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With significant financing available in the CDM and voluntary markets, there has been a burst of activity in developing countries to undertake offset projects in the renewable energy, waste management, fuel switch, and land management sectors.
Unfortunately, Africa has seen but a sliver of this funding. Africa’s participation in the carbon markets sits at a mere 2% of worldwide CDM project activity and only 1% of voluntary market activity – a huge shortfall considering the potential benefits of carbon offset revenue for sustainable development on the continent.
Although many low-carbon projects in Africa have attractive financial metrics and the potential to leverage carbon revenues, there have been significant barriers to investment, including lack of carbon financing knowledge within local financial institutions and the perception of high risks for overseas investors. As such, while demand for African offsets is strong and growing, targeted efforts will be required to stimulate credit supply.
To address this need, Lloyds Financials Limited (Lloyds), in partnership with ACCE, has created and manages the Low Carbon Africa Fund Portfolio. This portfolio has three objectives:
- To provide consistently high returns to its investors
- To provide underlying financing directly to jump start low-carbon projects with offset potential.
- To structure strategic risk mitigation tools to facilitate investment in low-carbon projects.
The Portfolio consists of two funds: the Low Carbon Africa Fund I and the Green Technology
Credit Enhancement Fund.
Low Carbon Africa Fund
The Low Carbon Africa Fund I is a closed ended investment fund providing underlying project finance to bridge existing market gaps and jump start the implementation of carbon projects in Africa. It offers highly structured debt and/or equity financing, and also buys African-generated carbon credits. Investments are made solely on commercial criteria in projects that address ACCE’s environmental and poverty reduction goals.
The Fund participates fully from the beginning of a project, providing advisory services to structure the carbon projects and facilitate all linkages for approval, validation and verification processes. Investment supports the initial stages of project development in combination with carbon finance for the issuance of carbon credits on either the voluntary or compliance markets.
Green Technology Credit Enhancement Fund
Importers wishing to bring in renewable energy and other ‘clean’ technologies from overseas have historically had difficulty accessing financing from local banks because of perceived risks of lending to clients whose markets are still being developed. Many local banks are traditional and risk-averse in their lending practices, a tendency exacerbated by lack of familiarity with carbon market opportunities.
Lloyds, in conjunction with the donor community in Zambia, invited stakeholders from the financial sector, including banks, insurance companies and pension funds, to create a product through which they would feel comfortable lending to businesses and project developers looking to grow their business in (or using) clean technologies. This consultative process resulted in the Green Technology Credit Enhancement Fund (GTCEF).
The GTCEF provides a risk-sharing mechanism that enables local financial institutions to participate in providing financing for importation of ‘green technologies’. It functions using an innovative risk-mitigation structure providing several stages of credit enhancement services, including asset re-engineering, tailored insurance products, and case-by-case security enhancement facilities.
Facilitation and Advisory Services
The Portfolio managers are prepared to provide technical advice on climate-related risks and carbon finance issues. We actively engage with project owners on their business plans and can help to move a project from its initial structuring to issuance of credits (a process that can involve development of a Project Idea Note (PIN) and Project Design Document (PDD), validation and registration with either CDM or a voluntary standard, and ongoing monitoring and verification processes). If necessary and viable, the Fund will also work to finance the development of new compliance and voluntary methodologies.
To learn more about the full range of ACCE’s capacity building and advisory services, click here.
Lloyds Financials Limited is a financial services company registered with and regulated by the Zambia Securities and Exchange Commission. For a Fund prospectus and further information regarding investment opportunities with the Low Carbon Africa Fund Portfolio, please email firstname.lastname@example.org.