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Key Takeaways | African Markets and Opportunities for Cross-Border Investments in Renewable Energy

On March 30, 2022, Carl Fleming and Emeka Chinwuba, partners in McDermott’s Energy and Project Finance Practice Group, hosted Dr. Abdelilah Chami, head of sustainability Northern & Central Africa at Enel Green Power, and Jay Katatumba, investment director at Africa50 Infrastructure Fund, for a lively discussion on the renewable energy space in Africa and cross-border investments.

The transition to renewable energy in Africa has progressed impressively over the last decade, with many countries working to increase renewable energy capacity in recent years. Forecasts by the International Renewable Energy Agency (IRENA) indicate that with the right policies, regulation, governance and access to financial markets, sub-Saharan Africa could meet up to 67% of its energy needs by 2030. This is reflected by the fact that average annual investments in renewable energy grew ten-fold from less than half a billion dollars during the 2000 – 2009 period to $5 billion during 2010 – 2020.

Below are key takeaways from the webinar:

1. Development Financial Institution (DFI) participation in Africa’s power market is primarily driven by its mandate to make the cost of electricity more affordable, increasing access to electricity and improving the reliability of its power supply.

2. Energy access and consumption in Africa has global ramifications as we look to trade, commerce and development, future demographic trends and geopolitics with respect to energy costs and access.

3. From a power sector policy standpoint, each African country should be taking a holistic view when looking at the specific in-country and regional needs for energy, the entire value chain, related and existing infrastructure, local capabilities and local regulatory and governance frameworks.

4. In accessing various African jurisdictions for investment opportunities, private sponsors are focused on predictability, highest risk weighted returns, existing infrastructure and the whole value chain proposition for a specific asset.

5. Private sponsors are also looking for opportunities where projects are bankable and structured with very limited reliance on subsidies or other credit support from the host governments.

To access past webinars in this series and to begin receiving Energy updates, including invitations to the webinar series, please click here.




U.S. Pledges Support for Investments in Sub-Saharan African Power Projects

by Ari Peskoe

Last week President Obama announced a package of programs that aim to increase electricity generation and transmission in Ghana, Kenya, Liberia, Nigeria and Tanzania.  Headlined by $7 billion in U.S. government support and $9 billion in commitments from the private sector to invest in new generation projects, Obama’s initiative aims to “double access to power in Sub-Saharan Africa.” Although details are still forthcoming, the initiative is evidence of the enormous demand in Sub-Saharan Africa for new generation.  New supply supported by the President’s initiative is likely to primarily be large-scale natural gas-fired and hydro generation, and it is not clear how such projects will “double access.”    

Less than a third of people living in Sub-Saharan Africa have access to electricity.  Excluding South Africa, Sub-Saharan Africa has only 28 gigawatts (GW) of generation capacity for a population of approximately 850 million people.  (For context, the Netherlands has 26 GW of capacity for a population of less than 17 million).  With the exception of Nigeria, the five target countries have very low population densities and lower than average urban populations as a percent of the total population.  In other words, dispersed populations either have no electric grid at all or have access to a grid with only meager capacity.

New large-scale generation located near urban centers and industrial zones can be helpful in supplying stressed grids, and such projects are also likely to be the most feasible.  The more daunting task, however, is to provide electricity to dispersed rural populations, 85 percent of whom in Sub-Saharan Africa have no access to electricity.  Obama’s initiative includes $2 million in grants to African-owned and operated enterprises “to develop or expand the use of proven technologies for off-grid electricity benefitting rural and marginal populations.”  The initiative’s private sector commitments also include “installation of 200 decentralized biomass-based mini power plants in Tanzania.”  Such small-scale projects demonstrate that sub-Saharan Africa presents a range of opportunities, but that Obama’s initiative is focused on large-scale projects rather than reaching rural populations with decentralized alternatives.

Of the $9 billion in private sector commitments, just over $1 billion is for wind generation; fuel source for the balance has yet to be specified.  Natural gas and hydro projects, however, are well-positioned to receive the bulk of the support.   According to the most recent statistics (which are a bit out of date and incomplete), the five target countries currently get the majority of their power from natural gas and hydro, and oil is the third most common fuel, providing almost twenty percent of the countries’ electricity.  New investments may include some oil-fired generation, but that fuel is generally more valuable for transportation than power generation.

Coal-fired generation is also unlikely to see major support from Obama’s initiative.  Coal is used for electricity generation only in Tanzania, which is otherwise dominated by hydro and natural gas generation.  Furthermore, in his recent Climate Action Plan, Obama committed to “end to U.S. government support for public financing of new [...]

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