PowerGen, a developer of on- and off-grid distributed energy said this week that it has secured long term project financing to connect 55,000 people to electricity in rural Nigeria from CrossBoundary Energy Access with construction financing provided by Oikocredit, Triodos Investment Management (Triodos IM) and EDFI ElectriFI (the EU-funded Electrification Financing Initiative).
The project is supported by grant funding from the World Bank and the Nigeria Rural Electrification Agency’s Nigeria Electrification Project (NEP), which provides a fixed grant for each customer connected. The electricity will be provided by 28 distributed renewable energy (DRE) systems, designed as solar PV and battery-powered mini-grids.
Oikocredit, Triodos IM, and EDFI ElectriFI are acting as the construction financiers for the transaction, providing $9m of financing for the construction phase of the project. Once operational, CBEA will purchase the portfolio, becoming the long-term owner of the systems and providing the construction financiers with an exit.
CBEA’s ‘take-out at completion’ transaction structure allows the construction financiers to segment their investment to the construction phase, and CBEA as an asset owner to segment its investment to the long-term operations phase. This is a first for mini-grids in Africa at this scale and shows that innovative financing structures can bring private capital into the sector, said the company.
PowerGen will build the systems and continue to act as the long-term operator of the project after the transfer to CBEA. The project will serve a base of residential, commercial and productive use customers.
PowerGen has already commissioned 6 sites, including the pilot site, Rokota, which was the first to be commissioned under the NEP Performance Based Grant (PBG) program. The financing will be used to develop and build the remaining sites in the portfolio.
Nigeria is Africa’s largest economy, but is plagued by poor energy access, particularly in rural areas, where only 25% of people have access to electricity. This has led many to turn to fossil-fueled alternatives, like diesel generators and kerosene. The result is poor air quality, greenhouse gas emissions, and noise pollution. Together, these represent an undue burden on the health of rural populations, who are already marginalized.
The long-term funding makes the renewable energy possible. The DRE systems developed as a result will provide clean, reliable electricity to 55,000 people and will mitigate over 2,000 MT CO2e annually, which is equivalent to removing 500 cars from the road per year. PowerGen’s service further empowers communities to increase local economic activity by reducing the cost of power and increasing access to productive power, which enables agricultural processing to be mechanize, the use of power equipment such as welding machines and electric cooking appliances, and enabling electric mobility. These benefits are critical as low-income individuals manage the economic downturn brought on by the COVID-19 pandemic.
The transaction is facilitated by CBEA’s project finance structure, which proves a model for bringing long-term infrastructure capital into the mini-grid sector at scale. The systems are being built into a special purpose vehicle (SPV) which will be fully acquired by CBEA once the systems have met the pre-agreed technical standards. Oikocredit, Triodos IM, and EDFI ElectriFI are able to provide construction financing because they have a contracted exit from a long-term financier. Once CBEA becomes the owner of the project, PowerGen will step into a long-term contract to operate and maintain the assets and provide customer service.