29th Mar 2023

EU unveils private equity fund to invest in African energy

  • An EU-backed private equity fund plans to invest in renewable energy firms across sub-Saharan Africa. (Photo: Brookhaven National Laboratory)

The EU has unveiled plans to partner up with a Paris-based private equity firm to invest in energy companies across Sub-Saharan Africa.

The EU-backed Electricity Access Fund, which will be directed by Astor Capital Partners, a Paris-based private equity firm, plans to invest up to €55m in around 20 businesses over five years, with investments ranging between €500,000 to €3 million.

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Under the deal agreed earlier this month, the Luxembourg-based European Investment Bank (EIB), which relies on capital paid in by the EU’s 28 governments, will stump up €10 million of the fund’s capital, which aims to provide access to electricity to one million low-income people.

Energy Access Ventures Fund will make equity investments in SMEs involved in providing electricity and related services in particular through power generation systems (e.g. solar home devices and micro- generation infrastructures) generally off-grid, energy distribution and ancillary activities. Low-income populations and mall businesses starting in Kenya, Uganda and Rwanda, and eventually west Africa, will be the main targets for investment.

Other investors include the French development agency, AFD, and the UK-based Commonwealth Development Corporation.

The project is the latest example of the EU “blending” development grants with finance from private sector investors to pay for large-scale investments. This approach is being employed in east Africa to finance renewable energy and energy efficiency projects, for geothermal energy installations, and in particular for the 310 MW Lake Turkana Wind Project.

“Innovative use of financing has the potential to unlock the benefits of private investment and build electricity supply for millions of people and small businesses,” says Erik Habers, the EU’s head of development in Kenya. “We can use development aid to absorb risk, build investor confidence and accelerate economic growth for a wider number of people,” he adds.

But blending has its critics, particularly amongst NGOs who have warned the EU about the dangers of being ‘charmed’ by the private sector and argue that ‘blending’ projects can lead to developing countries being lumbered with expensive and risky public-private projects.

For its part, a report by the European Court of Auditors, which monitors EU spending, in October expressed discomfort about the efficiency of ‘blending’, finding that almost half of the 40 projects it assessed would have gone ahead without the EU money.

A study conducted earlier this year by M-Kopa, a company offering off-grid solar energy, and InterMedia, a research consultancy, found 14 per cent of the 300 households surveyed in Kenya use solar as their primary lighting and charging source while Kenya Power estimates that 30 per cent of the population has access to the grid.

Currently, around 600 million people in sub-Saharan Africa lack access to electricity and 30 out of 47 countries in the region experience power shortages on a daily basis. Reliance on diesel power to address outages costs countries between 1 percent and 5 percent of GDP annually.

The World Energy Outlook estimates that nearly $400 billion (€350 billion) of investment will be needed to achieve universal access to electricity across Africa by 2030. The combined capacity of the 48 sub-Saharan African countries is 68 gigawatts, roughly equivalent to that of Spain, making it clear that energy grids are not going to catch up with demand any time soon.

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