The Multilateral Investment Guarantee Agency (MIGA) has issued guarantees that will support the design, development, construction, operation, and maintenance of Djibouti’s first utility-scale wind project.
The guarantees amount to $91.6 million and cover up to 90% of investments made and future earnings in the Project for up to 20 years.
The guarantees will provide protection against Currency Inconvertibility & Transfer Restriction, Expropriation, Breach of Contract, and War & Civil Disturbance.
The guarantees were issued to Djibouti Wind Company Ltd to benefit Africa Finance Corporation and Construction Equity Fund, a blended finance facility managed by Climate Fund Managers.
The project, which represents the country’s first independent power producer (IPP), consists of a 58.9MW wind farm in Ghoubet, along with interconnection facilities located in the Arta Region (between Lake Assal and Djibouti City).
Once operational, all electricity generated will be sold by the Red Sea Power Limited SAS to the Djiboutian state-owned national electricity utility, Electricite de Djibouti, under a 25-year Power Purchase Agreement.
“Increasing Djibouti’s energy independence is critical to the country’s long-term growth strategy, despite the global uncertainty arising from the coronavirus pandemic,” said MIGA Executive Vice President Hiroshi Matano.
Matano added: “This new wind farm, therefore, represents a key step forward for Djibouti and its efforts to power a more sustainable future.”
In addition to its own resources, MIGA is using the International Development Association’s MIGA Guarantee Facility to provide a first-loss layer in support of the project.
The MGF helps bridge gaps where the market and MIGA-arranged capacity are insufficient or unavailable to crowd in private investment.
Pioneering wind farm
The wind energy project will decrease emissions by approximately 154,526 tons of carbon dioxide equivalent per year when in operation.
This aligns with the country’s Vision Djibouti 2035, which aims to transition from complete reliance on domestic thermal energy in 2010 to 100% renewable electricity sources by 2030.
The project will also provide a stable source of electricity increasing accessibility and establishing a more ideal environment for businesses.
“We are pleased to see this pioneering wind farm move into construction, having been developed by CIO and its partners since 2017,” said Andrew Johnstone, CEO of CFM.
Johnstone continued: “The innovative project financing structure and effective risk mitigation structures implemented by MIGA and the project developers brings to reality a first of kind project in Djibouti, which will materially contribute to the CO2 emission avoidance ambitions of the government of Djibouti whilst also providing access to an attractive risk moderated investment opportunity for international climate oriented institutional investors.”
Only half the population in Djibouti has access to electricity, and the country relies heavily on electricity imported from Ethiopia and ageing fossil fuel-powered generators.
Djibouti has also experienced a consistently low rate of foreign private investment—with many companies citing lack of electricity being the main constraint they face.
MIGA’s private sector guarantees and the wind project will help to improve private sector confidence and mobilise further foreign private investment in the country.