Engaging Financial Institutions - Sustainable Financial Mechanisms for Promoting Renewable Energy Technologies to the rural community

Nov 12, 2018

Staff from financial institutions, such as microfinance institutions and private commercial banks, in Ethiopia are receiving training on a sustainable financial mechanism to encourage clean energy lending in the country.

The training to promote renewable energy technologies is jointly organized in Adama, from 12-13 November 2018, by the Ministry of Water Irrigation and Energy (MoWIE), the Development Bank of Ethiopia (DBE), United Nations Development Programme (UNDP) and United Nations Capital Development Fund (UNCDF).  

Through the training, conducted by both local and international trainers, senior managers, loan officers and branch managers from financial institutions (FIs) will interact with rural energy technologies suppliers in order to enhance their knowledge and scale up opportunities for partnerships between suppliers and FIs.

Expanding access to energy in rural areas is an important priority for the Government of Ethiopia, which recognizes that providing access to energy stimulates rural economic growth, reduces poverty and contributes towards Sustainable Development Goals.

Around 6 million households (35% of the total households in Ethiopia) are still living without electricity and this is forcing them to struggle to complete daily tasks, limiting the time for children’s study to source of daylight, and compromising health service due to power cuts, and affecting business productivity. It is also estimated that over 88% of the population currently uses traditional biomass for cooking and this over-reliance is resulting in significant pressure on the country’s forests.

Speaking at the opening ceremony of the training program on behalf of UNDP, Gizachew Sisay, heading the Inclusive Growth and Sustainable Development unit, stressed the importance of effectively engaging the private sector in a market-based approach to ensure sustainable access to renewable energy. 

Mr. Prem Sagar Subedi of UNCDF explained about the CleanStart Project, which envisions fostering access to clean energy financing through partnership with energy and financial service providers. Offering seed capital, challenge fund, data analytics, market research, capacity building and policy advocacy services are some innovative financing solutions developed by the CleanStart programme to reduce energy poverty. Mr. Subedi also highlighted the need of financial services to the low-income households and enterprises which can’t afford the off-front cost of the technologies but have the capacity pay the installment over time.

The training for financial institutions falls within a wider support area for Ethiopia that pulls together UNDP and UNCDF in partnership with MoWIE and the Development Bank of Ethiopia as well as other partners on the “Promoting Sustainable Renewable Energy Technologies (RETs) for Household and Productive Uses” project, funded by the Global Environmental Facility (GEF).

“Despite the fact that the country has huge energy potential from the renewable energy sources, very limited amount has been exploited at present,” noted Ato Yiheyis Eshetu A/Director - Alternative Energy Technology Development and Promotion Directorate, stressing that, “Therefore, it is important to give due attention with regard to utilization of renewable energy sources.”

The project seeks to implement a more private sector-driven and market-based approach towards promoting renewable energy technologies in rural communities in Ethiopia.  Through this intervention household and productive sectors in the rural areas will be encouraged to enhance their use of renewable energy technologies, such as solar lighting solutions, improved cook stoves and domestic biogas plants, improved fuels such as briquettes.  

A Credit Risk Guarantee Fund has been established to increase the availability of capital for investments (capex) or working capital requirements (opex) of RET enterprises, which is identified as one of the main barriers for RET enterprises to run and expand their business. This fund has been placed with the National Bank of Ethiopia in a blocked account and is serving as the guarantee. The fund is administered by the DBE which acts as the guarantor.

The project interventions are designed to remove barriers that hamper the wide-scale use of off-grid renewable energy technologies in households and productive uses in rural areas of Ethiopia, where extending the grid is simply not feasible in the short-run and where the ability to pay for larger-scale solutions is often limited.

By 2020, the project seeks to have facilitated access to renewable energy to 1.5 million beneficiaries, including 290,000 low-income households. This in turn is expected to lead to a reduction in Ethiopia’s energy-related CO2 emissions by approximately 2 million tons carbon dioxide equivalent.  

Contact information

Kidanua Abera

Programme Analyst 

Energy and Low Carbon Development 

kidanua.abera@undp.org 

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