Matching Clean Energy Finance Needs with the Appropriate Financial Toolkit in Rwanda

In developing countries, renewable energy investment is a priority. But deployment faces systemic barriers preventing institutional investment. Moreover, project developers struggle with inadequate financial instruments that fail to address unique emerging market risk profiles and capital requirements.

Rwanda is no exception to this trend. The country has set goals to expand energy access. With abundant sunlight, increasing solar energy is its biggest opportunity to do so, with investment needs reaching into the billions over the coming decades. How can this scale be achieved?

Here, we’ll look at the factors influencing clean energy finance in Rwanda, then describe how participants in a WRI-convened workshop in Kigali identified barriers and pinpointed financial and policy solutions to clean energy deployment in Rwanda, with a focus on grid-scale solar projects.

Rwanda’s Energy Landscape and the Solar Opportunity

While Rwanda presents compelling opportunities for grid-scale solar projects, targeted policy and financial solutions are required to realize the full potential of such renewable energy investments.

Policy context and relevant frameworks

The Rwanda Energy Policy 2025 provides high level guidance on long-term energy goals, complemented by the Energy Sector Strategic Plan, which details the short-term actions and priorities to achieve the long-term goals. The institutional framework is anchored under the Ministry of Infrastructure as the lead ministry, Rwanda Energy Group as the state-owned utility and the Rwanda Utilities Regulatory Authority as the regulator. Rwanda Energy Group has two subsidiaries: the Electricity Utility Corporation Limited in charge of utility operations, and the Energy Development Corporation Limited which handles planning, energy development activities and electrification rollout.

Private sector participation is limited to power generation only through independent power producers, while transmission and distribution is within the mandate of the Electricity Utility Corporation. Additionally, the corporation is the sole off-taker for generated power that would feed into the national grid, and each power producer would enter into a power purchase agreement negotiated on a case-by-case basis. Some incentives exist, like tax reliefs, that can attract more independent power producers, however, more policy improvements are needed to standardize cost-reflective power purchase agreements and extend feed-in tariffs.

Clean energy goals

According to the Rwanda Energy Policy 2025, Rwanda aims to achieve universal energy access by 2030 using both on-grid and off-grid solutions. As of February 2025, the country has attained 82.2% household electricity connectivity, with 57.4% connected to the national grid and 24.8% accessing electricity through off-grid systems (mainly solar). Rwanda is rapidly diversifying its energy sources to renewables in alignment with its updated nationally determined contribution (NDC) aiming to reduce greenhouse gas emissions by 38% by 2030.

Rwanda’s total installed electricity generation capacity is currently at 406.4 megawatts (MW), with 27% from hydrological resources and 3% from solar power plants. The current power generation mix includes 39% from hydropower, while solar accounts for only 1% of the total energy generated. With an overreliance on hydropower—which is susceptible to the impacts of climate change—and to minimize power imports owing to the generation deficit, it is crucial for Rwanda to expand generation.

Rwanda has a big opportunity here given the high solar irradiance (4.5 kilowatt hours per square meter per day) of the country. Rwanda’s Least Cost Power Development Plan 2024 – 2050 projects additional installed capacity of 1,492.85 MW of solar photovoltaics embedded with battery storage by 2050. 

An account of financing needs

$3.6 billion is required to meet Rwanda’s energy needs up to 2035. Approximately $69 million of this is required to develop solar power plants to increase electricity generation capacity. This need will accelerate from 2035 to 2050, as estimates suggest that cumulative power generation costs up to 2050 will be $38 billion in one of the forecasted scenarios, with projections of solar investments amounting to $16 billion.

Implementing climate mitigation and adaptation projects in line with the NDC targets requires $11 billion. The Energy Sector Strategic Plan, which is currently being updated, is set to provide capital expenditure and operating expenditure financing requirements for the next cycle of its implementation window.

SIDE BAR: INSERT LINK TO THE PROJECT PAGE ABOUT THE QUESTIONS

WRI’s Workshop to Determine the Appropriate Capital Stack for Rwanda

During a workshop convened and facilitated by WRI in Kigali in July, participants (ranging from policymakers, private sector players and financial institutions) piloted a set of questions created by WRI to understand the technological and market conditions relevant to financing clean energy in Rwanda. Stakeholders characterized the overall environment in terms of technological maturity and market readiness before answering additional revenue- and cost-side questions.

As a result, they identified the maturity of grid-scale solar development as emerging and found that market readiness for grid-scale solar was moderate. How did they come to these rankings?

• Technical expertise gap: Participants identified a critical gap in local technical expertise for grid-scale solar project development, operation and maintenance.
• Financial sector knowledge: Participants from the finance working group emphasized a major gap in clean energy financing expertise among local banks, local private equity firms and even local development finance institutions. Carbon financing is also emerging as an avenue for grid-scale solar projects to access climate finance. In 2023, Rwanda launched its first national carbon market framework to streamline the structure of carbon trading and improved transparency in project validation.
• Regulatory implementation capacity: Policy group participants noted moderate gaps in regulatory implementation capacity of grid-scale solar projects, particularly in coordinating between different government agencies.  

These discoveries were then used to think through appropriate solutions. The discussions revealed the following core risks which required tailored financing to address them:

• On the revenue component, off-taker risk emerged as a major risk for grid-scale solar projects given that there is only one off-taker (the Electricity Utility Corporation) and revenue does not rely on retail user fees. Instead, independent power producers would have to sell electricity wholesale to the utility under negotiated power purchase agreements. This means that projects are dependent on the creditworthiness of the utility. As the Electricity Utility Corporation is a government-backed entity, its creditworthiness is tied to both macro-economic factors of Rwanda and its operational efficiency.
• On the cost component, the lack of a standardized power purchase agreement has led to tariffs not being cost-reflective for projects, making grid-scale solar projects unviable. Additionally, the high cost of capital constrains project scalability. Current interest rates for renewable energy projects are high (averaging 12% through existing facilities like Rwanda Green Fund), limiting the potential for scaling investments. Even so, the government provides both fiscal and non-fiscal incentives to improve the attractiveness especially to private-led power producers. For example, value-added tax relief is provided on imports of equipment to investors generating power.
• On the financing component, a currency mismatch challenge was identified. Power purchase agreement revenues are in Rwandan francs, yet power producers are to be paid in hard currency (often in U.S. dollars). This exacerbates currency risks given that the Rwandan franc has depreciated against the U.S. dollar over time. The depreciation trend and high volatility make currency risk mitigation critical for project viability.

The goal for the workshop using an approach piloted by WRI is to gain a better understanding of which financial instruments would be appropriate for these challenges. Based on the above, stakeholders arrived at a conclusion that structured power purchase agreements with built-in credit enhancement that would make grid-scale solar projects viable especially to private capital providers.

For example, World Bank’s MIGA $9 million guarantee to support ARC Power Rwanda represents an innovative interconnected grid approach with solar generation units installed within village networks in Rwanda. The capital stack for this project consists of:

• Political risk insurance offered by MIGA guarantee facility to protect private investors against breach of contract for up to 10 years.
• Private investment of $10 million in equity funding from Triodos Groenfonds N.V., Triodos SICAV II (acting for Triodos Emerging Markets Renewable Energy Fund), and Oikocredit Ecumenical Development Cooperative Society U.A.

Traditional project finance would be insufficient. Existing tariff economics present a risk-return misalignment that means these projects would not support the commercial returns required by investors. The above capital stack bridges this gap by strategically layering financial instruments in a targeted manner to the identified investment barriers, rather than using generic risk premiums. In other words, the emergence of the first bullet point (the MIGA guarantee) catalyzed the private investment represented in the second. Our dialogue, facilitated by the WRI-designed set of questions, discovered this as a model to expand on, given Rwanda’s particular context.

Next Steps for Clean Energy Finance in Rwanda

The approach to determine the right investment mix through a set of specific questions enabled Rwandan practitioners to systematically unlock the country’s grid-scale solar investment pipeline through three interconnected interventions. Specific policy barriers, including non-standardized power purchase agreements, currency mismatch risks and off-taker creditworthiness concerns, were identified and  subsequently addressed through targeted regulatory enhancements, creating greater certainty for private investors. For project developers, working through the questions provided a comprehensive risk assessment framework that identified a solution that bridges a gap in project structuring and feasibility planning across the entire project life cycle. For Rwanda’s energy financing landscape, finding answers using WRI’s approach has opened new avenues for blended finance by identifying opportunities for credit guarantees and concessional lending mechanisms, demonstrating a replicable model for scaling utility scale solar projects countywide.

In Rwanda, the Ministry of Infrastructure could integrate the insights from the approach in updating its Energy Sector Strategic Plan, potentially institutionalizing the approach in evaluating public-private partnerships as an avenue for scaling finance for grid-scale solar projects. And the broader approach arrived at may offer a replicable model for other East African countries that are facing similar challenges, including single off-taker models, currency volatility and nascent carbon markets.

Financing clean energy in developing countries like Rwanda faces many hurdles, but the rewards more than justify the investment. Where there are barriers to clean energy investment, deliberate study and conversation can help stakeholders better understand the problems and identify solutions.

This update is part of a WRI project to identify tailored financing solutions to power the transition to clean energy. Our approach guides policymakers and investors in assessing the maturity of a technology and the readiness of a country’s market as well as potential revenues and costs to pinpoint effective financing options and determine viability.

Learn more about this approach and how it has been used to connect finance and policy for renewable energy growth in Colombia.