The German development bank, KfW, and the African Trade Insurance Agency (ATI) have announced a new facility to support renewable energy projects in sub-Saharan Africa.

The Regional Liquidity Support Facility (RLSF) will provide independent power producers (IPPs) the cash collateral and guarantees required by a commercial bank to open a standby letter of credit (L/C).

The L/C would be used to cover the IPP's obligations to lenders if the offtaker fails in its payment obligations to the IPP.

RLSF targets

The RLSF targets small- and mid-scale green power renewable energy projects generating up to 50 megawatts of electricity.

It is designed to provide a viable solution to one of the biggest challenges facing IPPs operating in Africa, specifically the requirement to provide project lenders with a liquidity guarantee.

The RLSF will provide immediate cash collateral supported by guarantees to a commercial bank that will in turn open a standby L/C to the benefit of the IPP.

L/C benefits

The amount provided will enable the IPP to operate and service its debt for up to 6 months after an offtaker fails in its payment obligations.

Unlike most IPP L/Cs - which tend to be 12-month tenors - the facility is designed to be in place for several years.

The German government through KfW will provide funding of up to EUR 32.9 million to the facility.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.