Red Sea Power will add 60MW of renewable power to the national grid, boosting capacity by 50%, serving 314,000 people & avoiding 252,500 tons of CO2 emissions
The Hague, 10.09.23: Climate Fund Managers (CFM), a leading climate-centric blended finance fund manager today announced the inauguration of Red Sea Power (RSP), a 60MW wind farm near Lake Goubet in Djibouti, East Africa. The inauguration, attended by President Ismail Omar Guelleh, marks several remarkable firsts for the country: the first wind power farm, first Independent Power Producer (IPP) and first renewable energy to enter the grid. It is a major milestone in Djibouti’s ambition to rely entirely on renewable sources for electricity by 2035.
The RSP wind farm will boost capacity by 50%, providing clean energy to over 314,000 people, promoting energy sovereignty and driving industrialization, job creation and economic growth. Annually, the farm will avoid 252,500 tons of CO2 emissions, the equivalent of taking 55,000 buses off the road, proving the immense potential of blended finance in tackling the climate crisis.
Currently, 38% of Djibouti’s 1.1m population does not have access to electricity¹. The country’s current installed power capacity of just over 100MW² is generated entirely from imported fossil fuels as well as hydrogen-generated power imported from neighbouring Ethiopia. Less than half of the installed capacity is operational due to outdated diesel plants. The project will add 60 MW of green electricity to the grid, reducing reliance on fossil fuels and mitigating the effects of climate change while supporting supply stability and promoting long-term social and economic development.
The wind farm, which is a partnership between CFM, Red Sea Power Limited (RSP), the Africa Finance Corporation (AFC), Dutch entrepreneurial development bank FMO and Great Horn Investment Holding (GHIH), an investment firm owned by a unit of the Djibouti Ports & Free Zones Authority and Djibouti Sovereign Fund, commenced construction in January 2020 after an 18-month development process. Located 1km from Lake Goubet and 120km from Djibouti City, the site spans 387 hectares, equivalent to over 700 football pitches. It consists of 17 Siemens turbines, a 220 MVA substation connected by a 5km overhead line to the local grid operator and warehousing. The electricity produced will be sold under a long-term power purchase agreement to Electricité de Djibouti (EDD), the national state-owned utility.
CFM invested USD$25m in the USD$122m project via its Climate Investor One (CIO) fund, a blended finance fund focused on renewable energy solutions in emerging markets. The firm provided concessional capital and hands-on support on the structuring, technical, financial, environmental and social aspects of the development phase. It also provided equity funding and value-add support for the construction phase including seconding a CFO. CFM has and will continue to sit on the RSP board and provide value-add support as the business looks to expand.
Andrew Johnstone, CEO of CFM said: “Today’s inauguration is testimony to the power of blended finance. Groundbreaking transactions like this are immensely challenging to fund with traditional project finance as the territory is uncharted and there is no track-record, making it almost impossible for lenders and equity partners to get comfortable with the risk. Blended finance combines both concessional and commercial capital, enabling investors to take a higher share of risk and providing a single source of funding from development to operations. In this case, we believe the project simply would not have been possible without a blended approach.”
Francois Maze, CEO of Red Sea Power said: “Access to electricity is vital for business growth, job creation, education, healthcare, social services and infrastructure. In a country currently served entirely by fossil fuels and electricity imports, large-scale renewable energy solutions are urgently needed to mitigate and increase resilience to climate change. Today’s inauguration is an important milestone in Djibouti’s aim to be entirely served by renewable energy sources by 2035. We are proud to be part of that journey and thank all of our partners for their support over the last five years to turn our ambition into a reality.”
With its extensive coastline and dedicated port facilities positioned strategically along the Red Sea and the Gulf of Aden, Djibouti is poised to play a key role in the global energy market. The country has enough wind, solar and geothermal resources to triple existing capacity to at least 300MW. An additional 45MW of renewable energy is already planned by the consortium of investors behind RSP.
In addition to the new wind farm, the project RSP partners have launched a community development program focused on improving local communities’ access to water. Djibouti is currently experiencing a major national water crisis, with 20% of rural areas lacking access to clean water. Many households have insufficient water to meet basic needs, especially during the dry season, resulting in widespread loss of livelihoods and income.
The partners, with the support of CIO, have built a solar-powered desalination plant that was also inaugurated today. The plant extracts water directly from the sea using a pre-treatment process and removes the salt to produce drinking water. It will supply 800 residents of two villages near the farm with access to around 40 litres per day, reducing the risk of water-borne disease and increasing time in education as children are frequently sent out to collect water. RSP has delivered 80,000 litres of water a week since 2020 as an interim solution while the plant was being constructed. The goal is for the wind farm to generate power to larger desalination plants in the future.
A further component of the project is helping conserve local biodiversity by monitoring migratory and resident birds to assess any changes in their numbers or behaviour, including endangered species such as Egyptian vultures (Neophron Percnopterus). Although Djibouti plays a crucial role as a migration corridor and wind farms generally carry the potential of risk causing bird collisions, the project’s geographical location beneath the northeastern high mountains makes it an ideal site for harnessing wind energy while minimally affecting avian populations.
The high-risk development capital and all-equity construction bridge financing was provided by CFM via CIO, AFC, FMO and GHIH. The financing for the project is backed by political risk cover provided by the World Bank’s Multilateral Investment Guarantee Agency (MIGA).
The Goubet project site was identified through a meticulous selection process and was ultimately favoured due to consistent average wind speeds throughout the year of around 21.77 mph, allowing for about 269GWH in annual energy production (AEP), combined with the convenience of a well connected 120km road network to Djibouti City.