MIGA backs Kenyan renewables with $49.5m guarantee

From the newsletter

The Multilateral Investment Guarantee Agency (MIGA), a World Bank Group member operating the World Bank Group Guarantee Platform, has committed $49.5 million in guarantees to UK-based Globeleq Africa for geothermal & solar projects in Kenya. Unlike past MIGA projects in Kenya, this one focuses on renewable energy.

• The guarantees will cover breach-of-contract risks by the Kenyan government for up to 20 years for the Menengai geothermal project and 17 years for the Malindi Solar initiative.

• Electricity from the 35-megawatt geothermal power plant (currently under construction) will be sold to the state-owned utility, Kenya Power, under a 25-year Power Purchase Agreement (PPA). The 40-megawatt Malindi Solar project, operational since December 2021, also supplies power to KPLC under a 20-year PPA.

More details

• This move follows the African Guarantee Fund’s (AGF) recent launch of its Mission 300 Local Currency Guarantee Facility, a $5 billion initiative to finance small and medium-sized enterprises (SMEs) in the Distributed Renewable Energy (DRE) sector, aimed at expanding energy access across Africa.

• Both guarantees are backed by the World Bank Group in collaboration with partner institutions, with a focus on scaling Mission 300 to provide electricity to 300 million Africans.

• MIGA’s projects are supported by an endorsing Letter of Support from the Kenyan government, which acts as a financial backstop in cases of payment failures caused by political disruptions.

• Geothermal power already dominates Kenya’s energy mix, accounting for 41% of installed capacity, compared to solar’s modest 3%. By reducing reliance on fossil fuels and phasing out expensive thermal power from heavy fuel oil plants, these projects will deliver reliable, affordable electricity to Kenyans while advancing the country’s low-carbon development strategy and its 2030 target for 100% clean energy. Competitive pricing is also expected to lower the region’s average energy generation costs.

• Risk guarantees, often deployed to mitigate political and commercial risks in renewable energy and agribusiness, are critical tools for mobilising capital for high-impact projects. They also bolster Africa’s transition to low-carbon energy and resilience to economic shocks.

• This is not MIGA’s first guarantee project in Africa. It has previously provided investment guarantees in several countries in West Africa including $60 million in private capital for a 37.5 MW Côte d’Ivoire’s Boundiali Solar Plant and $19.6 million for a 60 MW Senegalese solar plant in Kahone and mitigating risks for investors like Engie and Meridiam.

Our take

• Financing renewable energy projects in Africa remains fraught with risks for private investors. MIGA’s guarantees not only address monetary risks but also highlight the pivotal role of guarantee mechanisms in scaling the success of clean energy initiatives.

• With such financial instruments, Africa moves closer to achieving universal electricity access. However, risks, often triggered by policy instability, underscore the urgent need for streamlined regulations to attract large-scale renewable projects. Robust policies could transform Africa’s energy landscape into a haven for investors and accelerate progress towards connecting the 600 million people without access to electricity.