Extend Financing to Solar Companies to Achieve SDG 7
Energy is an important factor for human development as underscored in the United Nations Sustainable Development Goal 7 (SDG7). SDG7 seeks to ensure access to affordable, sustainable, reliable, and modern energy for all by the year 2030.
Despite this target, 789 million people worldwide, the majority of whom live in sub-Saharan Africa lack access to electricity. This is according to the State of the Global Mini-Grids Market Report 2020 published by Sustainable Energy for All (SE4ALL) and Bloomberg.
For centuries, energy has fostered economic development and created wealth for nations. For example, the 18th-century British industrial revolution was heavily driven by coal.
In the Middle East and the United States, sectors such as aviation, agriculture, health, manufacturing, education, and most recently the technology revolution have been largely powered by proceeds from oil and gas. There is therefore a clear correlation between energy and economic development.
World economic powerhouses like the United States, Britain, Germany, and China which have high energy access levels, score very highly on the human development index in comparison to those with low energy access like Uganda.
Globally, past decades have seen over-reliance on fossil fuels to power industries and households. However, with technology innovations and climate change awareness and adaptation measures taking root, there is a shift towards renewable energy utilization with sources like solar, wind, water (hydro- which is the major energy source for Uganda), biomass, and geothermal gaining prominence. Development partners are leading the transition to renewable energy given its affordability and ease of maintenance especially for small scale businesses and households.
At the recent Global Off-grid Forum and Expo, held in Nairobi, Kenya, organized by GOGLA – the global association for the off-grid solar energy industry and the World Bank’s – Lighting Global, investors agreed to support the growth of the off-grid solar market and accelerate universal access to affordable and sustainable energy by 2030.
The solar energy sector in Uganda is only two decades old but its impact on the overall economy has not gone unnoticed in terms of employment, powering agriculture, lighting up schools, homes, businesses, and health centers in remote off-grid communities.
Despite government’s emphasis on increasing grid connections through heavy investment in the construction of hydro-power plants over the years, only about 5% of rural Ugandans have access to energy as per the Electricity Connections Policy 2018-2027.
This has affected household incomes and left many Ugandans stuck in abject poverty as they are unable to engage even in the most basic economic activity.
It is impossible for a rural farmer to improve production and add value to his produce without a reliable energy source.
Solar companies in Uganda have sought to change this narrative by providing affordable solutions such as pay-go, where customers pay for solar power systems in daily, weekly, or monthly installments.
Although the pay-go model has spurred increased access to energy due to its ability to include low-level earners, it has not been without pitfalls.
Lack of access to affordable and patient financing is a major hindrance to the growth of many solar energy companies in Uganda making business expansion difficult. It limits the number of clients they can offer products on models such as pay-go and remain operating.
Unfavorable taxes by the government, with companies being taxed differently for similar items also makes importation of solar products and accessories burdensome.
Other challenges include poor, regulatory and policy environment which pits off-grid energy solutions against on-grid electricity hence creating a negative perception that deters investment; limited collaboration between government and the private sector when implementing the off-grid strategy as well as limited consumer awareness on the value of off-grid products.
The government can, however, remedy this situation and ensure that the country meets its SD7 target by extending financial subsidies to the solar sector and integrating off-grid solutions in its rural electrification plans.
While a big chunk of Uganda’s budget goes towards the energy sector, only a paltry sum is set aside for off-grid electrification programs.
With 80% of Uganda’s population living in rural areas, the quickest solution to Uganda’s energy access problems is through off-grid solar solutions.
In its 2019 position paper titled; “Increasing Energy Access through Off-grid Solar Solutions,” the Uganda Solar Energy Association (USEA) notes that Uganda’s standalone solar market is at risk of failing to grow fast enough for the country to achieve universal energy access.
The market will fall into a shrinking trend if urgent action is not taken to improve the policy environment and support the sector. The government should, therefore, make the sector’s tax regime more conducive to growth and improve access to finance for off-grid solar companies in the shortest time possible so that the country does not lose the strides so far made in realizing rural electrification.
Such a commitment will endear the government to the electorate as energy has a direct and immediate impact on their livelihood.
The writer is a communications specialist at USEA.