Climate Finance Works in Tunisia

Roughly 7,400 households in Tunisia used solar water heaters in 2005. By 2011, 133,340 households did – a market transformation that might have seemed impossible before a financing mechanism helped accelerate the development of a robust solar water heating market. Understanding this shift has proven useful for other solar energy financing programs in developing countries.

Sunshine is an abundant resource in Tunisia. Despite the obvious benefits of solar water heaters for households, the cost of purchasing a solar heater is too high for many people. So in 2005 Programme Solaire (PROSOL) developed an innovative financial support mechanism to increase solar energy capacity. Starting with 1.7 million Euros in initial funding from the Italian Ministry for Environment, Land and Sea through the United Nations Environment Program (UNEP), PROSOL helped

the Tunisian government provide low interest loans and credits so families could overcome capital investment barriers. The solar water heater market showed a dramatic increase when loans became available. By 2010, PROSOL built a solar water-heater market worth US$66 million (48.1 million Euros).

To make it easier for Tunisians, several financing measures have been adopted. First, a subsidy covering the initial capital cost removes the purchasing barriers. Loan payments for the solar water heaters are paid back in a five-year term through the electricity bill. Local banks have enhanced security for their loans through contracts with electricity utility Société Tunisienne d’Electricité et du Gaz (STEG) because there is no risk of nonpayment. Therefore banks were able to lower the interest rate from 14 percent to 7 percent; and during the first two years of PROSOL, UNEP provided an interest rate subsidy to make the loan interest-free. Because energy savings directly benefit the end user, the water heater can pay for itself in four years.

PROSOL has helped form policy changes that support a long-term, sustainable solar water-heater market. The Tunisian government now encourages solar energy by allowing a subsidy that was previously provided only to LPG. PROSOL has been so successful that after the first two years, the Tunisian Government decided to continue the project even if the funds from the Italian Ministry and UNEP phased out. The success of PROSOL has incentivised private finance in Tunisia to flow. By the end of 2008, the PROSOL program reduced carbon emissions by 214,000 tonnes.

Under a slightly modified PROSOL Residential programme, the Tunisian Government has now set a target of 750,000 m2 of solar panel surface to be installed before 2014 and plans to reach this ambitious goal without any additional international finance. If this is accomplished, Tunisia will have the same amount of installed solar water heating capacity as Spain or Italy, countries with populations four and six times higher, respectively.

“PROSOL aims to replace conventional energy – LPG, electricity, natural gas – by solar energy to get hot water. It thus provides a solution for reducing greenhouse gas emissions and climate change mitigation,” said Noura Ben Laroussi Lazreg, General Manager, ANME, which is the Tunisian National Agency of Energy Conservation. “The success of this programme is based on a public-private partnership and a significant change in the pace of achievements. In addition to creating a network of industrial and installation companies that employ about 6,000 people, this success has also contributed to the decrease in state subsidies allocated to conventional energy.”

PROSOL has also developed similar financial mechanisms and policies that extend to the tertiary market, which includes hotels and other service industries; and for photovoltaic technology and industrial markets.

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