Financing Energy Access in Fragile Contexts: Reflections from a P-REC Project

Over the past 3 months, my team has been focusing on a renewable energy certificate mechanism called Peace Renewable Energy Certificate (P-REC) intended to support financing off-grid renewable energy projects in fragile and energy-poor settings. We have been questioning how to calculate the climate benefit of a renewable energy certificate to define the value proposition of this instrument, and therefore, attract developers to register their solar project, and buyers to use this instrument as support for their value chain decarbonization efforts. At the beginning of this Practicum, I assumed the hardest part of this project would be the technical aspects, such as understanding renewable generation, emissions factors, and spreadsheet calculations. Indeed, the technical side was incredibly challenging, however, what surprised me most was how quickly a seemingly simple question of “what is the climate value of this certificate?” opened into much harder questions about buyer claims, incentives, results credibility, and evidence. I am also aware that the most important lesson was that sustainable finance is often a problem of credibility and market design.

During the research, I learned that financing climate solutions is not only about moving capital, but also about reducing the risks that prevent capital from flowing to a project. According to Schmidt (2014), low-carbon investments, especially in developing countries, face multiple layers of policy, market, and technology risk. Working on this project made me realize that this insight is very tangible. Mini-grids can deliver real social value, but they often operate in conditions where the demand is uncertain, customers are price-sensitive, and project developers face high transaction costs. Another study by Bhattacharyya and Palit (2016) similarly shows that off-grid electrification succeeds not just because the technology works, but, most importantly, because of the supporting environment, including enabling policies, institutions, and business conditions. These studies led me to the insight that a financial instrument is only as effective as the ecosystem that enables developers and buyers to trust it.

A second lesson came from working on avoided-emissions estimates. Learning the greenhouse gas accounting course alone apparently did not make me fully realize how difficult it is to quantify the counterfactual in off-grid communities until I worked on this part of the project. A mini-grid may displace diesel generators, kerosene lamps, candles, or some combination of fuels, but it may also meet new demand that did not previously exist. That distinction matters because it dramatically changes the emissions impact, as shown in both the literature and my own calculations. This again exposes me to the new fact that the climate impact of voluntary renewable energy certificates depends heavily on design choices and market context, and that not all certificate purchases translate into real-world emission reductions (Langer et al., 2024). That finding made me more cautious and, honestly, more intellectually humble. I learned that climate benefit claims for an instrument require transparent assumptions and a willingness to acknowledge when the data do not support a precise number, since the claims actually involve significant uncertainty.

The most difficult part of the project was bringing all the theory to life by ensuring practical usability. My team was not writing an academic paper; instead, we were building tools that a non-technical user could easily use. I questioned a lot of things, such as how much detail should be exposed to the user? How many assumptions should be pre-filled? Is this tool easy to understand? I found these questions frustrating because they required me to go back and forth to refine the tools, but they were also among the most realistic parts of the practicum. I finally feel that in the real world, a model that is theoretically perfect but difficult to use may be less valuable than a simpler framework that is transparent, useful for decision-making, and honest about limitations.

Overall, working on this project made me more attentive to the additionality aspect of climate-related projects, to transparency in disclosure, and to the challenge of translating complex climate logic into tools that investors and developers can actually use. On the other side, even though this project is more about avoided emissions calculation and less about finance and investment, my key takeaway is that innovation is highly needed in the realm of climate finance, like how our client thinks of monetizing the climate benefit or the emission reduction impact of a renewable energy certificate to direct climate finance. Another aspect I will take from this experience is that sustainable or climate finance is not persuasive because it uses the language of impact, but because it can prove, as clearly and honestly as possible, how impact is created.

References

Bhattacharyya, S. C., & Palit, D. (2016). Mini-grid based off-grid electrification to enhance electricity access in developing countries: What policies may be required? Energy Policy, 94, 166–178. https://doi.org/10.1016/j.enpol.2016.04.010

Kölbel, J. F., Heeb, F., Paetzold, F., & Busch, T. (2020). Can sustainable investing save the world? Reviewing the mechanisms of investor impact. Organization & Environment, 33(4), 554–574. https://doi.org/10.1177/1086026620919202

Langer, L., Brander, M., Lloyd, S. M., Keles, D., Matthews, H. D., & Bjørn, A. (2024). Does the purchase of voluntary renewable energy certificates lead to emission reductions? A review of studies quantifying the impact. Journal of Cleaner Production, 478, 143791. https://doi.org/10.1016/j.jclepro.2024.143791

Schmidt, T. S. (2014). Low-carbon investment risks and de-risking. Nature Climate Change, 4(4), 237–239. https://doi.org/10.1038/nclimate2112

AI Disclosure

I used the Grammarly app (https://www.grammarly.com/) to check grammar mistakes and refine the grammar of my writing.