Rwanda is on a solar trail. Its ambitious energy plan, which was on a backburner for some time, got a vital push with the endorsement of a financial instrument by the Global Innovation Lab for Climate Finance. The Lab will now help Rwanda in the piloting of solar securitisation, which seeks to improve the financial capacities of developers to help them meet local demands.
Rwanda’s solar ambitions are well documented. It wants to bring 300,000 households annually to cover the entire households by 2024. This off-grid solutions, it is estimated, would meet 48% of national energy demand.
There were many imponderables that Rwanda faces in meeting the target. They include lack of capacities with the solar developers, poor bottom lines of the developers, and of course poor sales. Banks and institutions insisted on collaterals for funding, which the developers hardly could produce. Also, concessional finance was not available which has resulted in chipping away a large amount of money as interest payment. The solar securitization and extension of financial instrument are set to change this situation.
The methodology of intervention envisages pooling solar home system loans into tradable asset-backed security as also extending solar developers access to more liquid capital markets. This is expected to improve the financial muscle power of the developers, which can be leveraged to give better deals to the customers to hike the demand for solar home solutions.
The Global Innovation Lab for Climate Finance says that in the first tranche, US$ 9 million will be extended. This will enable the deployment of solar home systems for 175,000 households. Also, loans from the solar home companies will be bundled into a special purpose vehicle (SPV), overseen by the trustee, which will be underwritten, priced, and divided into tranches. There will be two types of securitization. The first tranche will be sold to investors, and the second tranche serving as a subordinated, first loss facility to provide downside protection to the senior tranche.
The instrument can reach US$ 100 million in size in Rwanda alone, targeting 2 million households. Later, this facility will be expanded to other East African countries. The instrument is being developed by both Access to Finance Rwanda and the Development Bank of Rwanda (BRD). Over 51 percent of Rwandan households are electrified. Of that 37 percent connected to the national grid and 14 per cent connected through off-grid systems, mainly solar.
