A new energy access fund has been launched in a bid to promote and support the development of microgrids and other measures across sub-Saharan Africa and Asia Pacific.
The Energy Access Relief Fund (EARF) is backed by a partnership of 16 governments, foundations and investors. Managed by Social Investment Managers and Advisors (SIMA), its goals are to promote access to energy in the wake of the global pandemic and provide essential financial support to energy access companies that provide mini- and microgrids, solar home systems, and solar and modern cooking equipment to low-income and last-mile communities.
Energy access fund to reach 20M people
With a target to raise more than $80 million for the fund — an initial round of funding has reached US$68 million so far — the fund is expected to protect energy access for at least 20 million people by addressing the liquidity crunch prompted by the COVID-19 pandemic. It will provide relief capital in the form of short-term loans to an estimated 90 energy access companies that are struggling with disruptions including broken supply chains and the increased costs of solar components. Among these beneficiaries are a number of microgrid initiatives.
“The mandate of the fund is to provide liquidity support to institutions in the off-grid space. Liquidity constraints could cover operating expenses, working capital, business continuity to protect staff from layoffs and so on. These are the kinds of aspects that we support for minigrid companies,” Asad Mahmood, CEO and managing partner at SIMA, told Microgrid Knowledge.
“So far, six companies operating in the minigrid space have received approval for an EARF loan. In terms of the pipeline that we have seen, our estimation is that about 20% will go to the minigrid sector,” he added.
The relief fund is backed by organizations including the CDC Group, the International Development Finance Corporation, the Green Climate Fund, FMO, the Dutch entrepreneurial bank, Shell Foundation, the IKEA Foundation, The Rockefeller Foundation and the World Bank among others and has been convened by Acumen, a nonprofit investment fund.
A recent SIMA analysis of energy access companies eligible for relief funding across 50 countries shows that 77% of potential borrowers require emergency financial assistance to stay afloat. Without it, many companies may be forced to pause operations, lay off staff or permanently close, disrupting energy access at a particularly difficult time. In the last decade, energy access firms have made dramatic progress in reaching people, businesses and social institutions with low carbon energy, but that progress is under threat. The EARF aims to safeguard gains made in the sector, which has grown to supply some 470 million people worldwide.
3-5 year loans
The flexible financial structure blends different types of capital to offer low-interest loans and liquidity while the health and economic consequences of the pandemic continue. It is designed to provide up to 3.5-year tenure, subordinated, unsecured, low-cost and collateral-free loans to viable companies with its primary focus on loans of less than $1 million, within a range of $50,000 to $2.5 million.
“There is a huge demand for this relief fund, which also has added positive effects. For example, the companies that have received support from us were also able to get equity support from investors in a follow-up round. As we are actively inviting applications, we are really proud that this fund is having a positive ripple effect, giving more confidence to other stakeholders,” said Mahmood.
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