Rwanda Off-grid Sector Status Report 2018

Rwanda Off-grid Sector Status Report 2018

I. Contents II. Infographic Off-grid Solar Sector... iii III. Infographic Mini-grid Sectors... iv 1. Introduction... 1 2. Off-grid Solar Sector... 1 1. Market Overview... 1 2.1 Customer Segmentation... 2 2.2 Business Model and Operations... 2 2.3 Access to Finance... 5 2.5 Policy & Regulatory Framework... 6 2.6 Challenges... 7 3. Mini-grid Sector... 11 3.1 General Market Development... 11 3.3 Customer Segmentation... 12 3.4 Access to Finance... 12 3.5 Policy and RegulatoryFramework... 13 3.6 Challenges... 13 4. Endnote... 14 ii

iii

iv

Axis Title 1. Introduction This issue of the Annual Off-grid Sector Status Report for Rwanda provides an overview of developments in the off-grid solar lighting and mini-grid market in 2018. The purpose of the report is to highlight the sector s achievements and challenges. The information and conclusions drawn in this report are based on industry interviews, discussions and sales data provided by 14 solar companies 1 engaged in the off-grid sector, mini-grid developers and customers 2 as well as five financial institutions. This information was completed by lessons learnt from implementing the EnDev Results-based Financing (RBF) programme. 2. Off-grid Solar Sector 2.1 Market Overview The solar home system market levelled off in 2018. Based on self-reported company data, annual sales only increased by 1.5% compared with 2017, as easilyattainable market segments gradually approach saturation. The solar lamp market continued to decline. Annual solar lamp sales decreased by 23.4%, despite tender sales increasing by almost 50%. In total, more than 138,000 solar lighting products were sold in 2018. The sector continues to be dominated by large, multinational companies and pay-as-you-go (PAYG) companies. Three new local start-ups entered the solar lighting market, bringing the number of active companies to more than 20. The price of solar home systems depends on the size of the product. Upfront, cash costs range from between USD 58 to over USD 1,000. Solar lamps retail for between USD 5.50 to about USD 45. Smaller, Tier 1 single-home solar systems made up the majority of lighting products sold in 2018. According to EnDev data, Sun King Home 60 remains one of the most popular products, with more than 40% of the market share. Companies are increasingly introducing smaller solar home systems in response to the gradual saturation of target segments, increasing default rates and the need to attract lower-income households. This trend, coupled with free giveaways and grid expansion, has contributed to increased competition in the solar home system and lamp markets over the past year. In addition, the lamp market is struggling with increasing demand for services beyond basic lighting, such as phone charging and appliances. Additionally, the government is also prioritising solar home systems for rural electrification. The Government of Rwanda continues to work towards improving the enabling policy and regulatory framework. However, solar companies feel that there is greater policy uncertainty despite new guiding policy documents having been published. 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 - Chart 1: Historic development of solar lighting product sales 2016-2018 2016 2017 2018 SHS tenders 18,996 17,379 SHS sales 41,019 94,741 98,046 Lamp tenders 1,511 2,859 Lamp sales 134,897 28,894 20,419 1

An estimated 577,000 people gained access to electricity through solar lighting products in 2018, according to EnDev s calculations 3. This translates to an access rate of 4.7% of the national population (0.4% for solar lamps and 4.3% for solar home systems), compared with 5% in 2017. According to Rwanda Energy Group (REG), cumulative sales of all solar home systems now amount to an estimated access rate of 14%, approximately 1.7 million people. business and industrial customers to offset their decline in sales and to avoid the risks associated with rural lower-income households. Other companies are wholesaling to public institutions, international bodies and non-governmental organisations. An example of this is Waka Waka. After filing for bankruptcy and relaunching their operations, they moved from serving farming cooperatives to wholesale 5. 2.2 Customer Segmentation Rural farmers and households in Ubudehe 4 2 and 3 were the main beneficiaries of solar lighting products, as in previous years. According to EnDev, Ubudehe 2 and 3 customers made up approximately 41% and 51% of new solar lighting sales in 2018, whereas Ubudehe 1 households accounted for only 8% of lighting product sales. As expected, companies offering smaller systems and lamps have more customers in the Ubudehe 1 category than companies offering larger systems. Based on EnDev data, around 13% of all solar lamps were sold to Ubudehe 1 households in 2018, and around 5% of solar home system customers claimed to be Ubudehe 1. This suggests that some Ubudehe 1 customers are able to afford a solar home system. There appears to be great variance in the levels of awareness and purchasing power across all Ubudehe categories. 100% 80% 60% 40% 20% 0% Chart 2: Solar lighting product sales 2018 by Ubudehe category 54.2% 41.2% 4.6% SHS 44.5% 43.8% 11.6% Solar lamps 2.3 Business Model and Operations PAYG, rent-to-own and fee-for-service remain the dominant business models (see chart 3), as purchasing power is low and financial institutions lack motivation to provide affordable loans for solar lighting products because they perceive the sector as being too risky. Only two of the companies interviewed offer cash sales. The ability of companies to assess their customers capacity to pay, and follow-up on customer payments, remains essential to ensuring full credit recovery. It is therefore surprising that only four companies have established credit assessment tools, and only five offer PAYG-enabled systems which can be controlled remotely. Other companies rely solely on their agents Ubudehe1 Ubudehe2 Ubudehe 3 As households that can easily afford a solar home system appear to have been reached, companies are required to consider targeting groups with higher credit risk within Ubudehe 1, 2 and 3. Companies are increasingly focusing on peri-urban, urban, small 2

to identify quality customers and ensure payment. Several smaller companies are also working with agricultural cooperatives, savings and credit cooperatives (SACCOs), churches and local groups. These often pay upfront, taking on the credit risk themselves. They can also assist in assessing a customer s capacity to pay and help to establish trust between customers and solar companies. Despite efforts to minimise credit risk, as well as greater flexibility in repossession policies, companies in 2018 reported an increase in their default rates Company reported default rates ranged from between 5% and 25%. The key driver for this development appears to have been a shift towards riskier households, with lower and less stable income. Additional factors affecting default rates over the past year include: Chart 3: Solar lighting product sales by payment modality Upfront sales 4% PAYGo 96% Uncertainty regarding the arrival of the grid and free giveaway promotions, which discourage customers from buying or paying off systems. A lack of understanding of contractual and credit obligations. Existing customers discouraging others because they didn t fully understand the lifespan of a solar home system or the maintenance involved. This led to a negative experience when lighting products stop working. Strong competition, which resulted in customers defaulting on contracts in favour of better offers. Companies have started to adjust their products, business models and target markets in light of these issues. Some companies have chosen to move towards hybrid products and business models, offering energy services in combination with other services. For example, Dassy started to exploit the energyagriculture nexus by focusing on providing other agricultural equipment, as well as solar energy, to agroindustry. A new market entrant, OffGridBox, is combining access to energy with clean water at its central charging stations. Other companies are considering branching into areas such as cooking technology, water and internet services. 3

Number of employees Job Creation According to the EnDev RBF programme data, solar lighting companies have created more than 3,000 permanent and 3,100 temporary jobs to date, including sales agents 6. Most of this employment has been generated in the past two to five years. Women made up 38% of the full-time workforce and 24% of non-permanent staff, showing a slight increase from last year. The number of women in management varies widely between companies. Only a few companies have predominantly female management teams. Several companies are dedicated to ensuring gender-sensitive human resource practices and have established corresponding policies. Inclusive recruitment policies for people with disabilities, refugees and other minority groups are not widely established. Profitability and Growth While the solar home system market has grown over the past year, most companies are not yet profitable. With current growth trends, three home system retailers expect to achieve the cash flow break-even point in 2019. Although there has only been modest sales growth, a number of companies have been able to access local and international debt financing. This signals that the solar market is gradually approaching profitability. However, profitability and cash flow remain a challenge, as evidence by two international companies filing for insolvency at the time of publication (May 2019) 7. 7000 Chart 4: Employment growth in the Rwandan solar lighting sector 2015-2018 6000 5000 4000 3000 2000 1000 0 06/2015 12/2015 06/2016 12/2016 06/2017 12/2017 6/2018 12/2018 Part-time employment 0 0 0 920 2283 3106 3106 Full time employment 8 15 62 105 447 2376 2707 2866 4

2.4 Access to Finance Funding and Financing In 2018, USD 11.58 million was invested in the solar off-grid sector. International credit was a key source of financing for large, multinational companies, with over USD 11 million raised to meet working capital and investment requirements. Smaller and local companies continue to rely primarily on grants and equity funding to meet their financial needs. Chart 5: Breakdown additional financing acquire by solar lighting companies in 2018 3% 1% 96% Grants Equity International debt Access to local credit remains a challenge. Only two companies have accessed local loans to date, despite rising awareness among banks about the sector over the past year. Two banks interviewed offer localcurrency loans, while the remaining were in the process of developing solar loan products for households, small and medium-sized enterprises (SMEs), and solar companies. This development can be partially linked to the launch of the Renewable Energy Fund (REF) On-lending Window for solar products. The On-lending Window provides capital to commercial banks to encourage them to increase lending in this sector. However, despite the influx of capital, loan conditions remain unfavourable. Interest rates are likely to be slightly lower at 12 18.5% compared to current rates, though still too high to encourage local borrowing or compete with international rates. High collateral requirements and insufficient guarantees are additionally prohibitive. Banks require 120% to 150% collateral and heavily discount available assets such as equipment and receivables in their calculations. Renewable Energy Fund 8 Following the launch of the World Bank funded REF in November 2017, three REF financing windows became active in 2018: Window 1: On-lending through SACCOs to households and microenterprises. Window 2: On-lending through commercial and microfinance banks to households and small to SMEs. Window 3: Direct financing to mini-grid developers (addressed in chapter three Minigrid) Window 1: SACCOs are provided with low-interest capital to be used for solar loans made to households and microenterprises. Companies enter into agreements with individual SACCOs, whereby the SACCO provides a loan to its members to help them purchase solar home systems at a discount price. Disouncts range from approximately 9% to 30%. Companies benefit from this arrangement as they receive the money from SACCOs within a few months, reducing the risk that customers will default and limiting any capital costs incurred. Four solar companies and 47 SACCOs had qualified to participate in this window by the end of 2018. Of those 47 SACCOs, 30 had already received funding. As of March 2019, just over 315 solar home systems had been sold through this window. However, sales have been slower than expected. Companies and SACCOs have identified several reasons for this: Limited capacity of customers to make monthly loan repayments. Potential loan applicants being deterred because of the collateral required by SACCOs. Limited customer awareness of and education regarding the benefits of and differences between solar products, as well as the required maintenance. Competition between PAYG companies and SACCOs. 5

High transactions costs for SACCOs and companies due to the need to negotiate and enter into contracts with multiple partners. Several of these points could be addressed by amending Window 1 procedures. However, affordability is a key challenge for the entire sector and is likely to remain a barrier unless additional financial support is provided. Window 2: Two banks have passed the Rwanda Development Bank (BRD) vetting process and have signed agreements to participate in Window 2. No funds have yet been disbursed to those banks. In general, it is expected that the majority of funding will be disbursed through Window 3 and 4, which involves the direct financing of locally-registered offgrid solar companies. 2.5 Policy & Regulatory Framework Two important new policy documents were presented by the Government of Rwanda in 2018 to complement the existing framework: National Electrification Plan (NEP): The NEP is a key document for implementing the Rural Electrification Strategy as well as the Energy Sector Strategic Plan (ESSP) and achieving universal access to electricity by 2024. The Government of Rwanda has specified that 52% of households are to be connected to the grid, while 48% are to be serviced by off-grid technologies. The NEP provides guidance on which areas will be serviced by solar home systems and mini-grids, and which will be connected to the grid. It was validated by the Energy Sector Working Group in October 2018. Since then, NEP maps showing changing shares of on and off-grid areas have been published. Graphic 1: Updated NEP map (status end of 2018) Note on Graphic 1: The shown NEP map was published after the meeting of the Sector Working Group in October 2018 on the REG website 1. The map shown above is not the final map and includes a higher share of on-grid areas than foreseen in the ESSP. 6

These differing maps have created uncertainty among stakeholders. The NEP continues to undergo revision and a new version is expected in the second quarter of 2019. Greater clarity is required regarding on and offgrid areas, as well as the revision process and how frequently it is undertaken. The solar sector is likely to face challenges in acquiring new customers without a clear map of where the grid will extend to over the next five years. Ministerial Guidelines on Minimum Standard Requirements for Solar Home Systems (Ministerial Guidelines): The Ministerial Guidelines were published in August 2018 and seek to ensure that only quality solar home systems can be imported and sold in Rwanda. The Ministerial Guidelines require all solar home systems to be internationally certified, which is a move welcomed by all stakeholders. However, some uncertainty still remains surrounding the application of additional technical and sizing specifications. The Ministerial Guidelines have the potential to increase the affordability gap by preventing popular lower-cost Lighting Global-certified systems from being imported. 2.6 Challenges Affordability Affordability was identified by all companies as the central challenge for the sector, as well as universal energy access. As previously mentioned, it appears that customers who can easily afford solar lighting products have already purchased a solar home system, forcing companies to cater for lower-income groups across all Ubudehe categories. Lower-income groups are characterised by irregular income due to limited employment opportunities and a high dependency on subsistence farming. As such, their energy needs often compete with other basic needs such as nutrition, health, water and education. According to a recent report by the World Bank s Energy Sector Management Assistance Program (ESMAP), 78,9% of rural households without access to electricity spend less than one dollar per month on lighting and phone charging. This stands in stark contrast with the minimum monthly payment of about four dollars required for a small, Tier 1 PAYG system and highlights the limited ability or willingness of people to pay for energy services (see chart 6). Additional support is clearly required from government and development partners to address the affordability of solar home systems and reach the goal of universal access to sustainable energy by 2024. 7

Chart 6: Comparison monthly installments vs. maximum monthly expenditure for lighting and phone charging of off-grid households $6.00 $5.66 $5.66 $5.66 $5.00 $4.84 $4.00 $3.96 $3.00 $2.00 $1.00 $0.92 $0.00 Greenlight Planet Sun King Home 60 Omnivoltaic Power OvBeacon MB2 380 d. light D34 Greenlight Planet Sun King Home 120 d. light D30 Max. energy expenditure for 78.6 % of rural, off-grid households without access Note on Chart 6: The chart shows monthly installments for the lowest priced Lighting Global certified Tier 1 systems in the Rwanda market. Data on monthly expenditures of rural, off-grid households for lighting and phone charging was sourced from the ESMAP report Rwanda Beyond Connections Energy Access Diagnostic Report Based on the Mutli-Tier Framework. Policy Uncertainty Despite the publication of important policy and regulatory documents, policy uncertainty remains a key concern which appears to have increased throughout 2018. Apart from uncertainty relating to the NEP and Ministerial Guidelines, most companies also expressed concern regarding policy implementation risks and limited sector coordination. They fear unexpected developments, as well as limited coordination and guidance regards to executing the ESSP, which could exacerbate uncertainty among market participants and potentially destabilise the market. Tenders and giveaways remain a a source of uncertainty. The free distribution of solar home systems raises awareness and provides much needed support to some of the poorest households. Yet, many companies fear these giveaways might have a negative impact in terms of sales and repossession rates. Limited information regarding the eligibility of households to receive free giveaways, is suspected to have resulted in some customers delaying solar home system purchases in anticipation of receiving free systems or governmental support. All companies support the development of a market-friendly approach to support the poorer households. They believe this will also require the discontinuation of free distribution in order to stabilise the market. Companies maintained that free distribution, if continued, should be accompanied by a strong communication campaign to prevent misinformation and ensure that communities know exactly who the beneficiaries of free systems will be. Companies also encourage more transparency on the standards and competitive bidding processes applied during tendering. They also expressed concern that wider free distribution could result in a market collapse, threatening investment in the development of infrastructure, distribution networks, products and customer acquisition models to reach rural customers. Access to Local Financing Local commercial financing remains out of reach for most market actors, especially local companies. Local 8

bank involvement remains limited within the sector despite increased engagement following the launch of REF. There is still a high risk perception and limited understanding of the off-grid sector among local lenders, resulting in strict lending conditions and high interest rates. Most companies are unable to meet stringent requirements set by banks, both in terms of interest repayment and collateral. According to banks and companies, additional guarantees covering higher credit shares are required to accelerate local lending. While donor-funded guarantee programmes already exist, most argue that they are not high enough to provide the necessary credit coverage. In the absence of local loans, companies rely on international investors for financing and working capital, exposing companies to significant exchange rate volatility. Unless local loans become more accessible to all companies, many will continue to face the challenge of having to repay loans in a currency other than their revenue currency. Customer awareness Customer awareness regarding solar lighting is relatively high. The population has been exposed to solar lighting products and their benefits over the past years thanks to government and companies. Nonetheless, there is still a lack of understanding regarding differing service levels, product quality, installation, product use, limitations, maintenance, and system life span. This lack of knowledge can negatively impact the image of the industry and diminish trust in solar lighting products. Companies have also noted limited understanding among customers regarding credit and contractual obligations under PAYG credit models, which is impacting the collection of payments. One company reported that some customers do not understand why monthly payments need to be made after the initial instalment. Stakeholders agree that it will be necessary to conduct sector-wide awareness raising campaigns and to improve customer education in order to address this issue. Long-term Sustainability and End-of-life Management Market analysis has highlighted long-term sustainability and end-of-life management as two additional challenges for the future. While solar home systems can last a decade or more if properly maintained, various components might require replacing beforehand. Batteries are usually the first component to need replacing. Battery life can vary significantly depending on the technology used. Batteries used in solar home systems in Rwanda include lead-carbon, lead-acid, lithium-ion, lithiumpolymer and gel-acid. Expected battery life usually ranges between two-to-eight years. However, if not used properly, batteries may need replacing much earlier. Most solar home systems include charge controllers to avoid battery misuse. Nonetheless, batteries will be strained if users leave lights or appliances running too long, connect incompatible appliances or cables and use too many appliances at the same time. Customer awareness on the need to maintain a solar home system and replace certain components after the warranty period as well as how to safely dispose of broken components appears to be limited. As the first customers graduate from their warranty contracts, the issue of long-term servicing, safe battery disposal and recycling will soon become an important issue. The Government of Rwanda published the National e- Waste Management Policy for Rwanda 9, which highlights the need for extended producer responsibility. Extended producer responsibility refers to the principle that electronic and electrical product manufacturers and distributors have a responsibility to ensure the collection, transportation and proper 9

treatment of any e-waste caused by their activities. This policy was complimented by regulations on Governing e-waste Management in Rwanda 10 in July 2018. These regulations outline how extended producer responsibility will be enforced in the future. Some solar companies have already started to look into the issue of e-waste recycling. Four companies currently have agreements with e-waste recycling facilities in Rwanda, Kenya and Uganda. They are also working on recycling policies or are in negotiations with recyclers. However, to what extent these policies consider the collection and recycling of systems beyond their service and warranty period is unclear.companies identified a number of general challenges that need to be overcome before the principle of extended producer responsibility can be embraced by the sector. These include: The cost of setting up and managing take-back infrastructure A lack of trust in the quality of recycling facilities in East Africa Limited customer responsiveness when it comes to reporting system failures, particularly beyond the service and warranty period Limited recycling options for lithium-ion batteries, none of which are located in Africa The high cost of recycling, particularly of lithium-ion batteries A coordinated, sector-wide effort will be needed to address questions surrounding long-term sustainability and end-of-life management in a costefficient manner. The government, development partners and companies increasingly understand the importance of these issues and are motivated to start working on solutions. 10

3 Mini-grid Sector 3.1 General Market Development The mini-grid sector remains nascent in Rwanda. This is primarily due to delays in setting up conducive, simplified planning, regulatory and policy procedures. This has resulted in limited investment during 2018. The delayed publication of the NEP map not only caused uncertainty but meant that mini-grid developers were unable to obtain permission to implement mini-grids during this mapping period. Therefore, no additional mini-grids were deployed in Rwanda last year. Nevertheless, the NEP map, once finalised, is expected to provide a clear guidance on sites for new mini-grids in Rwanda, which will provide the much-needed security to investors and will help to spur investment in the sector. High capital expenditure, limited proven business models, and low end-user consumption currently requires mini-grid developers to seek financial support for improving commercial viability, applying reasonable tariffs, and accelerating development. The Scaling up Off-Grid Energy in Rwanda (SOGER) programme implemented by Energy 4 Impact (E4I) and the EnDev RBF programme for mini-grids directly support mini-grid development in the country by providing technical assistance and financial incentives in 2018. 3.2 Business Models Mini-grids in Rwanda are stand-alone systems owned and operated by private micro-utility companies. One advantage of private ownership is the incentive for companies to ensure profitability, maintain a sufficient level of service, expand access, and stimulate consumption wherever possible. To date, the development of privately operated mini-grids has been limited. There are currently five privately-owned companies that operate mini-grids in the country. Technologies utilised vary between mini-grids. Currently there are three solar alternating current mini-grids, one hydropower mini-grid, and 57 operational 1 kw nano-grids. A further four mini-grids are under construction, which will be competed in 2019. SOGER is supporting the development of additional projects. These projects will be implemented with the support of E4I and EnDev s RBF programme once site permissions are granted. According to EnDev data, mini-grid connection costs vary from USD 250 to USD 650, while the cost per kilowatt ranges between USD 4,000 and USD7,000. Operational costs do not typically exceed 5% of capital expenditure. Mini-grid revenue streams are comprised of connection fees, electricity sales, grants and subsidies. Table 1: List of mini-grids and mini-grid operators in Rwanda Company Technology Location Size No. of households connected Grant support Neseltec Solar Kirehe district 30 kw 183 EEP ECOS Hydro Muhanga district 11 kw 303 EnDev RENERG Solar Nyamasheke district 30 kw 121 USADF MeshPower Solar Multiple in Bugesera and Ngoma districts 1 kw each, 57 sites 2,046 EEP & EnDev MeshPower Solar Bugesera district 4kW AC/DC 78 None Absolute Energy Solar Gatsibo district 50 kw 505 EnDev 11

Subsidies typically cover up to 70% of capital expenditure for mini-grids in Rwanda. The connection cost per household for existing and planned projects ranges from USD 35 to USD 60, with the exception of MeshPower, who do not charge a connection fee. Post-subsidy tariffs largely fluctuate between USD 0.35 and USD 0.70 per kilowatt hour (kwh), depending on the consumer group, subsidy amount, tariff structure, geographic location and business model. The cost of electricity generated by mini-grids remains higher than national grid tariffs (USD 0.10 for lowdemand customers versus USD 0.22 for higherdemand customers). These prices are cross-subsidised and not reflect actual costs. A number of companies are using smart meters, remote monitoring and demand-side management to reduce costs and optimise the efficiency of their minigrids. Some companies and development partners are also addressing low-demand consumption through the provision of appliances, business incubation, and the development of productive energy uses at minigrid sites. E4I has for example supported productive use entreprises in acquiring appliances and provided business training at the MeshPower Gitaraga site in Bugesera district through the SOGER programme. Supported businesses include tailors, welders, and shop keepers. reported higher energy consumption due to an increase in business activities. However, busisness development and hence consumption growth is slow without external support to potential entrepreneurs. While solar home systems account for the bulk of offgrid connections in Rwanda, mini-grids represent a suitable intermediary solution between off-grid solar systems and on-grid connection, as they are able to support productive loads. However, high upfront cost, coupled with a customer base dominated by households and low demand, means that even the most cost-efficient business models are not able to ensure adequate returns at a tariff that is reasonable for rural consumers. Therefore, developing incomegenerating activities, and ensuring the productive use of energy, is crucial to ensuring the financial viability of mini-grids. At present, only a few existing mini-grids were able to connect larger productive users such as mills and carpenters. 3.4 Access to Finance 3.3 Customer Segmentation The customer base for mini-grids is largely households, with a small percentage of small businesses, primarily shops, restaurants and bars, and a few social institutions such as schools. Overall energy consumption and ability to pay remains low in rural areas, with household demand ranging from 2 kwh to 10 kwh per month. Some companies have Mini-grids in Rwanda struggle to secure capital, as banks are reluctant to finance them. This is due to the limitations of mini-grid business models during this early stage of market development, as well as high risk perception. Financial institutions in Rwanda mostly finance traditional sectors with short-term financing needs, and impose strict collateral requirements and high interest rates. Local banks did not extend credit to any mini-grid developers in 2018. Local financing is likely to remain limited unless sufficient financial risk guarantees are provided. The Government of Rwanda, supported by development partners, has created financial mechanisms to address this bottleneck. As of 2018, the REF is directly lending to mini-grid projects at concessionary rates. This offers the potential to build significant capacity and experience within the financial 12

sector (see section 2.4 Access to Finance for further information on the REF). The REF mini-grid window was designed in partnership with EnDev RBF. The REF is intended as a bridge loan for pre-commissioning financing ahead of RBF funding becoming available. BRD also negotiated a guarantee fund with the Swedish Development Cooperation Agency which was approved in September 2018. This USD 50 million guarantee facility covers up to 50% of the loan for qualified male entrepreneurs, and up to 70% for female borrowers. The total amount cannot exceed USD 500,000. No projects have accessed finance through the REF to date, although there is a pipeline of projects looking to submit loan applications once the NEP is finalised. Funding initiatives continue to play an important role in stimulating private sector investment, helping to transition from proof-of-concept to scale. Current mini-grid business development and financing is insufficient to provide a socially acceptable tariff. Hence, financial and technical support remain essential for catalysing market growth. E4I is supporting the implementation of 10 pico-hydro projects in Rwanda through upfront grants. E4I is also providing technical assistance to several projects currently under development and is supporting the development of productive uses at different sites. EnDev has supported three mini-grid companies to date and has a pipeline of 13 projects. The Sustainable Energy Fund for Africa, which is being hosted by the African Development Bank, in 2016 also provided the Government of Rwanda with funding to to conduct advanced feasibility studies for green mini-grids. Over 200 feasible sites have been identified, and advanced feasibility studies will be developed in 2019 for up to 40 sites. 3.5 Policy and RegulatoryFramework A supportive policy and regulatory framework is necessary to expand the role of mini-grids in meeting Rwanda s energy access targets. Rwanda introduced a simplified licensing framework for mini-grids in 2015, but uncertainty remains relating to the arrival of the national grid, cost-reflective tariffs, and technical standards. With the support of the World Bank ESMAP team, Rwanda Utility Regulatory Authority is currentlyimproving the existing licensing framework. Once finalised the revised licensing famrework will provide assurances to the private sector regarding grid expansion. The new licensing framework is expected to be published and validated mid-2019. The main obstacle for developers in 2018 has been the anticipated revised NEP map (see section 2.5 Policy and Regulatory Framework for further information on the NEP), which has delayed the implementation of mini-grids since June 2017. The delay is caused by developers requiring a confirmation letter from the utility, authorizing them to developed the submitted site. The utility did not issues any such letters in 2018. 3.6 Challenges Policy Uncertainty Regulatory and policy challenges continue to cause uncertainty in the mini-grid sector. Key concerns include uncertainty regarding the eventual arrival of the national grid, the demarcation of off-grid areas, as well as prodcedures for setting tariffs. Mini-grids need to be firmly and visibly embedded within rural electrification planning, with streamlined regulatory clearance procedures, to accelerate connections. Low demand As on-grid and off-grid consumption by rural households is low, mini-grid viability is reliant on commercial and productive activities. However, the uptake of productive use upon the completion of a mini-grid has often fallen short of expectations. Developers often do not see a strong increase in demand or revenue. Therefore, a key factor for success is the promotion and development of productive use and income-generating activities. This ensures increased consumption and reliable revenue on sufficient scale to support the investment. 13

4 Endnote 1 Companies interviewed: BBOXX, Dassy, Ignite, Mobisol, Neseltec, OffGridBox, Zola Electric, One Acre Fund, REPRO, Safer Rwanda, Serve and Smile, SolarKiosk, TASS, Waka Waka 2 Operational mini-grid data was confirmed by EDCL. Although no companies were formally interviewed for this report, EnDev, through its Village Grid programme, has a continuous rapport with these companies and is highly involved in sector development. 3 The following assumptions and data have been used: i) 4.6 people per household for solar home systems and two people per household for solar lamps; ii) population data obtained from the National Institute of Statistics of Rwanda: http://statistics.gov.rw/publication/size-residentpopulation accessed on 29.04.2019. 4 The Ubudehe system is a socio-economic classification for households used by the government for targeting development efforts. It consists of four categories, with Ubudehe 1 being the poorest households and 4 the richest households in Rwanda. The categories are assigned locally, based on a range of qualitative and quantitative factors. The majority of households in Rwanda have an Ubudehe category. Countries (SREP) Investment Plan, which seeks to accelerate access to off-grid electricity through standalone solar systems and renewable energy mini-grids. As such, REF will directly support the implementation of Programme 2 and 3 of the Rural Electrification Strategy. The REF was launched in November 2017 and received USD 50 million in funding from SREP. The REF is implemented by the Rwanda Development Bank and provides local-currency financing through four financing windows: 1) on-lending through SACCOs to households and microenterprises, 2) on-lending through banks (commercial and microfinance) to households and small to medium-sized enterprises, 3) direct financing to mini-grid developers, 4) direct financing of locally registered off-grid solar companies supporting Tier 1 or higher solar systems. 9 Accessible under http://www.minirena.gov.rw/fileadmin/environment _Subsector/Laws Policies_and_Programmes/Laws/ E-waste_policy_-_FINAL.pdf 10 Accessible under https://rura.rw/fileadmin/documents/ict/laws/regu lation Governing_ewaste_management_in_Rwanda.pdf 5 https://siliconcanals.nl/news/startups/wakawaka- how-this-promising-dutch-startup-on-a-social- mission-is-bankrupt-now/ 6 These numbers are taken from direct employment reports made to EnDev by 12 companies. Jobs created by solar companies through indirect employment such as cleaning services, construction and security contracts are not included. Statistics are based on self-reported company data. 7 Sources: https://plugintheworld.com/uncategorized/mobisolgmbh-to-secure-a-sustainable-position-throughrestructuring-process/ and https://www.solarkiosk.eu/2019/04/solarkiosk-agwants-to-secure-a-sustainable-position-throughrestructuring-process/ 8 The REF is the main instrument for implementing the Scaling Up Renewable Energy Program in Low Income 14

Funded by: 15

Published by: Energising Development Rwanda Makuza Peace Plaza KN 4, Avenue de la paix 8th floor, block A Kigali, Rwanda Lead Authors: Selen Kesrelioglu, Advisor (selen.kesrelioglu@giz.de) Sarah Leitner, Advisor (sarah.leitner@giz.de) Co-authors and Contributors: Yvette Ingabire (yingabire@urwegobank.com) William Rubasharaza (william.rubasharaza@giz.de) Isabella Troconis (isabella.troconis@giz.de) Photo Credits: Cover page, page 12 14: Abdul Muyingo for Makemende/GIZ Infographics, page iii-iv: EnDev Rwanda (Isabella Troconis) All other: EnDev Rwanda (Aminata Nimaga) May 2019 16