The Norwegian Agency for Development Cooperation (NORAD) grant of NOK 500 million (approximately $56 million) to the African Trade Insurance Agency (ATI) is intended to expand the Regional Liquidity Support Facility (RLSF), as well as the development of additional insurance or guarantee products to support small and medium-sized renewable energy initiatives.
The RLSF is a partnership between ATI and Kreditanstalt für Wiederaufbau (KFW), the German development agency. The mechanism aims to mitigate climate change through support for renewable energy production. According to the ATI, the RLSF is designed to address the short-term liquidity risks faced by independent power producers (IPPs) that sell electricity to state-owned utilities in sub-Saharan Africa.
Hedging IPPs against liquidity risks
While welcoming the NORAD grant, Manuel Moses, ATI’s executive director, says, “This partnership is timely, as Africa is experiencing increased interest from public and private stakeholders in renewable energy. This grant will enable ATI to support more projects to reach financial close, increasing not only power generation capacity but also sustainable economic growth in Africa.
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The facility provides cash guarantees supplemented by demand guarantees to a bank, which in turn issues a revolving standby letter of credit (SBLC) to the IPP. The RLSF was recently granted to Canadian IPP JCM Power, which is developing the Golomoti solar project in Malawi in partnership with InfraCo Africa, an investment company of the Private Infrastructure Development Group (PIDG).
In addition to Malawi, the facility also benefits Burundi, for a total financing of $150 million for an installed capacity of 108.5 MW. For now, the RLSF MOU covers only seven African countries, Benin, Burundi, Ivory Coast, Madagascar, Malawi, Uganda and Zambia.
Jean Marie Takouleu