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Design of results-based financing fund to support off-grid renewable energy projects in Fiji

Convergence awarded a feasibility study grant to the United Nations Industrial Development Organization (UNIDO) as host of the Private Financing Advisory Network (PFAN), to develop a fund to provide results-based financing to private distributed energy service companies (DESCOs), for co-financing and developing off-grid solar projects in Fiji.

Apart from the limited availability of unsustainable and expensive diesel-generated energy, existing electrification efforts in Fiji for remote communities have been largely concentrated on solar home systems, which are challenging to scale and often unable to meet the energy demands of the local communities. Solar mini and micro-grids offer a scalable and sustainable solution, however there are limited off-grid systems in Fiji due to the lack of flexible financing options for DESCOs, which makes it economically unviable for them to undertake projects.

The grant will enable PFAN to explore the feasibility of structuring a mechanism for providing results-based financing and technical assistance to DESCOs. In this structure, DESCOs would contribute their own equity and secure external funding from investors to develop, own, and operate viable projects made up of a combination of solar mini and micro-grids, along with solar home systems. These projects will provide affordable and clean energy access, in some cases first-time energy access, to remote communities in Fiji.

PFAN will design the financing mechanism together with their partner, Fiji Rural Electrification Fund (FREF), which was constituted by the Government of Fiji and mandated with completing the last mile electrification of Fiji’s remote maritime communities. FREF has previously completed a solar mini-grid pilot project in Fiji and will help develop new ownership models for the fund, awarding concessions to DESCOs and helping to administer operations of the fund.

Design question and learning potential for the market: How can a results-based financing vehicle be designed for financing off-grid solar projects in the Pacific?

During the feasibility study, PFAN will design an appropriate financial and tariff structure for the results-based financing fund which would also be aligned with the regulatory framework of Fiji. PFAN will aim to design the fund based on a similar model successfully implemented in Zambia by the Renewable Energy and Energy Efficiency Partnership (REEEP) that together with UNIDO hosts PFAN, and they will adapt the model for the Pacific. PFAN will consider integrating a separate and complimentary technical assistance facility in the fund structure, managed by PFAN themselves, that would aim to support DESCOs in implementing projects and refining their business model. The feasibility study will also look to identify potential project sites that would be the most suitable for developing off-grid solar projects while defining appropriate evaluation criteria for selecting DESCOs that would supported by the fund to implement these projects. PFAN will also reach out to prospective DESCOs and aim to shortlist those that would be qualified to bid for the identified projects.