African private equity firm Inspired Evolution successfully achieved the first closing of its third energy transition, net-zero climate impact Evolution fund on March 3.

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

The fund offers next-generation energy transition investment strategies and will look to invest in traditional utility-scale, grid-connected independent power producer platforms and projects, decentralised commercial and industrial private offtake opportunities, off-grid solutions and energy-as-a-service microgrid 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.

The fund 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.

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, Inspired Evolution notes.

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

“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 United Nations' Sustainable Development Goals,” says Inspired Evolution co-founder and managing partner Christopher Clarke.

“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.”

“Achieving this first closing within such a short time period is a great validation of our investment thesis, active investment management approach, and the record we’ve built,” says Inspired Evolution co-founder and managing partner Wayne Keast.

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 $2.8-trillion. For Africa to achieve its climate action and energy Sustainable Development Goals, its generation capacity must double by 2030 and be multiplied five-fold by 2050.

Further, since 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, medium-sized and microenterprise (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, Inspired Evolution says.

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 firm adds.

EVOLUTION FUND
The fund will contribute to decarbonisation by replacing ageing and inefficient carbon-intensive power plants, which are predominantly coal thermal and heavy fuel oil, and contribute to building least-cost, low-carbon, small- to large-sized grid-connected renewable and sustainable energy generation capacity, the private equity company explains.

The fund will also target new high-growth market segments, including commercial and industrial solar and storage solutions and digital infrastructure, predominantly for private investors. It will promote energy access for 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 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 Mauritian-domiciled Evolution III Fund was launched in 2022, 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.

The fund will target 10 to 15 investments over an investment period of five years.

Meanwhile, 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. It 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, says Keast.