Co-creating a new merchant model for solar energy in Zambia
Few renewable energy projects in Africa have carried as much symbolic weight as the Ilute Solar Project in Western Zambia. At 32 megawatt-peak, Ilute is modest in size, but its financing structure is a major breakthrough. It’s the first project-financed solar plant in Africa to sell power into the Southern African Power Pool (SAPP) under a merchant-style power purchase agreement (PPA), without relying on a state utility offtaker or government guarantees. Ilute signals a fundamental shift: it shows that renewable energy can be financed through market-based mechanisms, opening the door to private capital and regional power trading at scale.
Ana Hajduka Founder and CEO of Africa GreenCo
Wilfred van den Bos Chief Investment Officer of Serengeti Energy
A new solution to an old systemic problem
For decades, power generation in many African markets has depended on national utilities – often financially stressed and unable to sign bankable long-term PPAs without government guarantees. Africa GreenCo was created to address precisely this barrier. “Our mission is to transform renewable energy markets in Africa by introducing a new, creditworthy buyer and trader,” says Ana Hajduka, GreenCo’s founder and CEO. “There are good projects, and there is capital ready to be deployed. What was missing was a strong market enabler that doesn’t rely on the government balance sheet.”
GreenCo acts as a private-sector participant in Southern African Power Pool's (SAPP) day-ahead market. By providing liquidity, price transparency and sophisticated trading capability, it gives financiers confidence that merchant risk (normally considered too volatile) can be managed. Ilute is the first true pilot of this concept in Africa. Instead of selling to ZESCO, the national utility, Ilute sells power to GreenCo, which then trades it on SAPP. The PPA price is linked to day-ahead market signals, an entirely new model for the region.
“It’s the first time lenders are taking full SAPP risk on a solar project, and the first time a project of this kind is not fiscally supported by the Ministry of Finance,” Ana notes. “It’s a huge illustration of trust in the future of power pools in Africa.”
A pioneering merchant solar project in Western Zambia
Serengeti Energy, Ilute’s lead developer and 70% equity shareholder, has worked alongside Kwama Energy (holder of the remaining 30%) to advance the project from early concept to financial close over the course of almost a decade. For Serengeti, Ilute fits the company’s mission to bring sustainable, reliable, and affordable clean power to markets where energy access and grid stability remain barriers to growth.
“Zambia has excellent solar potential and a strategic position in SAPP, but development has always been constrained by a lack of utility creditworthiness,” says Wilfred van Bos, Serengeti’s Chief Investment Officer. “Ilute allowed us to demonstrate an entirely new approach: selling power into the regional market rather than relying on a single buyer.”
“Ilute allowed us to demonstrate an entirely new approach: selling power into the regional market rather than relying on a single buyer.”
That new approach required years of multi-stakeholder alignment, building multiple structures from scratch: a merchant-style PPA, a risk-sharing mechanism between the project and GreenCo, and a set of agreements with ZESCO and the Government of Zambia to manage grid availability and system operations. This was only possible because the Government of Zambia and ZESCO worked closely with GreenCo to operationalize its business model and put the necessary use-of-system and operations agreements in place.
“I still remember Charlie Troughton from Kwama Energy and myself putting the commercial bid document together in 2021, not realizing the road ahead,” Wilfred says. “We had to negotiate grid risk, market risk, transmission availability – issues normally managed through a long-term fixed-tariff PPA with the national utility. Here, they all had to be redesigned collaboratively.”
FMO’s catalytic role as co-architect To make a structure this new bankable, an anchor lender had to step forward. FMO became that partner, acting as Mandated Lead Arranger and co-architect of the financing structure.
“Credit really goes to FMO,” says Ana. “They were willing to move their financing models in line with market liberalisation. Without that flexibility – and their willingness to take on early-stage risk – we wouldn’t have reached this point.” Wilfred agrees: “FMO played a catalytic role. They were the first major lender prepared to support the merchant model. They coordinated the group of four lenders, supported the market risk framework, and remained committed throughout the multi-year development cycle.”
FMO’s willingness to innovate was also crucial because regulation was still evolving. “FMO didn’t wait for everything to be perfect,” Ana adds. “They engaged early, when there was a high risk the project might not go through. That kind of long-term partnership is rare.”
The USD 26.5 million debt package combines:
SENIOR DEBT
provided by FMO and B-lenders
CONCESSIONAL SENIOR DEBT
from the Sustainable Energy Fund for Africa (SEFA)
SUBORDINATED DEBT
from FMO and Electrifi, a blended finance facility funded by the EU and managed by EDFI Management Company
EQUITY
from Serengeti and Western Solar Power
“FMO played a catalytic role. They were the first major lender prepared to support the merchant model.”
Overcoming challenges at every turn
Being the first of its kind meant GreenCo and Serengeti had to educate lenders on SAPP liquidity, forward price curves, transmission capacity, and day-ahead trading. “We took a long time to explain to lenders how they could become comfortable with SAPP market volatility,” recalls Ana. “It required detailed financial, legal, and risk structuring.”
Grid and system operations were another major challenge, requiring close collaboration with ZESCO as the national utility and grid operator. The team had to agree on how to handle issues such as curtailment and what would happen if transmission infrastructure became unavailable. “The grid risk wasn’t under the control of the offtaker or Ilute,” says Wilfred. “We needed a bankable structure acceptable to all parties – and we achieved it together.”
To add to the complexity, new legal contracts had to be drafted and aligned with ministries, regulators, lenders and SAPP. “And at every step, you have to bring all the stakeholders along with you,” adds Ana.
From an environmental and social perspective, Ilute is located in an ecologically and culturally sensitive area. “We conducted a full IFC Performance Standard‑aligned Environmental & Social Impact Assessment (ESIA), implemented a Biodiversity Management Plan, and developed a Livelihood Restoration Plan,” says Wilfred.“
Ilute’s impact on local communities and the region
Ilute’s impact will be felt at multiple levels. Locally, the project is expected to create around 100–150 jobs during construction, with longer-term operational roles once the plant is running. It will also generate new procurement opportunities for local small businesses and channel ongoing benefits through a dedicated Community Trust Fund established for nearby villages in the Sesheke area. In partnership with the Rural Electrification Authority, the project sponsors are also exploring the possibility of connecting surrounding communities to the grid.
At regional level, the project will strengthen Western Zambia’s grid and inject additional clean energy into SAPP, improving regional energy security and reducing reliance on costly emergency thermal generation.
Most importantly, at macro level Ilute demonstrates that renewable energy can be financed in Africa without government guarantees – a shift with profound implications for public budgets and private investment, and one that could pave the way for future market-based renewable energy projects across the region.
A blueprint for the future of Africa’s power markets
The Zambian government’s willingness to liberalise its energy sector – introducing open access and a willing-buyer, willing-seller model – was the foundation for Ilute’s success. Several countries in the region have subsequently followed suit, including Namibia, Zimbabwe, and South Africa, with GreenCo expanding its reach in parallel.
“Merchant projects won’t happen in countries that still have a single-buyer model,” Ana emphasizes. “But where markets open up, this structure is replicable – and we’re already seeing interest across Southern Africa.” Wilfred echoes that sentiment: “Ilute shows that merchant structures are feasible where there is liquidity, transparency, and the right risk allocation. Now that lenders have seen it work, replication becomes much easier.”
In a nutshell, the Ilute project is much bigger than the power plant itself. Ana is emphatic about the lessons that others can benefit from in replication: “Be brave, take early partnerships seriously, and think systemically – not project by project, but through a regional market lens. That’s how we achieve scale, replication, and affordability.”