Scalar International and Mergence Investment Managers have announced the launch of a $150 million private equity fund to finance clean energy and digital infrastructure in sub-Saharan Africa.

Scalar International, a black-owned international venture capital and private equity firm, has been selected by Luxembourg’s International Climate Finance Accelerator to form part of its 2024 cohort. 

The ICFA aims to accelerate emerging fund managers to advance sustainability-based finance solutions for carbon reduction, mobilising international institutional capital to build a stronger and more integrated climate finance system. 

Out of an initial expression of interest by 66 firms, 48 were selected for consideration with a final five selected. 

Scalar has partnered with Mergence Investment Managers, a black-owned institutional fund manager with a strong impact investing track record in SADC, to launch a fund-in-concept, called the Africa Decarbonisation Fund I.

Hubert Gutsa, Managing Director of Scalar International, said: “Africa holds 60% of the best solar resources globally, yet has only 1% of installed solar photovoltaic capacity. Furthermore, women make up 48% of the global workforce yet account for less than 20% of labour in the renewable energy sector. According to the International Energy Agency, 43% of the African continent’s population lack access to electricity. Many African governments are struggling with power infrastructure, with South Africa’s power utility being no exception."

"Massive investment is required, and we are delighted, in our partnership with Mergence, to have been accepted into the ICFA’s current cohort, whose platform will help us as General Partner to network, fundraise, and attract Limited Partners. We believe we can make a real difference - by 2030, the electricity demand in Africa’s C&I sector is expected to grow by more than 270% compared to current levels," he said.

The fund has a target size of $100-150m and is also one of only 10 so-called “Article 9” funds worldwide, launched recently by the EU’s Sustainable Finance Disclosure Regulation (SFDR) to facilitate attraction of Limited Partners to private equity funds.

Via the fund, the Scalar and Mergence impact partnership will invest in energy-efficient/decarbonisation projects in the private commercial and industrial sector (C&I) by supporting the emergence of first-tier, indigenous, women- and youth-led companies that are developing new technologies in clean energy solutions and digital infrastructure. 

At least 25% of the fund’s investment will be into underserved communities.

The fund’s first stage of investments aims to target C&I decarbonisation and energy efficiency in Southern Africa. 

The pipeline of projects is primarily in the data centre and manufacturing sectors, which have seen a 40% decrease in grid energy reliability due to their reliance on the regional energy pool. 

Most SADC member states consume their energy from the Southern African Power Pool, which is primarily 40% hydro energy and 50% coal-powered energy.

The fund is at advanced negotiations with European Development Finance Institutions in support of the EU-Africa Global Gateway Investment Package. 

The fund seeks to work with local pension funds in support of South Africa’s national determination contributions, together forming a Global Just Transition Partnership using the Scalar platform.

Some target investment areas include: on-site power generation; critical infrastructure utilities; smart grid technology; manufacturing energy efficiency; digital infrastructure energy; industrial energy storage, EV, battery storage; enterprise on-site electric vehicle infrastructure; commercial energy efficiency (equipment retrofit); blockchain/AI infrastructure that supports digital transformation; and aggregated virtual solar power purchase agreements (PPAs).

Investments will also be guided by four of the United Nations Sustainable Development Goals (SDGs) – 7 (affordable and clean energy); 8 (decent work and economic growth); 10 (reduced inequalities); and 13 (climate change).

Investee businesses will be put through their own incubator and accelerator programme by the Scalar-Mergence fund, providing training and technical as well as financial assistance.
The fund’s targets include working together with all communities to reduce 1 GT of carbon emissions by 2030 (equivalent to 100,000 MW of energy); achieving energy efficiency in 30,000 buildings by crowding in investment of $100 - $150m; and job creation of 15,000 full-time positions.

Semoli Mokhanoi, Chief Commercial Officer at Mergence Investment Managers, said: “We make a powerful partnership with Scalar. The teams have more than five years of collaboration and 20 years of experience in advising, modelling and structuring infrastructure transactions. At Mergence we have deep experience in private markets investing in challenging geographies, including in renewable energy, water, housing, transport, digital connectivity, property and health."

"Transformation has a dual meaning in the context of our investments: transforming the ownership patterns of the clean energy and digital technology sectors in tandem with transforming the nature and extent of infrastructure access for inclusive economic growth and development,” he added.