The facility is designed to provide a viable solution to one of the biggest challenges facing independent power producers (IPPs) operating in Africa

LONDON, United Kingdom, November 15, 2017/APO Group

KfW, the German Development Bank, and the African Trade Insurance Agency (ATI) announced, on the side lines of the annual Africa Investment Exchange: Power and Renewables Meeting, 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% (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 facility will kick in by providing immediate liquidity to keep the IPP afloat during periods of payment delays that are beyond the grace period provided in the power purchase agreement.

Günther Nooke, Personal Representative of the German Chancellor for Africa, BMZ, said “The Regional Liquidity Support Facility will address a key challenge in renewable energy project finance and de-risk private sector investments. We are pleased to provide the funding to this innovative instrument underlining Germany’s commitment to the objectives of the African Renewable Energy Initiative (AREI).”

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 will provide immediate cash collateral supported by guarantees to a commercial bank that will in turn open a standby letter of credit to the benefit of the IPP. The amount provided will enable the IPP to operate and service the debt for up to 6 months. Furthermore, unlike most IPP letters of credit (which tend to be 12 month tenors) the facility is designed to be in place for multiple years.

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.

Source: African Trade Insurance Agency (ATI)

Illustration Photo: Installation of a solar panel in Africa (credits: Solar Electric Light Fund (SELF) / Flickr Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic (CC BY-NC-ND 2.0))

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