A quartet involving the Africa’s premier development finance institution, the African Development Bank Group (AfDB); the joint development and climate finance institution of the five Nordic countries of Denmark, Finland, Iceland, Norway, and Sweden, Nordic Development Fund (NDF); multilateral donor trust fund, Global Environment Facility (GEF); and investors, Calvert Impact Capital (CIC), is partnering to invest some $55 million into off-grid energy.
On December 15 2017, the AfDB’s Board approved a $30 million investment in the Facility for Energy Inclusion Off-Grid Energy Access Fund (FEI OGEF). This follows the approval of additional investments of $10 million from CIC, $8.5 million from the GEF and €6 million from the NDF. In addition, the NDF will provide a €0.5-million grant for technical assistance to support deal structuring and capacity development.
The FEI OGEF is a $100 million blended finance debt fund designed to provide loans in local and hard currencies to off-grid energy companies with the dual objectives of scaling up access to clean electricity for off-grid households and crowding in local financial institutions as co-lenders.
The Fund, it was gathered, directly supports AFDB’s New Deal on Energy for Africa and is part of its “High 5” priority to light up and power the continent, with an aspirational target of connecting 75 million households through off-grid energy access solutions by 2025. Through the use of clean energy instead of fossil fuels to power communities, the Fund is expected to result in the reduction of up to 8 million tonnes of CO2 emissions over its lifetime.
Over 600 million people are estimated to lack access to modern energy in sub-Saharan Africa.
“FEI OGEF is the first Bank instrument that enables debt financing, including in local currency, to off-grid energy access companies who need growth capital to expand their operations across Africa. The strong collaboration of the Bank, SEFA and NDF in preparing and creating this fund, and the co-investment by the GEF and CIC, demonstrate the power of partnerships for clean energy access in Africa,” said Astrid Manroth, Director, Transformative Energy Partnerships at the AfDB.
The combination of these four first investments, AfDB officials say, brings the innovative fund closer to its first close target to be achieved in the first quarter of 2018 and provides a strong signal to the community of interested investors. In particular, the approvals will provide comfort for dedicated private-sector investors to join FEI OGEF.
The Fund is said to be a first mover matching local currency debt instruments with recent innovations in off-grid energy business models to scale up energy access for underserved and rural households. It provides a blended capital structure whereby investments in equity provides comfort and risk cushioning to attract early participation and additional investment by development finance institutions and other commercial investors.
During a recent visit to the AfDB headquarters in Abidjan, Côte d’Ivoire, NDF’s Managing Director, Pasi Hellman, said: “This initiative highlights the close and constructive working relationship between NDF and the AfDB. We have been in lock step throughout the preparation and development cycle of the Fund. Now we have a fully packaged investment vehicle to bring to market scaling up proven clean off-grid energy solutions to the energy access challenge on the continent.”
The Fund will be managed by Lion’s Head Global Partners operating out of offices in Nairobi, Lagos and London, with an initial focus on East Africa as well as Côte d’Ivoire, Ghana and Nigeria, and looking to build a strong pipeline of transactions throughout the region. The pioneering Fund will unlock and catalyse financial sector and local currency participation in this growing green finance opportunity.
“The GEF is pleased to be a partner in this innovative blended finance facility which is part of GEF’s strategic priority to “crowd-in” private sector investment to help countries meet their environmental and sustainability goals,” said Gustavo Fonseca, Director of Programmes at the GEF.
“OGEF squarely fits within our investment mandate of leveraging public capital at scale to create systemic change in sectors and geographies that have been overlooked by mainstream capital markets. We are excited to work with the AfDB and the other investors to scale this facility and increase access to clean electricity for off-grid households in Africa,” said Jenn Pryce, President and CEO of CIC.
The Facility for Energy Inclusion (FEI) is the Bank’s flagship initiative for providing long-term finance to small-scale renewable energy access projects, of which FEI OGEF is one of the financing windows. FEI has been developed with grant support from the AfDB-hosted Sustainable Energy Fund for Africa (SEFA).