Results-based funding makes solar possible in Tanzania

Innovative new financing schemes are opening up new opportunities to supply much needed power to communities in Tanzania, where only 14% of the population has access to electricity.

In a recent report, SNV Netherlands Development Organisation says that while a vast majority of the country is likely to remain off-grid for decades, financing initiatives like its new results-based funding (RBF) program can help bring together the private sector and isolated communities desperately in need of modern energy devices.

The idea behind RBF is that payment is made upon delivery, with businesses shouldering the risk until the goods are supplied.

SNV is partnering on an RBF initiative launched in Tanzania’s Lake Zone that is considered to be the first RBF fund in operation under the global Energising Development (EnDev) program.

The €1 million fund was designed and set up by SNV, managed by German development aid agency GIZ, financed by the United Kingdom’s Department for International Development (DFID) and hosted by Tanzania’s TIB Development Bank.

The initiative, launched last year, is assisting the private sector in developing the market for pico-solar products in isolated rural areas. SNV is also overseeing the project to “ensure fair, transparent and verifiable financial transactions throughout management of the fund.”

According to SNV research, there is strong demand for solar systems in the Lake Zone area: More than 40% of rural households specifically want solar as their preferred energy technology option. At the moment, only 3.5% of household in the region have access to solar products.

“[T]he RBF scheme is designed to provide incentives to pico-solar import-suppliers and retailers/end sellers to bolster their investments in solar distribution chain development by rewarding these private sector players with incremental sales based performance incentives,” says the SNV report.

Five companies are taking part in the first round of the RBF program: Ensol, Global Cycle Solutions (GCS), Off Grid Electric, Sunny Money and Zara Solar.

Says Off Grid Electric CEO Xavier Helgesen, “This incentive is exactly the kind of support we need to rapidly expand energy access to the customers who need it most. We believe it is an ideal model because it accelerates the market without distorting it, and will do our best to demonstrate its effectiveness in practice.”

The RBF program is open to the private sector from April 2014 through August 2017.