Uganda has moved to protect new small and mid-sized renewable energy projects, making it the first African country to insure small power producers against financial risks.
The country signed an agreement with the Regional Liquidity Support Facility (RLSF) to offer financial protection to renewable energy projects that produce up to 50MW of power in sub-Saharan Africa.
RLSF is a joint initiative of the African Trade Insurance Agency (ATI) — a multilateral guarantor — and German state-owned development bank KfW, with funding from the German Ministry of Economic Co-operation and Development. KfW offers out financial help to developing countries on behalf of the Germany government.
The RLSF has an initial capacity equivalent to $74 million and will protect independent power producers (IPPs) against the risk of delayed payments by public off-takers.
This type of guarantee is a common requirement from the banks that fund the projects. Many projects have failed in the past due to limited access to funding.
Uganda is seen as an ideal market based on the relatively high number of viable independent power producers (IPPs).
The country has also benefited from the GET FiT programme, an existing energy-sector initiative managed by KfW that supports countries to develop a standardised set of documentation for power projects and an enabling regulatory framework for IPPs. GET FiT has attracted 19 IPPs into Uganda in the past five years.
“RLSF is a tool that can ensure more renewable energy projects reach financial close. For Africa, small and mid-sized projects may be a better fit in the current environment, requiring less financing and they can also be implemented much quicker. This could be a model that works in many other African markets and may just pave the way for an expansion of the facility or other such initiatives,” said ATI chief executive George Otieno.