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
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 […]