Funding Mechanisms to Incentivize Sustainable and Inclusive Water Provision in Kenya’s Arid Lands
This paper explores the hypothesis that funding mechanisms such as outcomes-based funding and upfront investment can help to overcome the risk aversion associated with the high capex costs of solar-powered water pumps (SWPs) and hence begin to catalyse SWP market growth in Kenya. Evidence for the role of SWPs as a reliable source of water in drought periods has been growing since the 2011 drought, one of Kenya’s worst in decades but one during which villages with SWPs set up displayed a self-sufficiency in water supply. Despite the superior economics of SWPs in the arid and semi-arid lands (ASALs) of Kenya, investment in this technology has overwhelming been made through NGO grant financing. This can be a hindrance to sustainability – with the handover of systems being the ultimate goal, rather than the finance system or structure set up to manage these systems.
This research paper evaluates under what conditions SWP systems are commercially viable; what is the impact of non-revenue water (NRW) and the level of tariff on commercial viability; and finally, what are the implications of these findings for the optimal funding mix for the development of sustainable SWP systems.
It finds that both tariffs and NRW are key determinants of commercial viability in the long term and that, without addressing some of the underlying issues that hinder adequate revenue collection, the market will continue to face challenges in becoming self-sustaining. The funding process for ongoing maintenance and operations can not only provide the finance to ensure a functional service but can also improve transparency and accountability.
For this reason, in designing a funding mechanism it is necessary to think realistically about the level of support that might be required for the projects led by Water User Associations (WUAs), where revenue collection is likely to be more challenging: for example, considering whether conditions for funding should include capacity building for financial management or grant funding for affordable yet viable water access, as well as the role of technology (e.g. water ATMs, electronic billing systems) in overcoming transparency and revenue challenges.