Result based financing to drive mini-grid growth in Africa

African Development Bank (AfDB) in an attempt to drive the growth of mini-grids is developing a continent wide results based financing (RBF) facility, African Mini-grid Developers Association (AMDA) has said.

Results based financing (RBF) is not a relatively new type of financing but is now considered as highly effective. A key feature of the financing responsible for this is the payment upon delivery, whereby, the company is expected to take the full risk until the moment of delivery of the contracted results.

It also plays in a crucial role in leveraging investment financing for the companies.

It has been launched in some parts of Africa and has garnered positive reviews.

According to Jessica Stephens, global coordinator of the association, the RBF facility is being developed by ADfB on its principles and sees mini-grids as a viable way to achieving the incredible feat of 100 percent electrification in Africa.

As a “clever” financing mechanism, a mini-grid RBF facility is the best way to scale up the electricity sector and would play a central part in any approach to providing subsidies for private utilities in Africa, the association said.

“Via RBF facility, mini-grid companies that develop projects to connect customers to power get a fixed rebate per connection installed to ease the capital cost of the project,” the paper said.

Adoption of this type of financing is also important because, according to the International Energy Agency (IEA), an estimated $52 billion worth of investment is needed yearly to ensure that the vast majority of Africans will have access to electricity.

Also, the mini-grid sector is gaining traction, last week Odyssey Energy Solutions said it has amassed a total of $500 million for 50 mini-grid projects in Nigeria, South Africa, Philippines, amongst others.