The Sustainable Energy Fund for Africa (SEFA), a joint initiative of the Danish government and the Energy, Environment and Climate Change Department (ONEC) of the African Development Bank (AfDB), approved on August 17 its first grant of USD 825,000 to finance the concept phase of the Green Tech Financial Facility - a vehicle for investments in private-sector driven green technology projects - including market scoping and positioning studies, fund conceptualization and fund manager selection.
The grant will be coordinated and monitored by a task team from the Private Sector Department of the AfDB, working closely with the African Biofuel and Renewable Energy Company (ABREC) and the SEFA Secretariat. African countries are embracing the "green growth" development paradigm to address their economic, environmental and social challenges. There is, however, an absence of a coherent investment framework to support this agenda in Africa and elsewhere.
Climate-oriented facilities designed to address this problem channel capital from predominantly public contributions. While Multilateral Development Banks (MDBs) have achieved some success leveraging private finance using a variety of instruments, mainly through Climate Investment Funds, these initiatives lack sufficient scale to meet global climate finance needs. Thus, there remains untapped potential to design an appropriate financing mechanism that systematically channels private capital into environmentally-sound technologies that improve resource efficiency and economic competitiveness while reducing carbon emissions.
This SEFA grant will therefore support the AfDB in structuring and launching an investment facility aimed at increasing private capital flow channeled to private sector-led projects that implement carbon-reducing and clean technologies for Africa. The optimal structure and fund management protocol for the financial facility will be informed by thorough market research and analysis. The grant will also support the design of a Technical Assistance Facility to provide capacity and implementation support to the investee companies. This grant aligns with SEFA's equity investment window and ABREC's African Biofuel and Renewable Energy Fund could thus become a vehicle for SEFA (as a co-investor) to direct investments to SMEs along the clean energy value chain.
SEFA was established in 2011 with a commitment from the Government of Denmark of DKK 300 million (approximately USD 56 million), and was open for business at the start of 2012, currently operating under two components: 1) Project Preparation Grants to facilitate the preparation of small and medium-scale renewable energy (RE) generation and energy efficiency (EE) projects requiring total capital investments of USD 30 -75 million. 2) Equity Investments seeking to address the lack of access to start-up and growth capital for SMEs, as well as their limited managerial and technical capability, and targeting RE and EE projects in the USD 10-30 million range. SEFA is structured to be used as a flexible multi-donor/multi-purpose platform to support the access to sustainable energy agenda in Africa, and one of Africa's potential instruments under the UN's Sustainable Energy for All Initiative.
