Change in motion: a real-life look at how UK climate finance is building an investor-friendly renewables market in Africa
6 April 2023 | By Hugh Bowring, Communications Manager, Camco
For the last seven years, the UK government-funded Renewable Energy Performance Platform (REPP) has been rewriting the rules of investing in Africa’s small-scale renewable energy sector. Two government officials recently took a tour of REPP-financed projects to investigate the impact first hand.
When the REPP (Renewable Energy Performance Platform) was formed back in 2015, most small-scale renewable energy developers in Africa were struggling to find the necessary finance to bring their projects to fruition. What the sector needed was a visionary investor who understood the challenges facing developers and how the current status quo was stifling social, environmental and economic progress.
With funding from the UK’s International Climate Finance through the Foreign, Commonwealth and Development Office (FCDO), REPP and its investment manager Camco were given license to develop and implement a highly flexible approach to providing capital and support to developers that cut to the heart of the problem.
And the results are telling. Since inception, REPP has built up a diversified portfolio of 48 investments in projects ranging from grid-connected solar, run-of-river hydro and wind plants to solar mini-grids and other distributed energy solutions that have connected over 1.3 million people to electricity for the first time and improved the energy supply of many more. In the process, more than 100,000 tonnes of greenhouse gas emissions have been avoided through these investments, and 9,290 jobs have been directly created.
The real power of REPP, however, lies in the transformational impact it is having on the region’s broader renewable energy market, both in the off-grid and the on-grid spaces. Through supporting a high volume of projects and companies and adapting proven financing mechanisms to often nascent business models and challenging market contexts, REPP is giving other investors more confidence and incentive to enter the market. And by investing in many “firsts” (such as the first solar IPP in Burundi and the first mini-grid rural electrification concessions in Sierra Leone and Lesotho) and engaging closely with governments to ensure bankability of contracts, REPP is improving the enabling environment for investments in these markets. This is, in turn, crowding in additional public and private finance and thereby further strengthening the market.
Last month, FCDO’s Green Finance Team Programme Manager and Green Finance Advisor went on a series of visits to REPP-financed projects in East Africa, following a mini-grid roundtable event co-hosted by REPP in Nairobi as part of ESMAP’s 7th Mini Grid Action Learning Event. The trip provided an opportunity to witness first-hand how the UK’s long-term commitment to Africa’s sustainable energy sector is delivering transformational change through REPP and to meet face-to-face with both developers and the people benefitting from the projects.
Lender comfort seals deal
First up on the itinerary was a visit to Marco Borero Company’s 1.65MWp grid-connected solar PV plant in Nyeri county in Central Kenya, where the pair were met by company chairman Maina Kanyua and his site engineers, along with the British High Commission’s Programme Officer Karanja Kung'u’u and Camco’s Ieva Indriunaite and Cherop Soy.
Before REPP’s intervention in 2020, first-time local developer Maina and his wife, Faith Maingi, had been unable to raise the final tranche of equity required to reach financial close on the project due to its comparatively small ticket size, with this equity being critical for unlocking USD 1.8m of previously secured debt from a local bank. REPP’s USD 525,000 equity investment brought much-needed comfort to lender Co-operative Bank of Kenya (via the Agence Française de Développement’s SUNREF programme) and breathed new life into the project.
Following a series of COVID-related delays, construction of the plant was finally completed in May 2021, by which time the project’s power purchase agreement (PPA) with the Kenyan utility had lapsed. Despite being ready for connection to the grid, the plant is currently sitting idle after the Kenyan government’s enforced a ban on signing new PPAs with independent power producers (IPPs) in March 2021, a moratorium that has only recently been lifted.
“This project is a powerful demonstration of how political, policy and regulatory uncertainty can be a major hold up to operationalise projects that are otherwise ready,“ said FCDO’s Green Finance Team Programme Manager.
“The good news is that two days prior to our visit, the Kenyan cabinet lifted the PPA ban, bringing Maina and his team renewed hope of a new, commercially sound PPA being signed that would allow the plant to finally be connected.
“With the private sector so critical to Kenya’s sustainable energy future, hopefully it is now just a matter time before the solar plant starts feeding clean energy into the grid.”
With a new PPA in place, the plant would become the first majority locally owned solar plant to reach commercial operation in Kenya. With the PPA moratorium lifted, it is hoped the project will become operational in the coming months. In the meantime, Marco Borero Company will continue to work on its plans to develop a pipeline of renewable energy projects in the region having greatly increased its capacity and experience through the project.
Flying start for solar business
Leaving the foothills of Mount Kenya behind them, the pair travelled west to neighbouring Rwanda to meet with REPP investee ARC Power's Penny-Jane Cooke, Niyonizera Isabelle and Pamela Bigirimana.
ARC Power is a UK-based solar mini-grid developer which, thanks to two convertible loans from REPP, has successfully completed the first phase in a two-phase project to connect 400,000 people in Rwanda to electricity for the first time through a combination of integrated and standalone mini-grids and distributed renewable energy. Over 10,000 people have been connected through this initial phase, with 50 jobs created, of which 27% were held by women and 47 were local.
The site visit started out at one of ARC Power’s four operational mini-grid generation systems in the Bugesera and Gatsibo Districts then carried on to a connected village.
“Most householders went from never having had any access to electricity to having three lightbulbs and two power sockets overnight, which has had a profound impact on people’s day-to-day lives,” said the official. “One man told me how he had previously had to walk a three-hour round trip to the nearest town just to charge his mobile phone, where now he could do it from the comfort of his own home.
“We also spoke to beneficiaries of an appliances pilot scheme being run by ARC Power that has so far seen 32 families purchase electric pressure cookers and other productive use of energy appliances. In one store we visited, the shopkeeper had invested in a fridge, enabling him to provide cool drinks and fresh food for the community.”
Hydro hits the high notes
The final leg of the tour saw the pair meeting up with Stephane Mutsinzi and Paul-Olivier R. from HYDRONEO and taking a tour of the hydropower IPP’s recently completed grid-connected 334kW Kavumu plant in Rwanda.
Although REPP has not directly supported the Kavumu plant, it has provided a USD 1 million development loan for Hydroneo’s larger 10.2MW run-of-river hydropower project, Mpanda, south of the border in Burundi. Mpanda is a flagship project for the government of Burundi (as indicated in the country’s National Development Plan) which has among the lowest electrification rates in the world, and is one of the first of its kind by an IPP in the country. Once completed, it will boost Burundi’s power production by over 10%.
REPP’s loan is being used to co-finance outstanding development works necessary for achieving financial close, including a bankable ESIA and a detailed feasibility study. Reaching financial close will unlock an estimated further USD 25 million in senior debt for construction of the plant, including a potential ~USD 4 million construction loan from REPP.
“The tour of Kavumu made us understand why there is so much excitement over the Mpanda project in Burundi, not just from Hydroneo but from the region’s wider renewable energy sector as a whole,” said the official.
“While we’ve been here, we’ve been hearing a lot of talk from other developers about how decentralised run-of-river hydro projects like Kavumu and Mpanda provide a great baseline for them to come in and propose their own projects to the governments. In addition, through the Mpanda project, by changing the original design from reservoir hydro to run-of-river, the project will prevent 95 hectares of flooding on the boundary of a national park, significantly reducing the environmental impact of the project.
“By setting a precedent with these projects, Hydroneo has improved the market conditions for other developers while increasing government officers’ capacity around renewables and sending out a strong signal to investors that these projects are bankable and attractive for investment.”