Access to reliable and affordable energy remains a considerable challenge in Rwanda. For Rwanda’s private sector to be competitive, the energy issue must be addressed as a crosscutting driver for economic growth. According to Dr. Livingstone Byamungu, the Chief Investment Officer at the Development Bank of Rwanda (BRD), “availability of sufficient energy is important for socio-economic growth and is at the heart of development as all industries ranging from agro-processing, to manufacturing and infrastructure development depend upon it for their success.”
The energy sector in Rwanda is still in its early stages of development although there has been increased private sector involvement over the past 3 years. High capital requirement is one of the key challenges that is keeping many from venturing into the sector. “For instance, to set up a hyro-power plant that can generate only 2MW, one should be prepared to invest a minimum of 10 Billion Rwf. Although BRD can finance upto 70% of the cost, 3 Billion Rwf. is quite a considerable amout of money” explains Dr. Livingstone.
In addition to high capital requirements, there is little knowledge among the general public and specifically in the private sector, including financial institutions and investment funds who are ideally the leading potential investors in the energy sector. As a result, they are unwilling to risk investing in the sector hence hurting growth. Dr. Byamungu says that more should be done by responsible institutions to create awareness about the investment opportunities in the sector.
Although he admits that the initial cost of investment is high, he stresses that the returns are guaranteed and include excellent cash flows given the obvious energy gap that the country is currently experiencing and the favourable government power purchase agreements. A unique outcome of increased investment in the sector is that as more investments are made, the cost of electricity is going to be driven down, thus benefitting all Rwandans and spurring economic growth.
Rwanda’s target is to substantially increase its energy supply from its current level of about 200MWby 2018, at the same time increasing access to electrification to 70% of households (48% on grid and 52% off grid). The Government of Rwanda has established the strategic framework for Rwanda’s energy sector in the Energy Sector Strategic Plan (ESSP) and the National Energy Policy in recognition of the role of electricity access in accelerating Rwanda’s economic development, in addition to improving health outcomes and standards of living for Rwandans.
The target is to ensure 70% of households and 100% public institutions have access to electricity by 2017/18- this so to be met through a combination of on-grid and off-grid energy supply solutions as stated above.
The Development Rwanda of Rwanda (BRD) is committed to supporting the Government’s targets for electricity access to all Rwandans. In the Bank’s new strategic plan (2016-2020), USD 185 million will be invested in the Energy sector and an additional USD 638 million will be catalyzed from other stakeholders. So far the Bank has funded projects worth over Rwf. 18 billion Rwf.
BRD’s interventions have been designed to address key constraints in the sector such as high startup costs and risks involved. Energy projects require significant time and financial investments and their long-term nature requires specialized financing terms.
With the adoption of the new strategy, BRD has set up a Department of Energy Financing which is in charge of implementing the Bank’s intervention in the Energy sector. These interventions are grouped into three main programs:
This program’s objective is to directly contribute towards closing the country’s energy gap through financing energy generation projects. To date, the Bank has financed hydro-power, bio mass and peat fired energy projects and has recently approved a methane gas fired plant project that will generate 80 MW.
The Bank is providing solutions to energy developers through a combination of products including Debt and Equity Financing and provision of Long Term financing with enough grace periods. BRD is also contemplating collaborating with other financial institutions to provide syndicated financing for large projects and to grant guarantees to projects sponsors where possible. The Bank’s investment, together with its lending partners will be expected to contribute to a generation of 66MW of electricity over five years as per the strategic plan: 2016-2020.
In line with the green economy initiative, the energy efficiency program intervenes by financing energy reduction capital projects and financing alternative energy products. The focus of the project is on energy efficiency rather than mere energy production.
“Through financing these projects, we not only improve energy efficiency in the country but also increasing supply. Energy that is going to be saved through these projects is going to ideally increase electricity supply for the country. For instance, if we can improve efficiency and save energy in a particular industry, that saved energy is going to be used to in another industry or can be used to electrify a number of Rwandan homes.” explains Mutijima Hector, Senior Manager Energy financing department at BRD.
The Bank’s intervention in energy efficiency will result in a saving of at least 6.6 MW within the next five years. Rwanda’s current energy needs are dominated by biomass, but as the country’s focus is shifting towards renewable sources of energy, the Bank has adopted alternative energy sources of renewable energy as it priority.
Technical expertise is at the heart of the energy sector’s growth. This is according to Dr. Livingstone who insists that without the proper skills in the market, the energy sector would be at risk of stagnation. The Bank’s objective it to therefore contribute towards a well skilled workforce for the energy sector.
The Bank will partner with other stakeholders to develop technical capabilities of the different players in the sector. The Bank will provide technical skills in early stage development support, management and operations, and structuring energy deals among others. In-house expertise in packaging energy arrangements will be developed as the Bank’s goal is to be a hub for knowledge in energy financing by sharing lessons learned within the sector.
Energy sector in Rwanda is envisioned as one of the most lucrative in the very near future. The Government has put in place structures to facilitate private sector engagement in the sector. According to Dr. Livingstone, it is fairly easy for investors to obtain concession and power purchase agreements which are key for sector investors. As more local and international investors understand how the sector works and the market in general, Rwanda is likely to see more investments in the sector and undoubtedly a spur in socio-economic growth.