A blended finance model to enable hospitals’ access to reliable electricity
- Progress stage
- Sep 2023 to May 2024
Crown Agents proposes a blended finance model to facilitate scalable and sustainable financing of public health facility electrification in sub-Saharan Africa, by mitigating market risks associated with the ability and willingness of governments to pay for electrification. Crown Agents and its partner Bamboo Capital will pilot this new model, "Sustainable Electrification of Public Services", with the subsequent goal of convincing donors and investors that it can generate sustainable and guaranteed revenue streams for energy service providers.
Project deployed by:
In Sub-Saharan Africa, it is estimated that at least 100,000 health facilities are forced to operate without access to reliable electricity (Rokicki, S. et al (2021)), and a recent EU study estimates that about 55,000 facilities have no access to electricity at all (Moner-Girona, M. et al (2021)). Most of these facilities are government-run primary health care facilities, which are the first line of health care for more than 280 million people (Moner-Girona, M. et al (2021)) and, especially, for women and children under five years.
While the market for distributed renewable energy is booming in Africa (Wood Mackenzie (2022)), the electrification of health facilities, especially those run by the government, is far behind other sectors. One of the main barriers to growth in this sector is the lack of viable business models. The majority of public health facilities remain unelectrified because of governments’ inability to afford the full cost of electricity. As a result, these governments tend to be viewed as unreliable payers. Without some form of subsidy, and some kind of guarantee that viability gap funding will be available to make future payments to energy service providers, the latter will not be able to raise capital to fund the installation, operation and maintenance costs to operate their systems.
Crown Agents and Bamboo Capital’s solution has the potential to overcome the limitations of other existing solutions to electrify health facilities. Donor funds would be used to cover the viability gap (between what the government can afford to pay and the full cost of electricity for each facility) through the creation of a public infrastructure electricity account. This would allow the government to contract directly with energy service providers while isolating funds to pay for electricity via this co-managed account designed to meet donor standards for fiscal responsibility. Unlike alternative solutions, this model would not rely on the ability of individual health facilities to generate revenue to pay for electricity nor on governments to fully fund electrification of health facilities, but rather on the assumption that future provision of power to health facilities will be part of the government’s delivery of public health services.
FID’s funding will mainly cover the simulation of a loan to the winning energy service provider, using the grant funds to make regular payments to the energy service provider over a set period of time in order to electrify 5 hospitals and test the proposed financing model so that larger funds take on such public utilities if this model is deemed successful.
Projects funded by FID