KfW, the German Development Bank, and the African Trade Insurance Agency (ATI) announced a new instrument to support renewable energy projects in sub-Saharan Africa that targets small- and mid-scale (up to 50 MW) green power renewable energy projects.
The facility is designed to provide a viable solution to one of the biggest challenges facing independent power producers (IPPs) operating in Africa, specifically the requirement to provide project lenders with a liquidity guarantee.
The German Federal Ministry of Economic Cooperation and Development (BMZ) through KfW will provide funding of up to 32.9 million EUR to the facility, which aims to enable small-and mid-scale renewable energy projects in Africa to reach financial close by addressing liquidity requirements that lenders frequently require in order to fund such projects.
The launch of the new facility is happening at an opportune moment when emerging markets are seeing record investments in the renewable energy sector. The International Energy Agency (IEA) expects sub-Saharan Africa’s renewables capacity to grow by 73 percent (24.4GW) over the period 2017-22.
In addition, small-scale projects are seen as a potential solution to Africa’s energy deficit because they are easier to implement and can target energy requirements at source, but these projects find it difficult to access the type of guarantees needed to reach financial closure.
The RLSF is designed to help independent power producers (IPPs) developing renewable energy projects in Africa to obtain the liquidity they need in the event that their off-taker (frequently a state owned entity) delays payment.
The facility, in combination with ATI’s traditional suite of political and trade credit risk insurance products (in particular ATI’s arbitration award default cover), means that ATI is able to cover the full range of political and financial risks facing investors on such projects.