Off-grid renewables get a $300m boost

From the newsletter

Zafiri, an investment vehicle formed by the World Bank and the AfDB to push off-grid renewables, is set to launch next month. The platform secured $300 million in blended finance to accelerate off-grid and distributed renewables across sub-Saharan Africa. The fund aims to connect 30 million people, focusing on commercially sustainable, decentralised renewable energy projects.

• Blended finance is not new in Africa’s renewables sector. Zafiri joins others such as the Sustainable Energy Fund for Africa (SEFA), led by the African Development Bank. SEFA has mobilised over $1.1 billion in blended finance since its inception.

• Zafiri's approach is unique to the extent that it targets mini- and metro-grid developers with a focus on commercial and industrial (C&I) off-takers. These types of consumers offer more reliable revenue streams, lowering risk for investors.

More details

• Its initial $300 million was equally split between senior and junior equity from development financiers and philanthropies, including a significant $120 million from the International Finance Corporation (IFC). The African Development Bank (AfDB) and the Rockefeller Foundation are foundational partners.

• One of the most persistent hurdles in financing DRE projects in Africa is the perceived high risk, which translates into expensive capital. Lending costs for projects can be several times higher than in developed countries. This risk premium is often due to factors including nascent regulatory frameworks, currency fluctuations, political instability, and a lack of established credit histories for rural communities and small businesses.

• Zafiri’s blended finance approach combines concessional and commercial equity. This addresses the chronic funding gap for early-stage distributed renewable energy (DRE) projects, particularly in rural regions where traditional debt models have failed.

• Beyond de-risking, Zafiri's equity-focused approach offers a crucial advantage over traditional debt-heavy models. DRE projects, particularly mini-grids, often require long development cycles and patient capital before generating significant returns. Equity provides the flexibility and long-term commitment that debt structures typically cannot, allowing developers the necessary time to prove and scale their business models

• The fund will focus on countries with strong off-grid potential and enabling policies, including Nigeria, Kenya, Tanzania, and Ghana, where commercial and industrial demand anchors can improve project bankability. Notably, sectors like mining, agriculture, and manufacturing represent significant C&I offtakers that can stabilise revenues and attract further investment.

• The link between Zafiri and the broader Mission 300 initiative by the World Bank Group and AfDB also reinforces its strategic importance. This alignment ensures that Zafiri's investments are not isolated but part of a larger, coordinated effort to address Africa's energy deficit. This synergy can lead to improved policy environments, technical assistance, and a more streamlined investment landscape.

Our take

• While blended finance isn't new to Africa's renewables, Zafiri's deliberate targeting of mini- and metro-grid developers with patient, long-term equity and an emphasis on securing Commercial & Industrial (C&I) offtakers marks a significant evolution.

• Blended finance might be the only way forward for renewables in Africa. Zafiri exemplifies the growing recognition that conventional financing alone cannot bridge the substantial funding gap for Africa's off-grid sector.

• All that said and done, success and consequent blueprinting will only be if Zafiri can demonstrate tangible success in its initiatives. Only then will it be able to achieve its $ 1 billion funding goal.