Financing Climate-Friendly Solar Solutions for Energy-Intensive Clients
Standard Chartered Bank partnered with Mount Kenya's Flower Farms to finance an independent solar grid, reducing energy costs and increasing reliability. With a loan from Standard Chartered Bank, Uhuru Flower Farm now enjoys significant energy savings and no losses due to power outages, setting an example for other flower companies. The potential impact could be amplified if authorities simplify the process of selling excess power back to the grid. Banks have an opportunity to proactively offer renewable energy financing as part of their sales strategies.
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Financing Climate Friendly Solar Solutions for Energy Intensive Clients: Standard Chartered Bank and Mount Kenya s Flower Farms
The Cut Flower Industry: Opportunities Flowers are big business in Kenya. Cut flowers were valued at Ksh46bn in 2013. Greenhouses require: irrigation and ventilation to regulate temperature and water; cool storage facilities to keep stock fresh. This equipment operates constantly to ensure flowers receive perfect humidity, moisture and temperature.
The Cut Flower Industry: Constraints Energy costs can be the most expensive item on flower farms budget line up to 70% of total recurrent costs. Electric grid power is costly but unreliable, resulting in regular stock loss due to frequent power outages. By 2013, Uhuru Flower Farm had monthly power bills of 500,000 KES and regular stock loss. Owner Ivan Freeman was looking for cost saving measures and stock protection measures.
The Opportunity Install an independent solar grid to increase reliability and reduce costs. Cost relatively high at Ksh15 million ($177,000) on a global scale due to the price of imported materials like solar panels, rails and solar power distribution wires. But with a forecasted return on investment of just five years, it was easily justified.
The Opportunity Standard Chartered Bank was approached for a loan. Terms: 94,500 Euro loan at a 5% interest fixed for 3 months then floating at +0.18% on the Kenyan interest rate. Provided 66% of the amount to install the solar system so SCB limited their exposure. With most of Uhuru Flowers receivables from European clients in Euros, the bank was happy to lend in this currency.
The Impact With solar, Uhuru farms is enjoying up to 50% savings on energy bills and no lost stock due to power outages. Savings on energy costs have exceeded monthly loan repayments. Other flower companies in the area are now seeking financing for solar installations. Impact could be greater if authorities simplified the process by which farms can sell excess power back to the grid - but permit to become an independent power supplier is complicated and expensive. Banks have an opportunity to move from ad hoc renewable energy loans in response to client requests to making them specific sales strategies.
