All the necessary for renewable energy growth in Africa are currently in place, Joao Duarte Cunha, chief climate officer at the Africa Development Bank, told the BNEF Summit. These include the continuous growth of all African economies for the last 10 years, the slow emergence of a middle class – and the energy needs that come with it – and great natural resources, with renewable power technologies now on par with those of fossil fuels, added Duarte Cunha.
However, “the reality is that very few [large-scale renewable energy] projects see the light of the day,” he concluded.
One reason for this is the risk involved with such projects.
“We try to mitigate the risks by providing guarantees of all sorts,” Duarte Cunha continued. ”We also provide investors with debt financing but the truth is we need bankable deals and it’s very difficult to find them. Most often, even projects proposals submitted by large international investors will come to issues like currency and land that add risk to the project implementation.”
Eddie O’ Connor, founder and chief executive of Mainstream Renewable Power, an independent global developer of renewable power projects, agreed with Duarte Cunha. In fact, he noted, although currency depreciation is a well-known risk, land ownership is also a big issue in Africa because its not often clear who owns certain sections of land and investors are not sure who to contract to lease it.
Funding Africa’s renewable power
In O’ Connor’s view, the West needs to come up with a Marshall plan for renewable energy in Africa, similar to the one devised by U.S. to help Europe develop its infrastructure following the destruction of the Second World War.
Duarte Cunha didnt seem to completely agree with this idea. Of course, foreign financing is necessary, but in Duarte Cunha’s view African stakeholders need to contribute too. He mentioned three specific modes of action: firstly, African stakeholders that have the necessary funds need to start investing in renewables; secondly, countries need to stop subsidizing fossil fuels and direct the subsidies to clean energy infrastructure; and thirdly, all African states need to come together and take serious action against the illegal flow of money leaving the continent. All three actions could lead to African funding that can make a difference.
The debate between O’ Connor and Duarte Cunha is a well rooted one that has been developing for some time in the African economic discourse. However, where both the BNEF Summit presenters fully agree is that international companies that move to Africa need to build partnerships with local actors. Such partnerships should facilitate mutual learning, so that locals acquire the necessary know-how to develop renewable energy, while foreigners would also learn the local people’s needs and their way of doing things, insisted O’ Connor and Duarte Cunha.
“We cannot push people, it might backfire on you,” argued Duarte Cunha, who also said that the best way is to develop an ‘ecosystem’ for renewable energy infrastructure, so that when a project is completed you can come back and develop more projects. For this reason, we need to be patient.
Based on the presentation at the BNEF Summit, one way that the Africa Development Bank promotes such partnerships is by incorporating many stakeholders into the project financing. Of course, this has a lot to do with mitigating the off-taker risk, which Duarte Cunha pointed to as a very significant issue.
You need 20-year contracts between the project owner and the utility for large-scale projects. But most African utilities are not in good shape, said Duarte Cunha, who also added that some much needed electricity market reforms are currently taking place, but that this is also a process that takes time. Therefore, you cannot have the sponsor on one side and the utility on the other side, this will not work. “We try to distribute the risks,” said Duarte Cunha, by including a lot of stakeholders in the process.
The October issue of pv magazine includes a thorough market and policy review of 11 Sub-Saharan markets.
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