NDF - Financing for climate change and development projects

NDF joins the Sustainable Energy Fund for Africa to accelerate the green transition in Africa

Photo: Chris Morgan
23.10.2020

The aim is to create an enabling investment environment for scaling up the sustainable energy sector in the region

This week, NDF joined the Sustainable Energy Fund for Africa (SEFA). SEFA is a special fund designed to catalyse private sector investments in early-stage renewable energy and energy efficiency markets to accelerate the transition to more inclusive and green growth in Africa. SEFA is also a delivery vehicle for the African Development Bank’s (AfDB) New Deal on Energy for Africa (NDEA). NDF’s total contribution to SEFA is EUR 10 million.

SEFA was established ten years ago by the AfDB and the Government of Denmark. Since then, it has attracted additional financing from the United States, United Kingdom, Italy, Norway, Spain and Sweden. The first phase of the fund was considered  a success as it created transformational changes and supported new technologies and business models in the most challenging and under-served markets in the least developed and fragile countries. It has also been instrumental in launching new funds in the sustainable energy sector in Africa.

Since then, the renewable energy sector landscape has fundamentally changed, but the renewable energy penetration still remains low and suffers from various challenges, such as intermittency, grid integration, market risk, technology risk, and high development and financing costs. Close to 570 million people still lack access to electricity in Sub-Saharan African countries.

The adoption of renewable energy and energy efficiency solutions is still at an early stage in many African countries. Several governments and utilities are still investing in fossil fuel-based energy generation despite the rapidly improving competiveness of renewable energy sources, which is not only an environmental challenge but also increases the risk of stranded assets in the fossil fuel sector. For consumers in rural and peri-urban areas, the affordability remains a major obstacle limiting the demand and inhibiting private investments. The complexity of the modelling and management of grids containing large shares of variable renewable energy sources compared to traditional power systems creates needs for new skills ranging from energy sector master planning and regulations to project-level design and development.

To address these gaps and adjust to this changing landscape, SEFA is now being converted into a special fund. As a special fund, instead of a trust fund, SEFA is able to use a broader set of financial instruments in addition to grants. SEFA will provide early-stage risk capital and concessional project financing to stimulate investments, catalyse private investment and accelerate the deployment of new technologies and business models.

SEFA’s activities will focus on three core areas; green mini-grids to provide electricity access to underserved populations in rural areas; green baseload by deploying low-carbon power alternatives to fossil-based options to meet baseload requirements; and energy efficiency by optimising the energy system and reducing the energy system costs, as well as by introducing demand-side management solutions. A large share of the SEFA funding will be allocated to project development activities by private sector companies, supporting governments to implement renewable energy auctions, as well as other project- and program-level preparatory activities to support broader market and regulatory development in the clean energy sector.

In the context of the COVID-19 pandemic, SEFA’s role has become even more critical, as it is working actively to help build back better and greener. The pandemic has hit the sustainable energy investments in Africa hard, especially in the off-grid renewable energy sector. In this situation, SEFA can act as a counter-cyclical instrument by providing risk financing. To this end, SEFA has created the COVID-19 Response Program.

SEFA has a strong Nordic identity as the Nordic countries represent a large share of the current funding. In addition to promoting clean energy markets, it promotes several Nordic development policy priorities including climate change mitigation and adaptation, gender equality, poverty reduction, job creation and inclusive green growth.

More information:
Sustainable Energy Fund for Africa (SEFA) [NDF C127]