Renewable Energy Finance for Africa

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1 Renewable Energy Finance for Africa Extracts from Key Note Presentation to the ICA 2015 Plenary Implementing Renewable Energy Initiatives in Africa! Vivek Mittal Millennium Resource Strategies Limited Cape Town May 2016

2 A Developer s Consideration Attractiveness (Risk and Reward) of investments in any particular technology at any particular point in time is a function of; - Government Policy - Commodities - Available Technology - Capital Flows Capital Developers are good at assuming and managing technology, implementation, O&M and capital INTRINSIC RISKS Risk and Reward Commodities They are not able to mitigate Sovereign and tariff related risks EXTRINSIC RISKS, and want these mitigated by others Technology 2

3 Key Drivers of the Renewable Energy Sector Global Renewable Energy Trends Africa Renewable Energy Trends $ 2.35 trillion invested in global clean energy between $ 21 billion invested over last 10 years 90% concentrated in six countries Annual rate is $ billion $ 6.0 billion invested in 2014 compared to $ 350 billion 7.7 million jobs created This has matched investment in global fossil-fuels Evidence of decoupling between carbon emissions and economic growth COP21 is expected to result in global voluntary commitments, and increased flow of capital for developing economies in overall Africa Infrastructure 600 million people without access to modern energy In over 18 countries, industry pays over international rates for infirm power, and households in these countries pay more than 33% of their household income for basic power electricity usage per capita in Sub-Saharan Africa (excluding South Africa) is 5% of global average 2x rate of investment is required to invest in clean energy to keep pace with population growth and economic growth 3

4 GDP vs. kwh Increasing electricity consumption in productive uses leads to increased GDP and Increasing GDP results in higher levels of electricity consumption 8,000 Regions (SSA) Sub-Saharan Africa Botswana Africa 7,000 (N.Af) N. Africa Angola Average (LOBF) 6,000 Algeria An estimated GW of overall power generation capacity could be added in Africa by 2030 depending on rate of GDP and population growth 350 GW of power addition seems challenging. GDP/Capita (US$) 8.5% p.a. GDP growth = ,000 Tunisia 4,000 Cabo Verde Morocco 3,000 Egypt -50% Rep. of Congo Nigeria Swaziland ,000 Sudan But it is not! N.Af 6.0% p.a. GDP growth = Chad 1,000 - DjibouI Ghana SSA xsa Cameroon Zambia SSA S.Asia Mauritania South Sudan Senegal Cote d'ivoire Kenya Uganda Tanzania Ethiopia Togo Rwanda Gambia Mozambique Guinea Burundi Liberia Niger Malawi Somalia Zimbabwe 800 1,200 1,600 kwh/ capita 4

5 Off-Grid Proposition 600 million without access to modern energy = 60 billion kwh = 35, kwh p.p. per year 20-50% of household income or Carbon mitigation, Health, Education, Long term employment $ billion $ /kWh $140/8-10 W unit months finance 5

6 GDP vs. kwh $ GDP/kWh across 28 the development spectrum Angola Regions (SSA) Sub-Saharan Africa (N.Af) N. Africa Nigeria Rwanda Why is GDP/kWh in SSA x of the world constant of $ 4.0 GDP/kWh? Off-grid and back-up power is estimated at GW = 40% of kwh used from the grid. 24 (ME) - Middle East (ECA) - Europe & Central Asia (EAP) - East Asia & Paciﬁc 20 Line of best ﬁt Comoros South Sudan Vanuatu Burkina Faso 16 Guinea-Bissau Solomon Islands Gabon Central African Republic Eritrea Tonga Burundi 12 Ethiopia Myanmar Benin Madagascar Niger 8 Somalia Macao Uganda SSA xsa French Polynesia Sudan Tanzania This represents 25 billion liters p.a. of diesel fuel purchases in Africa at an estimated cost of $25 billion p.a. = 2x of required investment rate in renewables (N.Am) North America Mali (LAC) - LaIn America & Caribbean GDP/kWh (2013 US$) Non-energy driven GDP activity or unaccounted for self-generation of power? (SA) South Asia Rep. of Congo Afghanistan Guinea Ghana Lesotho Cabo Verde Cote d'ivoire Kenya Senegal Togo Dem. Rep of Congo Cameroon Bangladesh Pakistan Mozambique Hong Kong LAC New Zealand United States ECA ME Tunisia Zambia -50% India N.Am Namibia N.Af EAP Canada +50% Libya S. Korea China Egypt Zimbabwe Australia Japan EAP xjp&ch WORLD S.Asia - LAC xbra&mex SSA Nepal Malawi Bermuda Singapore Philippines Indonesia DjibouI Morocco Cambodia 4 Algeria Sri Lanka Liberia Gambia Maldives Bhutan 1,000 kwh/ capita (log scale) South Africa 10, ,000 6

30 20 20 10 10 0 0 Liberia 30 Diesel Fired Back-up CSP Solar PV Small Solar PV Large Onshore Wind Bio-mass Geothermal rid hin g t t i w s s RES i y for mo s e parit

of Congo Nigeria Mozambique Tanzania Niger Tunisia Namibia DRC Malawi Burundi Central African Republic 40 Morocco 50 Guinea Ethiopia Cameroon Rwanda Ghana 60 Togo

7 Liberia 30 Diesel Fired Back-up CSP Solar PV Small Solar PV Large Onshore Wind Bio-mass Geothermal rid hin g t t i w s s RES i y for mo s e parit countri n a Afric Hydro Small Commercial ResidenJal Tariﬀs Hydro Large Zimbabwe Libya South Africa Lesotho Angola Egypt Uganda Zambia Sudan Algeria Kenya Rep. of Congo Nigeria Mozambique Tanzania Niger Tunisia Namibia DRC Malawi Burundi Central African Republic 40 Morocco 50 Guinea Ethiopia Cameroon Rwanda Ghana 60 Togo Benin Gabon Cote d'ivoire Chad Mali Senegal Madagascar Burkina Faso Gambia Affordability of Energy 60 Levelised Cost of Energy Industrial IRENA REMAP 2030, June

Clean Energy Investments Clean Energy Investment ($m) South Africa Kenya Ethiopia Egypt Morocco Algeria Zimbabwe Sierra Leone Uganda Zambia Senegal Rwanda DRC Cote d'ivoire Nigeria Tanzania Cameroon

8 Clean Energy Investments Clean Energy Investment ($m) South Africa Kenya Ethiopia Egypt Morocco Algeria Zimbabwe Sierra Leone Uganda Zambia Senegal Rwanda DRC Cote d'ivoire Nigeria Tanzania Cameroon Mozambique Ghana Botswana 2,000 4,000 6,000 8,000 10,000 12,000 hest the hig bility h it w s fforda untrie Six co d poorest a African of an tariffs unt for 45% t energy acco ion withou t popula access ted in centra ix of n o c st m ent is y he be vestm RES In ntries with t ity certaint d u o o six c omm and c y c li o p 8

ICA Survey: Investment Consideration RelaJve Diﬃculty of Development (5= Very Diﬃcult) 0 Credit-worthy oﬀ-taker arrangements (PPA) Development capital Grid Access 1 2 3 4 Target Enablers (5= Very

stability Access to transmission capacity Land AcquisiIon Credit-worthy uiliies InformaIon on policies, procedures, targets, etc.

9 ICA Survey: Investment Consideration RelaJve Diﬃculty of Development (5= Very Diﬃcult) 0 Credit-worthy oﬀ-taker arrangements (PPA) Development capital Grid Access Target Enablers (5= Very Important) Clarity of regulatory frameworks Certainty of regulatory framekworks Availability of development capital Energy aﬀordability ConstrucIon debt ConstrucIon equity PoliIcal stability Access to transmission capacity Land AcquisiIon Credit-worthy uiliies InformaIon on policies, procedures, targets, etc. Availability of skills staﬀ and labour Skilled staﬀ and labour Currency stability and converibility Transport to site Equipment supply & construcion services Building Permit Energy access Project development assistance InformaIon gathering and disemminaion Reducing the cost of equipment and construcion 9

10 Off-Take Risk: Regulatory Clarity & Certainty Old Customer Reliability New Customer Resilience Cost Off-Grid 10

Impact of Risk on Capital The difference in Life-cycle Levelised Costs of Project in South Africa vs.

lower debt tenor and this lowers leverage and increases the need for 14 Tax equity with a 4-5% premium to South African

higher for We need to find a path to attracting 1.3 12 O&M 4.9 8 6 Equity Return Interest 10 more equity funding.

11 Impact of Risk on Capital The difference in Life-cycle Levelised Costs of Project in South Africa vs. SubSaharan Africa is most likely to arise from the capital capital structure and cost of A perception of higher risk drives lower debt tenor and this lowers leverage and increases the need for 14 Tax equity with a 4-5% premium to South African projects. This overall higher cost of capital drives a need for tariffs to 50% Sub-Saharan Projects. higher for We need to find a path to attracting O&M Equity Return Interest 10 more equity funding. Sub-Saharan projects is in itself attract Levelized Costs (USD cents/kwh) Capex S. Africa Sub Saharan Africa 0 lower risk premium for SubSaharan projects 11

12 Conclusions q 300+ GW of demand today in Africa vs. 140 GW on the Grid. Substituting off-grid and back-up demand of MW and adding a further GW to match GDP growth by 2030 is well achievable. q $ billion p.a. investment in renewables required to meet RES targets by 2030 are 50% of approx. $25 billion p.a. spend on diesel/hfo back-up and off-grid ü A focus on Affordability must be central to achieving energy for all. ü Policy should encourage Multiple bottom line impact from energy investment to enable growth in food, health, water, ICT and jobs. q $ 4.0 US cents/kwh is the tariff differential attributable to Cost of Capital between a project in South Africa and a project elsewhere in Sub-Saharan Africa. ü Policies should aspire to the needs of low cost capital, which requires - Scale, Clarity (Transparency) and Certainty (Long Term) 12

13 Thank you! This presentation is based on the finding of an independent report funded by the BMZ (German Government) on behalf of the Infrastructure Consortium of Africa (ICA), which is a joint G7 and African Development Bank Initiative. The full report can be found at; Background_Paper FINAL_2_.pdf Vivek Mittal vivek.mital@gmail.com

Table A.LPG1 : TOTAL LPG CONSUMPTION (Best available Estimates)

Table A.LPG1 : TOTAL LPG CONSUMPTION (Best available Estimates) 1000 MT 1 Burkina Faso 0.509 0.587 0.615 0.606 0.435 0.429 0.691 1.057 1.385 1.698 2.156 2.432 2.888 2 Cape Verde 4.058 4.268 4.988 5.259