Project detail - AFRICA RENEWABLE ENERGY FUND II SCS

AFRICA RENEWABLE ENERGY FUND II SCS

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Who is our client

The Africa Renewable Energy Fund II (“AREF II”) is a private equity fund investing in clean energy generating assets across Sub-Saharan Africa (excluding South Africa). The fund is managed by Berkeley Energy (the “Fund Manager”) and is expected to reach first close in 2020, having development finance institutions including FMO as anchor investors. AREF II is the follow-on fund of the Africa Renewable Energy Fund (“AREF”), in which FMO invested in 2014.

Funding objective

FMO’s investment in the Africa Renewable Energy Fund II will come from two government funds, Access to Energy Fund (“AEF”) and Building Prospects Fund (“BPF”). The funding objective is to deploy capital towards investments that deliver social and environmental benefits as well as financial returns. The AREF II investment mandate is focused on renewable energy generation in Africa, and as such the fund will play an important role in the support to the transition to clean energy as well as increasing access to energy in underserved and challenging markets. The Fund Manager has a unique blend of team skills, experience and networks allowing for a compelling proposition.

Why we fund this project

By investing in the Africa Renewable Energy Fund II, FMO seeks to address the market need for energy in Africa in a sustainable and responsible manner, by increasing the production of clean energy. FMO will play an anchor investor role in AREF II. A successful final closing of the fund means that more risk capital is available for renewable energy and clean technologies in Africa, which is fully in line with FMO's investment strategy. Also, most of AREF II target countries are included in the United Nation’s list of Least Developed Countries (“LDC”). Supporting investments in LDCs is one of the core strategies of FMO, AEF and BPF. Finally, by investing in the fund FMO demonstrates continued support towards Berkeley Energy as one of FMO’s key fund managers.

Environmental and social rationale

This is an E&S risk category A transaction mainly due to the hydro power exposure in remote though populated and biodiverse areas, with contextual and security issues and typical construction challenges in riparian/fluvial zones. AREF-II builds upon the experiences of AREF-I and has thus the opportunity to effectively contribute to the growth of Renewable Energy (RE) within the SSA power market whilst safeguarding sound ESG practices and materializing impact specifically in terms of clean energy and climate action. The combination of the RE portfolios of both Funds built scale of the impact potential. Further additionality can be expected through the Funds’ active community development plans and more widely through its professional set-up of asset-specific ESG management that has the potential to be standard-setting for the (local) sector, and a learning opportunity for like-minded project developers and businesses in the regions. The Fund will likely onboard several category A projects to the portfolio, all in challenging regions specifically from a physical (remoteness), contextual, human rights, reputational and security perspective. Whilst the latter together with IFC PS1-4 are expected to be part of the risk profile of most investees, many Fund investments are expected to also trigger land acquisition and resettlement aspects (although likely to be limited given the run of river nature of the hydro power projects), biodiversity and ecosystem services and cultural heritage, whereas presence and impacts on IPs is yet to be confirmed through Fund due diligence. Mitigation through avoidance, site selection and design, and a strong E&S management system, sound E&S management and monitor performances all in line with Good International Industry Practices is expected to mitigate key risks and secure positive impacts and net benefits to the local people and the environment. FMO is actively engaged in the Fund’s E&S committee and is already supporting the team through its capacity development program as well.

More investments

Date Total FMO financing
6/14/2021 EUR 10.00 MLN
Region
Africa
Country
Africa
Sector
Energy
Signing date
6/14/2021
Total FMO financing
EUR 8.00 MLN
Fund
Access to Energy Fund
Risk categorization on environmental and social impacts, A = high risk, B+ = medium high risk, B = medium risk, C = low risk Environmental & Social Category
(A, B+, B or C)
A