Grant financing has a critical role to play in the development of the clean energy sector in Africa. However, the sector will only reach the scale needed to achieve a real energy transition with follow-on investment. It is therefore vital that grant funds be used to build sustainable companies that provide products and services fit for the market and are able to attract customers and investors.
Based on the EEP Africa portfolio of companies and partners, and the fund’s decade-long experience in the sector, a new report provides some recommendations:
Use grant financing to de-risk the development of commercially viable products and business models:
Developers should use grant financing to find the right fit between product, model and market, and to build their own capacity and networks. A grant should be seen as ‘learning money’ to de-risk the period when companies need to test the viability of their model in order to achieve proof of concept or early scale-up, and attract follow-on investors. Grants also provide companies with the breathing space to identify and address operational weaknesses, and to network and learn from others in the sector.
Allow Developers to pivot in response to grant-enabled learnings or changes in market conditions:
Grant providers should adapt their approach and funding requirements based on analysis of the status and challenges within their respective markets, making locally-informed investment decisions with staff from those same markets. Developers should be empowered to develop a business model that works best for the future growth of their company, and be offered support services that are tailored to their needs. Pivoting is an essential part of business development, and Developers must be given the freedom to adapt their approach as they learn more about their evolving market.
Facilitate efficient, open and continuous communication between Funders and Developers:
The grant selection process should be as short as possible, to minimise the chance of significant changes in a company or market between application and implementation. Once started, there should be open and continuous collaboration between Funders and Developers to enable an effective and timely flow of information on grant-related actions like project modifications or disbursements. Funders can facilitate this by limiting the number of projects managed by each grant manager.
Take a holistic view of success and monitor broader value created by the grant:
Grant financing for the private sector should be aimed at achieving sustainable impact through the development of viable companies and functioning markets. Results monitoring and reporting should take a wider view of success by holistically understanding where value is being created in terms of commercial progression, market stimulation, and grant-enabled learnings.
Foster long-term relationships with grantees:
Relationships with Developers should continue beyond the grant contract period. Development of a commercially viable company in a challenging market takes time, and true impact will not be realised until several years after the grant period. Developers benefit significantly from continued support, such as peer networking opportunities and investment facilitation, that maintains and builds upon the successes realised during their grant project. Funders also benefit from a continued relationship as it allows them to understand longer-term impact on Developers and the market through data collection from past grantees.
Build a more inclusive sector by directing support to local and women-led businesses:
More grant funding should be directed to local companies and Developers that are led by or target women and marginalised groups. In order to reach and support such companies, grant terms and processes must be aligned with the local context. Data collection at all stages of the process should be disaggregated by gender and other relevant sub-categories, and funding can be complimented by mentorship, targeted networking activities and enhanced investment readiness training.
Excerpt of: Generating Success: How Flexible Grant Financing Builds Sustainable Companies, by EEP Africa / NDF, 2022