The Nordic Development Fund (NDF), the joint Nordic international finance institution (IFI) established by Denmark, Finland, Iceland, Norway, and Sweden that focuses on the nexus between climate change and development in lower-income countries and countries in fragile situations, has joined the Sustainable Energy Fund for Africa (SEFA). The aim is to create an enabling investment environment for scaling up the sustainable energy sector in the region.
Established a decade ago by the African Development Bank (AfDB) and the Government of Denmark, the Sustainable Energy Fund for Africa (SEFA) is a special fund designed to catalyze private sector investments in early-stage renewable energy and energy efficiency markets to accelerate the transition to more inclusive and green growth in Africa. SEFA is also a delivery vehicle for the AfDB’s New Deal on Energy for Africa (NDEA).
Over the period, SEFA has attracted additional financing from the United States (US), the United Kingdom (UK), Italy, Norway, Spain, and Sweden. The Nordic Development Fund (NDF) has now joined SEFA with a total contribution of EUR 10 million.
Build on previous SEFA success
The first phase of the SEFA was considered a success as it created transformational changes and supported new technologies and business models in the most challenging and under-served markets in the least developed and fragile countries. It has also been instrumental in launching new funds in the sustainable energy sector in Africa.
Since then, the renewable energy sector landscape has fundamentally changed, but the renewable energy penetration still remains low and suffers from various challenges, such as intermittency, grid integration, market risk, technology risk, and high development and financing costs.
Close to 570 million people still lack access to electricity in Sub-Saharan African countries.
The adoption of renewable energy and energy efficiency solutions is still at an early stage in many African countries. Several governments and utilities are still investing in fossil fuel-based energy generation despite the rapidly improving competitiveness of renewable energy sources, which is not only an environmental challenge but also increases the risk of stranded assets in the fossil fuel sector.
For consumers in rural and peri-urban areas, affordability remains a major obstacle limiting the demand and inhibiting private investments. The complexity of the modeling and management of grids containing large shares of variable renewable energy sources compared to traditional power systems creates needs for new skills ranging from energy sector master planning and regulations to project-level design and development.
From trust fund to special fund
To address these gaps and adjust to this changing landscape, SEFA is now being converted into a special fund. As a special fund, instead of a trust fund, SEFA is able to use a broader set of financial instruments in addition to grants.
SEFA will provide early-stage risk capital and concessional project financing to stimulate investments, catalyze private investment, and accelerate the deployment of new technologies and business models.
SEFA’s activities will focus on three core areas; green mini-grids to provide electricity access to underserved populations in rural areas; green baseload by deploying low-carbon power alternatives to fossil-based options to meet baseload requirements; and energy efficiency by optimising the energy system and reducing the energy system costs, as well as by introducing demand-side management solutions.
A large share of the SEFA funding will be allocated to project development activities by private sector companies, supporting governments to implement renewable energy auctions, as well as other projects- and program-level preparatory activities to support the broader market and regulatory development in the clean energy sector.
COVID-19 Response Program
In the context of the coronavirus (COVID-19) pandemic, SEFA’s role has become even more critical, as it is working actively to help build back better and greener. The pandemic has hit the sustainable energy investments in Africa hard, especially in the off-grid renewable energy sector.
In this situation, SEFA can act as a counter-cyclical instrument by providing risk financing. To this end, SEFA has created the COVID-19 Response Program.
SEFA has a strong Nordic identity as the Nordic countries represent a large share of the current funding. In addition to promoting clean energy markets, it promotes several Nordic development policy priorities including climate change mitigation and adaptation, gender equality, poverty reduction, job creation, and inclusive green growth.
