Clean Energy in West Africa White Paper
Keen to know more about Clean Energy in West Africa? We have insights and lessons learned to share. Cordaid Investment Management has just released a white paper sharing the latest industry research insights, in-house expertise, and first-hand experience with investments in the clean energy sector in West Africa.
Climate change has been a significant challenge for many nations worldwide, but it disproportionately affects fragile countries, which already have limited capacity and resources to adapt. Women and youth are especially vulnerable to it due to existing gender disparities and nature-based occupations. Moreover, climate change hampers sustainable development efforts. At Cordaid Investment Management, we have developed an impact investment strategy that aims to address these challenges, by providing loans to microfinance institutions globally and small and medium-sized enterprises in Mali, Sierra Leone, Burkina Faso, and Guinea.
We invest in core sectors with a climate impact – Waste Management, Agriculture, and Clean Energy. Our clean energy investments focus on the significant renewable energy potential in West Africa. We use a Gender, Youth, and Climate lens when assessing all our investments, prioritizing female entrepreneurs, managers, employees, products, and services, as well as capturing the job creation and entrepreneur potential of the youth population in West Africa.
Through existing investments, climate finance training, and the development of the West Africa Bright Future Fund, we have expanded our knowledge and understanding of the clean energy sector. Because existing research and literature of the sector is weak in that particular region, we are pleased to share our lessons learned in a Clean Energy in West Africa white paper. We hope this will motivate like-minded investors to consider the impact potential and opportunity and will mobilise additional investment by our peers.
The paper is divided into three parts, first explaining what CIM considers to be clean energy, then explaining how you can invest in the industry, and finally explaining what the key challenges are when investing in it and how CIM approaches this.
Part 1 explains clean energy definitions and shows which renewable energy sources are considered. We also show what the existing access to energy is, what infrastructure exists, and how decentralized renewable energy is often the least-cost solution in West Africa. The impact potential is explained, economic impact through reduced spending and new income-generating activities, social impact through increased safety, health, and employment, and environmental impact through reduced emissions. In the white paper, we also specify six business models that we focus on, in line with the financing capacity of the West Africa Bright Future Fund, which are biomass, clean cooking, mini-grids, commercial & industrial systems, solar home systems, and productive use appliances.
In Part 2 we describe important sector characteristics, such as the early stage of technology, the high up-front investment costs and long payback periods, the public good-nature of energy and the need for government involvement, and the pay-as-you-go financing model. Barriers are discussed, such as perceived risk, lack of financing, and poor regulatory frameworks. The financing needs and products for direct and indirect investment opportunities are presented, including working capital for inventory, bridge financing for results-based programmes, and local currency financing. We also discuss business model risks.
Finally, Part 3 covers core challenges affecting the sector in West Africa such as vertical integration of value chains, solvency levels, management of unit economics, and profitability. Various methods and indicators to assess specific business models are discussed – including the PAYGO Perform KPIs and solvency ratios. We conclude the chapter with a presentation of our 13 trends and lessons learned, such as the rarity of equity in the market, the importance of unit economics to assess potential profitability, the benefits of lean companies with local ownership or management, that sales agents can be incentivized with collection rates, and last but not least, the significant impact potential of the sector.
It is clear that there is significant potential to develop the clean energy sector in fragile markets such as West Africa, and Cordaid Investment Management is eager to contribute to this as one of the few and first investors in the region. We hope this white paper inspires investors and mobilises additional finance into Clean Energy in West Africa, encouraging resilience in some of the most fragile countries in the world.
