Malawi IPPs to benefit from K71bn facility

The African Trade Insurance Agency (ATI)says it will issue additional guarantees to two of the country’s independent power producers (IPPs) by the end of first quarter of 2022, a move Ministry of Energy says will help boost the country’s energy generation aspirations.

Already, Malawi’s independent power producers (IPPs) benefitted from policies issued in November in support of the 21 megawatts (MW) Nkhotakota Solar Plant and the 60MW Salima Solar PV plant owned by Serengeti Energy (formerly responsAbility Renewable Energy Holding (rAREH))/Phanes Group and JCM Power Limited, respectively.

The funding is from the agency’s Regional Liquidity Support Facility (RLSF) worth K71.45 billion.

The agency’s underwriter Obbie Banda said in a statement that while RLSF is imperative in addressing bankability gaps for grid-connected power projects, wider macro-economic sector and project-specific challenges need to be adequately addressed within each country for projects to advance at a faster pace.

He said: “As of November 2021, the agency has issued and finalised three RLSF guarantees in support of landmark solar projects in Burundi and Malawi, the very first solar IPPs in these countries. Two additional guarantees are on track to be issued by the end of the first quarter of 2022.

“At the time of its launch, the assumption was that the availability of such a guarantee product would lead to more renewable energy projects reaching financial close and that the timelines faced by such projects in achieving this milestone would be greatly reduced, the former has been largely achieved, the latter not so much.”

The first RLSF policy was issued in January 2020 in support of the 7.5MW Mubuga Solar PV in Burundi, a project developed by Gigawatt Global, with the financial support of a consortium of lenders, including the Renewable Energy Performance Platform, the United States International Development Finance Corporation and the Inspired Evolution II Fund.

The second and third RLSF policies were issued in November 2020 in support of the 21MW Nkhotakota Solar plant and the 60MW Salima Solar PV plant in Malawi.

The three projects will cumulatively add 88.5MW to the grid, in turn providing access to electricity for over one million people.

The RLSF guarantees, worth a total of $7.8m across the three projects, have enabled $119.4 million in total project financing.

In a written response on Monday, Ministry of Energy public relations officer Upile Kamoto Lali said the facility is coming at the right time Malawi has set an ambitious target of achieving an electricity generation capacity of over 1 000MW within four years.

She observed that since the liberalisation of the power market to allow for many generators, few players have been able to develop their proposed power plants due to financial constraints and the certainty of investors to recover their investment when exposed to political and partial risks.

Said Kamoto Lali: “This injection from ATI will provide the much-needed surety and confidence of various investors. Several IPPs already signed power purchase agreements [PPAs] with the single buyer. Government already made available several administrative and fiscal incentives to ease their investment burden.

“This area of guarantees has been the main borne of contention since the Electricity Act was amended in 2016 to allow for independent power production. The Ministry expects that the existing IPPs with PPAs will not have any further excuse to contribute to the government aspirations of achieving the set target.”

Since the 2018 base tariff adjustment, there has not been a movement in attracting more IPPs to the national grid, with Malawi Energy Regulatory Authority (Mera) figures showing that only two IPPs, Mulanje Hydro (8MW) and JCM Power (60 MW) have rolled out 10 IPPs that were approved to generate and sell power to Escom.

This has forced Mera to review to review IPP contracts and their licences as majority of them have been sitting on their licences without rolling out their projects.

“We are working on these reviews to come up with resolutions on how to treat situations before us,” said Mera consumer affairs and public relations manager Fitina Khonje in an earlier interview.

ATI and KfW Development Bank jointly launched the Regional Liquidity Support Facility in November 2017, a guarantee instrument designed to address the short-term liquidity risk faced by IPPs that sell electricity to State-owned power utilities across sub-Saharan Africa.

In setting up the Regional Liquidity Support Facility, ATI and KfW were looking to create a lasting and sustainable guarantee product for the benefit of small- and medium-sized renewable energy projects, building on their respective experiences in supporting IPPs via insurance products and procurement initiatives for such projects.

RLSF comprises cash collateral and guarantees worth up to 63.2 million euro, made available to Absa South Africa, which in turn issues Standby Letters of Credit (SBLCs) for the benefit of IPPs.

The SBLCs cover up to six months’ worth of revenue for the IPP and can be issued for tenors of up to 10 years, with the option to renew thereafter.

Among others, RLSF is that it allows the IPPs to submit multiple claims over the 10-year period owing to its revolving nature, and that the host government is not required to provide counter-guarantees prior to the policy issuance.