The Board of Directors of the African Development Bank (AfDB) approved on Wednesday, November 13, a US $65-million equity investment package in the Africa Renewable Energy Fund (AREF) comprised of US $25 million from its statutory resources, US $35 million from the Sustainable Energy Fund for Africa (SEFA) and US $4.5 million from the Global Environment Facility (GEF). AREF is a private equity fund that will invest in small- to medium-sized renewable energy projects in Sub-Saharan Africa (SSA), excluding South Africa, with a targeted fund size of US $150 million to $200 million.
The resources needed for Africa to adapt to climate change and embark on low-carbon growth paths are estimated to range from US $22 billion and US $31 billion per annum between now and 2015. However, few pan-African infrastructure funds have scope to make clean technology investments, whereas there is a dearth of funds that are dedicated to renewable energy investment or that have an investment focus targeting SSA.
AREF will have a significant impact in facilitating greater private capital inflows into clean energy technology industries across Africa, while lowering greenhouse gas emissions currently associated with the energy sector. By investing in clean technology solutions, AREF will assist Governments in meeting their renewable energy (RE) and carbon emission targets, while contributing to job creation, income generation, increased delivery of services and Government revenues.
AREF has been set up to contribute to the investment needs and, through the demonstration effect, catalyze the additional investment required to build sustainable RE industries across SSA. The AfDB played a key role as the lead in the fund’s conceptual development, including the structuring of the fund and selection of the fund manager. AfDB and SEFA are co-sponsors and anchor investors in the fund each bringing a US $25 million equity participation. SEFA will additionally provide US $10 million to AREF’s Project Support Facility (PSF) to prepare and structure bankable projects. Lastly, the Global Environment Facility (GEF) will invest US $4.5 million in equity from an AfDB-managed public-private partnership platform program.
Berkeley Energy LLP (BE), AREF’s manager, established in 2007, raised a US $110 million Renewable Energy Asia Fund (REAF) in 2009 and deployed 80% of its capital within three and a half years. The REAF investment remit is substantially similar to AREF, with the BE team demonstrating over 60 years of relevant project development experience in emerging markets, including experience within the team of delivering operating energy assets in Africa.
The AREF mandate, aligned with the AfDB’s Ten-Year Strategy for 2013-2022, is focusing on energy security and inclusive green growth as the pathway to sustainable development and creating broad-based prosperity. The fund is also well aligned with the Bank’s Energy Policy, the Banks’ Clean Energy Investment Framework and Climate Change Action Plan, which aim to help its member countries to transition to a cleaner energy mix and support investments to reduce Africa’s vulnerability to climate change.