The SOARING programme, launched in June 2019, is designing and implementing a prototype approach to prepare, bundle and structure investments into small and medium-sized clean energy projects in Zambia and Tanzania.
Southern African countries face a considerable challenge in financing their climate change mitigation and adaptation plans. Nearly all Nationally Determined Contributions (NDCs) submitted under the Paris Agreement on Climate Change include targets conditional on receiving additional public and/or private finance. The agricultural sector still plays a major role in Southern African economies, representing up to 27% of GDP and 13% of export earnings. SMEs, meanwhile, form the backbone of Southern African economies, but report substantial challenges related to limited access to energy supply and to financing. These challenges negatively affect SMEs’ resilience to shocks such as the one caused by the current Covid-19 epidemic and any future ones caused by climate change
REEEP and its partners have identified an opportunity to simultaneously support SMEs providing clean energy solutions for agricultural value chains, advance the pilot countries’ NDC targets by displacing fossil fuels, and enhance the resilience of the agricultural sector through improved access to clean, reliable energy. The SOARING programme is implementing a prototype approach to enable small- and medium-sized companies of clean energy and productive use technologies leveraging solar (green SMEs) to access climate finance, and especially local currency financing.
After the market scoping studies completed in 2020 in Namibia, Tanzania and Zambia, it was confirmed that while the combined financing requirements of Southern African SMEs are huge, their individual asks are far too small for existing climate finance instruments and for most investors that require large ticket sizes. At the same time, SOARING identified existing concessional credit lines earmarked for energy access that have been untapped by local financial institutions for years.
The conclusion of the market scoping exercise also indicated that there was an opportunity to (i) focus the programme on Zambia and Tanzania, mainly due to the size of the markets and the absence of suitable local finance to the target sector, and (ii) use blended finance instruments and Green Banking tools to unlock local currency financing to the sector via the existing infrastructure of national development banks and local financial institutions (LFIs), which provide the required penetration and capillarity to reach green SMEs and their end customers.
SOARING is now supporting four participating LFIs in Tanzania and three in Zambia to deploy climate finance to green SMEs, via four main tools:
- First Loss Reserve for risk mitigation to LFIs
- Green Banking Capacity Building for improved skills and co-design of market-fit lending products
- Pipeline Origination and Development to ensure uptake of existing concessional lines and additional financing
- Local Platforms for Change for stakeholder engagement
With SOARING, REEEP and its partners are simultaneously supporting (a) green SMEs to provide clean energy solutions in rural areas and for agricultural value chains, (b) countries to advance the NDC targets by displacing fossil fuels, and (c) rural communities through improved resilience with access to clean and reliable energy.
The learnings from this pilot will be published under an ‘SME Climate Finance Pathway’ report, which will facilitate replication of the programmes’ achievements in other sectors and countries.