The Rwandan government has injected Rwf40 billion ($46m) into commercial banks and microfinance institutions to boost their capacity to finance off-grid and small-scale renewable energy solutions.
The funding comes at a time when investments in small off-grid energy solutions looked at as key in scaling-up access to electricity have remained low. This is largely blamed on funding constraints and slow returns on investments.
The low investment has put the governments ambitious target of lighting up the entire country by 2024, from the current 42 per cent rate on test, with energy industry players estimating that over six million Rwandans have no access to electricity.
“The funding is aimed at boosting private sector investment in off-grid electrification to achieve government’s power access targets,” said Eric Rutabana, chief executive of Rwanda Development Bank (BRD).
Mr Rutabana said at least 445,000 households will get access to electricity, a 19 per cent increase in connections rate.
BRD will channel the funds to private sector through Bank of Kigali, KCB Rwanda, Access Bank and I&M Bank Rwanda.
The deal is part of the Renewable Energy Fund (REF) project, which is financed by the Scaling-Up Renewable Energy Programme (SREP) — a multi-donor trust fund managed by the World Bank.
Commercial banks and microfinance institutions will loan the money to households and businesses that will invest it in buying basic solar lantern.
The investors in mini-grids that provide higher levels of electricity to both households and small and medium businesses will also tap into the credit facility to scale up electricity access.
The private sector, however, says the off-grid power generation still faces challenges which are holding back investments.
“Off-grind-mini energy generation and transmission is a capital intensive investment yet local investors do not have patience to wait for two years without the project generating revenue,” said Ntare Karitanyi, managing director of Hobuku, a local electricity generating company.
Mr Karitanyi observed that the government should also push for reduction in the cost of building transmission lines from the plant to consumers to protect investor’s capital.
“Electricity generation has been known as traditionally a government business. When you talk of off-grid, it requires a lot of soft landing — cheap financing and subsidies as the demand side of the electricity generated and steady revenue streams are not assured,” said Mr Karitanyi.
On-grid power distribution
Industrial investing in mini-grids costs range between Rwf851,430 ($1000) and Rwf1.3 million ($1500) for each connected consumer, which is about 50 per cent higher than connecting consumers to the national network.
This, he said, explains why on-grid power generation and distribution has been growing faster compared with off-grid. The biggest driver of on-grid power has been government incentives.
The on-grid investors are assured of long-term power purchase contracts and concessions, which last 25 years. On the contrary, the off-grid investors have to build their transmission lines and hunt for clients.
Rwanda’s plan is to have 48 per cent off-grid and 52 on-grid connections by 2024.
However, data from the Rwanda Energy Group, a public utility company, shows that off-grid connections have only reached 11 per cent while on-grid is 32 per cent.