Germany backs renewable energy projects in Africa with the launch of RLSF – an innovative liquidity facility managed by ATI
November 16, 2017
|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 16, 2017/ — KfW (www.KfW-entwicklungsbank.de), the German Development Bank, and the African Trade Insurance Agency (ATI) (www.ATI-ACA.org) 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.
Dr. Thomas Duve, KfW Director Southern Africa and Regional Funds, noted “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.”
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.
Speaking at the launch, John Lentaigne, ATI’s Chief Underwriting Officer commented “We are delighted to be working with the German government, represented by KfW, on an initiative that directly targets one of the main bottlenecks preventing green power projects from being financed in Africa.”
Jef Vincent, Senior Advisor to ATI, who has overall responsibility for the initial implementation of the facility, added “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.”
KfW (www.KfW-entwicklungsbank.de) is one of the world´s leading and most experienced promotional banks. Established in 1948 as a public law institution, KfW is owned 80 per cent by the Federal Republic of Germany and 20 per cent by the federal states (“Länder”).
KfW Development Bank is Germany’s leading development bank and an integral part of KfW. It carries out Germany´s Financial Cooperation (FC) with developing countries on behalf of the Federal Government. The 600 personnel at headquarters and 370 specialists in its 68 local offices cooperate with partners all over the world. Its goal is to combat poverty, secure the peace, protect the environment and the climate and make globalisation fair. KfW is a competent and strategic advisor on current development issues.
ATI (www.ATI-ACA.org) was founded in 2001 by African States to cover the trade and investment risks of companies doing business in Africa. ATI provides a range of Political and Credit Risk, insurance covers and has a particular focus on supporting Foreign Direct Investment. As of 2016, ATI had supported over US$25 billion in trade and investments across Africa in multiple sectors and now supports trade and investments equivalent to an average of 1% of GDP annually in member countries. ATI is one of the most trusted institutions in Africa with an ‘A/negative’ rating for Financial Strength and Counterparty Credit by S&P.
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