The Ikea and the Rockefeller Foundations are committing US$1 billion to a fund to stimulate small-scale green energy generation solutions for 800 million people who currently have no electricity. The donors also hope to attract an additional US$10 billion from international development organizations this year. The aim is to enable poor countries, where green energy is not a priority, part of the international campaign against climate change.
According to the United Nations, roughly 2.8 billion people around the world do not have access to reliable power, but the two foundations predict their input will bring energy to a billion of these over the next decade. The money will fund distributed renewable energy (DRE) represented by small energy sources situated close to the end-users rather than large centrally located power stations. DRE involves solar panels, mills, water sources, and other locally available energy sources that can be used with the appropriate equipment.
Catalytic Fund
Catalytic capital is a market term for unconventional investments that often involve a social component, where the risks are high and the potential profits may take longer to realize. This type of fund is called ‘catalytic’ because the first investments are made by a donor who takes the greatest risks in the hope of winning over other commercial contributors.
“This could be viable as a commercial project; there is a party that is putting US$1 billion in venture capital on the table upfront, and that has the potential to unlock tens of billions of dollars more,” Rockefeller Foundation CEO, Rajiv Shah, was quoted as saying. “We’re not gambling here. We’ve seen it work in India. We know what we need to do to make it a success.”
According to a spokesperson for the Ikea Foundation, the project will have a global impact.
“We will focus on countries in Southeast Asia, East Africa, Sub-Saharan Africa, and Latin America. Think of countries such as Ethiopia, Malawi, Sierra Leone, Rwanda, Uganda, India, Myanmar but also Haiti, Colombia, and Brazil.”
Per Heggenes, the CEO of the Ikea Foundation said in an interview that this project presents a “very big opportunity” to tackle the two biggest crises in developing countries: poverty and climate change.
On the other hand, certain voices have raised questions about the viability of the model.
“This sounds like a very good project, but the devil is in the detail,” says Joyeeta Gupta, Professor of Law and Policy in Water Resources and Environment at the University of Amsterdam. “What will the economic model for energy production and distribution be like? Who will maintain it? My fear is mainly for the role of the commercial parties. The last thing to do to the poorest is to burden them with a loan.”
To stimulate economic growth and prosperity, the solution will have to be affordable, according to the Ikea Foundation.
“Our goal is to lift people out of poverty. The same applies to investing in energy as to infrastructure. You have to think long-term when it comes to cost structures, maintenance, and the benefits to local communities. For us, that is the essence of every project.”
The Ikea Foundation is financed from Ikea’s profits and in recent years has increased its funding for developing countries. The Rockefeller Foundation manages the estate of the late oil magnate, John D. Rockefeller.
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