Africa faces the challenge of providing electricity to 600 million people. Most sub-Saharan Africans without power live in remote areas. Mini-grids, small-scale systems that can operate without being connected to a centralized grid, represent an opportunity to provide clean energy access without the challenges of standard grid electrification. According to the IEA, about 40% of all new electricity connections until 2030 could be delivered economically through mini-grids – requiring installation of 4000 – 8000 mini-grids a year in 25 years.
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
• US$ 5.7 billion market value
• 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.
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