Inspired Evolution raises $238m for renewables

From the newsletter

Pan-African private equity firm focused on clean energy investments, Inspired Evolution, has secured $238 million in its third fundraising to support clean energy projects in Africa. Funding was raised from international institutions, including the International Finance Corporation (IFC). Two previous rounds raised over $200 million in total.

• The African energy space still faces a significant funding gap. The region has emerged as a significant destination for private equity (PE) investment, attracting both global players and dedicated Africa-focused funds. African Infrastructure Investment Managers (AIIM), Berkeley Energy, and Helios Investment Partners are some that are targeting the renewables sector.

• Though investments from PE firms have picked up, the investments fall short of what is required. Between 2012 and 2023, about $19 billion was invested in 305 deals. Solar accounted for 63%, followed by wind at 12% and hydropower at 8%.

More details

• The fund has made two investments to date. The first investment was made in 2023 into Red Rocket Group, a South African-based independent power producer. Evolution Fund III injected about $160 million for a 75% stake. In February 2024, the fund concluded a co-investment in Equator Energy Ltd, a leader in commercial and industrial solar in East Africa.

• Africa currently needs about $200 billion in annual investments to meet its energy access targets by 2030. It has abundant renewable energy resources to make this happen. Yet, this abundance coexists with severe energy poverty due to a lack of funding. Africa has received only 2% of global investments specifically targeting renewables over the last two decades.   

• Speaking at the event when signing the deals, Cláudia Conceição, IFC’s Regional Director for Southern Africa, said, “Africa’s growing population means it will soon be home to one-fifth of the world’s population, so the case to ramp up the supply of clean energy on the continent is clear. IFC’s investment in the Evolution III fund is a step towards achieving Mission 300, an ambitious World Bank Group initiative to accelerate the pace of electrification in Africa, while targeting more diversified sources of energy.”

• Many African governments are moving to create environmental policies that attract private capital. As part of the World Bank's mission to electrify 300 million people by 2030, twelve countries have committed to creating room for private sector participation through policy changes. These include the three most populous African countries: Nigeria, Ethiopia, and the DR Congo.

• The private equity firm African Infrastructure Investment Managers (AIIM) has invested at least $180 million in Noa Group Holdings for renewables financing in South Africa. It has also invested an undisclosed amount to support the merger of Starsight Energy and SolarAfrica Energy, a South Africa-based solar firm. Others, like Berkeley Energy, operate several funds, including the Africa Renewable Energy Fund (AREF), which has a fund size of $200 million and targets investments in small hydro, geothermal, solar, and biomass projects across Sub-Saharan Africa, excluding South Africa.

• Despite the promising growth prospects in PE funds, they face considerable challenges, including high costs of capital (often 2-3 times higher than in developed markets), policy and regulatory instability, currency volatility, grid integration issues, and difficulties ensuring project bankability. Investment activity remains concentrated in established hubs like South Africa, Egypt, Morocco and Kenya, highlighting the need for risk mitigation and policy improvements to unlock potential in emerging markets.

Our take

• There's growing renewables policy momentum across African countries. Many are integrating renewable energy into their national development plans and setting ambitious targets. High-level initiatives like Mission 300 signal growing political commitment at the continental and international levels to accelerate the transition.

• The positive signals in policy should, however, not be confused with implementation. Some countries lag behind in sticking to what they say due to changes in political regimes. Consistency in policy implementation should be a key focus to attract and retain private capital.

• The World Bank and other multilateral financing institutions should bridge the gap for affordable financing by providing concessional loans to governments and the private sector. This could level the playing field and attract young PE firms that find it risky to invest in renewables.