Millions of people across Africa have no electricity and it will take many years before electric grids reach all the unconnected households. But faster and cheaper “off-grid” solutions do exist in the form of solar products and mini-grids.
The Government of Rwanda worked with the Climate Investment Funds’ (CIF) Scaling Up Renewable Energy Program (SREP) to engage the private sector in off-grid renewable energy development. With $48.94 million from the program, the government set up the Rwanda Renewable Energy Fund to provide credit lines to support off-grid electrification and create an enabling environment for off-grid solar power. The Rwandan government administered the project through the Rwanda Development Bank with implementation support from the World Bank. The project was launched in 2017.
The practicalities of climate finance
The project created lines of credit in Rwanda’s local currency for banks and other financial institutions to finance off-grid solutions, solar home systems, and mini grids, as well as for solar companies offering these solutions. Local financial institutions are expected to use these lines of credit to finance private solar companies to provide households with off-grid solutions.
A new case study, produced by CIF’s Climate Delivery Initiative (CDI), traces the project’s delivery challenges and highlights the project team’s adaptive management. These challenges, in the Rwandan context, ranged in scope and included issues such as skills and human resource needs, the financial sector’s hesitation to lend to the off-grid sector, affordability to the Rwandan smallholders targeted by the project, and uncertain policy, regulatory, and technical standards for solar home systems.
These challenges slowed initial project progress, with electricity connections and disbursements well below target during the first three years. But in response, the team adjusted various aspects of the project including implementing results-based subsidies, targeting lower-income households, and adopting better suited financial instruments. These adaptive and innovative adjustments saw both electricity connections and disbursements increase as the project progressed.
The case study delves into how the project team at the Rwanda Development Bank worked collaboratively to detect, diagnose, and resolve challenges, in dialogue with the World Bank as the implementing partner.
The project team also maintained close dialogue with companies and financial institutions, which helped the team understand the market, its challenges, what corrective actions were needed, and how to design the right incentives for the right stakeholders.
Affordability for Rwandans
When it became clear that the intended end-users would not be able to afford the solar systems without grant financing, the team introduced subsidies to improve the affordability of solar home systems. The subsidies targeted low-income households, and enabled payments to solar companies for each installation to eligible customers upon verification of system installation and operation.
The changes to the project in response to the delivery challenges are producing positive effects. Disbursements are up and the project is meaningfully engaging the private sector in selling and installing solar home systems as well as working with financial institutions to finance the sector. By November 2021, the project had delivered 340,704 connections to Rwandans who had no access to electricity before.
Invaluable lessons and insights
The case study provides a few insights and lessons. For example, projects to promote private sector participation and foster market development should rely on extensive consultation with market participants and conduct market monitoring. Such projects also require flexible mechanisms to respond to market developments and the concerns of market participants.
The case study is also invaluable in its contribution to CIF’s Climate Delivery Initiative that identifies, studies, records, workshops, and responds to the delivery challenges associated with climate finance programs. These delivery challenges will be cataloged and analyzed and entered into a searchable repository to inform future climate interventions. Read more about CDI here.
Read the full study and summary.