However, private investment in the mini-grid market is limited. Mini-grid customer demand is difficult to predict and rural customers often lack credit histories. This makes it difficult to assess the revenue-generating potential of a mini-grid project – and therefore its bankability. As a result of this revenue risk barrier, mini-grids are overwhelmingly financed with grants and equity and some limited concessional debt.
The Green Aggregation Tech Enterprise (GATE) addresses revenue risk, a key obstacle to private investment in and the subsequent scale-up of the mini-grid market. GATE guarantees mini-grids a baseline level of revenues. This baseline revenue guarantee ensures that mini-grids can meet debt obligations in the event of revenue shortfalls.
GATE’s market development support is non-distortive and promotes an efficient risk-reward structure. No other products in this market target the key barrier of revenue risk.
GATE transforms mini-grid finances, enabling project debt leverage of 70% and equity returns of 20%. In GATE’s pilot phase (2018 – 2023), GATE will enable 60,000 electricity connections.
GATE targets an enormous market in its pilot markets Kenya, Nigeria and Zambia: by 2023, the market potential in these countries is:
27 million electricity connections for households and businesses, a US$ 5.7 billion market value, and 11.71 million tons CO2 abatement annually
GATE creates a guarantee business that effectively pools mini-grid revenue risk. With GATE, mini-grids pay a premium to gain a guaranteed minimum revenue stream:
• The mini-grid agrees to a periodic revenue threshold with GATE, over a fixed time.
• The mini-grid pays a regular premium to GATE for each period covered.
• In the event that revenue falls below the threshold, GATE pays out the difference.
This means that mini-grids can meet their debt obligations in the event of revenue shortfalls. This can transform the financing of mini-grids: from donor grants to debt finance.
GATE provides its product to a diverse portfolio of mini-grids, across different locations and customer bases to pool the risks that face individual mini-grids. This enables GATE to price these risks more effectively than individual investors. In addition, data that GATE gathers from mini-grid customers enables more accurate risk pricing. This design enables GATE to achieve financial sustainability and deliver attractive returns to private investors.
News & Events
Africa GreenCo Group, proponent of the Lab instrument Green Aggregation Tech Enterprise (GATE), recently announced the investment of USD 1.5 mn by Denmark’s Investment Fund for Developing Countries (IFU) and Private Infrastructure Development Group’s InfraCo Africa (InfraCo). This investment completes GreenCo’s operational establishment in Lusaka as an intermediary renewable energy buyer/supplier and power services provider […]
By Remy Dhingra for Yale Clean Energy Finance Forum. Read the original article here. The world has made undeniable progress toward universal energy access by 2030, a target laid out by the United Nations in its Sustainable Development Goal 7. However, if the global energy landscape remains the same, 8% of the global population will […]
Investors launch new financial instruments for low-carbon transit, sustainable land use, and clean energy in developing countriesSeptember 27, 2018
New York, 27 Sept 2018 – The Lab – an investor-led initiative that aims to drive billions of dollars for climate action by developing and supporting innovative finance instruments – has launched its 2018 class of nine new investment vehicles. Over 30 high-level Lab members from governments, private investors, philanthropies, and development finance institutions convened […]
The Lab picks top finance instruments for action on climate change in developing countries, particularly Brazil, India, and in Sub-Saharan AfricaFebruary 14, 2018
LONDON — The Lab – a public-private initiative composed of experts in sustainable investment from governments, development finance institutions, and the private sector – has picked a new class of investment vehicles to drive much-needed finance to low-carbon, climate-resilient global development, out of over 100 ideas submitted into a competitive pool. The nine new instruments […]