Austria-Nepal Renewable Energy Blended Finance Facility

Combining an innovative blended finance instrument with capacity-building activities for renewable energy projects

Location: Nepal
Status: Ongoing

Nepal is facing an energy crisis of unprecedented proportions. The electricity generation capacity managed by Nepal Electricity Authority (NEA) is insufficient to meet demand, leading to frequent power outages. Though the government has been highly effective in expanding energy access – from 28% in 2000 to 69% in 2010 and 94% in 2020 – around 1.7 million Nepalis still do not have access to modern energy, and over 73.5% of the population relies on traditional biomass for cooking (as of 2019).

Addressing the energy crisis by accelerating the deployment of modern renewable energy solutions, both on- and off-grid, is a high priority for the Government of Nepal, as the country aims to achieve universal electrification by 2030. Many communities that remain off the grid are in remote, mountainous areas where small-scale clean energy generation is the only viable solution for electrification.

However, the universal access goal cannot be reached with public and donor funding alone, and the government aims to help the energy sector access new sources of financing through a shift from ‘aid to trade’ and from ‘subsidy to credit’.

The Austria-Nepal Renewable Energy Blended Finance Facility, funded by the Austrian Government and implemented by REEEP in cooperation with SNV and NMB Bank Nepal, supports this shift by establishing a blended finance instrument for renewable energy projects and carrying out capacity-building activities. It is working towards:

mainstreaming commercial lending for renewable energy projects in Nepal;
building capacity among key stakeholders at the provincial level for upscaling renewable energy programmes;
accelerating the transition of the Nepalese clean energy market away from being mostly dependent on subsidies, and help establish a market based on credit to enhance the Nepalese government’s access to and use of international technical assistance and finance.

In addition, the project aims to generate co-benefits such as a reduction of GHG emissions and increased productive end use of energy. It will run until December 2023, with the core period of implementation in 2021- 2023.

Reaching Karnali

Krishna Dhakal displays his contract with with a local farmer. She is one of several farmers in the Surkhet area who sells the animal waste to be turned into biogas and fertilizer.

Reaching Karnali

The project’s activities are focused in the province of Karnali Pradesh in north-western Nepal, one of the country’s most remote and least developed regions. In our drive to reach last mile customers and build on our prior work, REEEP is leveraging the experience gained through the implementation of our previous project in Nepal, which provided credit for improved water mills for the productive use of energy.

Market scoping activities and capacity need assessment in Karnali have been completed by SNV, and a pipeline of potentially bankable, ready-to-be-financed projects in the off-grid sector (solar, mini-grid, micro-hydro, biogas) has been established. Different renewable energy technologies and project sizes will be considered to increase the visibility, awareness and showcase the various uses of the credit guarantee mechanism.

The facility, through NMB Bank, will be financing renewable energy projects via wholesale lending to microfinance institutions, direct lending to communities and vendor lending. To guide them through the process, we have designed an Operational Manual outlining the framework and structure of the credit guarantee facility in an effective and replicable manner, which will be launched later in 2023.

Farm in Surket in the remote province of Karnali, Nepal.

Working closely with the Alternative Energy Promotion Centre (AEPC) and other stakeholders such as MOPID (the energy unit under the Ministry of Physical Infrastructure Development), we are establishing a renewable energy local capacity development facility which has started capacity-building activities for relevant Nepalese provincial government agencies and renewable energy technology providers.

To conclude the project with sharing best practices and learnings, we are currently developing a handbook for mainstreaming commercial lending in renewable energy projects, which will provide the operational framework for commercial lending through NMB Bank and local financial institutions.

Donors and partners

The project is funded by the Austrian Federal Ministry for Climate Action, Environment, Energy, Mobility, Innovation and Technology (BMK) and implemented by REEEP in cooperation with SNV.