Energy for Peace: A Blended Finance Model for Renewable Energy in Off-Grid Communities

The Energy for Peace (E4P) Global Development Alliance (GDA)—a collaboration among the companies ISA, Ecopetrol, SUNCOLOMBIA (SUNCO) and the U.S. Agency for International Development (USAID) Colombia Mission—demonstrates the vital role blended finance can play in catalyzing private sector investment to deliver clean energy to hard-to-reach off grid communities that are critical for peace and development.

E4P was established in response to a complex and challenging scenario. Years of conflict have resulted in significant underinvestment, depressing income potential and hindering productive capacity. Many rural communities in Colombia continue to grapple with the absence of a dependable, cost-effective, and environmentally sustainable source of energy. Public agencies have struggled in this environment to ensure energy access, and the financial sustainability of donated energy projects has been weak. Meanwhile, the private sector has been deterred by high costs and risks and consumers’ limited ability to pay for services.

The E4P activity co-created a comprehensive strategy to catalyze private investors and experienced energy operators for long term sustainability. The implementing Alliance, which includes some of Colombia's strongest energy suppliers and operators, has developed an innovative blended finance model to implement renewable energy projects that may otherwise continue without power. Together, they aim to accelerate the transition to renewable energy and the mitigation of greenhouse gas (GHG) emissions in conflict-affected communities, progressing significantly towards the implementation of Colombia’s Peace Accords.

The success of this strategy stems from several core tenets:

• Access to energy is necessary to boost productivity and quality, but technical assistance is necessary to foster a virtuous cycle of strengthened markets, increased demand, and enhanced willingness to pay, which are critical for the long-term sustainability of energy investments.
• Donors can play a vital role by facilitating stakeholder consultations, consolidating community relationships, supporting technical and financial pre-feasibility studies, and leveraging private investment into high cost/high risk energy projects that would otherwise be financially unsustainable.
• Private sector investment, expertise, and operation of renewable energy solutions can improve the quality, reliability, and financial sustainability of energy solutions for small rural communities.
• Economic viability and sustainability can be achieved through the strategic use of catalytic capital, ensuring access to public incentives, and applying economies of scale through a portfolio approach: aggregation of multiple communities, standardization of technologies, and targeting technical assistance to promote stronger demand, better prices for goods and services, and increased incomes.

In the next five years, the E4P alliance in Colombia is expected to provide sustainable electricity for nearly 8,000 people and six producer clusters in conflict-affected communities, reducing GHG emissions and creating an estimated $6 million increase from increased sales of goods and services. The purpose of this learning report is to inform development professionals that may be interested in building on the E4P blended finance model for any type of development activity focused on leveraging private sector investment. It details the innovative design process spearheaded by USAID Colombia and highlights the critical components driving the model's success. This experience showcases to energy companies, public agencies, investors, community leaders and donors the transformative potential that can occur when donors leverage private investment towards common development goals.