Private Sector Stakeholder Engagement Workshops
Table of Contents
Private Sector Stakeholder Engagement Workshops .................................................................................... 1
Executive Summary ................................................................................................................................................................................................ 2
1. Introduction...................................................................................................................................................................................................... 3
2. Objectives, Methodology & Approach .................................................................................................................................................... 3
2.1. Stakeholder Mapping ................................................................................................................................................................................ 3
2.2. Objectives ....................................................................................................................................................................................................... 5
2.3. Attendants ..................................................................................................................................................................................................... 5
3. Results ................................................................................................................................................................................................................. 7
3.1. Market Barriers and Opportunities..................................................................................................................................................... 7
3.1.1. On-Grid ........................................................................................................................................................................................................ 7
3.1.2. Off-Grid ......................................................................................................................................................................................................10
3.1.3. Green Buildings......................................................................................................................................................................................11
3.2. Access to Finance Barriers and Opportunities .............................................................................................................................12
3.2.1. On-Grid ......................................................................................................................................................................................................12
3.2.2. Off-Grid ......................................................................................................................................................................................................14
3.2.3. Green Buildings......................................................................................................................................................................................14
3.3. Innovation Grant and Early Stage Funding ....................................................................................................................................14
4. Additional input on FONERWA Application Process .....................................................................................................................16
5. Recommendations and next steps.........................................................................................................................................................17
Executive Summary
This report provides an analysis of the stakeholder engagement meetings conducted with private sector
participants between November 6th – 10th. The primary objective of the engagement was to identify market
and access to finance barriers and opportunities, and to what extent the innovation grant is supporting the
private sector and whether the grants could better support early stage products or business models (chapter
2.2).
The stakeholder engagement meetings were divided into three sectors; 1> On-Grid Energy; 2> Off-Grid Energy
and; 3> Green Buildings. These three sectors were the most prevalent sectors applying for FONERWA funding
that also demonstrated relevant and high quality proposals (chapter 2.1).
Results of the engagement analysed below identify that the on-grid and green building sectors face substantial
political and investment risk in most part due to overregulated national frameworks, lack of streamlining
between the relevant agencies and ministries, the volatility and unpredictability in the regulatory environment
and the risk averse nature of regulators and commercial lenders in Rwanda. An extremely significant barrier
identified by both sectors, was a lack of awareness/understanding of green growth in their respective sectors
and lack of comprehension of investor risk and project finance by stakeholders, particularly the GoR, resulting in
a lack of practical incentives i.e. tax. The off-grid stakeholders also face some regulatory barriers but also raised
the lack of available technology locally, such as hardware, lack of financing for R&D, as well as significant
constraints in access to finance to end-users and small and micro entrepreneurs (i.e. high interest rates). The
applicants also identified that there does exist opportunity to exploit these green sectors from a technical or
practical perspective but there was consensus that the current regulatory framework, high transaction or
preparatory/start up costs and lack of affordable finance and risk-averse commercial lenders did not create
an investor friendly environment. For example, the on grid energy identified that over 330 sites exist to exploit
albeit very small from an investment point of view (below 5MW), therefore this sector faces high transaction
costs, lack of local financing and high political risk. (chapter 3.1 & 3.2)
It was validated that the innovation grant instruments are relevant and much needed by all three sectors,
notably Proof-of-Concept and Demonstration. R&D was considered most relevant to the off-grid market, where
new products and technologies are continuously being developed in frontier markets such as Kenya. The
applicants across all three sectors maintained that preparatory and early stage costs (i.e. R&D, PoC, testing,
demonstration, modelling, due diligence etc.) were extremely high with high project risks to the investor,
specifically in the Rwandan context where market and regulatory barriers can easily dissuade investors and
start ups. The applicants raised concerns that the scope of financing in the grant instruments was unclear to
them and the scope of financing was perceived as limited in some cases, particularly for the demonstration
grant, where testing is a critical component of projects (FONERWA requires all test and permits are completed
and approved by the regulatory body). Applicants felt that regulatory aspects should be decoupled from the
start up process, so entrepreneurs can investigate new products and business models without regulatory
burden. Proof-of-concept was considered the most important instrument to the on-grid energy sector, as
feasibilities are expensive and come at a risk to the investor, particularly in the case of installations that are less
than 5MW – this is particularly important to note, as the 332 hydro sites identified by EWSA are 1.5MW or less,
and all the feasibilities procured by EWSA are deemed unbankable by investors. Therefore, all the feasibilities
need to be redone and the PoC grant becomes very important. For the off-grid solar market, R&D and
demonstration are considered very important. For green buildings, proof-of-concept was considered the most
important instrument. For both the on-grid and green building sector, participants believe the proof-of-concept
is a priority area for grant support and can also extend its support to other aspects such as design drawings,
calculations and modelling, as these come at a significant cost and risk to project promoters (chapter 3.3).
The insights provided below will inform recommendations for modifying or expanding on the grant instrument.
There are also a number of ‘access to finance’ insights that can contribute to the existing financial instrument
and financial instruments moving forward.
1. Introduction
FONERWA’s original design document identified performance-based grants as a short-term instrument for the
private sector, whereas financial instruments, such as loan guarantees and concessional loan instruments, were
identified for the medium term. FONERWA has developed one grant and one financial instrument to date.
The private sector strategy was developed over the course of July 15 – December 2013. The draft Innovation
grant guidelines were developed quickly during the July call-for-proposal, using a similar approach adopted by
a number of funds that target private sector, through early stages of innovation to avoid crowding of finance
and cause market distortions. Following the July call-for-proposal, a desk study was completed to rationalize
and contextualize the innovation grant. This document and the private sector guidelines were then reviewed
and approved by the FMT and FMC.
While a comprehensive desk study was conducted for the Innovation Grant, due to the urgency in creating the
grant instrument swiftly, local stakeholder engagement through a workshop was not conducted in the design
and planning process. Therefore, the Private Sector Specialist conducted three small stakeholder workshops
over November 6th – November 10th 2014, targeting three high demand and high quality sectors submitting
proposals FONERWA. The aim of the workshops were to better understand local sector specific barriers and
opportunities, including access to finance, document experiences with the innovation grant and whether it is
indeed facilitating support for the practical implementation of sustainable, low carbon and green businesses in
Rwanda’s private sector.
2. Objectives, Methodology & Approach
2.1. Stakeholder Mapping
The criteria by which the stakeholder engagement identified participants were through the existing databases,
particularly applicants that were identified in the targeting. It is important to include participants that have
some level of experience with the Innovation Grant or FONERWA to be able to inform their experiences with the
current instruments available.
Rwanda’s Green Growth & Climate Resilient Strategy and FONERWA’s thematic windows of orientation identify
a variety of sectors or programmes of action for private sector participation. However, data collected from
the targeting analysis of private sector projects outlines that all approved PPD projects, with the exception of
one, falls into the below identified categories (please also see Table 1);
1> On-Grid Energy (solar, hydro and waste-energy)
2> Off-Grid Energy (off-grid and small scale energy installations focusing on rural areas; solar, biogas and
micro-hydro)
3> Green Buildings
Table 1 highlights that out of the 21 approved PPD’s over the January 2014, April 2014 and July 2014 call-forproposals. Of these applications, 10 were on-grid, 6 off-grid, 3 green buildings, one off-grid/on-grid combination
and one relating to R&D in mycological species and their commercialization. This indicates that demand of the
fund is driven primarily by these three sectors, particularly when considering high quality proposals or applicants
that can qualify for further consideration by FONERWA.
Table 1: Approved PPD Projects in the FONERWA Private Sector Pipeline (derived from Jan, Apr, July CFP)
Name
Sector
Instrument
Status
1
Gaseke Mini-Hydro Power Plan
On-Grid
Credit Line
Approved by FONERWA &BRD –
awaiting land expropriation
2
Rice Husk (Biomass) to Power
On-Grid
Credit Line
Approved by FONERWA & BRD
Project
3
KABAVU MINI HYDRO POWER PLANT On-Grid
Credit Line
Will resubmit in Jan 2015
4
Construction of a micro
On-Grid
Credit Line
Potentially submit January CFP
5
6
hydropower plant and protection
of drainage basin at KARAMBO
River, Rubavu district, Rwanda.
Feasibility Study for the construction
of the Gasumo micro hydroelectric plant
FEASIBLITY STUDY FOR NTARUKA B
SITE IN NYARUGURU DISTRICT
2015 - issue with collateral as are
already taking a loan with BRD
On-Grid
Innovation
Grant: Proof-ofConcept
Innovation
Grant: Proof-ofConcept
Innovation
Grant: Proof-ofConcept
Innovation
Grant: Proof-ofConcept
Denied Funding
Innovation
Grant: Proof-ofConcept
Innovation
Grant:
Demonstration
Innovation
Grant: Proof-ofConcept
Innovation
Grant:
Demonstration
Innovation
Grant: Proof-ofConcept
FTC – PD Resubmission
Credit Line
Denied funding
Innovation
Grant:
Demonstration
Innovation
Grant:
Demonstration
FTC Approved pending
comments
Off-Grid
(Solar)
Innovation
Grant:
Demonstration
Asked to resubmit PD - withdrew
Green
Buildings
Innovation
Grant:
Demonstration
Credit Line
Approved Pending Comments
On-Grid
7
Feasibility study for 10MW solar PV
plant in Kayonza district
ON-Grid
8
Technical & Structural Studies For
Incorporating Resource efficient
and Environmentally friendly
Features into Family Homes at
CACTUS GREEN PARK (CGP),
Gasabo District, Kigali City.
Feasibility study update for RwazaMuko Small Hydropower Plant
On-Grid
10
Pilot project of Net metering system
to Remera Rukoma Hospital.
On-Grid
11
PelomPin ("Just a bit more than
Energy
On-Grid/OffGrid
12
Simgas Biogas
Off-Grid
(biogas)
13
Alternative Fuels for Cimerwa
14
Subsidized Loan for Inyenyeri to
Bridge Gap Between Pilot Phase of
Business Development and
Profitability
Virtual Grid Rwanda (Pilot)
Off-Grid
(alternative
fuel for
CIMERWA
factory)
Off-Grid
(Cook
stoves)
9
15
16
17
18
19
On-Grid
Off-Grid
(solar)
Eradication of kerosene lamps and
assorted lighting items, and pilot
deployment of low-cost solar lamps
in Gakenke district, Rwanda.
Pilot Project for the introduction of
400 larger Solar Home Systems (SHS)
in Eastern and Northern rural
Rwanda: “Is there a market for SHS
beyond Pico (very small) systems?”)
Zero Carbon Designs
Off-Grid
(Solar)
Sole Luna Mixed use Tower pioneering a low carbon building
technology
Green
Buildings
Denied Funding
Withdrew due to timeline
Approved – Grant Agreement
Signed Nov 2014
Denied Funding
Denied Funding
Approved pending comments
FTC – PD Resubmission
Denied Funding
Green PPD that will resubmit due
to regulatory requirements by
BRD (building permits)
20
Nobelia
21
Sustainable biodiversity: mapping
and domesticating the
mycological riches of Rwanda's
forests.
Green
Buildings
Other
Credit Line
Innovation
Grant (R&D)
Green PPD that withdrew/will
resubmit
Approved – project being
implemented
2.2. Objectives
The primary objectives of the stakeholder engagement are threefold;
Objective 1: To identify barriers and opportunities facing the private sector in the identified sectors;
 On grid solar, hydro and waste-energy
 Off-grid/small scale energy installations focusing on rural areas; off-grid solar, biogas, micro
hydro
 Green Buildings
Objective 2: To identify access to finance barriers and opportunities facing the identified sectors and how
financial instruments could better aid the identified sectors
Objective 3: To identify whether current innovation grant instruments are helping businesses and investors enter
the market and how the use of grants could better aid the process for businesses and investors to develop
investment ready, scalable and attractive projects/business models
An additional question that was posed was regarding the participants’ experiences with the FONERWA
process, i.e. PPD/PD process, as this is currently being streamlined.
2.3. Attendants
The participants were identified through previous calls-for-proposals, identifying successful and high potential
proposals. Table 2 lists the final attendee list.
Table 2: Attendants
Name
Position
Company
Name
Project Name: Submitted
Sector/Sector
Specific
Instrument
Status
Off-Grid Energy – Monday November 10th 2014
Ankush Chhabria
Managing Director
Novel Energy Limited
Chad Bannick
CEO
DC Hydropower Limited
+ Adina Paraschivescu
GATERA Aimable
Managing Director
Minega Energy LTD
Eric Kariningufu
CEO
3E Power
Claude Makuza
Gaseke Mini Hydro Power
Plan
Rice Husk (Biomass) to
Power Project
Feasibility study update
for Rwaza- Muko Small
Hydropower Plant
On-Grid Hydro
Credit Line
Approved
On-Grid Agri
Waste-Energy
On-Grid Hydro
Credit Line
Approved
IG: Proof-ofConcept
PPD Approved
KABAVU MINI HYDRO
POWER PLANT
On-Grid Hydro
IG: Proof of
Concept
Feasibility study for 10MW
solar PV plant in Kayonza
district
On-Grid Solar
Innovation
Grant: Proofof-Concept
Clean Energy Generation
On-Grid Hydro
Credit Line
Green PPD
that withdrew ill resubmit PPD
Withdrew due
to timeline –
sough other
sources of
financing. May
be interested
in credit line
Amber
Managing Director
ESU Ltd Company
through Hydro power
plant
Kiba MUVUNYI
KOKO hydropower
project
On-Grid Hydro
Director General
SOCIETE DES GRANDS LACS Ltd
Raouf Saidi
General Manager
Waka Waka Ltd
Henri nyakarundi
Founder
African Renewable Energy
Distributor (ARED)
Nezerwa Francois D'Assise
Dassy Enterprise
Will send representative
Mirik Castro
CEO Simgas East Africa
Simgas
Jean Marie Country Manager to
attend
DUSABE Jean Bosco
Managing Director
Drimex LTD
Victor Hakuzwumuremyi
GVEP
Delagua
Anna Zinecker
GIZ
Innovation
Grant: Proofof-Concept
On-Grid Energy – Friday November 7th, 2014
Virtual Grid Rwanda
Off-Grid Solar
Innovation
(Pilot)
Grant:
Demonstration
Innovation
Grant:
Demonstration
/R&D
Innovation
Grant:
Demonstration
Application –
PPAs and other
necessary
documents not
yet prepared
Amber PPD –
low quality
ppd asking for
feasibility
funding
PD
Resubmission –
currently at
FMC decision
Multiple PPD
Submissions
Mobile Charging Kiosk
(MCK) with Renewable
Solar Energy
Off-Grid Solar
Financing facility for endusers of solar home
systems and pico PV in
Rwanda.
SimGas Biogas
Off-Grid Solar
Off-Grid Biogas
Innovation
Grant:
Demonstration
CANVAS BIOGAS SYSTEM
FOR ENVIRONMENTAL
CONSERVATION,
ECONOMIC
DEVELOPMENT AND
POVERTY REDUCTION IN
RWANDA
Off-Grid Biogas
Innovation
Grant:
Demonstration
Multiple PPD
Aplications
GVEP provide support to
micro hydro SMEs
Off-Grid – Pico
Hydro Support
Off-Grid Cook
stoves/Solar
NGO Proposal
Withdrew
Innovation
Grant: Proofof-Concept
Rejected at
PPD
Rejected at
PD, new
submission at
PPD level
Approved
pending
(significant)
comments
Off-Grid Solar GIZ runs two
RBF solar
programs
Annaclet
SNV
Zero Carbon/Strawtec
Tim Hall
Managing Director Light Earth
Designs LLP
Green Buildings – Thursday November 6th, 2014
Zero Carbon Affordable
Green
Innovation
Housing for Rwanda
Buildings
Grant:
Demonstration
Multiple green building
Green
Innovation
projects:
Buildings
Grant/Credit
-Sole Luna Mixed use
Line
Tower
- Feasibility for a green
Approved
pending
comments
No projects
approved
Steven Sabiti
Research and Organizational
Development Manager
Horizon Group Ltd
Olivier Costa
Managing Director
Nobelia/Mundi
building
- Light Earth Vaulted
Structures
Technical & Structural
Studies For Incorporating
Resource efficient and
Environmentally friendly
Features into Family
Homes at CACTUS GREEN
PARK (CGP), Gasabo
District, Kigali City.
2 projects submitted:
Nobelia
Mundi
Green
Buildings
Innovation
Grant: Proofof-concept
Approved
(pending final
budget
changes)
Green
Buildings
Credit Line
Green PPD for
Nobelia – but
will resubmit at
a later stage
3. Results
3.1. Market Barriers and Opportunities
3.1.1. On-Grid
The primary market barriers (excluding Access to Finance which is addressed in section b) identified by the OnGrid participants were related to regulatory and policy matters (Table 3). In fact, the high political risk made the
bulk of the discussion. Another significant barrier was the high costs associated with developing projects on the
available hydro sites, which are small (2MW or less). These high costs, consisting of pre-development, tax and
transaction costs, combined with the regulatory issues, demonstrate this sector to be risky and unattractive from
a private sector perspective.
Table 3: On-grid market barriers
Barrier
Sub-barrier
High Political Risk Lack of Policy on REFIT
PPA- Renewable
Energy Feed In Tariff
(REFIT) Power
Purchase Agreement
(PPA)
Description of Issue
A REFIT policy does not yet exist in Rwanda and therefore
agreements are not standardized
As there is no REFIT policy, the PPA negotiation takes too long.
Promoters state that these negotiations take 4 to 8 months,
which is very a long period given time is of essence to these
types of investments.
Regulatory bodies are unreliable, chiefly EWSA, whose
commitments are perceived as fickle by project developers. It is
not uncommon that the regulatory body EWSA, which is a
monopoly, changes their mind halfway through the process at
the MoU or even PPA stage (even after these agreements are
signed).
Note: Sovereign guarantees are only offered for projects over
5MW (although these sites no longer exist in hydro in Rwanda).
Lack of mainstreaming across government agencies. Need to
have all parties on board for the PPA.
For larger 5MW+ projects, RDB is involved. However, for smaller
projects, project promoter’s work with REG. Furthermore, RDB
and RRA are not on the same page. There is also a disconnect
between the utility, EWSA, and MINECOFIN – as renewable
energy and energy is a priority sector, they should be able to
facilitate funding.
High Risk conditions
set in PPA for project
developers
Transmission lines.
The government agrees transmission lines will be installed within
10km of the site. However, they want a buffer or grace period of
6 months. For a developer, this is a very risky proposition, as a
project defaults with the bank if they are to delay
implementation by 6 months.
PPAs bill in US dollars but developers get paid in RWF Developers
bill in USD but get paid in Rwf, which creates an additional
exchange rate risk.
Quality Risk Assurance
This is the risk of REG not paying, which can result in defaulting
on loans. ATI (also a government owned entity) charges 2-4% for
a guarantee, which is already very high. But ATI will only support
this guarantee after 6 months of REG default, which is a very
long time frame as the developer won’t be able to pay the
bank unless they get paid.
Note: ATI risk insurance is only possible on plants with 10MW
capacity and above.
Lack of technical
capacity
Capacities within regulatory agencies such as REG are limited.
- Lack of understanding of innovative projects
- Lack of understanding of technical drawings for
feasibility study reviews – e.g. developers provided
examples of where obvious aspects of feasibility studies
where questioned by the regulator
EWSA is not procuring bankable feasibilities – need more due
diligence. For example, all of the Fischer procured feasibilities
are unbankable and also do not meet international standards
(needed for international financing), and therefore need to be
conducted again.
EWSA does take initiative on projects e.g. they do not conduct
site visits
High costs
associated with
developing
projects on
available hydro
sites
Land Expropriation
Land is not expensive but can take long time to expropriate
(especially at district level)
Long term site risk
Developers rely on GoR to maintain sufficient upstream flows for
hydro plants which presents an additional risk for developers
High Taxes
18% VAT on construction drives up project costs.
The VAT on construction increases project finance cost and risks
to the investor. As, 60%-70% of hydro project costs go toward
construction, the 18% VAT can increase the project cost up to
13% of the total project cost. Even though VAT is recoverable, it
impacts project finance significantly due to high investment
costs and poses risks to the developer. In priority sectors, this is
often waived.
Dividend distribution tax of 15%.
This means project promoters have to pay tax on interest – 15%
on international and 18% on local.
No waiver on customs duty for materials imported (only applies
to equipment not materials)
RCB and RRA are not always consistent on the tax exemptions
that apply.
Available Sites
There are no large sites left in Rwanda (5MW or more).
Approx. 330 sites (between 100kW – 1.5MW) have been
identified.
High predevelopment costs
Lack of technical capacity of developers
Small sites are more affected by high transaction costs and
political risk.
In general, there are a high amount of pre-development costs in
an on-grid project including initial screening, pre-feasibility,
feasibility (or upgrading feasibilities to international standards),
technical detailed design, bank fees, due diligence fees, high
interest rates among others.
EWSA procured feasibilities are unbankable due to poorly
developed ToR and inadequate technical oversight of the
contract.
All the feasibilities that EWSA is sitting on are not bankable. They
are essentially pre-feasibility studies. Fischer completed most of
them but they are subpar and the developers believe that they
cut a lot of corners. So although EWSA tenders out sites with
feasibilities, the developer still has to conduct another bankable
feasibility up to international standards. Without a bankable
feasibility, there is no project. They require out of country
expertise to be up to international standards.
Solar Grid Impact Studies
Although small amounts of intermittent power have no effect on
the grid, larger solar projects require a grid impact study (due to
fluctuations in supply as solar energy varies from day to day). This
is a vital step in understanding the potential impact on the grid
and meeting the utility’s requirement. This comes at an
additional cost to the developer, and is a separate study to the
feasibility as feasibilities are often completed with foreign
expertise and the grid impact study will be conducted by REG.
This can cost between $50,000 - $150,0000 for 1MW-10MW
projects.
Small projects face high transaction costs.
The amount of money spent on due diligence for a 10MW
project is the same as you would spend on a 1MW project. One
developer spent over $500,000 on due diligence to reach
financial closure for a 10MW project.
Penetration of private sector hydro is limited.
Although there is some growth, the average Rwandan
developer cannot access the tenders due to the stringent
requirements. For example, developers need to demonstrate
significant turnovers, history, projects and certificates of
completion. Will often need to partner with an international firm.
Developers are just sitting on projects as they can’t get through
all the pre-development steps, as well as accessing financing
The two primary opportunities that exist in the on-grid renewable energy market include;
1. The development of the REFIT policy that is currently being approved. This can thoroughly streamline the
process and decrease political risk for investors.
2. The identification of approx. 330 sites for hydropower is a great opportunity. These sites range between
100kW – 1.5MW. This is very small from a developer perspective but provides ample opportunity in terms
of hydropower development on portfolio level.
3. There is an opportunity for the GoR to identify energy as a priority sector and amend tax laws
accordingly i.e. waiver customs duty on equipment, waiver VAT to reduce project costs, and risk.
4. Rwanda has a relatively positive rating for international lenders at B+. This provides an opportunity for
the GoR to facilitate project finance. International lenders often want to provide part debt but also
need to observe government commitment such as involvement of a local partner bank.
5. REG is starting to work with RDB for smaller hydro projects – this shows some promise in streamlining the
regulatory process.
3.1.2. Off-Grid
The off-grid participants faced some regulatory barriers although there were also a number of barriers related
to end-users and lack of technology available in Rwanda (Table 4).
Table 4: Off-Grid Market Barriers
Barrier
Regulatory
End-User
Technology
Description of Issue
Lack of framework for off-grid technology
Lack of policy guidance on new technologies e.g.
electric cars
Heavy bureaucracy, particularly at the district level.
Need a minimum of 4 weeks and multiple visits to get
projects going at the district level, which comes at a
cost to businesses and remains difficult to access rural
communities
Difficult to understand what is going on at the
regulatory level, lack of information sharing and
streamlining
No product guidelines and follow up when it comes to
implementation i.e. who is following up on product
quality? For example, inferior/sub-standard Chinese
products could kill consumer confidence
Lack of end-user financing options
Rural end-users expect products for free or at a
subsidy. Even if they accept installment payments,
experience shows that they end up thinking the first
installment is adequate.
Products, especially biogas, are very expensive to the
rural end-user
No equipment available locally so it’s hard to conduct
prototyping activities or testing. The technicians do
exist, but technology does not.
No funding available for developing new
technologies and most development is outside of
Rwanda.
Prototyping and importing hardware come at
additional cost to developer
Solar technology is still relatively new and these
businesses need support
Regarding market opportunities, the participants identified numerous opportunities; end-user demand and
attitude to off-grid products, new innovations and business models in the region, and Rwanda’s strategic
priority towards off-grid products, particularly the integration of Biogas to DDPs (Table 5).
Table 5: Off-Grid Market Opportunities
Barrier
End User Demand
Description of Issue
Access to electricity for rural households is significant
on a national and household level. People no longer
want to spend time and resources on collecting and
buy fuel
Awareness of consumers is high, particularly for
efficient cook stoves and biogas.
Willingness to adopt new technologies exists.
Solar is the ‘newest’ technology and still faces
apprehension but end-users are attracted to solar
options due to phone charging, and to be free of
kerosene.
Products don’t only target the BoP as higher income
families (i.e. teachers) also demand new products,
particularly solar.
Empowers people to become entrepreneurs and can
result in job development
Biogas is in the DDP for district government as well as
the national sectoral targets
There is huge growth in the sector, particularly solar,
and it’s gaining critical mass especially with emerging
mobile money and pre-paid business models (which
are proving successful in Kenya/Uganda only just
being introduced in Rwanda)
Regulator
Innovation
3.1.3. Green Buildings
The participants identified a large number of barriers in this sector (Table 6). Similarly to the on-grid energy
sector, the green building market is extremely risky from an investor point of view due to the unpredictable
regulatory environment and onerous taxation. However, regulatory volatility was also identified as adding
additional risk, as new laws are introduced and removed frequently. In addition to regulatory and policy
barriers, participants identified a lack of awareness or understanding of green building concepts and a lack of
local capacity in terms of building materials by all stakeholders.
Table 6: Green Building Market Barriers
Barrier
Sub-Barrier
Regulation
Taxes
Overregulation
Land
Description of Issue
Construction tax was recently reintroduced at 20%.
This significantly increasing the cost for project development
Import duties account for around 10% of project costs for green
buildings
Most green building technologies (i.e. efficient machinery) or
materials for green buildings need to be imported. However, it is
ultimately tenants that benefit from these measures that come at
an extra cost to the developer (i.e. less water usage/less electricity
usage). The investor is effectively penalized for developing a green
building. There is no tax exemptions on the specialized imported
equipment needed for green building construction. There is a
perception that over-regulation is leading to “informality”.
Combining building regulations and planning into a one-stop
process is burdensome.
The investor now has to do full working drawings to get regulatory
approval, which financially puts a project to a halt from a financial
standpoint. Typically planning and building regulations are
decoupled in most countries. Planning is about land use and can
be dealt with quickly and cheaply and enables developers to
secure project finance. However, combining this with building
regulations overburdens investor and many projects have to come
to a halt (i.e. Sole Luna project)
Rwanda is not perceived as an investment friendly climate by
building developers.
Non-Rwandans can no longer hold freehold titles, which will
completely stop foreign investment. Current lease amounts are
about 29 years – for a foreign investor, the investment is not even
Technical capacity
of regulators
Lack of local construction materials
Lack of understanding of ‘green’ and
‘sustainable’ buildings
Lack of Private sector investment
feasible and cannot be considered at all unless there is at least a
60-year lease.
Lack of technical capacity of regulators. There are severe
limitations in understanding drawings and buildings, especially new
and green concepts by the regulatory bodies.
This forces Rwanda to import at a huge cost and low quality.
Country is landlocked and import costs are higher than
neighboring countries.
3 components of cities; housing, infrastructure and commercial.
Housing is the main problem and component in a city like Kigali
Lack of definition surrounding ‘green’ in green buildings. Should be
viewed from a wider sustainability perspective. Sustainability
integrates a number of aspects for ‘green’ buildings and cities
including cradle to grave, water, waste, affordable, locally
produced, energy generation, resilience, transport, settlement,
social cohesion and social capital
Lack of awareness by consumers and public – perception of
modern is concrete and glass. Need to educate consumers on
new materials, as often these are perceived as non progressive
Too much emphasis on being innovative, particularly in housing,
when solutions can be very simple i.e. abundance of clay in
Rwanda – however, these ideas are seen as non progressive
(again, a matter of perception)
No standards in place i.e. certification in defining green. However,
participants also argued that certification is more relevant for
commercial buildings
Differentiate definitions of green between housing and
commercial buildings. Reducing embodied energy is more
significant for housing units as large commercial buildings can
have large operational savings.
Regulatory barriers and lack of incentives by central government,
but also lack of awareness locally
Participants identified some opportunities, identifying that Kigali has a great opportunity to serve the housing
problem. One opportunity is to focus on local construction materials including clay and agro-waste to develop
bricks. Expanding homegrown construction is an opportunity – some initiatives already exist including
Rubengera College, which is a woodwork factory that creates eucalyptus beams and windows as well as
Rubila Clay that creates clay bricks. Kigali also has a unique climate that can benefit from passive design, using
what is free through design i.e. ventilation. The high cost of materials and energy also provide a case for looking
at these local and passive design alternatives. Furthermore, MINICOM is working on a paper to address some of
the barriers identified – which may guide the regulatory process to better support the sector.
3.2. Access to Finance Barriers and Opportunities
3.2.1. On-Grid
The On-Grid sector identified considerable barriers and challenges to access to finance, particularly in regard
to local commercial lending conditions as well as lenders’ technical capacities in understanding project
finance. Applicants also provided input on FONERWA’s credit line, and the opportunity to provide a more
effective instrument.
Regarding the barriers, they can be summarized into technical capacity and lending conditions (Table 7).
Table 7: On-Grid Access to Finance Barriers
Barrier
Specific Issue
Lack of capacity by
Local banks do not understand the sector or project finance. They treat project
commercial lenders
finance the same as house loans.
Local banks are not on board with projects and do not have technical capacity to
Unfavorable lending
conditions
Gap in lending
market
Other funds that
support renewable
energy
FONERWA Credit Line
understand them and conduct due diligence. Often international banks will transfer
the costs of due diligence onto developers and incur legal fees for drafting
agreements. These costs can be up to USD 0.5 million.
No renewable energy technical experts in commercial banks
High equity requirements.
Most local commercial lenders want 40%-50% equity, compared to 15%-20% in other
parts of the world. This works at a disadvantage to small projects ($1m-$5m) as it’s
hard for these small developers to contribute this equity and collateral. Larger projects
often don’t have this problem as they are in a strong position to negotiate and often
seek international finance.
High interest rates.
For projects over $5m, developers can source finance internationally at 3%-9% USD. In
Rwanda, the rates vary from 16%-20% for smaller projects. Considering this rate under
current REFIT tariffs, it was agreed not a single project could be developed in
hydropower.
Local lenders are risk averse
Local lenders often do not want to get involved with projects under $5m and
international lenders are often uninterested in projects under $20m due to transaction
costs. Therefore there are projects that are too small for both local and international
financing and that also fall in the range of $5m -$10m.
Most of the 300 identified sites are too small for international finance and need to be
funded locally.
Other funds targeting Renewable Energy often won’t look projects under $10m (i.e.
AFDB’s SEFA), which does not fit the remit of the 300 newly identified sites in Rwanda.
In addition, their timelines are often short (i.e. 9 months in the case of OPEC), which
are impossible to meet given the current bureaucracies faced in Rwanda.
Lack of equity coming into Rwanda
Additional costs imposed by BRD.
FONERWA credit line does not reduce the burden to the developer as with extra costs
of BRD, the interest rate ends up being at 14%-15%. This is not interesting to developers
and they prefer to seek outside financing
Credit Line is distorting BRD behavior.
BRD is no longer interested in considering hydro projects unless they qualify via
FONERWA. Therefore, this has distorted the market of financing for renewable energy
on grid projects in a negative light. BRD is behaving this way as it reduces their risk, as
FOENRWA is conducting the due diligence.
In terms of opportunities, the applicants did not identify any Access to Finance opportunities locally other than
more international investors are entering the market. However, they identified a number of opportunities that
FONERWA could deliver to better support the on-grid renewable energy sector, a number of suggestions were
made.
On the technical level, participants suggested that renewable energy experts and 3rd party experts that
provide due diligence can be placed in banks to improve the technical know-how and capacity of local
lenders. In addition, support from a due diligence perspective - to review the EIA, feasibility and loan
agreements - could potentially save hundreds and thousands of dollars for project promoters.
From the lending perspective, a number of ideas were suggested, although participants did note that many
types of structures can exist with each idea proposed, and technical experts would be able to determine the
best option. These ideas are listed below.
1. Financial instrument to support quality risk assurance
Project promoters face a quality assurance risk (as stated in Table 1) due to the fact that if REG defaults
payments to the developer, ATI is only committed to supporting REG after 6 months. This results in huge risk for
the developer as service on time is related to payments on time. This will increase the burden on debt and
paying back interest. Therefore, support in terms of waiving interest and deferring payments until ATI and REG
payments are made was suggested.
2. As small projects (projects below 5MW) exhibit high transaction costs, it would make sense to develop a
portfolio fund using a debt/equity instrument that would create a portfolio of projects for the
underserved clean energy market of 100kW – 1.5MW projects in Rwanda. One option would be for a
Venture Capital firm to develop a portfolio of 10-20 projects. This will not only reduce transaction costs
but also provide leverage in terms of streamlining PPA and REFIT policies. There are a large variety of
structures this type of fund can work around.
3. Rather than partner with one bank (as FONERWA has done with BRD), FONERWA can partner with 3-4
banks (regional and local) and have banks compete for projects under the FONERWA credit line.
4. Develop an in-house investment team that provides a minimum rate loan, with interest payments going
toward fund management (i.e. 3% loan/management fee)
3.2.2. Off-Grid
The most significant barriers to Access to Finance for the off-grid energy sector lies in the difficulty of end-users
to access financing for the products and high interest rates that micro and small entrepreneurs incur.
Regarding end-user finance, the money to purchase products does exist (i.e. as consumers purchase
kerosene), but due to high upfront cost of most off-grid energy products, end-users face a liquidity issue.
SACCO’s present one solution for end-user financing but most only target biogas, as they know the product is
being supported by the central government. In addition, securing an agreement with the SACCO can be a
long bureaucratic process.
High interest rates have an impact on small and micro entrepreneurs, particularly for the youth, who cannot
access loans due to collateral requirements and no bank history. As rural entrepreneurs, who have little to no
collateral, are considered more risky than an average investor, most lending facilities are either MFI’s or
SACCO’s, who charge high interest rates. Entrepreneurs also incur high operational costs in rural areas and
need more support in terms of upfront capital at reasonable interest rates.
However, some SACCO’s do provide lower interest rates, at even 5%, such as the teacher’s SACCO
(UMWALIMU SACCO) as they have the guarantee of the wages. MFI’s are also increasingly engaged in
Rwanda’s rural context, with specific rural development programs. However, an enormous opportunity is the
new mobile money market and pay-as-you-go business models, which have proven successful regionally,
particularly in Kenya, as they remove the barrier of high upfront costs incurred by the end-users.
As it is very difficult for small or micro entrepreneurs to get start up or demonstration financing without a
valuable security/collateral, there is more need for financial instruments for this segment, perhaps in the form of
a guarantee. Participants also suggested an incubator targeting small entrepreneurs.
3.2.3. Green Buildings
The most significant Access to Finance barrier was Rwanda’s practice coupling of planning with regulatory– this
process must be decoupled. For example, one participant applied under the credit line and had their planning
and drawings prepared but were unable to access the credit line as they were required to have a full building
permit, which would come at an additional $50,000 cost to the developer. It is important to note that this is not
regular practice in the rest of the world, where planning and regulatory permits are decoupled, and hinders
project development.
In addition, fees tend to be higher for green buildings as new innovations or technology transfer need to be
tested. Furthermore, banks and regulators do not have the technical capacity to understand these concepts.
Regarding the FOENRWA credit line, as most construction projects are large, investors tend to seek outside
financing, with one participant accessing a 4% USD Loan – therefore the 11.45% RWF rate is considered
unattractive.
3.3. Innovation Grant and Early Stage Funding
Participants were asked to provide insight into the relevance of the existing instruments to their sector and how
the grant instrument could better support early stages of business or project development. The results are
segregated by instrument and sector in Table 8. The results conclude that the instruments, particularly Proof-ofConcept and Demonstration are relevant for these sectors. However, it was generally accepted that while
separating these three windows was favored, the instruments themselves were restrictive from a private sector
developer or entrepreneur perspective. For example, one participant wanted to test a new concept but later
found out that they were not allowed to demonstrate their technology until all permits were approved by the
regulatory agencies – testing is significant component of demonstrating. Another entrepreneur found the
definition of demonstration too restrictive. Overall, the applicants wanted more information on what could and
could not be financed.
Table 8: Relevance of Grant Instruments and how Grants can better support the sectors
Instrument
Sector
On-Grid
Off-Grid
Green Buildings
R&D
Not very relevant
Very relevant
Not very relevant
- Mostly technology transfer
- Important to sector as
- Green buildings typically
- R&D would likely fall under
there are continuous
use what exists–most green
demonstration i.e. piloting
innovations
buildings never invent
technology transfer under local - Lack of R&D locally
anything new.
climatic conditions
- However, occasional R&D
- R&D can be a
might exist i.e. Nobelia had
continuous process for
to assess cement and
some products – so R&D
posilana (volcanic ashes)
should also include
mixture
updating technology
- R&D costs can be
significant – up to
$500,000 for one
participant
Proof-ofConcept
Very Relevant
- On-grid sector faces high predevelopment costs including
prefeasibility, feasibility, EIA,
technical design and execution
details.
- In some cases, contractor can
do designs but developer often
prefers to outsource to a design
company, as contractors can
provide low quality designs
- Pre-feasibility is often done at
developers expense but the
feasibility is at a huge cost,
particularly to smaller projects
and developers who have fixed
amount finances (i.e. 1.5MW
and less) and this is a huge risk
the private sector is bearing, as
project viability is only clear
after the feasibility.
- Feasibilities are risky
- Globally, governments
typically fund feasibility studies
but GoR has low resources
- When GoR tenders feasibilities,
they are unbankable and need
to be redone.
Not very relevant
- Proof-of-Concept ties in
closely with
demonstration in this
sector e.g. installing 20
solar kiosks can be proofof-concept or a
demonstration
Very Relevant
- Most relevant grant
instrument for sector. It’s
the first thing you need for
a green building
- Green buildings need a
process that comes up
with an optimum solution
for a building/urban
settlement and seeing
whether it is possible
- Need to conduct design
calculations (carbon
quantification etc.)
- Building modelling
(especially for larger
buildings is very expensive
Demonstration
Relevant
- As manufacturing costs in this
sector are high, the need to test
new technologies at a local
pilot level is needed.
Very Relevant
- Technology transfer,
new products and new
business models need to
be tested and this comes
at a huge risk and cost to
entrepreneurs
Relevant
-If you have proof-ofconcept, don’t need
demonstration
- However, testing new
materials, processes etc
could fall under
demonstration
How can grants
better support
your sector
- Very high need for feasibility
studies and technical designs
- Needed to upgrade existing
feasibility studies as they are
unbankable and don’t meet
international standards (even if
they are RDB approved)
- Need for grant funding on due
diligence, especially with deals
international banks as local
banks do not conduct due
diligence
- There exist different
stages of piloting. Even
after having conducted
a small pilot, still need
support to conduct pilot
at a larger scale before
being able to access
bank financing
- Marketing and market
development support for
awareness raising
- Developing designs are
very expensive (due to
need for higher levels of
testing, modelling and
prototypes) – grant can
support design phase
during feasibility. No one
wants to pay for
sustainable design
- Testing is an important
component of PoC or
Demonstration
- Providing funding for
certifications – they require
calculations (step 1) and
demonstrations (step 2)
which are at a high cost
-Need to provide training
to help people and policy
makers understand what a
green building or
settlement is – new ways of
understanding building
design.
4. Additional input on FONERWA Application Process
The participants were also requested to provide input on the FONERWA PPD and PD application process (Table
9). Although some of these comments and concerns are already being, a particular interesting point that was
raised by all three sectors is lack of engagement with the applicant/project promoter at both the PPD and PD
stage.
Table 9: FONERWA Application Process Feedback
Topic
Feedback
Technical/IT related
Need to make a new profile and email when making multiple
submissions
Difficulty in understanding if project is submitted in resubmission using
existing email
Can’t enter tables into PPD
Time frames for PD development
One month is too short to write a good PD
Relation between time to write a PD and time it takes to assess PD is
unequal – about 1 month to write and 2 months for FONERWA to
respond
Time frame for Credit Line
PD process should be accelerated and streamlined for credit line
Applicants
applicants as this sector is more motivated to reach financial closure
quickly
FONERWA should approve PPD’s without a PPA to help shorten timeframe – as project promoter can lose months if they have to reapply
and could potentially receive PPA shortly
Bank takes 3 months after FONERWA funding (which takes about 4
months) – this is a long time for financial close for a project developer.
Can applicants apply simultaneously? Novel Energy applied
simultaneously but also bore a financial cost of $5,000-$10,000 without
knowing if FONERWA will approve
Engagement with project
applicant
Applicants are not involved in PPD and PD process which is frustrating
and humiliating in terms of not being able to justify the project and
having project components manipulated (i.e. aspects removed) –
promoter unable to make their case after comments
IF a PPD/PD gets disapproved for a small reason or misunderstandings,
project developer has to go to next funding cycle or next PD cycle
which loses a lot of time, and money, for the developer. Can applicant
have the ability to respond to comments in the case they can be
addressed swiftly?
No engagement at PD stage is a disadvantage for beneficiary and
FONERWA – reviewers may have a lot of questions, which is
understandable, and developer should have an opportunity to answer
them – a pitch or Skype session could work
Capacity Support
Feedback
Other
Invite BRD to question applicants at FTC level, which can be a form of
due diligence
More workshops on how to apply for PPD
PD is a very difficult process for private sector developers who are
typically very busy and have multiple commitments – can FOERNWA
assign consultants to applicants?
FONERWA providing feedback was considered positive by participants.
However, major inconsistency in feedback was noted
One applicants found their PD response unjustified
Where does the focus lie in FONERWA? Is it related to Climate Change
& Environment or poverty reduction or national strategies? Applicants
can feel lost when developing the PD in terms of strategic orientation.
A lot of assumptions in the log frame calculations
FTC to have better understanding of high demand sectors. Suggestions
are to include sector specialist and to develop a forum to bring
together private and public sector actors
Innovation Grants are relatively small amounts and they should go
through a faster application process
5. Recommendations and next steps
Following the stakeholder engagement meetings and a subsequent presentation to the FMT’s Fund
Coordinator, Project Manager and Financial Management Specialist, the below follow on activities are
suggested;
- Updating the Innovation Grant and Guidelines: This will specifically include creating a more detailed
guideline, taking into account comments from the private sector. There was consensus that the
guidelines were not clear enough in terms of what can and cannot be funded under each instrument.
Justifications will be provided for each change. Once there is consensus at the FMT level, these will be
presented for FMC for final approval.
- Training and engagement with FTC and FMC: the above stakeholder engagement results will be
presented to FTC and FMC members at the end of January, to help inform on decisions on the updated
guidelines for the Innovation Grant as well as provide members more information on the business
climate that the private sector faces.
- PPD/PD application review for the private sector: The PS Specialist will review PPD/PD application.
Recommendations will be provided on whether the forms or processes can be better designed to
capture relevant information for private sector projects under the existing instruments.
- Second Financial Instruments Scenario Analysis: Following the above activities, the private sector
specialist will conduct relevant desk research, stakeholder engagement and design a methodology to
develop potential options for a second financial instrument – after internal review, these will presented
to FMC with recommendations. FMC will guide the strategic direction of FONERWA private sector
funding.