Andrew Tipping - Green Growth Diagnostics for Africa

Andrew Tipping - Green Growth Diagnostics for Africa

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  ECONOMIC CONSULTING ASSOCIATES www.eca-uk.com Financing renewable energy inAfrica Unlocking investment in Africa’s renewables: what are the binding constraints 19 January 2017
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  2 Contents  Introduction toEconomic Consulting Associates  Observations on financing renewable energy  Segment the energy service/product market  Interaction with regulation and the allowed return  Key success factors
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  Financing renewable energy inAfrica Unlocking investment in Africa’s renewables: what are the binding constraints Introduction to Economic Consulting Associates Observations on financing renewable energy
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  4 Introduction to EconomicConsulting 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 years in business 20 Economists 60+ assignments annually 15+ years average experience 100% Employee owned 15+ National utilities advised 3 Office locations
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  5 Our recent experiencein Kenya and Ghana Ghana Mini-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 Kenya Small-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 work Botswana 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
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  Financing renewable energy inAfrica Unlocking investment in Africa’s renewables: what are the binding constraints Introduction to Economic Consulting Associates Observations on financing renewable energy
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  7 Segment the service/productmarket  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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  8 Interaction with regulatorsand 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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  9 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
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  ECONOMIC CONSULTING ASSOCIATES www.eca-uk.com Andrew Tipping [email protected]
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  Financing renewable energy inAfrica Unlocking investment in Africa’s renewables: what are the binding constraints Introduction to Economic Consulting Associates Observations on financing renewable energy Case studies of African generation procurement
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  12 Features  RE programmeis 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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  13 Features  Most generationpublic. 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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  14 Features  Severe generationshortages. 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