Insurance guarantee instruments for the African energy sector

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The Norwegian Agency for Development Cooperation (NORAD) will provide a $56 million grant to the African Trade Insurance Agency (ATI) over the next five years, boosting private investment in Africa’s energy sector .

The grant will be directed towards the continued implementation of the ATI’s Regional Support Liquidity Facility (RSLF), which helps mobilize private investment in renewable energy projects in Africa. It will also help develop additional insurance or warranty products that support small and medium-sized renewable energy sector initiatives.

The NORAD funding will be split between a first-loss cash guarantee for various initiatives and technical assistance support for ATI, which will come from the Norwegian Ministry of Foreign Affairs.

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The RLSF was launched by ATI and KfW (the German Development Bank), to address short-term liquidity risks when financing small and medium-sized renewable energy projects in sub-Saharan Africa, by combining the range of ATI insurance products with a liquidity support instrument.

The Facility policy is used in place of or in addition to the buyer payment guarantee provided by public buyers under power purchase agreements (PPAs) with independent power producers ( PPI). The RLSF policy specifically addresses the risk of late payment by the buyer beyond the credit period provided for in the PPA.

Liquidity guarantees offer security to potential investors in the energy sector

Since its launch, the RLSF has supported four solar projects in Burundi and Malawi, enabling over $150 million in project financing and a total installed capacity of 108.5 MW. ATI has also supported other renewable energy projects in its member countries, enabling an installed capacity of over 500 MW.

ATI is currently directly supporting the generation of renewable energy transactions to the tune of $210 million. Large and NORAD support will greatly increase this long-term exposure.

Bård Vegar Solhjell, director general of NORAD, said the instrument will help unlock the private finance needed to close the energy access gap, while contributing to the reduction of greenhouse gas emissions. “It is an important tool to catalyze much-needed commercial investment in Africa’s energy sector. Dialogue with renewable energy developers has confirmed the great relevance of liquidity guarantees.

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Develop new products to support distributed energy resources

The RLSF is available to IPPs working in ATI member countries that have signed the RLSF MoU – Benin, Burundi, Côte d’Ivoire, Madagascar, Malawi, Uganda and Zambia. More than 20 other ATI member countries are expected to sign the MoU.

In addition to access to the facility, IPPs operating in these countries can also register for the transparency tool. This web-based platform shows utility payment trends. Over time, the tool should bring greater transparency to the industry and hopefully increase confidence among investors and other stakeholders.

In addition to providing support to the RLSF, part of the NORAD grant will be used to develop additional safeguards or insurance instruments. These will place particular emphasis on the off-grid sector and other eligible forms of distributed renewable energy.

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Manuel Moses, CEO of ATI, says the partnership will go a long way in strengthening their initiatives in the renewable energy sector. “This partnership comes at an opportune time as Africa sees increased interest from public and private actors in the renewable energy sector.

“The grant will allow ATI to support more projects reaching financial close, thereby increasing power generation capacity and supporting sustainable economic growth in Africa. We are also excited about the opportunity to develop new products to help spur additional investment in distributed renewable energy sectors that have traditionally not benefited from the same level of financing and insurance support,” said Moses.

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