Renewable Energy Performance Platform for Sub-Saharan Africa (SSA) – non-grant

Project General Information



01385


9286

Climate change

Climate Change

VI





Access to electricity in Sub-Saharan Africa is a major issue: as highlighted under the UN Sustainable Energy for All (SE4All) Initiative, less than one third of the population in Sub-Saharan Africa has access to electricity with nearly 80% of these are in rural areas.  Of those that do have access to electricity, according to the IEA, average per capita consumption in Sub-Saharan Africa is 225kWh  (excluding South Africa), which is just 20% of average per capita consumption in Europe.  Again this is highly skewed against rural areas, where average per capita consumption is lower, just 50-100kWh per annum .

 

Small scale renewable energy projects have considerable potential to help alleviate this issue and complement longer-term electrification programmes. Mature technologies (e.g. small hydro, solar PV or biomass) are often cost competitive sources of electricity for national or isolated grids, as well as being relatively quick to deliver. Other technologies including wind also offer potential, particularly where the alternative is to generate power through diesel or heavy fuel oil.

 

 

Many off-grid communities in Sub-Saharan Africa are located far from the main power grid and connection costs to the grid are prohibitively high.  Small  scale renewable energy projects can lead to the development of local mini-grids which are able to provide a secure and stable power supply to these communities at lower cost than grid connection. 

 

Grid connected small scale renewable energy projects are also important as many countries in Sub-Saharan Africa are facing rapid increases in demand for power leading to an unreliable grid supply and frequent blackouts.   Small scale renewable energy projects can be built relatively quickly and provide a reliable  source of power helping to stabilize the grid and meet growing demand for power from consumers.

 

Small-scale projects are also more easily connected to the main grid, as they can be directly connected to existing distribution or transmission lines without the need for expensive and time-consumming construction of larger transmission lines requited by large projects.

 

Indeed, there are few obvious alternatives in Africa to small/medium sized private sector financed Independent Power Projects , except to wait for state-dominated electrification programmes, or larger renewable energy projects (50MW+ etc.). Both of these approaches are valid, but focus on a different market to small-scale projects. This differs from Europe where markets are more developed and where small-scale projects can be delivered, for instance, by local utilities.

 

However, despite high technical potential as well as the ability to complement longer-term electrification programmes, small and medium scale renewable energy projects are not being delivered to any significant extent in Sub-Saharan Africa.  A few public and private sector projects have succeeded in the region, but investment at scale has not followed, even in countries which in principle have introduced a supportive regulatory environment and offer competitive tariffs.

 

In part, this is because smaller projects often fail to attract sufficient finance. In principle, small/medium-scale projects can be delivered via small Independent Power Producers (IPPs) and project finance - though transaction costs currently remain prohibitively high. The cost to prepare due diligence is largely fixed at up to $500,000: i.e. the same for a 10MW plant as a 100MW plant. From the perspective of providers of finance and of risk mitigation instruments, the cost of examining the promoter’s Due Diligence is also fixed, and hence broadly the same regardless of the loan size, equity investment etc.

 

In addition, the projects also face a range of risks outside their direct control – such as late payment, foreign exchange risk or political risk. These risks act to escalate the cost of finance to the point that the project becomes “unbankable”. As a result, few projects are delivered, local banks remain highly risk-adverse to the sector, private investment does not flow, and government policies fail to deliver.

 

The Renewable Energy Performance Platform (REPP) seeks to redress this failure and to mobilize private sector development activity and investment in such projects (in the range of 1 to 25 MW capacity) by improving access to existing risk mitigation instruments, long term lending and, when needed, results-based financial support, as shown in Figure 1 and described further below.

 

Firstly, working together with existing risk mitigation instruments, such as the OPIC off-taker risk insurance policy or the TCX foreign exchange risk cover, REPP will ensure that the project gains access to products to mitigate risks which it cannot directly control, such as foreign exchange risks, political risk or late/non-payment risk from the offtaker.

 

Secondly, where the first channel is not sufficient to ensure the project can be financed, REPP can provide assistance to identify appropriate long-term lending facilities, in the first instance from the regional private sector banking market. This may not be sufficient: the local banking market may not be providing the necessary tenors and/or is only able to supply (the senior) part of debt financing. If so, REPP can seek to provide additional debt through the Global Climate Partnership Fund (GCPF).  The GCPF is a public-private partnership dedicated to mitigating climate change through a reduction of greenhouse gas emissions in emerging and developing markets.  It focuses on financing energy efficiency and renewable energy projects primarily in cooperation with local financial institutions, thereby creating a positive impact on the local environment and economy. The European Investment Bank (EIB) will invest up to USD 75m in A shares with the GCPF committing to ensure that the EIB commitment will be allocated to projects in Sub-Saharan Africa, preferably in direct projects such as those identified by the REPP.

 

Finally, if despite using these first two channels, additional support is shown to be required, REPP will have the ability to provide performance based payments to support existing feed-in tariffs or power purchase agreements, or alternatively to purchase carbon emissions savings at a benchmark price. That would enable those projects to present a business case sufficiently strong and attractive to financiers.

 

Alongside these three pillars, REPP will offer a Technical Assistance facility to provide support to selected developers during the development phase in order to facilitate financial close. The facility will be designed with the aim that the majority of the funding provided for technical assistance and due diligence will be recovered  and recycled into new projects through either repayments at the financial close with a set multiple or through the conversion into mezzanine loans at the same time. Only projects which are deemed bankable by the REPP Investment Committee will be supported by the TA facility.

 


Full Size Project(FSP)

Regional Multi Country


Africa


Burkina Faso, Rwanda, Tanzania, Kenya, Ivory Coast, Nigeria, Liberia, Senegal, Sierra Leone, Ethiopia, Uganda, Ghana, Mozambique


GEF Trust Fund

Stage Grant to UNEP Grant to other IA Co-Financing UNEP Fee Other IA Fee
Project
$ 13,650,000.00 $ 0.00 $ 142,400,000.00 $ 1,228,500.00 $ 0.00


No





External



Executing Agency Category

Partner Category

Name Category Period
Geordie Colville
Principal

Moderate Risk

Risk Risk Likelihood Impact if Realised Mitigation Programme Risk 1. Pipeline risk High Identifying projects which are already in the final phase of development and which can achieve financial close within 12-18 months will be crucial to meet the targeted timeline. Any delay in the realisation of REPP might result in losses of projects in the pipeline The REPP model has been built on an indicative pipeline of projects identified during the missions on ground. The chosen implementation timeline is conservative allowing for additional time to identify additional projects. Also, the initiative will be open for projects outside the five initial target countries. The REPP team will continue to work to add projects to the broader pipeline, in particular cooperating with regional commercial banks and venture capital firms 2. Country, policy and regulatory risk High REPP aims to support government efforts by helping to prove out new private sector focused policies. Although REPP will engage only when new policies are mostly in place, there will still be significant policy risk exposure without which REPP support may not be required. Efforts to mitigate policy risk will include: i) Due diligence of policy environment and macroeconomic risks in target countries; ii) Technical Assistance to support governments in addressing specific policy hurdles (e.g., funding a resource assessment study or a consultation process); iii) Country diversification whereby funding will be pooled within the regionally focused performance and debt facilities and will only draw down in a country once project execution is underway. 3. Financing risk High REPP supported projects may have difficulty in securing financing, including equity, debt, insurance and other risk mitigation cover required to operate in the target countries. Efforts to mitigate financing risk will include: i) Credit enhancements and performance payments offered through the implementation vehicle will help make projects more bankable for local and regional lenders, as well as IFIs; and ii) Lending instruments directly applicable to projects, on a non-exclusive basis. 4. Windfall risk Medium By offering credit and revenue enhancements to projects there is a risk that REPP support will over subsidize projects. Efforts to mitigate windfall risk will include detailed analysis of country and market context, including documentation of financing conditions and availability of the different required sources of capital. Instrument pricing will be determined based on comprehensive financial analysis of market and project conditions and in consultation with all relevant parties. 5. Product uptake risk Medium REPP products may not see the uptake that is expected of them, due to a lack of sufficiently developed project pipeline, mispricing or otherwise inappropriate terms and conditions for the countries and sectors of operation. Efforts to mitigate uptake risk will include a detailed REPP product development cycle where all products will be tested with prospective clients prior to launch and will be structured with effective feedback loops allowing for product improvements over time. 6. Environmental and social risk Medium REPP supported projects, although renewable or based on the efficient use of resources, are also susceptible to creating environmental and social impacts. Efforts to mitigate environmental and social risks will include: Application of the normal EIB and KfW risk management framework for determining, assessing and managing environmental and social risks in projects as a minimum standard for due diligence to support responsible risk decision-making. 7. Market, technical and project specific risk Medium REPP supported projects will be exposed to the full range of market, technical and project specific risks. Efforts to mitigate project execution risk will include: i) Implementation vehicle transactions will transfer responsibility for all (or most) commercial risks to project sponsors; and ii) For lending instruments, transactions will employ comprehensive due diligence and risk analysis to minimize project risks. 8. Risk of climate change undermining resource (esp. water) availability for RE projects Medium Less electricity produced than forecasted Efforts to mitigate the risk of climate change undermining resource availability include: i) in-depth climate check by implementation consultant during appraisal; and ii) balancing of RE portfolio across different RE technologies in different regions to mitigate impact on overall portfolio. 9. Financial viability of private RE developers Medium RE projects might not be concluded, or O&M might not be done properly, undermining potential for electricity production Efforts to mitigate the risk of financial viability of developers include: i) in depth ex ante appraisal of financial viability of RE developers by implementation consultant; ii) in case of non-completion of plant, no performance payments will be made available; and iii) portfolio effects minimized by spreading risks across large number of project developers. 10. Construction of RE Projects delayed due to incompetence of construction firms/EPC contractors Medium RE projects might not be completed in time, thus raising construction costs and potentially undermining financial viability of the project. Efforts to mitigate the risk of delayed construction include: i) incentive structure within REPP designed so that the developer/owner has a strong interest in pushing contractors to stay within agreed budget lines; ii) engagement of the regional and international construction industry ahead of REPP launch to raise awareness regarding opportunities in the RE space to attract additional firms into the market; and iii) on-going monitoring of construction progress by implementation consultant.




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Fiscal Year Project activities and objectives met


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