German development finance institution DEG is channeling €50m ($52.4M) into the Facility for Energy Inclusion (FEI), a fund focused on expanding African small-scale decentralised renewable energy (DRE) projects. The investment underscores the growing momentum behind distributed generation as a crucial tool for addressing critical energy shortfalls and advancing the continent’s shift towards cleaner power sources.
Africa’s burgeoning economies and populations face a persistent energy paradox. While demand surges, access to reliable and affordable electricity remains stubbornly low. Frequent power outages cripple businesses and households, forcing many to rely on expensive and polluting diesel generators as backup. This dependence on fossil fuels not only exacerbates climate change but also undermines economic competitiveness.
The FEI, managed by Cygnum Capital, is designed to counter this challenge by providing crucial financing to small-scale independent power producers. These projects encompass a range of technologies, including mini-grids, solar installations for commercial and industrial clients, and small-scale independent power plants (IPPs) with a capacity of up to 25MW. This decentralised approach is seen as particularly effective in reaching underserved communities and businesses located beyond the reach of national grids.
“This collaboration with DEG is a significant vote of confidence in our expertise and in the potential of the decentralised renewable energy market in Africa,” said Carmen de Castro, Managing Director at Cygnum Capital Asset Management. FEI boasts a cumulative commitment of over $370m across 23 African countries, positioning itself as a leading lender in this rapidly evolving sector.
DEG’s investment represents its second collaboration with Cygnum Capital within a year, following a previous commitment to the Africa Local Currency Bond Fund (ALCBF). Monika Beck, Member of the DEG-Management Board, highlighted the shared commitment to “foster high development and climate impact.” She emphasized that providing long-term capital to FEI aligns with DEG’s strategy to support the expansion of renewable energies in Africa, a continent bearing the brunt of climate change impacts while simultaneously striving for rapid economic growth.
Established in 2019 by the African Development Bank (AfDB) as part of its “New Deal for Africa” initiative, FEI has already garnered significant backing from development finance institutions. Equity funding has been provided by the German Federal Ministry for Economic Cooperation and Development (BMZ) through KfW, and Norfund, alongside loan commitments from the Austrian Development Bank and the International Finance Corporation (IFC). The AfDB also invests in FEI on behalf of the Clean Technology Fund and the European Commission, showcasing the multi-layered international support for this initiative.
Beyond direct financing, FEI is also supported by a Project Preparation Facility (PPF), funded by the Global Environment Facility (GEF) through the AfDB. This PPF offers crucial “last-mile” funding for due diligence and preparatory costs, particularly for innovative or complex transactions. It also provides concessional grants for projects in fragile states and for mini-grid developments, further de-risking investments in challenging environments.
For DEG, the FEI investment builds upon its extensive 60-year history of financing private enterprises in developing and emerging markets. With a portfolio of around €11.6 billion, DEG positions itself as a major “impact and climate investor,” seeking to support companies driving transformation and sustainable development in line with the UN Sustainable Development Goals (SDGs).
The focus on decentralised renewable energy in Africa comes at a critical juncture. While large-scale energy projects grab headlines, DRE solutions offer a more agile and adaptable pathway to electrification, particularly in rural and remote areas. They can be deployed faster, require less upfront infrastructure investment, and are often better suited to meet the specific energy needs of local communities and businesses.
However, challenges remain in scaling up DRE across Africa. Access to finance, particularly for smaller projects, remains a major hurdle. Regulatory frameworks and permitting processes can be complex and time-consuming. Furthermore, ensuring the long-term sustainability and operational efficiency of these projects requires robust technical expertise and ongoing support.
The DEG investment in FEI represents a significant step forward in addressing these challenges. By providing substantial capital and leveraging its experience, DEG is helping to unlock the vast potential of decentralised renewable energy to power Africa’s future, fostering both economic growth and a transition to a cleaner, more sustainable energy system.