Ikea and Rockefeller foundations commit $1bn to speed up global clean energy transition

Each foundation will donate $500m to support renewable projects in developing countries

A solar grid in India. The Rockefeller Foundation has funded 200 small solar grids to generate power for remote Indian villages. Bloomberg

The Ikea Foundation and the Rockefeller Foundation will each donate $500 million to support distributed renewable energy generation projects in developing nations in a move to kick-start the energy transition globally.

About 2.8 billion people worldwide do not have access to reliable power, according to the UN, but the two philanthropies estimate these funds will bring energy to a billion of them over the next decade.

Further, since the partnership will focus on communities that might rely on fossil fuels for power generation, they expect that the combined gift will reduce emissions by a billion metric tonnes.

“Really nothing has ever been attempted even close to this kind of scale when it comes to bringing renewable energy to the world’s poor,” said Rajiv Shah, president of the Rockefeller Foundation.

The two foundations said their money will be used to “de-risk” the kind of projects private capital has tended to shy away from and will be shared through a new third public charity.

Mr Shah said this will help increase their leverage through private corporations and international development agencies.

The announcement comes as pressure mounts on rich countries to deliver on a decade-old climate finance pledge.

In 2009, wealthy nations promised to mobilise $100bn a year by 2020 to help developing countries to deal with the worst effects of climate change and invest in green technology.

However, a meeting of Group of Seven leaders last week merely repeated a promise to reach the milestone, even though it was supposed to have been achieved last year.

They reached $78.9bn in 2018, far short of the $100bn agreed, according to the latest data from the Organisation for Economic Co-Operation and Development.

The question of who pays to tackle climate change is essential to ramping up efforts to rein in temperatures. Poor countries say they need funding if they are to step up their carbon-cutting ambitions and invest in the technology needed to wean themselves off fossil fuels. The investment divide is particularly stark amid the Covid-19 pandemic, with rich countries investing trillions in recovery while poor nations struggle to recover.

We need to be honest and recognise that the current approach is not delivering the impact the world needs in the time that we have

China has been investing heavily in energy generation in developing nations for well over a decade. In 2019 and 2020 alone, it pumped more than $20bn into energy projects in developing nations, according to The American Enterprise Institute, a Washington think tank.

This included coal projects and renewable projects such as solar, hydroelectric and nuclear, as well as grid investments.

“We need to be honest and recognise that the current approach is not delivering the impact the world needs in the time that we have,” said Per Heggenes, chief executive of the Ikea Foundation. “This is all about acceleration.”

If wealthy nations are to fulfil their $100bn promise, it will likely be through a mix of public funding and private finance, said Jennifer Layke, global director of energy at the World Resources Institute, a non-profit not party to the agreement.

“Some of the persistent challenges with getting markets to change and getting investment to flow into the developing world have remained really sticky problems,” she said.

Philanthropies could play an important role in unsticking the market by supplying seed capital to model projects that demonstrate their viability – exactly what Rockefeller and Ikea partnership was designed to do, she said.

“This is absolutely seed capital,” said Mr Shah. “It is risk capital, so that we can motivate others to provide more commercially oriented investment capital to take these to scale.”

He pointed to India, where Rockefeller spent a decade funding 200 micro-solar grids to serve remote villages.  Once the kinks were worked out, India’s own Tata Power agreed to expand the project to 10,000 grids.

Ikea has made similar investments in the past, but the two hope that by combining forces, they will be able to leverage billions more dollars and move at a new scale.

The partners say they have a roster of shovel-ready projects across India, Africa and Latin America. Rockefeller already signed commitments for development from both the International Finance Corporation, the private sector arm of the World Bank Group, and the US International Development Finance Corporation, America’s development bank.