Navigating the funding of Solar Energy projects: Looking at the Old Mutual Solar Energy Fund

The launch of Zimbabwe's first targeted energy fund by Old Mutual and its partners, including UN agencies and the Government of Zimbabwe, marks a pivotal moment in the country's energy transition. In previous articles, I have underscored the importance of mobilising appropriately priced funding with the right tenor to support solar projects. This fund represents a promising development, offering much-needed capital to address Zimbabwe's ongoing electricity shortages and escalating energy costs. While we await details of the mechanics of the fund and how it will operate, the USD20 million that has already been committed to some identified projects gives us a lot of confidence that the fund will increase the rate of energy project developments in the country.

With power outages and volatile energy prices continuing to strain both households and businesses, the move toward renewable energy is no longer just an alternative—it’s imperative. Solar energy, in particular, presents a viable solution, and it’s encouraging to see the private sector recognizing the dual opportunity of profitable returns and positive environmental impact. Zimbabwe, blessed with abundant sunlight, can dramatically reduce its reliance on non-renewable energy, mitigate carbon emissions, and forge a path to a cleaner, more sustainable energy future.

However, addressing Zimbabwe’s energy gap is more about managing the many intricate challenges including currency stability and macro economic stability. The $20 million already committed to approved solar projects by Old Mutual's energy fund is an excellent start, but the ultimate goal of building a $100 million fund is a huge undertaking requiring a lot of planning and structuring. The USD20m is a good signal and will go a long way in providing many test cases that can be used to unlock additional funding. For local independent power producers (IPPs), mobilising such funds has been a slow and often challenging process. Old Mutual is not new to large solar projects having already invested in a number of IPPs that are already feeding into the national grid.

While the steps taken so far show commitment from private sector players like Old Mutual, it’s important to acknowledge that scaling solar projects in Zimbabwe comes with its share of potential pitfalls. Recognizing these challenges is key to ensuring the long-term success and sustainability of such energy funds.

One of the primary challenges any solar energy fund will face in Zimbabwe is the country’s economic environment, specifically currency volatility and inflation. Investors and fund managers must contend with the risks associated with financing long-term projects in an unstable currency, particularly when equipment is imported, and returns are often realised over many years. There will be a need for the fund managers to structure deals to mitigate this risk. There are a number of ways to do this and make the projects viable under this taxing environment.

Solar projects, particularly on a commercial or utility scale, are capital-intensive with high upfront costs and long payback periods. This can discourage both investors and customers, particularly in a market where liquidity is often limited and risk is high. Fund managers will play a delicate balance between risk and returns. In more developed markets funding can be for more than 10 years. Zimbabwean fund managers have had to be creative in the past to ensure that repayments are received in the shortest possible time. That the Old Mutual Fund combines concessionary finance from public or international partners is good and will enable private capital to lower their risk.

Another key important area that is quite fluid in Zimbabwe is the policy framework. While Zimbabwe has taken steps to improve its investments policy framework, a lot still needs to be done to ensure that investors regain confidence. Issues such as the lengthy approval processes for Independent Power Producers (IPPs) and inconsistent policy implementation can deter investors and slow project rollout, negatively affecting investment returns. It's good that Old Mutual has partnered the Government in the fund. This will make it easier to manage the risks.

While the country has seen the implementation of a significant number of small solar projects Zimbabwe’s nascent solar sector faces a shortage of local technical expertise, especially in large-scale installations, maintenance, and energy storage solutions. Some projects that have been implemented in the past have faced grid connection and synchronisation challenges negatively affecting performance and therefore investment returns. Without adequate technical capacity, solar projects may suffer from poor design, inefficient installation, or long-term maintenance issues, leading to reduced system performance or early project failure.?

There are a number of measures that can be used to ensure that future projects avoid falling in the same trap. Solar Technology is improving everyday and funds should prioritise partnerships with experienced suppliers and service providers who have a proven track record in the sector and can offer high-quality installation and maintenance services.

Another potential challenge is the lack of a viable pipeline of projects. While the country is facing energy challenges, there is a need to increase awareness of the benefits of going solar particularly among households and businesses that are accustomed to relying on the grid or diesel generators. Companies need to invest in feasibility studies and system designs. Lack of knowledge has seen a lot of companies spending large sums of money running generators throughout the day or investing in sub optimal solar plants. It is important for investors to invest in education to raise awareness about the financial and environmental benefits of solar power. Highlighting successful case studies—such as businesses and communities that have reduced their energy costs and improved reliability through solar—can help drive wider adoption.

Looking Ahead: Seizing the Opportunity

While there are undoubtedly challenges in scaling solar energy in Zimbabwe, the potential rewards far outweigh the risks. With the right strategies in place, solar energy funds like the one established by Old Mutual and its partners can become catalysts for the nation’s renewable energy transformation. Monitoring and evaluation of projects will be key in ensuring that yesterday’s mistakes are not repeated. In addition to this it is important to ensure that projects are well designed and if the financing model or customer segment is underperforming, the fund can make course corrections.

The key to success lies in balancing the technical and financial complexities of solar projects with innovative financing models, strong local partnerships, and a deep understanding of the regulatory landscape. By addressing these potential pitfalls head-on, funders can unlock significant returns, both financially and in terms of social and environmental impact.?

At Solarpro Zimbabwe , we are dedicated to transforming solar energy into a cornerstone of Zimbabwe’s energy future. With the right partnerships and support, we can address challenges head-on and leverage our expertise to navigate potential pitfalls. Our commitment is to ensure that the new wave of investment in solar energy translates into long-lasting, sustainable solutions that empower communities and drive economic growth across the country. Together, we can pave the way for a cleaner, more energy-secure Zimbabwe.