A new US$20 million investment to boost the development of renewable energy in sub-Saharan Africa has been announced today by CDC, the UK’s development finance institution.
CDC’s commitment to the Africa Renewable Energy Fund (“AREF”) will make long-term capital available for greenfield renewable energy infrastructure projects.
CDC’s capital will be used by the fund to invest across the renewable sector, primarily targeting small hydro, wind, solar and geothermal and biomass companies. AREF, which is managed by Berkeley Energy, is one of the first pan-African private equity funds focused on developing renewable energy infrastructure and is seeking to attract up to US$200m from investors.
The fund will aim to make investments between US$10m and US$30m into 10-50MW power projects and expects to build a total of 200-250 MW capacity in sub-Saharan Africa where two thirds of the population remain without access to electricity. According to the International Energy Agency (IEA), average electricity consumption per person in the region is too low to keep a single 50-watt light bulb continuously lit.
Welcoming the announcement, Dolika Banda, CDC’s Regional Director, Africa said:
“For countries across Africa, expanding electricity access is critical in their efforts to reduce poverty and boost economic growth. This requires a major increase in power supply to the region and renewable energy has a vital role to play. Yet despite significant, untapped renewable energy resources, sub-Saharan Africa continues to trail the rest of the world in obtaining funds for renewable energy projects.
AREF is playing a leading role in developing the nascent renewable energy sector in Africa and CDC’s investment can support this development and attract more capital to the sector.”
AREF will identify projects at the pre-construction stage, develop them, oversee construction, bring the projects to financial closure and see them through commissioning and operating stages. The fund is assessing a number of investment opportunities including a geothermal project in Ethiopia, hydro projects in Uganda and Sierra Leone and wind power businesses in West Africa.
The energy challenge in sub-Saharan Africa
Accelerating Demand and Insufficient Supply:
- Economic and population growth is increasing demand for electricity, which is not being adequately met. SSA’s population is expected to overtake that of both China and India by 2030. Much of this growth will be reflected in urban areas and in industrial development, both of which have greater energy demands.
- Electricity production is insufficient to meet demand, creating a significant supply gap. Over 600 million lack access to electricity and in the last 20 years a lack of generation capacity in Africa has meant that consumption per capita in India has increased 10 times more than the amount in SSA.
- According to the IMF, 29 out of 47 countries in SSA face daily power shortages and reliance on diesel power to address outages costs some African economies between 1% and 5% of GDP, annually.
Growing Need for New Investment:
- Growing demand means that it is estimated that 2010 power generation capacity will need to triple in SSA from 2010 to 2030. The IEA suggest that around US$11.4bn a year of investment in new energy plants will be required over this period, of which US$6.5bn a year will be in renewables infrastructure.
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Infrastructure currently accounts for 27% of CDC’s portfolio (c.US$1.5bn). Of this, around 65% is in power, 20% in clean tech, with the remainder split across waste and water, transport and telecoms. CDC’s investment in AREF joins commitments from other Development Finance Institutions, including FMO of the Netherlands, BIO of Belgium and the African Development Bank.
Dolika Banda added:
“AREF will increase the power generation capacity in a number of countries across Africa, helping to overcome a significant obstacle to private sector development. The AREF team will also bring development skills in renewable energy to complement those provided by local partners. We’re proud that the team behind AREF, which would not exist without CDC’s support when it began as a pioneering renewables infrastructure investor in Asia, is now able to continue doing the same in Africa.”
About the AREF fund:
AREF is managed by Berkeley Partners LLP, trading as Berkeley Energy, which was set up in 2007 to focus on pre-construction renewable energy infrastructure. The Manager’s first fund, REAF (Renewable Energy Asia Fund), was supported by CDC as its anchor and leading investor, committing €15m to the fund’s total of €86.37m. Berkeley Energy would not have come to existence without CDC’s support.
The Asian fund is now 83% drawn and has invested in nine renewable power assets. The AREF team will initially be based in Nairobi and London.
CDC is the UK government-owned development finance institution that uses its own balance sheet to invest in the developing countries of Africa and South Asia. It has net assets of £2.9bn.
CDC’s mission is to support the building of businesses in Africa and South Asia, creating jobs and making a lasting difference to people’s lives in some of the world’s poorest places. CDC provides debt and direct investment to businesses as well as acting as a fund-of-funds investor. CDC also now only makes new investment commitments in Africa and South Asia.
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