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Rwanda Ranks 5th Easiest Country Globally To Invest In Green Energy

Environment

Rwanda Ranks 5th Easiest Country Globally To Invest In Green Energy

A global study, Climatescope, has ranked Rwanda the 5th nation among those that are leading the global clean power transition.

Climatescope is a unique country-by-country assessment, interactive report and index that evaluates the investment conditions for clean energy in emerging markets.

It profiles 103 markets worldwide and evaluates their ability to attract capital for low-carbon energy sources while building a greener economy.

Climatescope, published by BloombergNEF, is a snapshot of where clean energy policy and finance stand today, and a guide to what can happen in the future.

This marks the seventh year of the Climatescope project. Rwanda was 17th last year.

Report analysis 

Power Market

Rwanda’s power mix is based heavily on hydro, at just under 50% as of June 2018, but other technologies, such as solar, natural gas and diesel are represented. State-owned Energy Development Corporation Ltd. has been the most prominent developer, but there are a multitude of private players involved in Rwanda’s generation sector. The country has an oversupply of on-grid generation, as well as a backlog of contracted projects. As a result, new developers will not be able to secure permitting until the roughly 200MW of generation projects with existing contracts are commissioned. The country is instead focusing near-term investment into transmission and distribution, both of which are fully controlled by REG.

Clean Energy Policy

Growth in Rwanda’s energy sector has been driven by two major targets: 563MW of generating capacity by 2018 and 100% electrification by 2024. While the country failed to meet the first goal, and was forced to push the second goal back (it was originally 70% by June 2018), the progress the country has made is unprecedented for Sub-Saharan Africa. The country has quadrupled its electrification rate from 10% in 2010 to over 44% in 2018 and increased generating capacity from 85MW to 216MW over the same period. The off-grid sector is expected to make up 48% of Rwanda’s electrification rate by 2024, and a healthy congregation of solar home system providers are now successfully doing business in the country.

Clean Energy Investment

Investment in Rwanda’s clean energy space has been volatile, despite consistent year-on-year growth in electrification. Most historical on-grid investment has been in hydro, natural gas and solar, but national utility Rwanda Energy Group (REG) has halted all permitting for future on-grid generation due to a current oversupply. Most future investment in Rwanda’s energy market is expected to go toward expansion of the grid to meet this oversupply and to off-grid companies working with communities that won’t have grid access in the near future. The financing matrix has been dominated by donor groups, most notably through a EUR 200m loan from the European Union and the World Bank’s Scaling Up Renewable Energy Program (SREP).

Price environment

Electricity prices in Rwanda are among the highest in East Africa, and commercial and residential tariffs have increased since 2010. The biggest driver of this is the ‘take-or-pay’ contracts administered by REG. These contracts compensate developers for the contractual offtake from their project even at times when power cannot be evacuated. As a result of these high prices and low income levels in the country, retail electricity is highly subsidized by REG and the Government of Rwanda. Small hydro remains the most popular source of generation, due to the strong network of rivers in Rwanda, but the country has also taken advantage of methane from gaseous lakes in the southwest to generate electricity.

Doing Business

Rwanda prides itself on being one of the best markets to do business in among Sub-Saharan African countries and has an appetite for domestic and foreign investment to serve its fast-growing economy. The Rwanda Development Board has been created to support private sector players entering the country, complementing the strong presence of commercial and donor-backed lenders on the ground. Most of the growth in the energy space has been off-grid, as Rwanda has reached critical mass in its on-grid sector with an oversupply of generation. The Government of Rwanda has developed transparent grid extension plans, designating specific areas for off-grid development, which has led to dozens of off-grid and mini-grid companies operating in the country.

Barriers

Being a landlocked country, importing components into Rwanda is an expensive endeavor, even if most pieces are exempt from value added taxes. At the same time, a strong government presence in the growth of the country’s energy sector can sometimes prove overbearing: in an effort to expedite electrification rates, the government ran a tender for exclusive solar home system distribution rights to the country’s poorest households. Threat of similar tenders in the future is of concern to the country’s off-grid players, and would interfere with what is otherwise an attractive market to do business in.

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