Energy Access in Africa: The African Guarantee Fund launches 5 billion USD project

Energy Access in Africa: The African Guarantee Fund launches 5 billion USD project

The African Guarantee Fund (AGF) has unveiled its ambitious Mission 300 Local Currency Guarantee Facility, aiming to mobilise $5 billion to enhance energy access across Africa. This initiative is designed to support small and medium-sized enterprises (SMEs) in the Distributed Renewable Energy (DRE) sector, addressing the continent's pressing energy challenges.

Key takeaways

  • Objective: Mobilise $5 billion to support energy access projects across Africa.

  • Target Group: Focus on financing for SMEs in the Distributed Renewable Energy sector.

  • Partnerships: Collaboration with African governments and development partners.

  • Impact Goal: Provide electricity to 300 million Africans by 2030.

The energy access challenge in Africa

As of 2023, approximately 600 million people in Africa lack access to electricity, highlighting a significant energy access challenge. To achieve universal energy access by 2030, the continent requires an estimated annual investment of nearly $25 billion. The Mission 300 initiative is a critical response to this urgent need.

Strategic partnerships and innovative financing

The Mission 300 Local Currency Guarantee Facility is part of a broader initiative led by the African Development Bank Group (AfDB) and the World Bank Group. It aims to encourage collaboration with African governments while leveraging concessional financing from these institutions and other development partners. This approach is expected to scale the involvement of local banks in financing Distributed Renewable Energy solutions.

Wale Shonibare, Director for Energy Financial Solutions at AfDB, emphasised the importance of this collaboration, stating that it will enhance the capacity of local banks to support SMEs in the renewable energy sector.

Bridging the financing gap

The AGF has been instrumental in addressing the financing gap faced by green SMEs through its Green Guarantee Facility. This facility, supported by the Nordic Development Fund and the Investment Fund for Developing Countries, has successfully mobilised financing for green, clean, and renewable energy projects.

By lowering the exposure of financial institutions to defaults, the Green Guarantee Facility fosters confidence in lending to distributed renewable energy SMEs. It also facilitates electrification efforts in underserved rural and peri-urban communities, addressing critical barriers such as high collateral requirements and currency mismatches.

AGF's leadership in financial innovation

Jules Ngankam, AGF Group CEO, highlighted the organisation's role in driving financial innovation for SMEs. He stated that AGF's efforts align seamlessly with the goals of Mission 300, as it addresses financing gaps and fosters public-private partnerships. This approach is crucial for driving inclusive energy solutions, accelerating the energy transition, and reducing carbon emissions across the continent.

A landmark project in Madagascar

A recent example of AGF’s impact is its involvement in a credit guarantee syndication for a 40MW solar plant in Madagascar. This project not only demonstrated the viability of local currency financing for renewable energy ventures but also enhanced power sector resilience by diversifying away from thermal power.

The initiative is expected to benefit approximately 285,000 people, supporting the UN Sustainable Development Goals by providing affordable and clean energy while aiming to combat climate change by reducing emissions by 34,000 tons of CO2.