This study builds on the previously developed ACE TAF multi-country responsible taxation tool and extends it to better reflect the context and key policy questions in Rwanda. It extends the analysis to consider the impact of other fiscal incentives such as results-based finance grants, and minimum quality standards. It also looks in more detail at key issues to reach the remaining unconnected households in Rwanda, with a focus on affordability. In addition to building on the quantitative tool, a further 11 key stakeholders were engaged bilaterally to inform the analysis, and a small survey of over 100 households included to help calibrate modeling assumptions to the reality of current and potential off-grid energy end users.
While the off-grid energy market in Rwanda has expanded rapidly in recent years, the remaining unconnected customers also represent the hardest to reach. The market for SAS solutions to the most commercially viable customers has been saturated, with SAS companies now expanding to riskier customers which are less likely to be able to afford the products. This has led to an increase in the default rate for SAS companies to between 5% and 25%.
Despite the reduction in import duties and Value Added Tax (VAT) some SAS companies have struggled with delays and uncertainty when importing qualifying solar products. This has improved in recent years, however, SAS companies expressed uncertainty over the implementation of rules by Rwanda Inspectorate and Competition Authority (RICA).
Design and application of fiscal incentives will play a vital role in delivering on the Rwandan energy access targets. Although companies have been active in the off-grid energy sector for almost a decade, many companies are still at a relatively early stage of their operations and are not profitability. A favourable fiscal policy environment plays two key roles in supporting the sector to achieve its potential: (1) making products affordable to end users, and (2) providing companies with a stable and attractive enabling environment, to foster confidence to grow their presence in Rwanda. Indeed, a balanced mix of fiscal incentives will be needed to realise the ambition to achieve access to energy for all Rwandan households by 2024, including 32% of households using SAS products and a further 16% connected to mini grids. VAT and import duty exemptions are a crucial foundation to creating the right conditions for this to happen but will need to be supported by targeted Results Based Financing (RBF) programs to ensure no one is left behind.