Inspired Evolution Achieves Successful First Close Of Its Third Energy Transition Net-Zero Climate Impact Fund

The fact that over 600 million people in Africa still lack access to electricity and that the continent as a whole has one of the lowest electrification rates in the world at an average of just 40% has been well documented. Other startling statistics that have been reported in several platforms include the fact that the per capita consumption of energy in sub-Saharan Africa (excluding South Africa) is just 180 kWh, compared to 13,000 kWh per capita in the United States and 6,500 kWh in Europe per annum.

All of this means that for most African nations to really grow their economies and lift the majority out of energy poverty and more importantly, drive productivity, and industrialization, there will need to be a quantum leap in the installation of new generation capacity as soon as possible. Renewables in the C&I as well as in the utility-scale sector will play a key role in this quest, given the abundance of solar and wind resources on the continent.

This drive will obviously require substantial resources from all key stakeholders in terms of financing. Inspired Evolution Managers Limited, a Pan-African climate-centered private equity firm specializing in clean energy infrastructure and energy and resource-efficiency growth investments, has been playing a key role in the financing space. Inspired Evolution has been involved in financing the development and operations of more than 2 GW of renewable energy infrastructure-type generation projects and multiple growth equity investments across Sub-Saharan Africa since 2007. The firm focuses on key climate-driven principal investment themes, namely clean energy infrastructure, energy access, energy and resource efficiency, and the value chains that support them.

Inspired Evolution established the Evolution I Fund in 2008 and it was Africa’s first dedicated clean energy infrastructure and environment sector fund. Evolution I was a 10-year closed-ended fund with $90 million in commitments and a mandate for equity and equity-related investments into these two principal investment themes. Evolution I’s investment jurisdiction was the Southern African Development Community (SADC) region, but with a target of a minimum 65% to South Africa. Evolution I made 12 investments and has exited all but one portfolio company, currently under disposal. Evolution I achieved top-quartile investment performance for equivalent 2008 vintage specialized funds similar in nature.

Inspired Evolution followed this up with Evolution II in 2017, which is a vintage 10-year closed-ended fund with $216 million in commitments and a mandate for equity and equity-related investments into two principal investment streams: development and project finance infrastructure-type investments in clean and sustainable energy; and growth equity investments in energy and resource efficiency companies, and the value chains that support them. Evolution II targets sub-Saharan African countries where growth prospects, ease of doing business, policy and regulatory certainty, and political stability and bankability offer compelling investment opportunities.

The fund will contribute to addressing the growing need to replace aging and inefficient carbon-intensive power plants as well as contribute to building least-cost, low-carbon clean and sustainable energy generation capacity to address the estimated 130 GW suppressed demand across sub-Saharan Africa’s high-growth countries. Evolution II will also contribute to the need for improved energy and resource efficiency measures across business activities that span key sectors in sub-Saharan Africa.

Inspired Evolution has recently announced that it has successfully achieved the first closing of its third fund, Evolution III Fund, on  March 3, 2023.

Evolution III closed at $199.4 million in conditional commitments from seven international investors, allowing a further 12–18 months window to reach its target close of $400 million in capital commitments.

Inspired Evolution launched the Mauritian-domiciled Evolution III Fund in 2022, which is targeting $400 million in capital commitments and is expected to comprise existing (predominantly Development Financial Institutions) investors and new global and regional institutional investors, endowments, and family offices.

Investors in Evolution III’s first closing include the European Investment Bank (EIB), the Dutch Development Bank FMO, the African Development Bank, the Finnish Fund for Industrial Cooperation (FinnFund), the Emerging Markets Climate Action Fund (EMCAF), Swedfund International AG, and the Swiss Investment Fund for Emerging Markets (SIFEM).

Wayne Keast, Co-Founder and Managing Partner at Inspired Evolution, said, “We are a private equity firm with 16 years of on-the-ground African investment experience in clean energy and climate finance investing. We have made 21 investments to date in our two Evolution clean energy private equity funds, and we have exited 16. Achieving this first closing within such a short time period is a great validation of our investment thesis, active investment management approach, and the track record we’ve built.”

Christopher Clarke, also Co-Founder and Managing Partner at Inspired Evolution, added: “There’s been a growing investor preference for climate-centred, socially responsible investments that follow strong international governance guidelines, aligned to the Paris Agreement and UN’s Sustainable Development Goals. Institutional investors seek trusted investment managers with strong fiduciary principles that can deliver measurable, lasting climate and social impacts while achieving superior returns. This first closing also speaks to our professional investment team’s pedigree and deep skill set.”

The announcement adds that:

Evolution III offers next-generation energy transition investment strategies and will look to invest in traditional utility-scale, grid-connected IPP platforms and projects, decentralised commercial and industrial (C&I) private offtake opportunities, off-grid solutions and energy-as-a-service (EaaS) micro-grid infrastructure-type offerings. It will also look to invest growth equity into energy and resource-efficiency, technology-based businesses that ‘do more with less’ and reduce resource footprints. Evolution III will provide investors with long-term capital growth and yield by taking significant minority and controlling equity and equity-related stakes, predominantly in renewable energy platforms.

Africa has tremendous solar and wind potential and vast hydropower resources. The funding needed to facilitate Africa’s energy transition to a net-zero energy mix by 2050  is estimated to be around USD2.8 trillion. For Africa to achieve its climate action and energy SDGs, its generation capacity must be doubled by 2030 and multiplied five-fold by 2050.

Since the adoption of the Paris Agreement and the recent COP 26 UN Climate Change Conference held in Glasgow at the end of 2021, markets have been lifted by the accelerated adoption of new low-carbon energy commitments and policies by African member states. Meanwhile, rural households and small-, micro-, and medium enterprise (SMME) consumers with growing energy access needs have accelerated the addressable market for affordable and reliable clean energy technology-based solutions.

This reflects a vast investment opportunity to catalyse the growth in the renewable energy space across the African continent. With increased electrification of rural areas and additional funding for renewable and off-grid projects, renewables will systematically replace bioenergy and fossil fuels as the primary energy source.

New opportunities for private equity investment to plug the funding gap have opened up as capital-constrained public utilities have pulled back their levels of investment.

The Fund will contribute to decarbonisation by replacing ageing and inefficient carbon-intensive power plants (predominantly coal thermal and heavy fuel oil (HFO)) and contribute to building least-cost, low-carbon, small- to large-sized grid-connected renewable and sustainable energy generation capacity.

In addition, the Fund will target new high-growth market segments, including commercial and industrial (C&I) solar and storage solutions and digital infrastructure, predominantly for private investors. It will promote energy access to rural communities, businesses, and industries by accelerating innovative fintech business models across off-grid, mini-grid and micro-grid markets.

Evolution III will look to complement the traditional grid-connected projects while bolstering its exposure to energy-access solutions in rural areas via mobile money payment platforms and pivoting to energy-as-a-service (EaaS) micro-grid market offerings, promoting smart cities and efficient industry.

The remaining capital allocation is expected to be invested as growth equity into technology-based companies active across eligible high-growth sectors, including agriculture, waste and wastewater, logistics and cold chain management, energy and resource-efficient manufacturing and other energy-centric supply chains. The Fund will target around 10 to 15 investments over an investment period of five years.

It will target established growth companies and back investments into greenfield projects and platforms and select eligible brownfield projects with a high probability of conversion success and where bankability criteria are met.