Africa renewables pipeline webinar: key takeouts

Annual deal flow in Sub-Saharan Africa

Source: inspiratia | datalive

Deals have predominantly been greenfield, with signs of secondary market deal flow in the last three years.

South Africa's REIPPP round four is the main driver of 2018's deal flow, with 13 projects ranging from solar to onshore wind finally signing PPAs in June last year.

According to Orrick's Rajen Ranchhoojee, preparations for REIPPP round five are expected to begin in Q1 2020, pending the release of the finalised Integrated Resource Plan (IRP), a major component of South Africa's energy plans.

"Whilst the end of this year is probably unlikely for procurement documentations to come out, it is very likely that we will see activity heating up," said Ranchhoojee.

"To any developers out there if you have any projects, now is a good time to dust off those papers and make sure the development is very much in process," he continued.

In terms of secondary market, the past two years have been very active as projects from previous REIPPP rounds came to market. Ranchhoojee describes it as a "sellers' market", as supply is significantly less than demand.

"There are still a number of round one and two projects which are open and available to the market. These sells are happening as individual assets sold for the value that they hold," said Ranchhoojee.

"Alternatively, global developers are also selling swathes of portfolios, whether they be a South African portfolio or a much larger global portfolio in which the South African assets are wrapped up,"

On the horizon are round three projects that will be made available for re-sale because they would have completed a three-year lock-in requirement on their PPAs under REIPPP.

Emerging markets

Outside South Africa, private investment initiatives such as the International Finance Corporation's Scaling Solar and KFW-backed Global Energy Transfer Feed-in Tariff (GET FiT) will drive the pipeline in 2019. Both schemes aim to incentivise private investment and standardise the procurement process in respective host countries.

"These programmes allow for a structuring of a PPA that is developed in such a way that will try to mitigate, not all, but some of the key bankability risks that would ordinarily exist," said Ranchhoojee.

"It also allows individual developers the comfort of knowing that they are working within a programme that is ultimately overseen by one of the major multinationals," he continued.

GET FiT supported the development of an 87MW portfolio in Uganda and last month revealed the winning bidders for its 120MW solar tender. It is currently backing the development of a 130MW pipeline in Mozambique for solar plus storage and small hydro. The scheme is expected to begin in 2020.

As for Scaling Solar, six solar PV projects totalling 800MW in capacity are being tendered under the initiative in Ethiopia. An extension of a 250MW PV tender from an initial round in 2018. Bidders include the likes of Access and Total, Scatec Solar, Enel Green Power and a Korean consortium.

Building on its experience with solar PV tenders, Scaling Solar is now developing a Scaling Wind initiative to be first implemented in Ethiopia.

Outside of REIPPP, GET FiT and Scaling Solar, Kenya is formulating its own auction procedures following the frameworks established in its new Energy Act 2019, which aims to phase out costly PPAs by identifying projects on a needs basis, before inviting investors to participate in an open auction.

In West Africa, Côte d'Ivoire's Ministry of Economy and Finance is inviting bids from consultancy firms to carry out the technical advisory role for a renewables programme for independent power producers.

However, with these initiatives comes a "double-edged sword" according to Ranchhoojee, particularly if investors seek, for instance, tax rebates or any other type of support seen in the west.

As Ranchhoojee explains, due to the success of some of these private investment ventures the major concern of whether or not developers can successfully deliver projects in Africa has been addressed. Other countries are now aware that investors are very keen on their market and can therefore get electricity at the lowest prices.

"So, from a government or off-taker perspective, if the technology works why would we go out and give more to developers and investors when we know the appetite is there," comments Ranchhoojee.

Corporate PPAs

Because most African countries have nascent industrial economies, the number of energy-intensive companies with high credit rating is limited.

As a result, smaller scale projects averaging below 1MW, typically built on-site and often off-grid, are predominantly developed for commercial and industrial off-takers. 

In Sub-Saharan Africa, countries such as South Africa, Nigeria, Ghana and Kenya, have the most installed capacity for commercial and industrial linked projects, since onsite solutions are cheaper and deemed more reliable than connecting to the national grid.

"If you look at a country like Ghana, they have made great strides in ensuring that projects are able to get registered and come to light," said Ranchhoojee.

"The law is great and is in place, however, the implementation and the regulation that addresses it are not up to speed because it is such a new industry," he continued.

South Africa has also been pushing a small-scale embedded generation set of rules for the last five-years and has accommodated new instalments under its procurement plans – according to the current draft of the IRP – but faces similar challenges to Ghana.

"In terms of laws [South Africa] is still nowhere near where it needs to be," said Ranchhoojee.

"What we do have however is absolute policy in South Africa, that embedded generation will be allowed up to 500MW [per year]… that will be unlicensed but registered,"

Financing

Only a few commercial banks are active in the region, mostly in South Africa. But on the other hand, the largest South African banks – including Absa Bank, Standard Bank, Nedbank and First Rand Bank – are very active debt providers for Sub-Saharan Africa.

"They would take the lead as mandated lead arrangers on these projects, and from that point on you will find that these projects are then syndicated to other international banks," said Ranchhoojee.

Ranchhoojee also believes private equity has a large role to play in the region, especially with the number of funds being established in order to focus on renewable energy in the market. For instance, equity-investor Meridiam reopened its Africa fund and raised US$615 million (£466m €546m) in March this year [2019].

Speaker

• Rajen Ranchhoojee, Special legal counsel, Orrick

Moderator

• Omolola, Analyst and Africa theme editor, inspiratia

Themes

• South Africa outlook
• Key market highlights: Ethiopia, Zambia, Senegal and more
• From Scaling Solar to Scaling Wind
• Opportunities and regulatory challenges in developing mini-grids and corporate PPAs