Results-based financing for Pico Solar

SNV has become a partner of the Alliance for Rural Electrification. SNV's Maarten Kleijn, Junior Professional working in Tanzania, published the story below in the ARE newsletter, showcasing work conducted on results-based financing in the Pico Solar sector.

‘Previously, I would walk to a relative’s house that is connected to the national grid, to charge my cell phone. Now that I have my own solar system, I charge my phone at home and no longer have to feel ashamed of being the head of an underdeveloped household’, says a farmer in Misungwi, Tanzania.

Through SNV’s recently launched Results-Based Financing (RBF) for Pico-Solar project, many off-grid households like these, in rural areas of Tanzania’s Lake Zone, will get the chance to benefit from clean, safe and affordable lighting and phone charging through linkages with suppliers and retailers of quality ‘pico-solar’ products. These pico-solar products range from solar lanterns, to powerful solar lights that can charge phones and radios to small solar home systems, with panels ranging from less than 1 to around 10 Watt peak.

This unique project, as financed through Energising Development (EnDev), which is managed by GIZ and funded by DFID, works by creating a temporary post-financing product within mainstream banking to players in the solar sector. The monies available to import-suppliers come in the form a sales incentive that can only be claimed for payment after the sales of approved solar product are verified. The value of the sales incentive is determined by the energy service that the product provides (brightness and runtime). Half of the incentive value is awarded to the retailer in the form of a bonus product that will help grow their business, while the supplier earns the remaining value of the incentive as cash.

The total amount all of the incentives are managed as a competitive RBF Fund valued at €1 million. These funds are hosted by the Tanzania Investment Development Bank through which the financial incentives are transacted. SNV’s main role in this project is to broker relations among actors that ensure fair, transparent and verifiable financial transactions throughout management of the fund.

Although the RBF Fund has only opened its first round of applications to the private sector in February 2014, significant progress has been made in bringing unique financial products to the market. It is now considered to be the first operational RBF Fund under the EnDev global programme in Africa.

Since the opening of the fund in May 2014 to qualified and claimable sales, four out of five suppliers that have been competitively selected to participate in the RBF, have started operations in Tanzania’s Lake Zone with serious investments. Each supplier has applied a unique distribution model and used the opportunity of the RBF Fund to independently leverage for additional commercial pre-financing.  Three have expanded their operations to start new office operations in the Lake Zone.

In the process, they have trained and employed more than 50 persons in creating new work opportunities while realising the sales of quality pico-solar products – providing the benefits of clean and affordable lighting to more than 10,000 rural Tanzanians. As a result, more than €80,000 have been verified as claimable for direct payment to the private sector.

RBF is proving to be a powerful tool for supporting the private sector in increasing rural access to renewable energy technologies.