Background
The global UN initiative on Sustainable Energy for All (SE4All) promotes action from all sectors of society in support of three interlinked objectives to be achieved by 2030: providing universal access to modern energy services; doubling the global rate of improvement in energy efficiency; and doubling the share of renewable energy in the global energy mix. Making sustainable energy for all a reality and de-carbonising the world economy in time to avoid unmanageable climate change will require a radical transformation of today’s energy systems. The need to rapidly transition to more sustainable energy sources is clear. However, there remain major barriers to scaling up renewable energy, particularly in developing countries. Attracting private capital is one of the challenges since energy investors are concerned about the risks associated with capital-intensive and long-term investments in developing economies. Utilities and electricity supply-chain actors tend to shy away from unproven technologies or businesses perceived to carry an above-average degree of risk. A key challenge for policymakers is to create the conditions to make renewable energy attractive to investors without jeopardizing the attainment of other equally important development goals or placing an inequitable share of the cost burden on ratepayers (UNDP-GEF Transforming On-Grid Renewable Energy Markets, 2012).
Investment in renewable energy projects often requires to be supported with financial incentives, at least initially, because such projects are not only typically more investment-intensive in terms of upfront costs, but they are also, in some cases, considered to be riskier investments due to technology or resource uncertainties. The degree to which cost and risk factors apply varies according to technology and geographical location and project developers expect some form of financial support/risk-sharing to compensate them for taking on additional financial risks due to, as in the case of Lesotho, the absence of a working business model that can be emulated. There needs to be a policy and regulatory framework developed for private sector participation in energy service delivery for off-grid services. Such a mechanism would open the way for sustainable project development financing for rural electrification and a sustainable operating subsidy mechanism for off-grid services that draws on the current cross-subsidy already established for on-grid services.
Duties and Responsibilities
Under the overall supervision of the Project Manager, the Financial Engineering Expert will:
Review the project document and request for the Chief Technical Advisor (CTA) and Project Manager’s endorsement in detail in order to fully understand the overall project design and the rationale and expected role of the FSS.
Meet with Lesotho Electricity and Water Authority (LEWA), the Department of Energy, potential project developers and other key stakeholders during a brief in-country mission to understand how similar funds in Lesotho are currently managed, in particular the Universal Access Fund, and to discuss the proposed design of the FSS.
Assess the idea (as per the project document) that LEWA should host and manage the Financial Support Scheme (FSS) fund, taking into consideration the latest developments in the energy sector. Recommend relevant institution to host the FSS.
Identify potential donors for the additional capitalisation of the FSS. One of the project’s targets is that $5 million has been invested in the FSS by project end.
Based on the desk review and stakeholder consultations, and taking into account the experience with similar financial mechanisms in other GEF projects, design the FSS in line with the three elements outlined above, namely:
A performance-based incentive for project developers based upon the actual energy produced;
Support for the preparation of feasibility studies/business plans and partial investment for isolated RE-based mini-grids;
Support for the establishment of 10 Energy Centres, each serving about 5 villages.
Draft a Memorandum of Understanding between UNDP and the FSS host defining how the project will work.
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