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Friday 19 January 2024

AfDB, UK announce Kenya, Mauritius as next beneficiaries of unlocked climate finance from Room to Run Sovereign Program


The African Development Bank (AfDB) and the United Kingdom have selected Kenya's Transmission Network Improvement Project and the Gas Insulated Switchgear Substations Project in Mauritius as beneficiary projects under the Room to Run Sovereign transaction (R2RS). This means that the additional money freed by the UK Government guarantee enabled the loan's climate mitigation component to cover up to $59 million of the $116 million overall project cost.

The Transmission Network Improvement Project, approved in 2023, complements the UK Government's ongoing efforts to address transmission network capacity restrictions, dependability and quality of electricity supply, and high-power system losses, both technical and non-technical in Kenya. The project will extend and reinforce the national electricity grid system, and the Last Mile Connectivity Program of the Bank. Addressing the transmission system gaps in the country is a prerequisite for achieving universal electricity access and improving the quality of life of communities through enhanced socioeconomic development.

The Gas Insulated Switchgear Substations Project in Mauritius, also approved in July 2023, will lay the groundwork for the efficient and effective integration of variable renewable energy through the necessary network expansion investments, improving the national grid's reliability and allowing the installation, interconnection, and absorption of renewable energy by the national power system. This would help Mauritius to continue its energy transformation, integrate renewable energy, and meet the aim of 60% renewable energy in the electricity generation mix by 2030.

Announced at COP26 in November 2021, R2RS is an innovative and highly scalable balance sheet optimization transaction that is helping the Bank lend more funding for critical climate change projects. Under R2RS, a $2 billion guarantee is provided to the Bank by the UK Government ($1.6 billion in cover) and City of London insurers ($400 million). By assuming a portion of the credit exposure on a part of the Bank’s sovereign portfolio, R2RS enables the Bank to provide up to an additional $2 billion of climate finance to Africa by 2027, split between adaptation and mitigation.

In May last year, the UK and the Bank announced the first two projects that were enabled by R2RS - an €80 million Egyptian wastewater project and a €37 million water sanitation project in Senegal. Both focus on water supply and sanitation and will benefit millions in their respective countries. This project in Kenya is one of five projects to benefit from the unlocked lending capacity provided by R2RS since the agreement was signed in 2022. This announcement accompanies three other beneficiary projects in Tunisia, Benin and Mauritius, bringing the total finance unlocked by the R2RS to over $400 million.

African Development Bank Vice-President for Power, Energy, Climate and Green Growth, Kevin Kariuki said, “This transaction is one of several projects constituting its lending programme through which the African Development Bank fulfils the call by stakeholders at COP27 for MDBs to innovate and scale up climate finance through the Multilateral Development Banks.  The African Development Bank is proud to partner with the UK in this initiative and to be at the forefront of such developments.”

Neil Wigan OBE, High Commissioner to Kenya said: “Powering economies requires power for people. We’re working together with the AfDB and Kenya to deliver what Kenyans want and need: reliable power for reliable economic growth – all with green energy that protects the prospects of future generations. The UK and Kenya are going far and going together.”

Nnenna Nwabufo, African Development Bank Director General for East Africa added: “Kenya is close to achieving universal electricity access with a high component of renewable energy. This represents a major milestone in both sustainable development and the fight against climate change.”  

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