CrossBoundary Energy Access (CBEA), part of the CrossBoundary Group, has announced its first transaction, which will see 60 mini-grids providing power to 34,000 rural households and businesses developed in Tanzania. The company is partnering with PowerGen Renewable Energy for the project. PowerGen was founded in 2011 and has built mini-grids serving more than 50,000 people.
CBEA describes itself as the first project financing facility for mini-grids. It started up earlier this year with $16m funding from the Rockefeller Foundation and family office Ceniarth LLC (AE 389/10, 385/8). It is investing $5.5m in the project, backed by a loan agreement with the United Kingdom government-backed Renewable Energy Performance Platform (REPP), which is managed by Camco Clean Energy. The long-term loan uses a project finance structure, the first time this has been applied to mini-grids, according to CBEA.
CrossBoundary head of energy access Gabriel Davies said that “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 $11bn needed from investors for mini-grids to connect at least 100m people to power”.
A special purpose vehicle owned by CBEA has been established in Tanzania for the project which will purchase PowerGen’s existing and future mini-grids in the country as they begin operating. The structure is intended to enable investors and lenders to provide long-term financing based on cashflow from mini-grid customers at the same time as allowing PowerGen to reinvest the profits from selling the mini-grids upon completion. PowerGen will provide customer and asset management services, receiving a developer premium and an operating fee that includes a performance bonus where revenues exceed expectations.
“We believe that this initial investment will serve as an important proof point that CBEA has developed a thoughtful, blended approach to the challenge of unlocking capital for the mini-grid sector”, Ceniarth founder Diane Isenberg said. “We hope that as more data emerges to support the economics of the model and that customer satisfaction and revenues become more predictable, that investors will become more comfortable in providing long-term financing for these installations.”
The project will benefit from a results-based financing grant facility for mini-grids run by the Tanzanian Rural Energy Agency. The facility is funded by UK International Climate Finance and the Swedish International Development Cooperation Agency. Despite problems attracting investment into the grid, Tanzania’s regulatory framework has been effective in facilitating the development of one of the most active mini-grid sectors in Africa.
CBEA, Ceniarth, and the REPP were three of 12 investors calling for results-based financing mechanisms to be rolled out across the whole of Africa at the Africa Energy Forum last month. In a position paper, the investors said that although mini-grids are the least cost electrification option for 290m people according to the International Energy Agency, they are not currently viable in most cases without subsidies.
The other signatories to the paper were Acumen, Blue Haven Initiative, DOB Equity, Engie – PowerCorner, Hoegh Capital Partners, KawiSafi Ventures, responsAbility, SunFunder, and Triodos Investment Management.
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