CrossBoundary Energy Access (CBEA), a mini-grids financer has said it will finance 60 mini-grids in Tanzania in partnership with PowerGen Renewable Energy, a mini-grid developer which has connected over 50,000 people since its launch in 2011.
CBEA has signed a loan agreement with Camco Clean Energy’s Renewable Energy Performance Platform (REPP). CBEA’s initial $5.5 million investment will fund 60 mini-grids serving more than 34,000 people in rural homes and businesses in Tanzania.
According to Gabriel Davies, Head of Energy Access at CrossBoundary, “Project finance is an established way to finance large infrastructure projects, but this is the first time it has been applied to rural mini-grids in Africa. We believe that this is key to unlocking more than $11 billion dollars for mini-grids needed from investors to connect at least 100 million people to power.”
Mini-grid developers like PowerGen have so far struggled to attract long-term financing for their projects because each mini-grid is too small to be individually financed. To address this, CBEA established a special purpose entity in Tanzania that will purchase PowerGen’s existing and future operating mini-grids in Tanzania.
The sale of the mini-grids to CBEA soon after completion allows PowerGen to recycle capital and focus on developing more projects. A developer premium in the form of a share of the distributions from the portfolio, and an operating fee that includes a performance bonus where the grids’ revenues exceed projections will allow PowerGen to benefit as it operates grids more efficiently and provides customers with better service.
PowerGen will continue to provide long-term customer and asset management services to the mini-grid customers. This minimizes transaction costs and allows investors and lenders to provide long- term financing based on the cash flow generated by the assets themselves, similar to how most of the world’s 1,000 gigawatts of wind and solar projects have been financed.
“PowerGen has installed hundreds of renewable energy systems across seven countries in East Africa. We believe the sector is now ready for the larger scale infrastructure finance that will enable it to scale. CrossBoundary Energy Access shares our vision of mini-grids providing future-proof energy access that is a win-win for investors and consumers.” said,” Aaron Cheng, President, PowerGen.
CBEA and REPP are part of a group of investors with more than $2.0 billion under management who endorsed mini-grids as a key solution to ending energy poverty in Africa. Their investment in Tanzania is an immediate proof point of how RBF programs can mobilize private capital.
The Shell Foundation and UK aid, through the Transforming Energy Access programme, provided support for the structuring and launch of CBEA which was established this year with investments from The Rockefeller Foundation and Ceniarth.
Ashvin Dayal, Managing Director, Power, The Rockefeller Foundation, says, “We’re excited to see the CBEA facility make its first investment. We invested in CBEA because it represents an ambitious, concrete effort to realize the comparative advantage mini-grids have to serve over 100 million people in underserved communities in Africa. We hope this first investment establishes CBEA as a platform for more effective public and private sector coordination that can transform the pace of last-mile electrification.”