Power Africa

A well-developed business plan and a well-prepared project is key to unlocking investments. The lack of well-defined bankable projects in Africa is one of the main constraints for infrastructure development including renewable energy. Sida supports project developers in developing and present-ing bankable projects to investors. The biggest program of this kind is the Private Financing Advisory Network, PFAN.

Start-up companies can take off and grow with the help of seed capital. Challenge funds use innovation competitions to find solutions to development challenges and to realise opportunities that benefit people living in poverty.

Sida supports the African Enterprise Challenge Fund which provides seed funding through an energy access related innovation competition called REACT.

M-kopa, Mobisol and BBOX are examples of companies that started their journey with seed funding from REACT. M-kopa received a grant in 2011 to develop their payment software and since then they have provided solar energy services to more than 600 000 homes. Now they are using commercial loans and equity investments to expand their services to clients that previously lacked access to electricity.

In Challenge Funds, Sida grant funding is typically matched with own contributions from participating start-up companies at a rate of about one to one.

Learn more about Challenge Funds

This is a powerful instrument that help companies by derisking their investment in a specific country or in a new market segment. By tendering for a large enough volume of services or products, Sida enables companies to invest in a country or a technology for the mass market. A public procurement mechanism provides incentives for companies to accelerate their market development and to scale up their business venture.

The Beyond the Grid Fund for Zambia is one such example. During its first 15 months, almost 65 000 homes, or 350 000 people were connected to off-grid and mini-grid systems in Zambia. The bulk of the investments were made by the private sector and each SEK of Sida’s grant funding leverages about four SEK in private investment.

A guarantee backed by the Swedish government reduces the risk for the lender. It can increase access to finance that enables companies to develop and provide energy-access products and services. Two examples of guarantees under Sida’s Power Africa project are:

Crowdfunding

Emerging energy service companies often lack the financial conditions to be able to get loans from commercial banks. Through crowdfunding platforms, these companies can get access to loans from “the crowd”; a big number of private investors. This funding mechanism helps the companies to scale up their business and eventually be eligible for loans from commercial banks.

For example, through the crowdfunding platform Trine, Sida shares 60% of the risk with crowd-funders willing to lend to renewable energy service companies in need of working capital debt.

In its first seven months, the guarantee has been used to lend 7 million EUR to companies that provide energy services to customers living beyond the the national power grid in sub-Saharan Africa. These solar companies are in great need of working capital, which few other commercial lenders offer. The guarantee has increased investors willingness to lend money, and the average lending on Trine’s platform has grown from 200 000 to almost 900 000 EUR per month.

Commercial loans

Development finance institutions (DFIs) can provide long-term loans with very favorable terms. However, their funding is not without limits. It is therefore important to contribute to the commercial banks also lending to renewable energy investments. Commercial banks are more constrained to lend than DFIs and Sida offers guarantees to engage them to do this.

Sida often works with other public actors in joint-cooperation with the private sector to finance projects to improve the lives of people living in poverty. This creates important synergies as the public and private parties complement each other.

The private sector can contribute to the development of sustainable societies in low-income countries and enable people living in poverty to improve their own lives. In some areas, the private sector is considered the most strategic partner for solving specific development challenges.

In a PPDP, the public and private parties complement each other, creating important synergies. The private sector’s financial resources, knowledge, problem-solving and innovation capacity, interest in market expansion, combined with public agencies’ ability to address social and environmental development challenges at a systemic level makes the difference.

Learn more about PPDP’s