The Financing Landscape For Solar Projects In Kenya Presents Opportunities And Challenges, With Increasing Interest From Investors But A Need For Supportive Policies To Drive Sustainable Growth – CATHY KUYOH,  Head of Credit- East Africa, Starsight Premier Energy Group (SPEG)

CATHY KUYOH, Head of Credit- East Africa, Starsight Premier Energy Group (SPEG)

Can you provide an overview of the current financing landscape for solar projects in Kenya?


The necessity for clean and renewable energy solutions in the region is at an all-time high. The demand for reliable and affordable energy has grown concomitantly to the continent’s economic growth, industrialization, increasing urbanization and rapid population growth in recent years.

Financing for solar projects in Kenya is generally sourced from three different channels: national government funds, private sector capital, contributions by international development aid agencies, and Development Finance Institutions. Such funding is then utilized for onward lending or investment in various businesses that have qualified for the development of solar PV plants.


Given the number of specialized vehicles raising exclusively clean and renewable energy-focused funds currently on the market, we can expect the solar industry to continue its ascent in the near and long-term future. Starsight Premier Energy Group (SPEG) in June 2023 secured USD 20 million funding to increase its portfolio of renewable energy Commercial & Industrial projects in East Africa. The significance of energy infrastructure investments facilitating renewable energy in Kenya and the resource intensity of the same is likely to intensify the appetite for and uptake of private debt.

What are the main challenges in securing financing for solar projects in the Kenyan market?

Solar projects have a high upfront capex and are long-term in nature and this causes a barrier to the initial development and funding of projects. This coupled with concerns about the borrower’s creditworthiness (or consumer credit risk, particularly in the case of off-grid markets) cause expensive delays or result in a high cost of capital.

At the transactional level, real or perceived risks continue to prevent many financiers from committing their capital to solar projects, despite the promise of the market. Chief among the risks that financiers cite are political risks (such as political stability and the rule of law), governance and safety issues, off-taker risks and economic risks, including those linked to foreign exchange (large currency fluctuations and currency inconvertibility).

Additionally, there is Insufficient Modelling Data regarding renewable energy at the country level. This data is critical in informing private sector investment decision-making. Private sector entities are likely to continue to have a limited understanding of the solar energy landscape, further limiting their ability to assess potential rates of return on investment (ROI) and to take appropriate risks.

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From a borrower’s perspective, they struggle with the availability of appropriate financing instruments (in particular, affordable long-term debt) in local markets; matching funds and risk- mitigation tools; and know-how for structuring and financing transactions. They may also be concerned about the relatively small transaction sizes.

How do you assess the creditworthiness of solar project developers or companies seeking financing?

Starsight Premier Energy Group (SPEG) has the in-house capabilities to offer our clients finance facilities for their solar PV systems. The 5Cs credit appraisal model that we adopt: character, capacity, collateral, contribution and control has elements that comprehensively cover the entire areas that affect risk assessment and credit evaluation.

In order to ensure taking exposure only in acceptable credits, we undertake a detailed credit evaluation once the borrower provides us with various KYC documents that we request. The credit assessment exercise includes an analysis of the borrower’s business and financial profile, industry overview, management quality and collateral offered for the facility. The process will include not only diligence on the company’s financial statements and other documents but also visits to a borrower’s facilities and direct interactions with the promoters/ senior management. This is done so as to broadly understand the client’s business operations and engage with the operating personnel to discuss all key business and financial risks as well as assess their depth of understanding and expertise.

We may also request and rely on additional information from the client or from other sources such as financial reporting agencies, press and other 3rd parties. In turn, we work out the most appropriate structure for the facility after considering credit, economic, tax, environmental and regulatory considerations. Our primary focus is to identify the borrower’s capacity to repay on time which is not contingent on a future event unless such event be assured and clearly within the reasonable business expectations of the borrower.

What are the key factors you consider when evaluating the financial viability of a solar project in Kenya?

Prior to financing a project, we consider appropriate financing models, customized to client requirements, utilization of potential incentives, tax impact, on balance vs off balance sheet preference, etc.

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Whereas, after financing a project, monitoring timely payment of dues, compliance of information covenants, credit assessment and technical performance of the assets is reviewed periodically. It is therefore imperative to maintain regular interaction with the borrower so as to keep a close watch on credit-related developments. This helps in the early detection of any material deterioration to their credit risk profile and ensures that remedial measures are in place to safeguard the facility’s exposure.

What types of financing options or instruments are commonly used for solar projects in Kenya?

Converting to solar is certainly a large capital investment, but it’s one that can pay off with lower utility costs. There are various solar photovoltaic (solar PV) financing options that have emerged over recent years for industrial & commercial businesses. This includes, but is not limited to, asset finance, operating lease or rental agreements, Power Purchase Agreements (PPAs) and outright purchase. The exact type of finance structure available would be dependent on the impact on financial statements, performance metrics, system size, client characteristics, capital among other factors.

The most favored financing options for solar PV systems in Kenya are asset finance and operating leases. PPAs are progressively being considered the most readily accessible off-grid energy solution but delays in regulatory approvals are a current barrier to their growth. Through our financing arm, we are able to champion industries in East Africa to not merely keep pace in accelerating a carbon-free future but thrive in their business operations by availing all three of these financing options.

How do you mitigate the risks associated with lending to solar projects, such as regulatory changes or fluctuations in energy tariffs?

Governments, businesses and investors must join forces and each play their part. For governments, this means creating the appropriate national conditions – through climate policies, public financing frameworks, and green growth opportunities – in which the private sector can confidently invest. Businesses also need to consider and assess climate-related risks and opportunities in their business models, whilst investors do the same to make informed capital allocation decisions and better embed climate consideration throughout their investment portfolios.

For investors, and in particular lenders, to be comfortable with the risks involved in lending to solar projects, additional credit enhancement and risk-mitigation cover are required. There are common instruments to minimise, hedge or transfer the main categories of risk a transaction may encounter. These include guarantees, property, specialised insurance products, fully funded escrow accounts and termination clauses in the case of power purchase agreements They are also typically provided on a project-by-project basis or as a bundled package for projects.

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What role do government policies and incentives play in attracting financing for solar projects in Kenya?

Changes in legal or regulatory policies erode investor trust. Governments must adopt policies and other measures to create an enabling environment that will attract local and foreign investors. The public sector can also take actions to de-risk projects mobilise private capital via blended finance initiatives and take advantage of emerging solutions and business models.

Among the fiscal policies that render solar projects more affordable are tax exemptions, and capital depreciation/capital allowances. In Kenya, the Draft Captive Power Guidelines 2021 around captive solar is currently being amended and is in draft form. These Guidelines apply to captive power plants installed in commercial, industrial, and institutional facilities. Among the policies being proposed that will promote the growth of solar energy in Kenya is for a grid-connected captive power plant of 1 MW and below, developed for own use and not for sale of electricity, the plant owner shall not be required to obtain a generation licence. It’s important to note that EPRA, the regulator in Kenya, confirmed that Net Metering regulations are being enacted presently and the first net metered projects should be online in late 2024 / early 2025. They also confirmed that discussions are ongoing with regard to announcing regulations for the introduction of Open Access (wheeling) in Kenya.

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