Programmatic Initiatives Spur Investment in Africa

Africa’s power market has not been as accommodating to private financing as would be most beneficial to achieving widescale electrification across the continent. However, in 2012, a wave of new private-sector investments helped to build momentum and create systematic change. Private-sector financing increased nearly fivefold to $8.3 billion, with the number of projects nearly tripling from 15 to 43 between 2011 and 2012.

This period witnessed the emergence of “programmatic development” with initiatives such as the International Finance Corp.’s Scaling Solar and the Global Energy Transfer Feed in Tariff (GETFiT) program; the development of renewable energy as an increasingly attractive alternative to fossil fuels; and a broadening, more-liquid investor base. Since that point, the private sector’s involvement in the energy market has grown to the tune of $28.2 billion.

Such positive progress is indicative of a market that is more receptive to private involvement and the need for such external participation. This has been a welcome change from widespread contract cancellations and sclerotic policy reform.

South Africa’s Renewable Energy Independent Power Producer Procurement (REIPPP) program encapsulates this change. Thirteen years of policy development has produced a transparent framework, enabling significant private-sector investment in the renewables space. A continuous (save for some hiccups a few years ago) pipeline of projects and robust regulatory framework have helped capture the best of a competitive landscape, significantly driving down costs.

Over four bidding-round windows, 102 independent power producer (IPP) projects were signed off (compared to only a handful prior to REIPPP’s launch), creating 6,329 MW of renewable energy capacity. The competitive process as well as technological advances have witnessed a significant reduction in procurement costs. Between the first round of bids and the fourth, the average wind technology bid price fell by 37%, and solar has fallen by 69%, translating into lower prices for the end-user.

African Infrastructure Investment Managers (AIIM) is the largest equity investor in REIPPP—one of the flagbearers of African IPP programs—with the projects it has invested in contributing to 24.5% of the total clean energy on the South African grid. The last round was particularly successful, with AIIM investing in nine projects, out of a total of 26.

When fully operational, the projects AIIM has invested in will produce an additional 800 MW of energy. The power facilities will deliver about 2,425 GWh annually, preventing about 2.4 million tonnes of carbon emissions from traditional fossil fuel power plants per annum. When operating at full capacity, they are expected to supply enough green electricity to power about 522,730 medium-sized South African homes.

In total, AIIM’s IDEAS Managed Fund holds interests across 27 projects involved in windows 1–4 of REIPPP, one of which is the 75-MW Renewable Energy Investments South Africa (REISA) solar photovoltaic (PV) farm. Spanning 210 hectares, 343,200 solar modules produce about 180,000 MWh of energy annually, preventing an estimated 125,000 tonnes of carbon emissions from traditional fossil fuel power plants. When operating at full capacity, REISA is expected to supply enough green electricity to power about 75,000 medium-sized South African homes. Its impact includes more than just power provision, however; it has also incorporated wider needs of the host communities through a business development and mentoring scheme, as well as an education initiative benefiting 5,000 locals.

Impact driven by sustainable energy generation stretches far beyond the measurable and is a core component toward realizing Africa’s vast potential. Heightened strain on public finances opens the door for greater private-sector involvement. The data dictates this will only increase momentum in delivering a more connected, sustainable future.

—Vuyo Ntoi is joint managing director of African Infrastructure Investment Managers (AIIM).

https://www.powermag.com/follow-the-money-considering-climate-in-energy-investment/