The African Development Bank (AfDB) is looking to raise up to $400m from DFIs, impact investors and commercial banks for a pan-African renewable energy debt fund.

The Bank has recently approved a financing package of $100m to seed the $500m Fund, the Facility for Energy Inclusion (FEI).

The Bank’s investment comprises $50m equity and $50m convertible senior loan.

The AfDB has already held informal discussions with potential investors from the UK, US, Germany, Japan, and South Africa. 

AfDB said that a first closing is expected by mid-2017.

FEI will focus on providing senior and mezzanine debt to off-grid, mini-grid and small scale Independent Power Producers (IPP) with projects with total costs under $30m.

The Fund will provide hard and local currency financing.

FEI has been structured by the Bank in consultation with other DFIs and in close collaboration with Dalberg, a strategic advisory firm, and Hunton & Williams, legal advisors with previous experience in fund creation. 

The structuring effort was also made possible through financial support from the Sustainable Energy Fund for Africa (SEFA), a multi-donor trust fund anchored by the Governments of Denmark, Italy, UK and the US.

Greg Snyders, Partner at Dalberg, who lead collaboration with the AfDB on the facility for energy inclusion, said: “Among other things, Dalberg’s role was to conduct an in-depth market assessment to identify a unique market positioning for the fund; define an appropriate fund structure and lending strategy to accomplish the goals of enhancing energy access while catalyzing private investment; and develop a financial model and suite of draft fund policies and guidelines to provide structure for the new fund’s approach.”

“Over 650 million Africans live without access to electricity, and we believe this fund will have tremendous impact on scaling decentralized energy access business models across the continent; particularly given that it focuses on financing relatively small (less than 25MW) Independent Power Producers more heavily than comparable funds,” Snyders told Africa Global Funds. 

“By allocating a portion of its portfolio to local currency loans and working capital, the Facility for Energy Inclusion seeks to address the debt needs of off-grid businesses that are growing rapidly in East Africa and beyond,” he added.

The Facility for Energy Inclusion will process eligible projects with relative speed through a highly specialized and focused external fund manager.

The Bank has undertaken an international open tender inviting debt and equity fund managers with proven track-record in Africa. 

In November 2016, six prospective fund managers were shortlisted, from an initial pool of sixteen. 

The Bank expects to formally appoint the fund manager by February 2017.

“FEI aims to create a significant number of jobs, new connections, and new opportunities for broader energy access, thus benefiting millions of citizens in underserved areas across Africa,” the Bank said.

“It is well-documented that women bear the brunt of inadequate energy access based on distribution of responsibilities in the majority of African households. As a result of the Fund’s interventions, it is expected that the quality of life of many of them will be significantly improved.”