andrew tipping - green growth diagnostics for africa
TRANSCRIPT
ECONOMICCONSULTINGASSOCIATES
www.eca-uk.com
Financing renewable energy in Africa
Unlocking investment in Africa’s renewables: what are the binding constraints
19 January 2017
2
Contents
Introduction to Economic Consulting Associates
Observations on financing renewable energy
Segment the energy service/product market
Interaction with regulation and the allowed return
Key success factors
Financing renewable energy in Africa
Unlocking investment in Africa’s renewables: what are the binding constraints
Introduction to Economic Consulting Associates
Observations on financing renewable energy
4
Introduction to Economic Consulting Associates
ECA provides economic consulting advice in infrastructure services for
governments, regulators and investors worldwide, with a focus on the energy and
water sectors
30+Regulators
advised
65+Countries worked
in
20 yearsin business
20Economists
60+ assignments
annually
15+ years average
experience
100%Employee owned
15+National utilities
advised
3Office locations
5
Our recent experience in Kenya and Ghana
GhanaMini-grid regulatory
framework design
Gas master plan
Commercial due diligence
for a gas IPP
Advisory services to a gas
IPP
Review of power sector
reform
LPG market study
KenyaSmall-scale renewable energy
framework development and
capacity building
Mini-grid regulatory
framework design
Mini-grid pre-feasibility studies
£30m mini-grid support facility
Geothermal power supply
optimisation
LPG market study
Electricity tariff review support
Hydropower plant feasibility
Other relevant Africa workBotswana renewable energy strategy
Rwanda mini-grid financing facility
Ethiopia geothermal PPA development
Tanzania energy sector capacity building
DRC scaling-up electricity access
Uganda geothermal framework development
Financing renewable energy in Africa
Unlocking investment in Africa’s renewables: what are the binding constraints
Introduction to Economic Consulting Associates
Observations on financing renewable energy
7
Segment the service/product market
Renewable energy is delivered
through a range of means
Small and large-scale grid-
connected generation
Isolated mini-grids
Stand-alone products, eg solar
home systems, pico lights
The development of each
requires a different type of
finance
Project finance is in good
supply in Kenya, and there is
good interest across Africa
Suitable for large projects
Corporate finance may be more
dependent on local financing and
the credibility of the business
rather than its assets
Suitable for small projects
Working capital has been more
difficult to come by, and relies
primarily on local financing
Suitable for quick payback
on products
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Interaction with regulators and the allowed return
Electricity supply is a very political issue
TANESCO MD recently fired for increasing tariffs, with approval from the regulator
The tariff is the mechanism for allowing a return for the financier
Feed-in tariffs for generation
Retail tariffs for supply
Regulation protects both customers and suppliers
Some financiers don’t necessarily understand the purpose of regulation
Should the FiT be capped at the
utility’s avoided cost
Financiers’ return may be
insufficient
Should the FiT allow with a
commercially-viable return
Who meets a shortfall?
Can the utility pass this on
to customers?
Kenyan mini-grids
What are the appropriate
returns and repayment
profiles?
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Key success factors
Size of the market
Will the international investor
recover their costs of market due
diligence over large enough
investments?
Capacity of domestic lending
Often weak
Currency risk
Capacity to understand projects
Pre-packaged investment
opportunities
De-risk the legal framework
Secure title for land is a major
concern
Outside South Africa, the
chances of repeated
transactions are relatively low
Local banks are developing in
some countries, often as
branches of larger banks
Donor credit lines are
supporting this development
Pre-packaged sites allow
competitive tendering
Financing renewable energy in Africa
Unlocking investment in Africa’s renewables: what are the binding constraints
Introduction to Economic Consulting AssociatesObservations on financing renewable energy
Case studies of African generation procurement
12
Features
RE programme is Africa’s largest
ever IPP initiative
Highly successful in terms of capacity
secured and price
Clear framework with support of
Eskom and sovereign guarantee for
off-take
Stringent pre-qualification criteria
Mixed criteria evaluation
Active domestic financing
International Case Studies – South Africa
Lessons
Political and utility buy-in is vital,
particularly in an unliberalised market
Strong implementation unit provides
investor confidence
Balance is needed between strong
pre-qualification criteria and
encouraging competition
Market confidence comes with
practice – SA’s low prices are tied to
scale of opportunity
Socio-economic goals need to be
included with care
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Features
Most generation public. Marginal
generation oil-based, but ambitious
pipeline in coal, NG and REs
Private investments in RE under “fully
private” model (FIT and large-scale)
No proven successes for REIPPs
except for geothermal (310MW
LTWP online 2017)
Extremely long project development
cycles. Challenges in financing,
access to land and grid connection
Kenya now considering RE auctions
for large scale projects (and solar and
wind) to reduce risks and cost
International Case Studies – Kenya
Lessons
Fully private developments in new
market have been very risky, with
significant failures that will affect
future developments. More support
from government will be needed
going forward
Land acquisition and community
issues are key challenges – consider
assistance in securing or streamlined
processes for given area
Similarly for grid connection and the
development of other needed
infrastructure
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Features
Severe generation shortages. Using
emergency power from diesel
WBG “Scaling Solar” program
provides one-stop-shop (TA, debt,
guarantees) for 100MW of solar
Pre-selection of sites by government
(Multi-Facility Economic Zone)
20% public ownership in SPV (IDC)
First tender round organized in 10
months, achieving record prices for
the region (6$c/kWh)
2 winning projects currently working
toward financial closure. Expected
online in 2017
International Case Studies – Zambia
Lessons
Reducing cost and barriers for
privates (pre-selection of sites,
feasibility, financing, etc.) could
achieve rapid deployment
WBG programme may reduce
flexibility in procurement conditions,
but good to gain experience in first
instance?
Early to talk about success story but
a programme to follow
Scaling solar now expanding to
Senegal, Madagascar and Ethiopia