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German Development Bank KfW and the African Trade Insurance Agency (ATI) have announced a new instrument to support renewable energy projects in sub-Saharan Africa. The fund will specifically target small- and mid-scale (up to 50 MW) green power renewable energy projects.

Germany launched new IPP fundThe German Federal Ministry of Economic Co-operation and Development (BMZ) will provide funding of up to 32.9 million EUR to the facility through KfW. The fund, 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, has been designed to provide a viable solution to one of the biggest challenges facing independent power producers (IPPs) operating in Africa.

“The International Energy Agency (IEA) expects sub-Saharan Africa’s renewables capacity to grow by 73% (24.4GW) between 2017 and 2022. While 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, they generally find it difficult to access the type of guarantees needed to reach financial closure,” says Günther Nooke, Personal Representative of the German Chancellor for Africa, BMZ.

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 fubd, 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, explains Jef Vincent, Senior Advisor to ATI, who has overall responsibility for the initial implementation of the facility.

“Unlike some of the alternative solutions to the liquidity issue, ATI’s guarantee (as provided via the RLSF) will not require a counter-guarantee from the relevant Ministry of Finance, and as such we are confident this will be a very useful tool for those projects that we expect to support,” he says.

“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. We highly appreciate the opportunity to partner with ATI on this innovative instrument. The RLSF is a strongly market-driven concept, emphasizing KfW’s strategy to support and leverage the resources of local partners and the private sector,” concludes Dr. Thomas Duve, KfW Director of Southern Africa and Regional Funds.

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