The Southern African Renewable Energy Investment and Growth (SOARING) programme supports SMEs in Tanzania and Zambia in accessing finance for clean energy initiatives. Managed by the Renewable Energy and Energy Efficiency Partnership (REEEP) and funded by Germany’s International Climate Initiative (IKI), the programme addresses key market barriers, through combining financial support, in the form of a credit guarantee facility, with non-financial assistance to help SMEs structure investment-ready proposals. The programme also engages financial institutions, providing training and tools to integrate clean energy considerations into lending practices. Local market platforms facilitate stakeholder collaboration and enable SMEs to pitch projects to financiers.
Renewable Energy and Energy Efficiency Partnership – Southern African Renewable Energy Investment and Growth Programme
Abstract
The Southern African Renewable Energy Investment and Growth (SOARING) programme was launched in 2020 and aims to enhance access to clean energy finance for SMEs in Southern Africa. Through addressing key market barriers, SOARING seeks to develop a clean energy market in Tanzania and Zambia. The programme is managed by the Renewable Energy and Energy Efficiency Partnership (REEEP) and is funded by the International Climate Initiative (IKI), part of the German Federal Ministry for the Economic Affairs and Energy (BMWE).
SOARING found that SMEs face major obstacles in obtaining clean energy financing due to limited awareness, expertise, and collateral, coupled with high perceived risk, underdeveloped project proposals, mismatched loan sizes, and a lack of green finance expertise among financial institutions.
The programme aims to address these challenges through providing financial and non-financial support to both SMEs and financial institutions (FIs).
SMEs are supported through numerous measures including:
Capacity building: training FIs on clean energy business models and technologies;
Technical assistance: assisting SMEs in making their projects bankable, providing guidance on project structuring, financial planning, documentation and fulfilling due diligence requirements;
Credit guarantee facility: totaling EUR 1 million, providing complementary financial support to de-risk SME lending, enhancing their ability to access green loans from local financial institutions;
Pipeline development: assisting banks with building a pipeline of bankable SMEs by providing targeted technical assistance particularly on business and financial model refinement.
For FIs, support focuses on building awareness and expertise in green financing by helping them integrate clean energy considerations into their decision-making and lending practices. This is done, for instance, through providing them with suitable credit risk assessment tools which take green considerations into account.
REEEP also establishes local market platforms, connecting key stakeholders, including public agencies, financial institutions and SMEs. The platforms serve as knowledge-sharing fora and aim to facilitate matchmaking. A portion of the events organised under these platforms connect FIs with clean energy SMEs and offer the latter the opportunity to pitch their project proposals to financing providers. They also bring together public and private stakeholders to encourage private sector engagement in financing SMEs’ clean energy projects.
To qualify for the programme, SMEs must be involved in clean energy, either by adopting clean energy practices into their operations, or distributing clean energy solutions, to enable the greening of other actors. SMEs should also either contribute to the greening of agricultural value chains or to local and rural development. For selecting SMEs, REEEP has hired local consultants in both countries to seek out SMEs involved in clean energy initiatives on the ground.
Since the launch of the programme, more than ten financial institutions in the two countries have been trained. Capacity-building support on clean energy financing has reached more than 120 participants of governmental institutions, regulatory bodies and civil society organisations. In Zambia, SOARING has engaged 50 local companies in the programme. After programme expiry in 2027, its learnings are planned to be published in a ‘’Renewable Energy Financing Pathway’’ report, with the goal of replicating success factors in other sectors and countries.
Prior to the launch of the programme, REEEP conducted background market research across several Southern African countries. Zambia and Tanzania were subsequently chosen due to their market maturity, making them well-suited for the implementation of this project.
The programme encountered various challenges including:
Limitations of debt financing: One key learning from SOARING is that debt financing alone cannot meet the clean energy financing needs of all SMEs. Early-stage enterprises, in particular, require risk and growth capital, such as private equity or venture capital. However, such financing is largely unavailable for SMEs involved in clean energy projects in Southern Africa. As a result, REEEP redirects these SMEs towards alternative financial products and programmes.
Small guarantee amounts limit loan coverage: The guarantee facility aims to provide coverage for as many SMEs as possible, but it can only cover loan sizes of up to EUR 250,000. For many banks, these loan sizes are deemed too small, unless the SME is well-established. As a result, there have been challenges in getting banks on board, which in turn has limited the overall financing access.
Throughout the programme, there have also been a number of lessons learned:
Hesitancy amongst local financial institutions: Even with provided guarantees, banks proved to be reluctant to finance SMEs’ clean energy projects, due to limited awareness and expertise in assessing clean energy investment proposals. REEEP is addressing this knowledge gap through capacity-building initiatives, providing banks with credit risk assessment tools tailored to clean energy projects.
Bureaucratic processes: Particularly present in larger banks, this often led to delays in financing. In response, REEEP started engaging more with MFIs, where bureaucracy proved to be less potent.
Importance of non-financial assistance: Guarantees alone were found to be insufficient in fully unlocking SMEs’ potential. Technical assistance and capacity-building measures proved to be crucial in equipping SMEs with the necessary skills to use the funds efficiently.
Unlocking previously unavailable financing: Through the financial support provided by the guarantee, SOARING de-risks SMEs’ profiles, in turn enhancing financing access. Complementary non-financial support, in the form of technical assistance and capacity building, enables SMEs to develop investment-ready proposals. For financial providers, it builds up the necessary knowledge and expertise in assessing and delivering green financing solutions. Through bridging this knowledge gap, SOARING effectively lowers the risk perception of SMEs vis-à-vis financial institutions. For instance, one SME supported by REEEP was able to secure financing for their clean energy project at an interest rate reduction of six percentage points, albeit from a high initial interest rate of 30%.
Fostering partnerships between financial institutions and SMEs: Through REEEP’s market platforms, SOARING is able to successfully connect financial institutions with clean energy SMEs. Non-financial support to financial providers has also increased the expertise of MFIs in clean energy financing. Even without the use of the credit guarantee, MFIs have now started piloting the provision of green loans for SMEs.
Pipeline approach making projects more bankable: Whilst many individual SME clean energy projects are too small to attract financing, the project aggregation approach of SOARING has managed to create a pipeline of viable projects. Employing this strategy has made proposals more attractive to banks, which in turn has increased clean energy financing supply.
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