Seed Capital Assistance Facility – Asia and Africa

The Seed Capital Assistance Facility (SCAF) helps low-carbon project developers and entrepreneurs access enterprise development support and early-stage seed capital financing from mainstream energy investors. This public-private co-financing model works well at aligning interests and lowering transaction costs. It can stimulate renewable energy in developing countries of Asia and Africa, providing economic and environmental benefits.

Fast facts:

7 investment funds in Asia and Africa, total capitalization of USD 790 million;
USD 37.5 million dedicated to fund manager seed capital windows;
52 renewable energy project developments.

The problem

A number of gaps and barriers inhibit the low-carbon energy industry in many developing countries. In particular, there is a mismatch between risk and reward for investing in early-stage developments. Although investment requirements are modest, third-party financing remains almost nonexistent at the early stages of project development; from an investor’s point of view, investing in the early stages of low-carbon projects is more akin to venture capital risk without the corresponding returns.

The lack of access to third-party financing represents an early-stage financing gap that has become a critical market failure in most developing economies – one that the private sector has been unable to resolve on its own. This is particularly pertinent for projects based on newly commercialized and new-to-market low-carbon technologies, including renewable energy projects in most developing economies.

The solution

SCAF works to establish proper incentives so that clean energy private equity and venture capital funds can remedy the lack of mature project developers in the target “frontier” countries, with a mix of early-stage activities and investment. Channeling grants via commercial investment helps funds decide which projects/investee companies to support. The donor is thus not in a situation where it only “picks the winners.” This increases the probability of success, with negligible risk. SCAF is also cost-effective, as the task of identifying and vetting projects is transferred to cooperating funds.

Helping the planet

Activities have aimed at the establishment of new clean energy private equity and venture capital funds, and seed capital investment windows within both new and established funds. The activities thus aim to reduce greenhouse gases.

Helping people

By up-scaling private sector finance for renewable energy at the crucial early stage, the activity is expected to increase access to clean and cheap electricity for the masses.

Scaling up

Prior to SCAF operations, there were no commercial clean energy funds employing early stage investment strategies in the developing countries of Africa and Asia. Today, a few funds are employing early-stage strategies, mostly with SCAF co-financing support. As more investors replicate including early stage investment activities in their overall strategies, the early-stage financing gap should narrow. Low-carbon project pipelines should mature much more quickly in the developing country markets than has been the case to date.