Financing Renewable Energy Technologies for End Users: the Role of Strategic Partnerships Between Financial Institutions and Energy Service Companies in Enhancing Uptake of Solar Credit

Abstract

There is consensus in literature that stimulating an off grid energy market can provide impetus in promoting access to modern forms of energy for low income households. Acquiring off grid energy solutions like solar home systems has, however, proved difficult for the energy poor because of high startup costs. However, there is a lot of literature that suggests microfinance has the potential of accelerating uptake of solar by offsetting these costs. Analysis of various financing models offered in various countries in the Global South shows mixed results. While in countries like Bangladesh and India financing schemes have achieved scale, in the case of Kenya, previous financing models by financial institutions and development organizations have not. A closer analysis of successful financing models shows that there has been significant involvement of energy companies in the provision of solar credit through partnerships with credit providers. Despite this, the role of energy companies in accelerating uptake of solar credit and solar technology has not been thoroughly discussed. In studies done on Kenya’s financing models, the nature of these partnerships and their implications on uptake of solar energy has not been explored. This study fills this gap. It looked at the nature of strategic partnerships between financial institutions and energy companies and how they are impacting the uptake of solar credit. The study carried out 5 in-depth case studies of partnerships between local Kenyan financial institutions and energy companies. Since the number cases to be studied were very limited, no sampling was done. Instead, the study opted to do a full census. The aim was to understand the relationship between these partnerships and the uptake of solar credit. Interviews were done with senior managers in financial institutions and their partner energy companies using a semi structured questionnaire. Interviews with key informants in the energy and financial services space were also conducted. The study found that strategic partnerships between financial institutions and energy companies had a positive effect on the uptake of solar credit. The partnerships have led to extensive sharing of resources including financial support, distribution networks for solar products, and manufacturing assets. The study also found that sharing of knowledge through the partnerships has been significant in most cases. Banks have benefited from the expertise of energy companies in the energy market. This exposure has helped them develop financing packages that meet the needs of targeted consumers. Energy companies on the other hand are accelerating sales of solar systems in low income communities by leveraging on the credit options offered by financial institutions. The study also found that institutional size, networks in targeted communities, and loan size had an effect on uptake of solar loans.