Using Impact Investing To Address Energy Deficit

Power PixDespite the positive economic news and encouraging trends that have emerged from Ghana over the past decade, the troubling reality remains that the everyday livelihoods of Ghanaians have not kept pace with macro-economic growth, and per capita GDP persistently lag behind the rest of the world.

There is diverse school of thought deeply explaining why the livelihoods of Ghanaians are not keeping pace with the impressing economics figures quoted over the years.

The Venture Capital Trust Fund (VCTF) submits that impact investing can address the stubborn income gap because it is vibrant and robust enough to promote sustained economic growth and generate long-term, viable livelihoods across the country.

The very phrase “impact investing” sounds rapacious, but it is an emerging hybrid of philanthropy and private equity that proponents say is about to become more widespread.

The Global Impact Investing Network (GIIN) defines impact investments as investments made into companies, organisations, and funds with the intention to generate measurable social and environmental impact alongside a financial return. They can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending upon the circumstances.

From the above definition, it could be seen that impact investment has two main effects social and economic. The social effect improves the livelihoods of society and also has positive impact on the environment. The economic returns reward the investor and also sustain the investment.

An investment could improve the livelihood of a society and generate huge financial returns but cannot be considered as impact investing, if that investment is not friendly to the environment.

More often, impact investing is described by what it is not. It does not work in the same way as socially responsible investing, which excludes areas a person does not want to invest in like tobacco or guns through a simple screening process.

Impact investing focuses more on bringing about change helping the working poor in Ghana buy a home, for instance. While most of the money is going into areas like helping to reduce poverty and improving the climate, it is not philanthropy. Investors expect at least a return of their capital with an adjustment for inflation and, in many cases, a lot more than that.

Lessons for impact investing can be drawn from fields such as infrastructure, venture capital, private equity, microfinance, corporate social responsibility and responsible investment.  Ghana as a country has huge potential in impact investing in financial, housing, agriculture, education, energy sector and many more.

Realising the potential for impact investing in Ghana is not a soft proposition. It demands innovative thinking and focused action to build practice and create viable investment vehicles that best suit the local context and opportunities.

Without supply of capital, investments cannot occur; without robust impact driven propositions and organisations, capital will not enter or remain in the field; and without people and structures that facilitate supply and demand coming together, many impact investments simply will not happen.

Power supply is a major requirement for economic growth and development. There is a direct link between electricity use, economic growth and standard of living.

At the same time power supply has serious financial and environmental implications to such an extent that uncontrolled energy consumption will have adverse consequences on the economy and the environment. The best approach to power supply is therefore a combination of supply and demand option that ensures the least economic and environmental impacts, according to Ghana Energy Commission’s strategic national plan, 2006.

Any country that does not take her energy or power sector seriously is actually planning to tow that nation into economic darkness.

For instance, a major, avoidable power crisis in 2006 to 2007 is estimated to have cost the country nearly one per cent in lost growth of gross domestic product during those years. Recently, Ghana once again was plunged into power shortages, which also could have been avoided if lessons from the past had been learned and decisions taken to ensure that adequate dual-fuel generation capacity was built, according to World Bank’s 2013 energy sector report on Ghana.

According to energy expert, John-Peter Amewu, the off-peak demand is about 1800MW and the peak demand is above 2,100MW. The demand for power in Ghana currently is growing at a rate of 10 per cent annually. However, the total installed capacity stands a little bit above 2,400MW.

The Energy Commission, in its 2013 energy outlook, projects  that maximum peak (including suppressed demand) would  be between 1,987-2,556 MW which translates into about 2,500  3,100 MW dependable capacity required. The technically dependable and installed capacity available in 2013 is estimated at 2,267 MW and 2,480MW.

There is a heavy fall in available demand for power due to distribution losses. For instance, ECG alone recorded about 27 per cent distribution losses in the second quarter of 2012, according to the World Bank, 2013. Besides, there is heavy demand for power within the West Africa sub-region. Ghana has the potential to produce power to meet the projected shortfall and also for export.

The fact still remains that government cannot single-handedly foot the cost of power production. Ghana, with its attractive emerging economy, will have to seek for more independent power producers to boost up national power production. The VCTF sees impact investment as alternative power sector finance in Ghana.

The main source of power in Ghana until 1998 has been hydro plants with additions from thermal plants in recent years. Unfortunately, rising cost of petroleum products on the global market cannot sustain thermal production. There is also the potential for energy generation from renewable energy sources such as solar, wind biomass and small hydro to connect communities off grid (World Bank, 2013).

Consequently, the provision of reliable and affordable energy in sustaining the economic growth of Ghana can therefore not be a question for national debate.

•   The article was written by a team of experts from GIMPA Centre for Impact Investing & Venture Capital Trust Fund.           

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