Funding hamper renewable energy projects

By Daniel Chigundu

THE Renewable Energy Association of Zimbabwe (REAZ) says government should work hard to ensure companies operating in the country’s renewable energy sector have access to cheaper funds.

Funding for capitalisation is expensive in Zimbabwe and those few institutions that are lending are doing so at ridiculously short term rates,  making it unsustainable for business.

Zimbabwe is said to have an abundance of renewable energy resources in the area of solar and hydroelectric energy, wind and biogas, but companies operating in the sector are not able to fully exploit them due to lack of cheaper funds.

Exploitation of these renewable energy sources would go a long way in improving the country’s national electrification rate which according to the forthcoming Renewable Energy Policy 2017 stands at 40 percent.

Electrification in urban areas is reportedly at 80 percent compared to just 21 percent in the rural areas where the majority of Zimbabweans are said to be staying.

Speaking at a “Power for All Call to Action” event, REAZ official Isaiah Nyakusendwa said companies in the area of sustainable energy are finding it hard to access funds due to strict requirements by financing institutions and that government needs to intervene.

“Consumers and companies in the distributed renewable energy (DRE) sectors struggle to access finance, making it harder for consumers to be able to pay for products or services over time, and harder for companies to ensure a sustained supply of products or to scale up.

“Companies are still in an early stage of growth with limited track record and little collateral, leading to a perception of high risk at both firm and market level.

“To help the solar home system market fulfill its potential, there is need for grants and concessional finance schemes that provide loans at interest rates that companies can afford. Companies need long-term, flexible grant, equity and debt funding to enable them to refine their business models, develop track record, and grow,” he said.

Nyakusendwa added that government, donors and aid agencies can end these financial access challenges through provision of challenge funds, first-loss facilities or credit guarantees that help to leverage private capital.

There are currently 26 companies involved in the REAZ, 18 are engaged in the sale and distribution of solar lights or home systems. Others are focused on solar and hydro mini-grid development, as well as biogas and ethanol production.

Owing to the financial challenges being experienced in the country, most finance institutions are skeptical about lending to these small and new companies due to lack of track record and reference points.

New companies are deemed to be too risky by banks and one of the leading financial service providers in the country Barclays Bank is on record saying they will only deal with clients who are traceable as a way of minimising non performing loans.

However, according to Nyakusendwa there is need to build capacity and expertises within the financial sector to more accurately assess risk.

“Local financial institutions need to be de-risked and supported to provide longer term loans, at lower interest rates, with less stringent collateral requirements,” he said.

Power for All’s Calls to Action, taking place in Nigeria, Zimbabwe, and Sierra Leone and at global level over the course of March and April 2017 are an important milestone in the acceleration of distributed renewable energy market growth.

The Calls to Action showcase the first ever recommendations from the newly-established Renewable Energy Industry Association and civil groups. They include a range of commitments, from stakeholders including the governments of each country, to take action in support of DRE market growth in 2017.

They show that the DRE community made up of companies, civil society organisations, investors, aid agencies  and government are united around a shared a vision for how their countries can take advantage of the distributed renewable energy access goals, an committed to working together to create the conditions for accelerated DRE market growth.-

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