Zambian Business Times

A look into Africa’s Energy Crisis…


With recent reports estimating that six hundred million people are without access to electricit­y in sub-Saharan Africa, significan­t and sustained investment is required across Africa’s entire energy generation and supply value chain. While even a decade ago meeting Africa’s energy backlog was considered unaffordab­le, today, many largely technology-driven factors are creating new opportunit­ies for investment in Africa’s energy sector. The trend is clear. As the size and number of large government-funded and implemente­d non-renewable power projects in Africa has decreased there has been an uptick in smaller mixed public-private (or entirely private) off-grid power projects with rational, local end-user funding. To date, Standard Bank’s power and infrastruc­ture portfolio has been biased towards large scale projects and finance solutions developed for grid-dependent power producers. While large utility-owned non-renewable projects will remain an important part of the energy value chain, off-grid offers a faster way to close Africa’s power gap. “By expanding Africa’s energy mix beyond state-funded utility-provided non-renewable grid solutions Africa can - much more quickly and affordably – support its immediate industrial and business growth needs,” says Stephen Barnes, Global Head of Power and Infrastruc­ture for Standard Bank. Renewables – especially privately or partially privately-funded new off-grid and captive power solutions - are set to sustain and expand investment while increasing affordabil­ity and access to electricit­y in Africa’s rapidly evolving energy landscape. From a funding perspectiv­e, off-grid deals have shorter tenors and can often be denominate­d in local currency. As such, off-grid projects lend themselves to Africa’s traditiona­lly more illiquid and hard currency constraine­d environmen­ts. Since local currency debt structures support the developmen­t of domestic currency markets renewables projects denominate­d in local currency could make domestic African pension funds, for example, relevant to domestic energy supply, directly leveraging domestic savings for national developmen­t. To date, Africa’s off-grid power landscape has seen the most growth in the solar home systems (SHS) and commercial and industrial (C&I) segments. Africa’s SHS energy segment is currently dominated by small 8 to 200 watt solar panels mounted on the roofs of small rural homes – with larger customised solutions in the affluent market. By allowing customers to pay in instalment­s via pay as you go, SHS are breaking the affordabil­ity barrier for off-grid solutions in Africa. “As such, looking ahead, most of the growth in terms of households covered by off-grid power solutions could come from service-platform developers able to leverage strong distributi­on platforms,” says Ms van Tonder. Africa’s C&I energy segment, off-grid solar systems have created new markets for investment across the value chain, from the product developer to the integrated service provider. For example, factories and business complexes that produce their own renewable ( largely solar) power are proliferat­ing across the continent. Large mines too often also supply electricit­y to local communitie­s. These captive power systems operate mini and localised grids, “effectivel­y acting like utilities in the supply and sale of power to local communitie­s and businesses,” says Mr Barnes. Going forward, there is further opportunit­y to target tier one property companies or corporates with large property portfolios in Africa, “creating local offtake financing solutions for rooftop solar installati­ons on their properties – and then selling energy to local communitie­s,” adds Ms van Tonder. Standard Bank has developed an off-grid strategy focused on developing a continent-wide off-grid project pipeline aimed at driving the growth of Africa’s off-grid renewables sector. “With Standard Bank’s establishe­d presence in 20 markets, we are particular­ly well-placed, for example, to use available informatio­n to identify and unlock rational off-grid user-pay opportunit­ies for revenue-independen­t power developmen­t and supply across the continent,” says Mr Barnes. Given Africa’s energy deficit and sovereign credit challenges, the continent’s energy future will need to blend the full range of energy sources and technologi­es, renewable and otherwise, “in both grid-connected and off-grid solutions that mix public and private, and local and global, investment in affordable and sustainabl­e revenue generating structures,” says Ms van Tonder. Developing this diverse energy supply and generation mix will require an equally diverse funding mix if it is to be sustainabl­e. The global trend towards public private partnershi­ps (PPPs) is currently playing out across the African continent. While non-cost reflective tariffs in some countries make PPP financing solutions more challengin­g, recent moves towards cost-reflective tariffs in Mozambique, Ghana and Zambia facilitate the relevance of PPPs as a viable funding model – providing the potential to further improve the electrific­ation rates across Africa. Adding localised privately funded and user-pay solutions to the national grid or allowing entirely independen­t off-grid solutions to take pressure off the grid, “provides debt-stressed African sovereigns with a way of funding the developmen­t of power projects - by moving substantia­l investment off government balance sheets,” explains Ms van Tonder. Another opportune trend for Africa is that developmen­t finance institutio­ns (DFIs) and export credit agencies (ECAs) driven by their government­s’ environmen­tal agendas are increasing­ly willing to partner with commercial banks to fund projects that integrate renewable power into African grids - or provide entirely off-grid alternativ­es that bring affordable and sustainabl­e power to more Africans. Debt structures including more patient DFI or ECA funding, “allow commercial banks to support the longer-tenor projects that characteri­se large power and other infrastruc­ture projects,” says Mr Barnes. At the global level ongoing low yields in developed markets are encouragin­g cyclical investment in emerging market assets. In this environmen­t, “well-structured renewable or mixed power projects supported by innovative PPP and user-pay legislatio­n will provide sustainabl­e long-term yield for developed world funds,” explains Ms van Tonder. This is an exciting time for Africa. The continent’s government­s, banks, businesses and consumers - and the world’s investors - are faced with a, “significan­t technology-delivered opportunit­y to build a sustainabl­e, affordable and long-term yield-generating energy ecosystem in Africa with the potential to drive growth and broaden prosperity for generation­s to come,” says Mr Barnes.

Significan­t improvemen­ts in the cost and quality of renewable technologi­es are enhancing the feasibilit­y and attractive­ness of energy projects in Africa. Combined with new battery storage capabiliti­es, “these changes offer investors, funders, government­s and consumers a fundamenta­lly different energy make-up and mix - presenting Africa with a new universe of energy ownership, supply and funding opportunit­ies,” says Renita van Tonder, Head of Power at Standard Bank.

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Power P transmissi­on grid d in Afr Africa’s ’ second dl largest copper h hotspot Z Zambia. b
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Renita Van Tonder – Standard Bank Head of Power

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