC, Tanzania, and Mozambique have the lowest access rates at just under 4%, 5.5% and 7% of the population, respectively.
In the countries with high clean cooking solutions penetration, improved cookstoves, typically using traditional fuels, are the main drivers, due to their relatively lower cost compared to Tier 4-5 technologies. While improved cookstoves reduce traditional fuel usage, they do not provide the health and environmental benefits of higher tier cooking solutions. However, prohibitive cost, limited availability of fuels and cultural preferences drive the low penetration of these higher tier technologies. Higher tier stoves are typically in the range USD 60–1,000, and OCA’s theoretical affordability analysis shows that, on average, only 30-40% of consumers across the target countries can afford higher tier technologies on a cash basis. Some countries, such as Kenya, have higher affordability levels, while others, such as the DRC, where over 70% of the population lives below the poverty level, are much lower.
Existing results-based financing (RBF) facilities have focused on transitioning customers from Tier 0-1 to Tier 2-3 cookstoves, but funders may need to shift their focus to incentivise access to Tier 4-5 clean technologies. These higher tier technologies have the most potential to reduce carbon emissions, improve biodiversity, avoid adverse health effects, reduce drudgery of women and girls and improve livelihoods. However, the clean cooking solutions sector is still quite nascent in SSA, and households prefer to use wood and charcoal as they are cheaper and more readily available. Cultural and behavioural factors also contribute to the decision by households to use charcoal and wood fuels. For example, some communities believe that food cooked using charcoal is tastier than that cooked using other fuels. These factors make it difficult to convince households to shift immediately from Tier 0-1 to Tier 4-5 cookstoves (where affordability allows). By supporting consumers to transition gradually to higher quality cookstoves, funders can create awareness of the benefits of cooking with clean fuels. As consumers experience the benefits of cooking with cleaner fuels, they can begin the journey to higher tier technologies.
Existing finance is limited and little of it flows to higher tier stoves
Although investment in the clean cooking sector has gradually increased, it still languishes below the levels required to achieve universal access to clean cooking. According to the International Energy Agency (IEA), USD 4.5 billion annually is required to achieve universal access in SSA and South and Southeast Asia by 2030. In 2018, public and private funders (including carbon finance) invested a total of USD 131.5 million in high-impact countries’ clean cooking sectors. While this was nearly three times the 2017 figure of USD 47.7 million, it represents only ~5% of the annual figure recommended by the IEA.
Sustainable Development Goal 7 targets both clean cooking and electrification, yet funding for clean cooking is dwarfed when compared to electrification. In 2018, USD 16 billion was invested in electrification, whereas only USD 0.13 billion was invested in clean cooking in high-impact countries. The low number of investment-ready players has contributed to limited financing in clean cooking, but this is less of a challenge for the electric cooking appliances market. Progress in electrification can be leveraged to increase clean cooking access through scaling of electric cooking solutions. Electricity consumption can be increased by penetration of electric cooking, which can result in reduced electricity tariffs over time through the realisation of economies of scale.
The clean cooking solutions sector in the target countries is generally limited by insufficient capital to increase access to consumers. Funding has been highly concentrated in a few, more mature clean cooking solutions players typically based in East Africa. For example, BURN Manufacturing, one of the major players, has received over USD 4 million in funding from investors such as Acumen, General Electric, United States Overseas Private Investment Corporation (OPIC, now the DFC) and the Energy and Environment Partnership programme (EEP) as well as an undisclosed amount of carbon finance. However, these players have used the funds secured to develop and supply improved cookstoves stoves; few have ventured into higher Tier 4-5 stoves.
Results-based finance can play a key role in the clean cooking sector
OCA research assessed several aspects of past RBF programmes, including clean cooking solutions technologies and participants targeted, incentive levels, disbursement approaches, and impacts or achievements to date, where available.
Development partners have supported several RBF programmes to increase access to clean cooking solutions technologies in SSA, including the target countries (Zambia, Zimbabwe, Mozambique, Kenya, Tanzania and DRC). However, few have focused on transitioning consumers to Tier 4-5 technologies or providing fuel subsidies. The Global LEAP Awards+ RBF, which focused on increasing access to electric pressure cookers (EPCs) in Kenya, is one of the few programmes specifically focused on Tier 4-5 technologies. Of the programmes reviewed, development partners have implemented nine clean cooking RBFs in SSA, with over 50% adopting a geographical or single-country focus and tailoring their designs to the specific country’s context. Only a few programmes, such as ESMAP Clean Cooking Fund and SDG7 Results Facility, adopted a regional focus. Of the six MCFA target countries, Kenya has received attention from over 50% of the existing RBFs, including both country-specific and regional RBFs.
RBFs have provided varying levels of support to participants, considering local contexts to better support project developers in achieving clean cooking objectives. Most programmes such as the Higher Tier Cookstove Market Acceleration RBF Project have only disbursed funds upon verification of pre-agreed milestones, as is the intention of a ‘pure RBF’. In contrast, programmes such as the Beyond the Grid Fund for Zambia, a pilot programme to the Beyond the Grid Fund for Africa (BGFA), have adopted a ‘softer’, more customised RBF approach, adapting to the realities of the local market. In these RBFs, the release of payments to the energy service providers is more catalytic, considering additional factors such as progress made in raising capital and market realities like the impact of COVID-19 and currency devaluation, as opposed to maintaining strict verification of results. This has allowed donors to continue supporting project owners to achieve clean cooking objectives in tough market conditions.
In addition, various programmes have incorporated additional financing mechanisms alongside the RBF. Some programmes provide working capital facilities to support companies that may need financial support to implement their projects. These working capital facilities are often separate from the RBF and require a separate application. In contrast to the RBF, payment is upfront and not based on results. In other cases, facilities offer a combination of pre-financing and RBF. For example, the BRILHO Market Development Fund (MDF) RBF in Mozambique provides a combination of RBF, additional catalytic grants (milestone-based payments) and accompanying TA to support clean cooking service providers to finance their working capital needs and support market entry activities. Companies can apply to this combination of MDF instruments through one single application. Some programmes, such as BGFA, also offer upfront subsidy disbursements to support market entry and finance activities required to achieve milestones. For example, the Kenya Off-Grid Solar Access Programme (KOSAP) provided upfront incentives of up to 30% ex-ante to support market entry, and in addition to RBF offers up-front access to debt capital.
While most programmes have focused purely on providing incentives to increase the number of stoves sold, there is an opportunity to focus on additional outcomes. Focusing on the number of stoves sold was crucial in the beginning to increase access to improved cookstoves, but RBFs can now start focusing on additional outcomes to ensure that the programmes create a lasting impact. For instance, OCA identified the lack of focus on outcomes such as gender inclusion, fuel usage and health and climate impacts as a gap in existing RBFs. Some upcoming RBFs, such as the Clean Cooking Fund in Rwanda, are taking an outcomes-based financial incentives approach, in addition to stove sales, and are integrating carbon finance. As more RBFs continue to adopt this approach, they are likely to create a lasting impact, especially for women and girls who are responsible for fuel collection and cooking in most SSA households. Finally, in addition to financial incentives, more programmes are providing technical assistance to support participants to achieve pre-agreed milestones.
While historically, RBFs have focused on efficient traditional fuel usage, donors may need to focus more on access to modern cooking technologies as these have the most impact potential. As previously mentioned, the clean cooking solutions sector is still nascent in SSA, and households prefer to use wood and charcoal compared to other fuel technologies, since they are cheaper and readily available. For the sector to achieve long-term sustainability and impact, stakeholders need to make concerted efforts to transition households to modern cooking technologies. These interventions include consumer awareness and behavioural changes, adequate supply to modern cooking solutions and price interventions to make these solutions more affordable to the masses.
Lessons learnt from RBF programmes
Important lessons in the clean cooking sector have been learnt, but these need replication and scaling.
OCA’s research identified six lessons learned from existing RBFs:
- RBF programmes should evaluate market attractiveness and consider complementarity with existing market initiatives in different country contexts. clean cooking solutions products incentivised should be affordable, while fuel prices should be competitive to incumbent fuels, mainly charcoal. There should also be considerable awareness of the available clean cooking solutions options and their benefits to encourage willingness to pay.
- An in-depth understanding of the clean cooking solutions target market ensures that the programme is tailored in terms of technologies incentivised and market actors targeted. This allows RBFs to determine the right type and amount of support to provide to cooking service providers beyond the financial incentives such as technical assistance and capacity building.
- RBF programmes should be designed to overcome systemic challenges. Access to finance is a common challenge facing cooking service providers across most countries in SSA. RBFs should consider options such as providing upfront grants or a separate working capital facility to allow cooking service providers to achieve their targets. For example, cooking service providers can be supported to apply for guarantee facilities supported by Sida, such as the Beyond the Grid Solar Fund LLC and Solar Energy Transformation Fund LLC implemented by SunFunder.
- RBF programmes need to incorporate additional support for smaller companies in the form of technical assistance, upfront subsidies and/or bridge financing. RBFs have predominantly benefitted international companies as they have the capacity to achieve higher targets. RBFs could be instrumental in supporting ‘launch-to-scale’ companies that may not have the resources to grow organically by providing technical support such as business development training to support them to achieve set targets.
- RBFs need to encourage and drive innovations that allow remote monitoring to automate data collection and monitor usage. Data collection in the clean cooking solutions sector is predominantly manual, which increases the complexity of the verification process. Clean cooking solutions companies also receive limited funding from carbon finance schemes, as it is difficult to verify the data, which are mostly collected through sampling. It is also difficult to monitor fuel usage accurately. Encouraging remote monitoring to increase efficiency and accuracy of data collected could inform decisions by stakeholders such as policymakers on the right support to provide to the sector. It could also enhance data accuracy and increase the amount that cooking service providers could attract from carbon finance.
- RBFs can be used to promote the availability and usage of clean cooking solutions products that meet international quality standards. Many SSA markets have underdeveloped policies for clean cooking solutions products, which has led to a proliferation of sub-standard products which do not meet any quality standards and fail to achieve the intended impacts of fuel transition. Hence, RBF can be used to introduce technical standards and improve the quality of stoves in a market.
Written by Ash Sharma, Head of the Beyond the Grid Fund for Africa, and Duda Slawek, Principal at Open Capital