- Transaction pioneers the use of project finance for rural mini-grids in Africa and provides long-term funding for 60 mini-grids bringing power to more than 34,000 people
- Such innovative project finance solutions will be key to unlocking the $11 billion-plus needed to bring power to at least 100 million people living in energy poverty in Africa
- U.K.-government funded Renewable Energy Performance Platform (REPP) supporting project portfolio with $3 million innovative project finance loan
- CBEA and REPP part of a group of investors with more than $2 billion under management endorsing mini-grids and results-based financing programs as vital to achieving the UN Development Program’s Sustainable Development Goal 7
CrossBoundary Energy Access (CBEA), Africa’s first project financing facility for mini-grids, has announced its first transaction, to finance 60 mini-grids in Tanzania in partnership with PowerGen Renewable Energy, one of the sector’s leading mini-grid developers and operators.
Founded in 2011, PowerGen has connected more than 50,000 people to smart, clean mini-grids. The CBEA was established this year with investments from the Rockefeller Foundation and Ceniarth to provide long-term funding for mini-grids on a project finance basis, delivering first time grid-quality power to rural households and businesses.
As part of the transaction, the CBEA has signed a loan agreement with the Renewable Energy Performance Platform (REPP). REPP is a U.K. government-backed funding platform managed by Camco Clean Energy and focused on helping renewable energy projects attract and access private and institutional investment. REPP’s innovative facility will provide a long-term senior loan, structured as project finance debt and supporting this new asset class to be financially sustainable.
Such innovative project finance solutions will be key to unlocking the more than $11 billion for mini-grids needed from investors to connect at least 100 million people.
The CBEA’s initial $5.5 million investment will fund 60 mini-grids providing grid-quality power for the first time to 34,000 people in rural homes and businesses in Tanzania. It is the first time a long-term project finance structure – traditionally used to fund large scale infrastructure projects – is being used in the rural mini-grid sector in Africa.
Mini-grid developers such as PowerGen have struggled to attract long-term financing for projects because each mini-grid is too small to be individually financed. To address this, the CBEA established a special purpose entity in Tanzania that will purchase PowerGen’s mini-grids in the nation. PowerGen will continue to provide long-term customer and asset management services to mini-grid customers. This minimizes transaction costs and allows investors and lenders to provide long-term financing based on the cashflow generated by the assets, similar to how most of the world’s 1 TW of wind and solar projects have been financed.
A core feature of the CBEA’s pioneering business model is the creation of a long-term sustainable structure through the close alignment of incentives between PowerGen, as developer or operator and the CBEA as long-term owner of the mini-grid portfolio. The sale of mini-grids to the CBEA soon after completion allows PowerGen to recycle capital and focus on developing more projects. A developer premium in the form of a share of the distribution from the portfolio, and an operating fee that includes a performance bonus where the grids’ revenues exceed projections, will enable PowerGen to benefit as it operates grids more efficiently and provides customers with better service. As a result, both the CBEA and PowerGen’s profits come from the grids performing well and providing long-term value to the most important stakeholders – the customers.
The CBEA and REPP are part of a group of investors with more than $2 billion under management who signed a position paper in June that endorsed mini-grids as a key solution to ending energy poverty in Africa and strongly urged governments and donors to support unified results-based financing programs to mobilize private capital. The investment by the CBEA and REPP in Tanzania shows how results-based financing programs can mobilize private capital.
The Shell Foundation – a U.K. registered charity – and U.K. aid, through the Transforming Energy Access program, provided support for the structuring and launch of CrossBoundary Energy Access.