With Renewable Energy: an Interview with David ten Kroode

What is the current state of investment in RE for Oikocredit?

"We started investing in renewable energy five years ago. Our portfolio of loans and investments in this sector is now more than € 50 million, which is about 5% of our total development finance portfolio. Our renewable energy (RE) portfolio is a mix of large-scale infrastructure projects and investments in small-scale off-grid projects.

In our RE investments, we focus mainly on improving access to energy; also known as fighting energy poverty. Many people do not have electricity, or it is too expensive to gain access to the energy network. Some do have electricity, but it only works occasionally and it is extremely expensive. Suppose you live in Rwanda and you want to charge your phone, but you do not have access to electricity. Then you must go to the village where there is a diesel generator. The cost for that electricity is 30 to 50 times more than in Europe. Also, money you spend on electricity cannot be spent on anything else, and a telephone is an essential device, for example, to make small payments.

We started by investing in large on-grid infrastructure projects. On-grid means that it is connected to the national electricity network. For example, we invested in a 50 megawatt solar farm in Honduras which supplies electricity to 10,000 households. Now we are moving more and more towards investments in off-grid. That means energy for people or small businesses that have no access to the electricity grid. Our partners offer a solution in the form of solar home systems.

Why the shift towards off-grid projects?

We have taken a close look at the projects we started five years ago. Those larger projects are particularly good macro-economically: good for a country (less fossil fuel or electricity needs to be imported) and good for the environment (C0₂ emissions reduced). But we also looked at who really benefits from them. Large infrastructure projects can be built without giving the people living right next door access to the electricity generated by the project. 

There is money available for large-scale projects, for example, from international institutional investors. So we ask ourselves: what is the added value of Oikocredit? Although the impact on the environment is significant, it is not our only driver. That does not mean we do not care about the environment; in fact, all our projects are tested against environmental criteria. But if a project only reduces CO₂ without positive impact on the community, then we would not invest.

If you look to the future, how is it going to develop?

I think we are going to see more fusion of on-grid and off-grid in the future. A good example of this is “mini-grids”. These are electricity networks on the scale of a village or a small town that are not connected to a national network. For example, where a solar panel field the size of half a football pitch is built, households, as well as small businesses with machines, will be then connected to it.

How does an RE organisation needing investment, become an Oikocredit partner?

There are several ways. Because Oikocredit has been around for so long, we are well known. If an entrepreneur in RE searches the internet, there is a good chance that they will find us. But our colleagues in the region also point us to projects. And we have a good network of like-minded financial institutions that want to co-invest in projects with us.

How do potential partners apply for Oikocredit financing?

Let me give an example. We are currently investigating financing mini-grids in Benin with a potential partner. They are working on a project to provide electricity to 20 villages. I came across this organisation when I was in Ghana visiting another partner.

So I went to Benin and visited the villages where the mini-grids will be built. No matter how much research you do behind a computer, it is important to be onsite to see the real environment in which such a project takes place. What struck us was the diversity in economic activity in these villages. And they did everything without electricity: cooling fish and grinding grain. We are convinced that if there is power, there will be an enormous boost in the development of those villages. That impact goes beyond having light in the evening. Because the income of the community will also grow, and we can only see that by being there.

How important is it to have a local presence?

Oikocredit often has a local office in the countries where we operate. That is important: you cannot understand and analyse everything from a distance. You need to get a sense of the local conditions. When I visit a potential partner, I always come back with findings I could not have anticipated: both positive and negative. I might discover a greater risk for example, or the contrary, a risk that seems large on paper but is not so great in practice.

Are there countries where developments are going faster?

Yes. In many African countries you can see there is a backlog because of little existing electricity infrastructure. There is a large percentage of people who have no access to electricity at all. And it is precisely in those countries that the development of mini-grids is booming.

In Africa, solar home systems are offered on a pay-as-you-go basis where people pay for use over a certain period. That is possible thanks to mobile payments. Technological developments mean that renewable energy devices now cost less and generate more electricity. Financing solar home systems and mini-grids comes with a slightly higher risk but the social return is higher. That is always the balance we have to make, and we monitor both the financial and the social returns that are investors expect.

These developments in the field of sustainable energy are mainly seen in Africa, less so in Latin America. That is why our investments in RE are currently mainly in Africa.

Are you aware of the impact of Covid-19 on Oikocredit’s RE partners?

Developments are taking place at a rapid pace. The picture I see now, is that there are risks for our RE partners. The risks are that the companies that supply the systems will have to close their factories. But also, that people lose their income and can no longer afford to pay for their energy.

At the same time, we hear from companies that the production of solar panels is starting up again. Also, especially during this time of crisis, households in Africa continue to pay for their solar power because they want to keep their access to news and information via mobile phones, radio and TV. So that may be a bright spot in what we are seeing now.