A look into Africa’s En­ergy Cri­sis…

Zambian Business Times - - FRONT PAGE -

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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Renita Van Ton­der – Stan­dard Bank Head of Power

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