Malawi has become the latest country to sign onto the Regional Liquidity Support Facility (RLSF) which was launched a year ago.
The agreement has been signed by five countries ensuring that their Independent Power Producers (IPPs) received protection against payment risks that often contribute to their failure.
The Facility supports small and mid-scale renewable energy IPPs (from 50 to 100MW) in sub-Saharan Africa by helping these projects reach financial close and to reduce the energy deficit.
The RLSF is a joint initiative of the African Trade Insurance Agency (ATI), and KfW with funding from the German Federal Ministry for Economic Cooperation and Development (BMZ).
The facility, which has an initial capacity of $74 million, targets small and mid-scale renewable energy projects because renewables are generally cheaper, easier to implement, integrate into the national electricity grid and usually have a positive environmental impact once up and running.
On average, electricity generated by non-renewable energy producers costs between US$0.40 to US$0.50 per KW hours compared to renewable energy solutions that can cost anywhere from just US$0.10 to US$0.18 per KW hours.
With such savings, renewable energy is a viable alternative and the RLSF aims to provide further incentives to African governments to sign up.
In 2018, RLSF supported a 7.5 MW Solar PV plant in one of the four partner countries, which will add an additional 15% to the country’s current capacity of 50 MW.
The project is also the first grid connected IPP in the country.
This is an example of the type of big impact that the RLSF envisions.
By supporting small to medium-sized projects the current energy deficit in Africa can be rapidly reduced at a lower cost with a focus on many small and smart projects.
Mr. George Otieno, the CEO of ATI, noted: “Our initial five partner countries are paving a path for what is possible in the African renewable energy space.’’
“By signing onto the RLSF agreement these governments have committed to provide support to IPPs implementing projects in their countries.
“This sends a powerful message about their will to drive the renewable energy sector in Africa. We are optimistic that other countries across Africa will follow.”
The RLSF protects IPPs against the risk of delayed payments by public off-takers.
This type of guarantee is a common requirement from lenders that fund projects, which have often failed to access funding and in turn reach financial close because this type of guarantee was not available.
The RLSF hopes to change this by providing the required guarantee in cooperation with the LC issuing bank ABSA Bank Ltd.
The RLSF product is available to all renewable IPPs in countries that have signed a Memorandum of Understanding and that have not reached financial close, as well as new IPPs.