Move aside 'gimmicky' power inventions: The hot African sun to the rescue

Standard Bank acted as the sole lead arranger for South Africa's first - and only the world's third - renewable energy bond.

RECENT discoveries of oil and gas in Africa have been getting all the investor attention, but renewable energy is likely to be Africa’s trump card in the next few decades, as oil prices plummet.

Today, modern renewables, such as solar, wind, hydro and geothermal account for just 2% of Africa’s energy mix, but by 2040, this likely to increase to 9%, a projected increase from around 20GW to nearly 170 GW, according to a recent report by the International Energy Agency.

Already, there is a race among investors to be the first to harness Africa’s considerable renewable potential, supported by tax policies, declining costs and improved technology in much of the continent. 

South Africa, for example, is forging ahead with a proposed carbon tax policy, in a bid to clean up its energy production which is dominated by cheap but dirty coal. 

More than 90% of South Africa’s electricity is generated from coal, making electricity in the country one of the cheapest in the world, but also leaving a huge carbon footprint – South Africa produces more carbon emissions per capita than Brazil or even China. 40% of carbon emissions in the country come from electricity generation.

Private businesses, too, tired of waiting for governments to fix their energy woes, are looking to renewable energy as an affordable solution. Strathmore University in Nairobi, for example, produces 75% of its power needs through a 0.6MW solar power system on its campus, even selling excess power to the national utility Kenya Power.

In sub-Saharan Africa, total electricity demand was 352 Terawatt hours in 2012, just 70% of the level of Korea, which has a population 5% of Africa’s size. 

In fact, the electricity demand of only one country in the region (South Africa) exceeded that of the city of London in 2012. Because of a rapidly growing population, on a per-capita basis, electricity demand in sub-Saharan Africa has remained largely unchanged for the last decade.

Too clever inventions

For a long time, green projects, and particularly solar projects, have been the preserve of social enterprise firms, often non-profit organisations out to “make a difference”. But their off-grid products have been criticised as tending to be too gimmicky, as developers try to outdo one another with the next clever little invention, but rarely giving serious thought to making renewable energy economically sound.

But recently, renewable energy is getting “serious” attention, attractive as advances in technology mean it is relatively quick and cheap to deploy on a small scale compared with fossil fuels.

“Certain categories of renewable energy have become the de facto least cost generation option when compared to conventional new build alternatives,” says Christopher Clarke, Founding Partner and Director of Inspired Evolution Investment Management, quoted in a report by corporate legal advisors Baker & McKenzie.  

“The average price for wind in the last bid was [about 8.8 US cents] per KWh, which is cheaper than the equivalent cost of new clean coal plant in South Africa.”

Already, a few companies are taking the green lead – Standard Bank, for example, acted as the sole lead arranger for South Africa’s first - and only the world’s third - renewable energy bond for concentrated photovoltaic energy.

The R1-billion ($90 million), 16-year solar financing bond, with an 11% coupon was raised early this year for French renewable energy firm Soitec, and the bank also acted as co-arranger on the City of Johannesburg’s R1.46 billion ($132 million) green bond, the first listed green bond in the South African Debt Capital Markets.  

The bond with a coupon of 10.18% will be used for environmental and social sustainability projects.

The bank’s subsidiary in Kenya, CfC Stanbic Bank, also signed a $150 million deal with independent power producer Aeolus Kenya (AKL), to build a 60MW wind power plant in Kenya. Kinangop Wind Park will be largest wind power generation farm in sub-Saharan Africa to date, and will add a further 60MW to Kenya’s 1,672MW national power grid, enough to power 150,000 Kenyan households.

Asian investors have been particularly active international investors in renewable energy projects around the globe over the last 18 months. 

For example, Japanese trading house Sumitomo Corp was the primary equity investor in the 100 MW Dorper wind farm, in South Africa, and China Import Export (Exim) Bank provided $315 million debt financing for the 360 MW hydro power station at the Kariba dam on the Zambezi River in Zambia in 2007.

Africa economy to quadruple by 2040

By 2040, the economy of sub-Saharan Africa is projected to quadruple in size, the population is expected to nearly double to 1.75 billion, and energy demand will grow by around 80%, says IEA.

In the next quarter century, sub-Saharan Africa’s generation capacity is projected to rise four times to 385 Gigawatts (GW). Although biomass energy – fuelwood and charcoal – will continue to make up a big chunk of Africa’s renewables, the share of renewables is projected to double from 21% to 44% of Africa’s total energy mix by 2040. 

This share is higher in 2040 than that of China, the United States or India. Bioenergy is also expected to make its way increasingly into industry to produce heat for industrial processes accounting for around one-third of industrial energy consumption, according to IEA.


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