ATI in the Power and Renewable Energy Sector - African Trade Insurance Agency

ATI in the Power and Renewable Energy Sector

Over the past few years, ATI has enhanced its institutional capacity in the power sector with a key focus on renewable energy. This has been possible thanks to the support of international partners such as the European Investment Bank (EIB) and the German development bank, KfW. Some of the key steps taken by ATI include the recruitment and training of specialised staff as well as the launch of the following initiatives:

  • The Regional Liquidity Support Facility (RLSF) is a joint initiative of ATI and KfW that was first started in 2017. RLSF is a revolving liquidity facility that is available to small and medium-sized renewable energy power projects in ATI member countries that have signed a Memorandum of Understanding with ATI.
  • The African Energy Guarantee Facility (AEGF), a dedicated reinsurance treaty that provides ATI with additional capacity to support sustainable energy projects across the African The facility was launched in March 2018 as part of the support pledged by EIB to the United Nation’s Sustainable Energy for All (SE4All) initiative.
  • The Transparency Tool, an online platform that will allow ATI to collect payment details from Independent Power Producers (IPPs) and track the effective payment behavior of African utilities, was officially launched in June 2019 at the African Energy Periodically, ATI will make public aggregated reports showing the payment trends of the utilities.

These various initiatives, along with ATI’s existing products, will continue to contribute towards attracting additional investments in Africa’s renewable energy sector.

Power projects developed across sub-Saharan Africa take several years to reach financial close and eventually commercial operations. As such, the effects of COVID-19 may not be seen immediately as projects will be affected in different ways depending on where they sit in their development cycle.

Delays seen thus far with the ongoing construction of power projects, will likely trigger greater demand going forward for Performance Bonds, which would protect IPPs against the risk of failure by the Engineering, Procurement, and Construction (EPC) contractors to deliver the project in good time.

Similarly, discussions held in most markets between IPPs and power utilities on the interpretation and application of Force Majeure clauses, means that project agreements (typically Power Purchase Agreements and government support agreements) will face greater scrutiny from project developers, lenders and insurers/ guarantee providers such as ATI.

On the other hand, power utilities will feel the impact of the pandemic in the short term due to reduced demand for electricity as a result of the economic slowdown, poor collection of receivables from Small & Medium Enterprises (SMEs) and amnesty extended to households in certain markets. These additional challenges will negatively impact their financial fortunes bearing in mind that most African utilities were not considered creditworthy prior to the pandemic.

As a result, the demand for credit enhancement tools (such as RLSF) is expected to increase. Further, commercial lenders that were considering financing certain power projects prior to COVID-19, may not have the same appetite due to the more challenging credit market going forward. Assuming they are able to still proceed with the projects, lenders may require additional credit enhancement tools, insurance and/ or guarantees that they may not have needed prior to the pandemic.

As one of the leading DFIs on the continent, ATI remains well-positioned to support viable projects across Africa with a view to help increase access to electricity and, in turn, drive economic and social development.

Look out for the next edition of the Newsletter for details on power projects supported by ATI.

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