The Board of Directors of the African Development Bank Group has approved an innovative multinational financing program for Distributed Energy Service Companies (DESCOs), which would see 900,000 households in sub-Saharan Africa – about 4.5 million people – gain access to solar power by 2025.
The DESCOs Financing Program promotes securitization financing techniques to address barriers to accessing finance for DESCOs, while supporting their growth and expansion into existing and new markets. The program will also facilitate local currency financing for DESCOs and provide local lenders with risk mitigation instruments to support them.
Elaborating on the program, Wale Shonibare, the Bank’s Acting Vice-President for Power, Energy, Climate Change, and Green Growth said the Bank will provide critical technical guidance and credit enhancement to DESCOs and local financial intermediaries.
“Accelerating access to universal, affordable, reliable, sustainable and modern energy for underserved populations requires innovative financing solutions. Innovations such as receivables-backed financing structures provided by the program are vital in the Bank’s efforts to unlock private sector participation and local currency financing for the energy sector,” Shonibare said.
The program will contribute to installation of an estimated 45 MW of distributed solar PV which will provide clean energy access for 900,000 households by 2025 (4.5 million people). It will also create approximately 6,000 new direct jobs, mainly for the youth, and contribute to avoidance of nearly 37.08 kilotons of CO2eq emissions per year.
The design of the program supports the Bank’s Financial Sector Development Policy and Strategy and Industrialization Strategy Flagship program to grow liquid and effective capital markets, and support innovative financing mechanisms.
Stefan Nalletamby, the Bank’s Director for Financial Sector Development, said the program would help build capacity within DESCOs and local financial intermediaries in executing securitization structures and other innovative frameworks for accessing finance.
“It will also promote financial inclusion by availing consumer financing to customers in rural areas, building credit history, and encouraging the uptake of mobile payment solutions,” Nalletamby added.
The board approval follows the approval of a EUR 50 million guarantee facility and EUR 6 million technical assistance grant by the European Fund for Sustainable Development (part of the European External Investment Plan).
“Solar home systems present commercially viable, climate resilient, and modern solutions to provide clean energy access to off-grid populations in Sub-Saharan Africa. DESCOs have seen extensive growth owing to the rapid proliferation of mobile banking and pay-as you-go (“PAYGO”) technologies that allow low-income customers to pay off their purchases over an extended period of time.
This program will enhance the impact of DESCOs by enabling them to access financing that is tailored to their operations. It is also a great example of collaboration between the European Commission and the African Development Bank,” said Dr. Daniel Schroth, the Bank’s Acting Director for Renewable Energy and Efficiency.