An innovative financial mechanism was used to trigger solar market development in remote, underserved parts of Tanzania.
Using a Results Based Finance (RBF) approach, market barriers and market entry costs for suppliers of pico-solar products and services were reduced, increased the willingness of suppliers to invest in remote regions of the project area.
Energy access in Tazania
Worldwide, 840 million people live without access to electricity. Meeting Sustainable Development Goal 7 – access to affordable, reliable, sustainable and modern energy for all – is therefore, a long way off in many parts of the world. Tanzania is no exception to this. By 2016, only 33% of Tanzanians were connected to electricity, and in rural areas, this figure was as low as 17%.
While national government efforts are ongoing to reach country-wide electrification, large parts of the country will likely remain off-grid for the foreseeable future. Providing a clean energy supply to those in hard-to-reach rural areas required innovative solutions. Private sector involvement can play an important role in this, but many companies consider supplying energy to poor rural households as high risk and are reluctant to invest.
Results-based financing for off-grid solar market
Under the SNV project “Results-based Financing for Off-grid Solar Market Development in Tanzania”, an RBF fund offers temporary financial incentives to selected suppliers and their retailers for verified sales of small-scale solar energy systems to rural and off-grid households. The financial incentive consists of non-reimbursable grants to cover part of the initial investment needed for companies to start engaging in these challenging markets.
The programme’s objective was to improve market access to and use of quality pico solar devices for rural and off-grid households. Employing the use of efficient LED lighting and compact solar photovoltaic panels, pico-solar products can power a wide range of small and portable applications with just a few watts of electricity.
The following case study describes how this project has contributed to kickstarting the off-grid solar sector in Tanzania changing the solar market beyond and creating a market that continues to expand, even beyond the lifetime of the RBF fund. To learn more about this example of systems change in Tanzania see the following case study - Igniting markets for solar energy in Tanzania.