Posted on :Tuesday , 22nd October 2019
Rwanda's energy ambition received a boost following an endorsement of a financial instrument by the Global Innovation Lab for Climate Finance that will gear up the arrangement of solar home systems.
The institution grants the piloting of solar securitization in Rwanda, which seeks to develop the financial capacities of developers to enable them to expand and meet the demands in the local market.
Rwanda aims to connect 300,000 households annually to off-grid energy solutions if it is to meet the 2024 access target. It is assumed that by 2024, off-grid solutions will contribute up to 48% of national electrification.
The firms have often been constrained due to substantial collateral required by few commercial and concessional funding sources available. However, this is set to change with the financial instrument, solar securitisation. By pooling solar home system loans into tradable asset-backed security and providing solar developers access to more liquid capital markets, the intervention aims at increasing the developers' ability to leverage and allow for a rapid expansion of the solar market.
According to the Global Innovation Lab for Climate Finance, the first issuance will be at US$ 9 million and will enable the deployment of solar home systems for 175,000 households.
Suitable loans from the solar home companies will be pooled into a special purpose vehicle (SPV), overseen by the trustee. Loans will then underwrite, priced, and divided into tranches. The instrument will be split into two tranches, with tranche 1 being sold to investors, and tranche 2 serving as a subordinated, first loss facility to provide downside protection to the senior tranche.
"At scale, the instrument can reach US$ 100 million in size in Rwanda alone, aiming 2 million households, and later be expanded to other East African countries with similar energy access and economic/institutional conditions," the institution said in a statement.
The instrument is under development by both Access to Finance Rwanda, and the Development Bank of Rwanda (BRD).Rwanda was picked as the first market based on the considerable market, institutional influence, high economic growth rate, and a positive regulatory and political environment, the statement said.
Lorenzo Bernasconi, Managing Director, The Rockefeller Foundation, said that financial innovation is crucial in accelerating clean energy access.
"Financial innovation will be important in boosting clean energy access for the hundreds of millions who still lack a reliable source of electricity. The Lab will support to develop and deploy marketable solutions to fill this gap, helping to overcome one of the greatest hurdles to universal energy access," he said.
Executive Director of Climate Policy Initiative, Lab Secretariat Barbara Buchner, noted that such solutions are focused at unlocking investment that can transform the economic reality toward greater sustainability in countries and regions that need it most.
Almost 51% of Rwandan households are connected to electricity, with 37% connected to the national grid and 14% connected through off-grid systems, mainly solar.