GATE addresses the barrier of revenue risks associated with providing mini grids to rural customers lacking credit histories. A baseline level of revenue is guaranteed through the creation of a risk pool, to which mini grid developers pay a regular premium over a fixed coverage period. This enables mini grids to sufficiently service their debt obligations even when there is a revenue loss. By providing coverage to a diversified pool of mini grids operating across different geographies and customers, GATE can effectively and more accurately price risks compared to individual investors, while delivering returns to private investors.
Stage of Implementation
The GATE mechanism requires a strong implementing partner to oversee and assess the risks associated with the provision and installation of mini grids to rural clients. Project implementers are currently in preparation stage to launch operations across southern Africa, starting with Zambia.
- Independent Power Producers: Renewable energy mini grids, which can be powered by solar, wind, or solar, are key to rural energy access. It is estimated that around 140,000 more mini grids are needed in Africa to meet the goal of universal energy access by 2030. To achieve this scale of deployment, mini grids will need the support of private investors and commercial debt.
- Development Finance Institutions: DFIs can provide the grants and concessional financing necessary for working capital until the instrument can start generating revenues, as well as provide equity for cover the portfolio’s payout liabilities.
- Commercial banks: Once the instrument’s risk pool is sufficiently large enough and fully operational, the instrument can be used to crowd in commercial debt, which would otherwise not reach mini grid developers due to the perceived revenue risks.
- Robust electricity market: In addition to managing the risk pool with premiums paid by mini grids, the implementing partner will cover purchaser default risks by securing alternative buyers and short-term trading on the Southern African Power Pool (SAPP). A robust regional electricity market and cooperation across countries’ electricity companies will be critical to spread risks and secure the sustainability of mini grid operations.
- Mandate or policies for increasing energy access: Countries with a strong vision for achieving universal energy access are well suited for the instrument. To attract private investors, there must be long-term political commitment and stable policy framework to ensure the long-term sustainability of mini grids. The GATE instrument is supported by the Zambian Minister of Energy and will contribute to Zambia’s vision for the electricity sector as laid out in the National Energy Policy 2019.
Among the five power pools active in Africa, regional cooperation is greatest among countries in the Southern African Power Pool SAPP. The continued preference for bilateral deals, lack of trust among states, and lack of generation and transmission capacity has hindered progress in the other regional power pools. Twenty countries have indicated improving energy access as a sectoral priority in their NDCs, of which four are located in southern Africa- Lesotho, Malawi, Zimbabwe, and South Africa.