Access to capital is the major challenge facing sub-Saharan Africa’s energy sector.
Tackling this problem requires two steps. Companies must come to trust the rules set out by governments and the types of projects being discussed must align with financiers’ outlooks.
Progress is being made on the first issue, of trust, panellists at the Africa Rising webinar said on December 2. The second is more challenging.
Pull
Governments are taking steps to respond to industry needs, while companies are also moving to spread risk through new ways of operating.
The events of 2020, and a newfound vulnerability over commodity revenue flows, have driven these changes, in part at least.
There is international capital available for renewable energy in Africa, but governments must take steps to realise this opportunity, BP’s vice president Africa exploration Jasper Peijs said. As traditional commodity revenues cannot be relied on to the same extent, states must reconsider how to seize opportunities.
Fasken’s Abayomi Akinjide referenced the resource curse, saying that while money was cheap, governments had little incentive to plan. The challenge is one of “leadership and planning – the boring stuff”, Akinjide said.
More constrained circumstances are forcing governments to rethink how to tackle the energy challenges.
One country with demonstrable progress on this front is Angola, Peijs said. When President João Lourenço took office in 2017, he swiftly opened negotiations with investors and secured additional investments.
Power plans require even greater collaboration with local players than hydrocarbon plans. Companies may shift to shorter-tenor project finance as one way of mitigating risks, Access Bank’s head of project and structured finance Gavin Greenway said.
Mainstream Renewables’ Adam Treki also took a bullish stance. Change was coming to South Africa’s energy environment, he said, and Eskom was making progress. Eskom, which dominates the country’s electricity sector, is “clearing out the skeletons”, Treki said, and engaging with independent power producers (IPPs).
Eskom is “on board to attract new investors”, he said, noting that the company was aware of the generation challenge it was facing in the years ahead. Opportunities were growing in corporate deals, he continued, although the question of delivering via the grid continued to be a challenge.
Push
Around 600 million people in sub-Saharan Africa lack access to power. Financing to tackle this shortfall is a challenge, though. Major international lenders have become increasingly unwilling to back fossil fuel projects.
South Africa and its ageing coal fleet is on the frontline of this financing shift. Some stakeholders are engaged in opposing coal in any form, Fasken’s Lara Bezuidenhoudt said, even while alternative options may not yet be up to the task. How the country can pivot, while securing a “just energy transition” is a process still being determined.
The country will “not manage without gas”, Bezuidenhoudt said. There is a need to change the social systems for such a shift. “We need to be practical. We need to make plans, but things cannot change overnight.” The question of the social compact around coal production and jobs is of particular importance, given South Africa’s unemployment rate.
Times are changing, though. Bezuidenhoudt noted the importance of battery technology and that this had not appeared to be a viable option during the second round of renewable energy IPPs. Batteries at scale will be a “gamechanger”, she noted.
Perhaps in the interim, one answer would be to think smaller. Greenway raised the possibility of smaller projects, particularly those that can balance the intermittency of renewable energy with gas generation.
Such plans would be able to secure financing, perhaps through corporate power purchase agreements (PPAs), while also ticking ESG boxes. They would even be able to attract funding from the DFIs, Greenway said, given their hybrid nature.
For more on Africa Rising, please download the report and watch the webinar by following this link.