CDC, the UK’s development finance institution, has invested $20m in the first pan-African renewable energy fund.

Dolika Banda, CDC’s Regional Director, Africa said: “AREF is playing a leading role in developing the nascent renewable energy sector in Africa and CDC’s investment can support this development and attract more capital to the sector.”

“For countries across Africa, expanding electricity access is critical in their efforts to reduce poverty and boost economic growth. This requires a major increase in power supply to the region and renewable energy has a vital role to play. Yet despite significant, untapped renewable energy resources, sub-Saharan Africa continues to trail the rest of the world in obtaining funds for renewable energy projects,” she added.

CDC’s commitment to the Africa Renewable Energy Fund (AREF) will make long-term capital available for greenfield renewable energy infrastructure projects.

CDC’s capital will be used by the fund to invest across the renewable sector, primarily targeting small hydro, wind, solar and geothermal and biomass companies.

AREF is managed by Berkeley Partners, trading as Berkeley Energy, which was set up in 2007 to focus on pre-construction renewable energy infrastructure.

The fund, which is aiming to raise $200m from investors, will aim to make investments between $10m and $30m into 10-50MW power projects and expects to build a total of 200-250 MW capacity in sub-Saharan Africa (SSA), where two thirds of the population remain without access to electricity.

AREF will identify projects at the pre-construction stage, develop them, oversee construction, bring the projects to financial closure and see them through commissioning and operating stages.

The fund is assessing a number of investment opportunities including a geothermal project in Ethiopia, hydro projects in Uganda and Sierra Leone and wind power businesses in West Africa.

In Africa, economic and population growth is increasing demand for electricity, which is not being adequately met.

According to the IMF, 29 out of 47 countries in SSA face daily power shortages and reliance on diesel power to address outages costs some African economies between 1% and 5% of GDP, annually.

Growing demand means that it is estimated that 2010 power generation capacity will need to triple in SSA from 2010 to 2030.

According to Banda, AREF will increase the power generation capacity in a number of countries across Africa, helping to overcome a significant obstacle to private sector development.

“The AREF team will also bring development skills in renewable energy to complement those provided by local partners. We’re proud that the team behind AREF, which would not exist without CDC’s support when it began as a pioneering renewables infrastructure investor in Asia, is now able to continue doing the same in Africa.”

Infrastructure currently accounts for 27% of CDC’s portfolio ($1.5bn).

Of this, around 65% is in power, 20% in clean tech, with the remainder split across waste and water, transport and telecoms.