Today, more than 770m people lack energy access in the world1 – mostly in Africa (600m) and developing Asia (130m) – and the energy crisis makes solving energy precarity even more challenging as 70m people who recently gained energy access may not be able to afford it2.
This means that millions of families lack the foundation for social and economic development, and remain reliant on toxic and dangerous kerosene for lighting. Meanwhile, local businesses experience frequent power cuts and are unable to expand; and farmers cannot grow their yields or improve their climate resilience, despite solar energy & storage becoming one of the cheapest energy sources.
In many developing countries, women carry the primary household and family responsibilities day-to-day and are disproportionately affected by energy precarity. Impacts of the Mirova Gigaton Fund3 benefit women disproportionately vulnerable to the effects of climate change and poor basic services.
Proof of concept grant for the Gigaton strategy
Convergence awarded a proof-of-concept grant to Mirova SunFunder Inc for the design of the Mirova Gigaton Fund — a target USD 500m blended finance vehicle that aims to accelerate the clean energy transition and improve energy access by providing medium-long debt financing for clean energy projects and companies in Sub-Saharan Africa, Asia-Pacific, Middle East & North Africa and Latin America. The Fund was launched by Mirova, an affiliate of Natixis Investment Managers dedicated to sustainable investment, supported by Mirova SunFunder East Africa Ltd as Investment Advisor, a wholly-owned subsidiary based in Nairobi. The strategy is 2X Challenge-qualified, supports women’s economic empowerment and access to energy, and has an investment strategy that applies a gender-lens across the firm, investment lifecycle, investees, and in its supply chain.
Gigaton investments are expected to directly offset 13.4m tonnes of CO2eq4, support 2.2m jobs and provide new or improved energy access to 10m people5 through 100 transactions to more than 50 borrowers (75% SMEs)6 in Solar Home Systems, Agri-solar, Commercial & Industrial solarization, telco ESCO, Mini-grids and other (e.g. e-mobility, storage, cooling) sectors in Africa, Asia & Latin America.
Current status of the Mirova Gigaton Fund
The Mirova Gigaton Fund announced its first close on March 2023 totaling USD 192m commitments7 from DFC, Swedfund, Nordic Development Fund, Visa Foundation, Shell Foundation and Global Affairs Canada, in addition to a USD 50m guarantee from SIDA. Since then, Gigaton has attracted additional investors, from development finance institutions to impact-focused private institutions. A second closing is targeted before the end of the year8.
Challenges to raising capital
While Gigaton’s unique positioning generally attracts private institutional investors with an impact pocket, the rising interest rates and their designed pricing make raising capital a challenge. As Gigaton invests in frontier markets, investees are in an environment that is decorrelated from interest rate fluctuations and the yield of the portfolio has only partly increased. Moreover, these investors normally request a rating of the Super Senior tranche, from big three rating agencies. Nowadays, most agencies do not have methodologies to rate blended finance structures and/or in emerging markets, and for the ones who could there is no certainty on obtaining a rating that satisfies investors’ appetite.
How Design Funding has helped to advance the solution
The Design Funding from Convergence has been essential to develop Gigaton’s gender-lens approach, its Technical Assistance Facility, as well as fundraising (with the consideration of a potential rating of the Super Senior tranche), and pushing Gigaton's expansion in Asia. Convergence team has also been essential to connect with some key investors.
The way forward
At this stage, the main objective for the Mirova Gigaton Fund is to continue aiming to reach deployment targets in the coming years, including some transactions in Asia. Future deployments would add to their existing USD 18.3m total investment(7), directed to Sub-Saharan companies in the Solar Home System, Agri-solar, and Commercial & Industrial sectors. Their pipeline includes USD 107m in investments(7), which would expand their investments to Asia, and to the Mini-grid, Telecom solarization and e mobility sectors.
The team dedicated to the Mirova Gigaton Fund continues to fundraise for its Catalytic Junior tranche (first loss shares) and its Super Senior tranche, welcoming well-informed investors from North America, Europe and Asia.
1. Source: IEA, World Energy Outlook 2021.
2. Source: IEA, World Energy Outlook 2022.
3. MIROVA GIGATON FUND is structured in the form of a SICAV RAIF (Société d’Investissement à Capital Variable, Reserved Alternative Investment Fund) under Luxembourg law, open to subscription to eligible investors as defined in the regulatory documents. Mirova is the management company and Mirova SunFunder East Africa Ltd acts as Investment Advisor to Mirova. The supervisory authority approval is not required for this fund. The investment in this fund is exposed to risk of capital loss. The fund regulation is the source of information as it contains important information about its investment objectives, its strategies to achieve those objectives, and the main risks associated with any investment in that fund. It also contains information on fees and commissions, and other fees of the fund. Access to the products presented here may be restricted to some persons or in some countries.
4. Estimates based on I-Care assessment as of Q3 2023.
5. Impact estimates based on Mirova SunFunder’s assessment as of May 2022.
6. Source: Mirova SunFunder as of September 2023.
7. Source: Press release “Mirova announces the first closing of the Mirova Gigaton Fund.”
8. Source: Mirova as of September 2023.