Interview: Sherwin Das Discusses Investments in Energy-Poor African Nations

Chronicle.lu recently had the opportunity to speak with Sherwin Das, co-founder and the Managing Director of Energy Peace Partners (EPP), one of the winning teams of the Luxembourg-based International Climate Finance Accelerator's (ICFA) 2022 Cohort.

This article follows on from previous Chronicle.lu interviews with three other ICFA 2022 Cohort members, Katapult, Sustainable Links and Olduvai Capital.

Chronicle.lu: Could you please introduce yourselves and Energy Peace Partners?

Sherwin Das: I’m a co-founder and the Managing Director of Energy Peace Partners (EPP). EPP is a non-profit organisation committed to the idea that renewable energy can serve as a building block for peace. We envision a world of peace and stability powered by renewable energy. Our team is based in the United States and Kenya and consists of experts in renewable energy, peacebuilding and climate security. We have pioneered efforts to dramatically increase renewable energy investment in energy-poor and conflict-affected countries. Our innovation is a financing solution called the Peace Renewable Energy Credit (P-REC). P-RECs connect transformative renewable energy projects in our target countries to international renewable energy markets. This allows companies that procure renewable energy to support high impact projects. We facilitated the first P-REC transaction in the Democratic Republic of Congo in 2020.

We’ve been building out the P-REC market ever since, and the P-REC Aggregation Fund – the instrument that was selected to be part of the ICFA’s 2022 cohort - leverages the P-REC innovation to support a portfolio of high impact renewable energy projects in some of the hardest-to-reach markets in Africa. Specifically, The $10.25 million Fund would increase access to finance by monetising and paying renewable energy project developers up front for future P-RECs, unlocking $90 million for new projects in fragile states. This is a high-impact Fund focused on extending the renewable energy revolution to some of the hardest-to-reach markets, specifically fragile, energy-poor countries in sub-Saharan Africa where renewable energy investment remains limited. Our aim is to drive the ecosystem of renewable energy market actors, lenders, impact investors, and development finance institutions (DFIs), toward bankable, high impact projects in the hardest- to-reach communities.

Chronicle.lu: How do you come to know about the ICFA and what were the reasons to apply for the ICFA awards?

Sherwin Das: We developed the P-REC Aggregation Fund in 2021 with support from the Global Innovation Lab for Climate Finance. During this time, we took the Fund through an intensive instrument design process, which involved modelling, determination of the capital structure, target market analysis and articulation of key impact metrics as well as preparation of a detailed analytical report and marketing materials. This helped get the Fund concept off the ground. The current stage we are in requires sourcing capital, establishing the legal entity and governance structure, and ultimately deploying capital to our partners on the ground. We anticipate this will take twelve to eighteen months and we are working closely with our climate and impact fund manager partner Camco Clean Energy.

We learned about the ICFA from one of our collaborators and subsequent to an informational call with the ICFA, we decided to apply to be part of the 2022 cohort. We applied with the aim of entering into a partnership that would provide us with the necessary advisory and financial support for remaining stages of Fund operationalisation. We were aware of ICFA’s track record in supporting initiatives such as ours, its strong networks, particularly in the European climate finance space and the reputation of the Luxembourg ecosystem as a centre of financial expertise. In addition, as a small non-profit organisation, we have found the expertise and resources brought by external partners to be of immense added value to our work.

Chronicle.lu: How did the ICFA 2022 award help Energy Peace Partners, particularly the Peace Renewable Energy Credit (P-REC) Aggregation Fund, to further its goal? What kind of support did you receive from the ICFA?

Sherwin Das: We’ve just begun our two-year collaboration with the ICFA, so it’s premature to answer this question. However, we are confident that ICFA support will prove an invaluable resource for taking the next steps toward creating an impactful and scalable fund, including establishing a revolving fund structure that can incorporate different types of capital as we grow, creating good governance policies and finalising our ambitious impact methodology. In addition, our selection to be part of ICFA’s 2022 cohort sends an important market signal from another well-respected entity in the climate finance space that there is growing interest and momentum for supporting the scaling up of the P-REC market.

Chronicle.lu: Could you please elaborate on the research carried out by Energy Peace Partners to identify 27 countries where the challenges of conflict, energy poverty and climate vulnerability are a main concern?

Sherwin Das: Our initial research indicated that climate change is having increasingly dire consequences for human security, particularly in fragile and conflict-affected states. We observed that the least electrified countries in the world are also at risk of conflict and climate impacts but little of the more than $300 billion in annual renewable energy investment is reaching the nearly one billion people in the countries most affected - countries which are primarily in Sub-Saharan Africa. We believe that renewable energy provides more than power in fragile settings. It enables a range of positive social, economic and environmental outcomes that support peace and stability but unique barriers persist in fragile states. This is why we developed the P-REC - to unlock private sector financing for renewable energy projects in fragile, energy-poor countries.

Chronicle.lu: Could you please tell us more about some investments already made by Energy Peace Partners in these countries?

Sherwin Das: EPP does not invest directly in renewable energy projects. Our role is as the exclusive worldwide issuer of P-RECs. This means that we qualify P-REC projects in advance and issue the P-RECs once the renewable energy is generated. To date, companies such as Microsoft, Google and Block have executed P-REC transactions to channel a new stream of private sector capital  to support new renewable energy projects in the Democratic Republic of the Congo (DRC) and South Sudan that are providing a range of benefits, including community electrification, hospital electrification and public street lighting for underserved communities.

Chronicle.lu: Energy Peace Partners has identified several African nations suffering from persistent energy poverty and low investment in the sector. Which measures are critical to ensure energy access to the poor and vulnerable people in these regions?

Sherwin Das: The P-REC Aggregation Fund will initially focus on eleven countries in sub-Saharan Africa, all of which are threatened by conflict, climate impacts and energy poverty, including the Democratic Republic of Congo, South Sudan, Chad, Somalia and Uganda. Because the economics of renewable energy, particularly solar, have become more financially attractive over time, we have identified entrepreneurial renewable energy developers working in each of these challenging markets. They are motivated by growing unmet demand for electricity and regulatory environments that are evolving. Access to affordable finance remains that principal challenge for these developers. This is the problem that the P-REC seeks to mitigate.

In addition, we have observed that renewable energy project developers vary in terms of their level of financial and technical capacity. At the same time, households who have never had access to electricity can be expected to low levels of consumer demand. Hence, one of the eventual aims of the Fund is to provide technical assistance to developers who require it while also stimulating productive use of electricity to increase overall demand for renewable power.

Chronicle.lu: Did you get any support from the local governments in these countries? If so, what kind of support?

Sherwin Das: Our principal interlocutors in each country are the renewable energy project developers for whom we issue P-RECs, and it is they who engage with local governments to secure licenses and concessions, conform with current tariff regulations, etc. However, in the limited contact we have had with governmental authorities, they have expressed support for our efforts to stimulate the nascent renewable energy sector in these markets. Eventually, as REC markets in these countries mature, some national authorities and actors may express interest in taking on a greater role, including as issuers and we would welcome and support the development of local capacity in this area.

Chronicle.lu: What are the selection criteria for projects and initiatives financially supported by Energy Peace Partners?

Sherwin Das: EPP qualifies and conducts diligence on all P-REC projects. This involves the developer submitting a detailed P-REC qualification application, which include technical information about the project, the community impacted, and the use of P-REC revenue. At a high level, renewable energy project developers building new projects in our target countries – conflict-affected, climate vulnerable and energy-poor – are eligible to apply.

Chronicle.lu: Energy Peace Partners wishes to mobilise up to $90 million in supporting renewable energy capacity in energy-poor countries. Could you please elaborate on which projects are your priority in this area?

Sherwin Das: The Fund will provide upfront P-REC revenue to project developers equivalent to approximately 10% of the construction costs in exchange for the ownership of the P-RECs generated by the project over a determined period, typically the first ten years of commercial operation. The transaction is based on a forward purchase commercial agreement concluded before construction, to enable the developer to secure the necessary construction and/or term finance or start repayment of these construction loans. The commercial operation date (COD) of the renewable energy system triggers the payment from the Fund before the energy and associated P-RECs are generated.

Chronicle.lu: Could you please tell us more about your "impact projects" in some of the hardest-to-reach communities?

Sherwin Das: Our goal is that P-RECs and the associated revenue support the construction of the renewable energy project itself, and we measure the direct impacts of that installation in terms of new electrical connections made, energy provided, carbon emissions avoided, and jobs created.  We are also working on measuring the impact that new electrification has on positive peace.  For some existing P-REC projects, the renewable energy system was already financed, and no additional capital was necessary, so P-REC revenue contributed to a specific social benefit project.  Developers engage the local community to determine what fits their needs and then utilise P-REC revenue to meet that need. Past P-REC projects have supported streetlighting in energy-poor neighbourhoods and electrification of a hospital.

Chronicle.lu: How did the COVID-19 pandemic affect Energy Peace Partners in terms of its fundraising and distribution efforts?

Sherwin Das: The P-REC Aggregation Fund was in development during the COVID-19 pandemic, so our efforts remained the same, albeit relying more on remote communications. COVID-19 has exacerbated the conflict and poverty issues in many of our target countries and generally heightened our sense of urgency to roll out the Fund.

Chronicle.lu: What have been the main challenges so far in terms of investments in fragile African economies?

Sherwin Das: After initially piloting the P-REC in 2020, we learned that corporations tend of make their REC purchases on an annual basis, rather than in long-term strips. This realisation led us to develop the P-REC Aggregation Fund, which is based on forward (future) P-REC sales in long-term strips. We believe this innovative instrument will serve to mitigate many of the challenges access to affordable finance in these markets, such as a shortage of sponsor equity.

Chronicle.lu: Energy Peace Partners is working towards several SDGs, including SDG 7 (energy access), SDG 13 (climate action) and SDG 16 (peace). Could you please share some details on these individual SDGs and which actions are funded by Energy Peace Partners?

Sherwin Das: The Fund will support the creation of 57 megawatt in new renewable energy capacity, connect 325,000 households to electricity and avoid 658,000 metric tons of CO2 emissions in addition to creating 9,900 jobs. The impact on SDG 7 (energy access) and SDG 13 (climate action) are self-evident. We also believe that there are pro-peace benefits associated with renewable energy projects in fragile states. We have therefore developed a theory of change that incorporates the Sustainable Development Goals and the Peace Positive Peace Framework - developed by the Institute of Economics and Peace - that aims to quantify the peace impacts of renewable energy projects. We have already begun to gather encouraging project-level data. The ambition is to integrate this into the monitoring and evaluation for the P-REC Aggregation Fund projects.