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Somalia Off-Grid Solar Grant Facility
COUNTRY CONTEXT
The Somali energy sector is one of the most underdeveloped in the world. Low electrification rates, high cost of power, high technical and commercial losses, and dependence on imported petroleum products for electricity generation mean that only a very small fraction of the Somali population has access to affordable, safe, and reliable energy services.
Unfavourable economics imply that it is likely that a large part of the Somali population will not be reached by the national grid or mini-grids even in the long term. Standalone off-grid solar (OGS) solutions are therefore a viable alternative for electrification. A recent study commissioned by the World Bank estimated the total market size for OGS products in both Somalia and Somaliland at $108 million. Despite its potential, however, the market for OGS continues to suffer from critical gaps and inefficiencies, including limited access to business and consumer finance, weak infrastructure, and market spoilage due to a proliferation of low-quality imitation products. Given the nascency of the sector, most Somali solar businesses are still entirely self-funded, and are unable to place larger inventory orders or invest in sales and distribution infrastructure.
To help address these challenges, the Federal Government of Somalia (FGS) with support from the World Bank is setting up a Somalia Off-Grid Solar Grant Facility to provide grant capital to Somali distributors of IEC certified products. Grants are intended to provide companies with flexible capital to invest into business growth. Eligible uses will include, among others, training of staff, marketing expenses, distribution infrastructure, development of PAYG consumer finance models, development of processes and equipment for after-sales maintenance, and importation of inventories.
GRANT FACILITY STRUCTURE
The overarching objectives of the Facility are: (i) to support household and SME access to IEC verified OGS systems across Somalia; (ii) to support the growth of earlier-stage and/or local solar companies where possible; (iii) to enable distributors to sell products on a pay-as-you-go (PAYGO) basis where possible, thus increasing affordability; (iv) to promote off-grid energy access in remote and rural areas; and (v) to set a foundation for high-potential solar operators to access future funding to further scale operations in Somalia.
The Facility will award up to US$700,000 to compensate OGS product distributors for the initial, incremental, and opportunity costs associated with an expansion of operations in Somalia. This amount may increase with future co-funding from other development partners.
Under the Facility, successful grant applicants will be able to draw down on grant awards through two distinct mechanisms:
- Expansion RBF: Results-based financing (RBF) to OGS distributors, with a fixed per-unit payment made for each IEC approved solar system sold, paid after successful verification of the sale. These grants will provide distributors with much-needed capital to build internal capabilities, invest in sales and distribution infrastructure, pilot new and innovative businesses and customer service models (including pay-as-you-go models that enable customers to pay in installments), and build up liquidity to act as collateral for future debt finance from local banks. Expansion Grants will be primarily targeted at businesses specializing in solar home system distribution, or other institutions looking to enter the solar distribution market. The Facility will award up to $560,000 in Expansion RBF.
- Seed RBF: Since effective results-based financing requires that recipients have access to sufficient inventory, infrastructure, and capacity to self-finance initial operations, successful grant awardees will have the option to draw down on a portion of their grant award upfront in the form of a Seed RBF. The Seed RBF will be paid out on the same per-unit basis as the Expansion RBF, but unlike the Expansion RBF will be disbursed in advance of actual sales. Once the sales against which the Seed RBF was awarded have been made, grant awardees will be able to submit subsequent sales for Expansion RBF disbursement. The Facility will award up to $140,000 in Seed RBF.
GRANT FACILITY MANAGEMENT
International Bank of Somalia (IBS) has been awarded the contract to manage the grant facility towards achieving the various overarching objectives set out in the scope of services, tasks and expected deliverables listed in the section on terms of reference. The table below summarizes the process for applying and implementing the Grant Faculty
Process | Description | Timeline |
Project Launch | Ministry will officially launch the project | Aug |
Expression of Interest (EoI) and information session. | A EoI will be advertised on national websites. A Webinar Information session will be arranged in the beginning of the second week. EoI’s will be evaluated and shortlisted applicants are invited for a pre-application training | 17th Aug -15th Sep |
Pre-Application Training | Training of short-listed applicants in business development as well as the grant facility, the application process and ESMF | 2 days Mid Sep (16,17) |
Call for proposal | A standard call for proposal will be sent directly to the short-listed SSPs. | 4 weeks 16th Sep – 15th Oct |
Evaluation of calls for proposals and NO | 15th Oct – 15th Nov | |
Due diligence, contracting and seed upfront payment and contracting | Due diligence will be carried out and sent to MoEWR for review and approval. Contracting with successful applicants will follow. Seed grants of up to 20% of total approved per SSPS will be automatic upon signing the contract | 15th Nov – 31th Dec |
Verification And RBF payments | Valid Incentive request forms for eligible expenses that are submitted by contracted SSPs will be shared with MoEWR for approvals and No Objection The IVA verification report will be shared with the MoEWR for review and approval. Once verifications are approved, RBF funding will be disbursed | 1st Jan – 31st May (2021) |
Final Report | Final verification will be carried out and final report prepared by facility manager | 30th June (2021) |