Call for a shake-up of energy project financing in Africa

31 May 2019 | Web Article Number: ME201914501

Power Generation

AHEAD of this year’s African Utility Week and POWERGEN Africa conference, a call has been made for a shake-up of the way big energy projects on the continent are financed.

“Honestly, I think the business model for energy investment needs to change. There are far too many players that are comfortable with the same structures for investment, selling to an SOE (state-owned enterprise) with a government guarantee,” said Penny Herbst, Director Strategy for Africa GreenCo.

“What we really need at present is for investors to have a stake where their influence contributes to improving the Electricity Supply Industry (ESI) as a whole. Both current investors familiar with the South African environment and those that wish to enter the market for the first time are awaiting the release of the revised IRP for their next move.”

She said Africa GreenCo has an innovative business model “where it will function as an intermediary buyer and seller of power from IPPs and in this role will aggregate financial and supply risks in a portfolio approach by, amongst others, using local and regional markets to transparently diversify its risks”.

She added that there are many players eager to capitalise on the gap that had been created by the “unfolding Eskom financial and reliability challenge. Can we as a country honestly say that the planning and pricing impact for this has been fully comprehended?”

Herbst will moderate a conference session on “Financing renewable energy projects” at the conference, which is being held in Cape Town from 14-16 May 2019.

Another key conference participant, Romain Py, Investment Director – Head of Transactions, African Infrastructure Investment Managers, said the firm was seeing greater interest than ever from international investors.

“It is, however, important to note that the African private equity industry is still at an early stage of development relative to the traditional markets. As a result, the key focus for the industry needs to be on educating investors, notably on how to manage risks, and the large gap between perceived risks and actual residual risks for deals,” Py said.

“There is also a need to educate governments on the requirements for increased private sector participation and consistency of policies and regulation. Reforms have been enacted in some countries in order to encourage Africa-based institutional investors to allocate capital to the asset class. However, more remains to be done to fully harness private equity’s potential to contribute to Africa’s socio-economic development.”

AIIM is a shareholder in the Albatros Energy Mali project which won Project of the Year at the African Utility Week Industry Awards last year. Albatros Energy Mali, an HFO thermal power station, is Mali’s first independent power producer (IPP) project.

This year’s African Utility Week and POWERGEN Africa dedicates a full three-day conference track to investment and finance in the energy sector. The 19th edition of the event is expected to attract more than 10 000 energy and water professionals this year.

Deregulation of the power sector is also due to come under the spotlight at the conference..

“Deregulation would open a market for people to produce power and sell power and that would revolutionise the energy landscape in South Africa. Technically it wouldn’t be a difficult or complex thing to do; there are plenty of precedents around the world where it has worked really well,” said Dr Sam Duby, Africa Director for TFE Energy and mini grid expert.

“Creating a market for independently produced energy would also very quickly incentivise and unlock investment into the space. As more projects were built and generation capacity added, you would also very quickly get more system resilience. Blackouts really could be a thing of the past.”

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