FINANCING RENEWABLE ENERGY IN AFRICA Angela Nalikka, Manager National and Regional Power Systems Joao Cunha, Manager Renewable Energy Webinar - Norwegian Energy Partners 19 May 2020
Outline 1. AfDBs role in lighting and powering Africa 2. Overview of Power Sector issues in Africa 3. Selected medium/large grid-connected projects examples 4. Accelerating energy access through small-scale renewables 5. Financial instruments for small-scale renewables
AfDB role on lighting and powering Africa
The African Development Bank Group at a glance African Development African Development Nigeria Trust Fund Bank (AfDB) Fund (ADF) (NTF) Established in 1964 Established in 1972 Established in 1976 by Nigeria ▪ ▪ ▪ 54 African countries and 26 non- Financed by 27 State participants and Targets the Bank’s neediest ▪ ▪ ▪ African countries 4 regional donors countries KEY ▪ USD 93 billion authorized capital ▪ USD 36 billion subscription ▪ Maturing in 2023 FIGURES Resources primarily raised from Concessional financing terms for 37 USD 242 million total resources ▪ ▪ ▪ capital markets eligible Regional Member Countries Private companies or SPVs in Governments of low-income countries Governments of poorest countries ▪ ▪ ▪ Regional Member Countries CLIENTS Governments of middle-income ▪ countries Technical Assistance ▪ Technical Assistance, Grants Concessional loans ▪ ▪ Policy Advisory Technical Assistance, Grants ▪ ▪ PRODUCTS Loans, Equity, Risk Mgmt & Mitigation ▪ ➔ Unparalleled access to governments, parliaments, private sector and other stakeholders ➔ A broad range of products available to our clients (financing instruments, de-risking solutions, sectoral expertise, etc.) ➔ Cooperation between public and private counterparties which is crucial in moving transactions forward
AfDB a leading African energy sector financier over last 10 years UA 13.8 billion committed to energy sector projects since 2000, of which UA 11.1 billion for the public sector and UA 2.7 billion for the private sector More than 3.7 million connections to the grid since 2000 , and 560,000 off-grid connections since 2018 +18.5 GW of additional installed energy , of which 5.4GW from renewable energy resources +22,500 kilometers of transmission lines constructed, of which 9,800 are regional interconnections +102,000 kilometers of distribution lines constructed
AfDB’s Strategy holistically addresses key challenges for private investments Theme 1: Setting up the right enabling policy environment Theme 2: Enabling utility companies for success New Deal on Energy for Theme 3: Dramatically increase the # of bankable energy projects Africa Theme 4: Increasing the funding pool to deliver new projects The NDEA addresses 7 strategic issues that represent the over- Theme 5: Supporting bottom of the pyramid energy access programs arching themes driving the strategy of the Theme 6: Accelerating major regional projects and driving regional int. Bank Theme 7: Rolling out waves of country-wide energy transformations
Overview of Power Sector issues in Africa
Power Sector Reform (results over the last 10 years) ALGERIA LIBYA Two EGYPT Financially > 27 GW in Viable new capacity MALI NIGER Utilities CHAD SUDAN Main reform goal - Capital NIGERIA SOUTH investment flows ETHIOPIA SUDAN in the power sector KENYA Legend CONGO, DEM Two Whole IPPs in >30 Share of IPPs in total Total IPP investment REPUBLIC installed capacity (for plants >5MW) Concessions countries TANZANIA 0% - 20% < USD 0.5 Bn Atleast 34 ANGOLA 21% - 40% African ZAMBIA countries 41% - 60% USD 0.5 Bn – 1.3 Bn established NAMIBIA 61% - 80% regulatory > USD 2 Bn frameworks 81% - 100% SOUTH AFRICA Unintended Consequences Sources: Revisiting Reforms in the Power Sector in Africa (AfDB & Association of Power Utilities), • High tariffs Electricity Regulatory Index (ERI) for Africa 2019 (AfDB) • Low electricity access growths rates • Exponential increase in Sector debt • Lack of Centralised Sector planning
Current levels of investment insufficient to provide universal access Africa Investments in power supply (per • India capita) in Africa among the lowest in China Europe the world North America 0 50 100 150 200 250 300 Source: IEA Africa Energy Outlook 2019 – Unit in dollars per capita Fossil fuels represent the majority of • 2010 Africa Coal 2018 new capacity since 2010 (ca 90GW) North 2010 Gas Africa 2018 Oil South 2010 The share of hydro and renewable • Africa 2018 Hydro Rest of 2010 increasing, but still largely untapped Other RE Africa 2018 0 50 100 150 200 250 Source: IEA Africa Energy Outlook 2019 – Unit in GW South Africa Poor Power system performance, with • Côte d'Ivoire electricity losses higher than developing Ethiopia countries’ average 0 5 10 15 20 25 Developing Africa average countries average Source: World Bank, 2015 – Unit in loss percentage
Participation trends in the medium term ❑ Parallels between 2008 financial crisis and post COVID-19. Challenges in the energy sector (debt, reliability, high tariff etc.) and revenue loss due to the COVID-19 pandemic. Renewed interest in private sector participation in the energy sector. ❑ Post COVID-19: Countries seeking self sufficiency so growth in industrialization and mining. Constrained public resources and fiscal space but infrastructure investments are vital Private Sector as an alternative additional source of funding to meet the gap. Captive power to industry and mining companies to drive industrialization, creating demand ❑ Second wave of Sector Reforms targeted at: Utility Transformation for efficiency and sector sustainability Private sector participation (PSP) models in electricity transmission More PPPs in Generation Ramping up access programs - Offgrid/Minigrid in rural areas to increase access rates
Key determinants of success for private power projects • Clear Generation capacity deficit • Integrated resource plan with Identified least-cost projects • Equitable risk allocation in the legal and regulatory framework • Private sector expertise/exp. and efficient resource mobilisation RE Specific • Address social & environmental impacts • Account for climate change implications • Balance national needs for water & energy development - hydro power • Mobilize the required financial resources for project preparation and financing.
Selected medium/large grid-connected projects examples
Itezi-Thezi hydropower project The Project Key Figures Total Project USD 239 million Development of a 120 MW hydropower power plant in the central part of Zambia and a 276 Cost km transmission line to connect the IPP to the Debt : Equity 70 : 30 power grid. • Increases Zambia’s power generation AfDB Senior Loan USD 35 million capacity • AfDB Board June 2012 Project Sponsors: TATA Africa and ZESCO Approval AfDB Role • Lender Coordinator • Senior lender • Modelling bank
Lake Turkana Wind Farm project The Project Key Figures Development of a 300 MW wind farm in the north Total Project Cost EUR 635 million west part of Kenya • 365 wind turbines of 850 KW capacities Debt : Equity 70 : 30 • Added clean energy to the power grid • Increased national installed power by 25% Senior Loan - Private EUR 100 million • Project Sponsor(s): Aldwych, KP&P, IDC, Norfund, EUR 20 million (up to 4× total Vestas, IFU PRG exposure) 1000km transmission line to connect project to grid AfDB Role Non-sovereign Window Sovereign Window • MLA • PRG for T-Line • Senior lender Completion Risk • Syndication
Ruzizi III – Regional Key Figures The Project Total Project Cost USD 641 million A 147 MW power station located in south- Debt / Equity 71.6 / 28.46 western Rwanda and eastern DRC between USD 182 million (Developer – Equity Lake Kivu and Lake Tanganyika on Ruzizi river. USD 100m) • Developed by NELSAP, Nile Basin Initiative Concessional Debt • PIDA/CAPP/EAPP Project USD 365 million (Viability Gap) Project Sponsors: Governments, IPS, SN Power Commercial debt USD 94 million AfDB Role • Public Sector Lender – approved USD 138 million • Private Sector Lender – due diligence ongoing
Accelerating energy access through small-scale renewables
Small-scale and decentralized RE solutions can address critical electrification gaps Cha Challe lenges wit ith Ut Utili ility-Scale RE RE Sm Small-Scale an and Dec Decentraliz ized RE RE • Grid extension is not operationally nor • Tailored for remote and off-grid areas economically viable in all remote areas • Increasingly cost-competitive: new • Grid extension can be expensive (high cost technologies, data, and business models per connection) • Grid extension takes a long time (long • Rapid deployment and limited O&M planning and construction periods) • National utilities are financially weak and • Commercial capital is seeing the opportunity have limited capacity and is increasingly available • Large-scale generation can present • Limited social and environmental risk with challenges for environmental and social strong community development benefits sustainability, long-term resilience
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