Regional Liquidity Support Facility Mitigating risks for private investments in Renewable Energy in Sub-Sahara Africa.

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1 Regional Liquidity Support Facility Mitigating risks for private investments in Renewable Energy in Sub-Sahara Africa January 2015

2 Agenda 1 2 Unlocking the RE Potential in Sub-Sahara Africa Regional Liquidity Support Facility at a Glance

3 Unlocking the RE Potential in Sub-Sahara Africa Africa rising - sustained economic growth means significant investment in power markets is required BP. Energy Outlook 2035 Country and regional insights - Africa [ ] ongoing urbanization and electrification means energy demand in power generation grows the fastest, expanding by 115% and accounting for 46% of energy demand in 2035 [ ] [ ] Renewables grow strongly in Africa, but from a very small base, as does hydro (+135%). As a result non-fossil fuels are projected to nearly double their market share from 7% today to 13%in 2035 [ ] Source: The Economist (2013), BP (2015).

4 Unlocking the RE Potential in Sub-Sahara Africa The potential for RE is huge, levelized cost is coming down and African governments are experimenting with sector reforms and RE policies Countries with at least one RE target and/or at least one RE-specific policy Countries with at least one RE-specific Policy and at least one RE Target Countries with at least one RE-specific Policy Source: IPCC (2012). Countries with at least one RE Target Countries neither RE-specific Policies nor RE Targets

5 Legal/ Regul. Bottlenecks Financial Bottlenecks Technical Bottlenecks Unlocking the RE Potential in Sub-Sahara Africa Key to lack of public and private investments in RE in Sub-Sahara Africa remain persistent shortcomings in countries enabling environment and high risk perception Current legal and regulatory frameworks remain patchy and often inconsistent and thus do not trigger investor appetite Institutional capacity deficits and lack of clear roles and responsibilities undermine sector performance End user tariff structures continue to deter investment in generation, transmission and distribution infrastructure High market risk perception and doubts regarding creditworthiness of offtakers limit private sector interest Lack of IPP track record results in high financing costs for RE projects and high tariff requirements for nonrecourse-financed projects Power grid (transmission + distribution) in dire need of rehabilitation and reinforcement (losses) Grid integration of RE puts further strain on transmission infrastructure Lack of RE project mapping and feasibility studies

6 Unlocking the RE Potential in Sub-Sahara Africa Mitigating offtaker-risk With public utilities as the main offtakers of renewable energy IPPs in SSA, offtaker-risk is a major constraint for IPPs to reach financial close. Lenders usually require a Letter of Credit (LC) to back payment obligations under a PPA as a complement to sovereign guarantees of the host government. Due to poor credit rating, most offtakers have to provide full cash collateral to back such LCs. A number of IPPs do not reach financial close because this liquidity requirement cannot be met by the utilities. Idea: A regional instrument to provide liquidity support to back the PPAs of RE IPPs.

7 Agenda 1 2 Unlocking the RE Potential in Sub-Sahara Africa Regional Liquidity Support Facility at a Glance

8 Regional Liquidty Support Facility at a Glance The Regional Liquidity Support Facility aims at enabling RE IPPs to reach financial close. Unlocking RE Potential The Regional Liquidity Support Facility aims at unlocking the financing for RE projects of a total volume of 750 MW. Mobilising private finance for RE The Regional Liquidity Support Facility targets private investment in RE IPPs. It provides risk mitigation for offtaker-risks which in particular private investors are reluctant to accept. Systemic impact The Regional Liquidity Support Facility will provide transparency on the actual liquidity risks by publicly monitoring the utilization of the liquidity instrument. This should lead to a reduction of the perceived liquidity risks of lenders and LC banks. The aim is to reduce requirements for risk mitigation in future.

9 Regional Liquidity Support Facility at a Glance Key Parameters Geographic Focus Ghana Malawi Zambia Kenya Ruanda Possibly to be expanded Technologies Hydro Biomass Solar PV Wind Project Size 5 to 100 MW Target Capacity 750 MW Fund Volume 100 Mio. USD

10 Regional Liquidity Support Facility at a Glance The Regional Liquidity Support Facility aims to facilitate a more sustainable financing approach by providing the initially required full cash collateral for PPAs upon request of utilities and commercial banks. Engagement of the African Trade Insurance (ATI) as implementing partner Setting up the RLSF as cash collateral for ATI for a short term liquidity support product ATI issues short term liquidity support to IPPs: 6 months revenues under the PPA (similar to L/C) Publication: how often is liquidity support called

11 Regional Liquidity Support Facility at a Glance Implementing Agency: African Trade Insurance Agency (ATI) Africa s export credit agency. main goal: help increase investments into African member countries and two-way trade flows between Africa and the world. Products: political risk and trade credit risk insurance products with the objective of reducing the business risk and cost of doing business in Africa. ATI facilitates exports, foreign direct investment into and trade flows within the continent. launched in 2001 with the financial and technical support of the World Bank and the backing of seven African countries. ATI has supported over $13 billion worth of trade and investments across the continent investment grade rating of 'A' from Standard & Poor's.

12 Regional Liquidity Support Facility at a Glance Flow of Funds Donors: GCF, UK, Germany KfW Recovery of claims Government Feeder Fund ATI Trust Account IPP Transfer for each project committed under the RLSF Disbursement in case of claim Donor funds will be returned after a Years.

13 Letter of Support Regional Liquidity Support Facility at a Glance Structure of the Regional Liquidity Support Facility Government Government Support Agreement Utility PPA IPP Insurance: Non- Payment etc. + Short term liquidity support ATI

14 Thank you very much for your kind attention!

15 Unlocking the RE Potential in Sub-Sahara Africa The potential for RE is huge, levelized cost is coming down and African governments are experimenting with sector reforms and RE policies PV Resource Potential Wind Resource Potential Source: IRENA (2014). 9th German-African Energy Forum; Tuesday, May 5th, 2015