As recently as five years ago, the cost of renewable power made it uneconomical when compared to fossil fuels (primarily coal). But, with large parts of Africa heavily reliant on diesel, the numbers made sense.

In its Brighter Africa report, global consultancy McKinsey estimates there is 10 TW of potential capacity across the continent, much of this from solar power. It sees potential for 400 GW of gas-generated power, 350 GW of hydro, 300 GW of coal and 109 GW of wind capacity. The remainder – a staggering 9 TW – is solar. By comparison, once Eskom’s new coal stations Medupi and Kusile are commis-sioned, the continent’s largest power utility will have 50 GW of total generating capacity. China’s installed capacity is nearing 1.5 TW.

By any forecast, the contribution of renewable power to the total power pool increases substantially. The International Energy Agency estimates a quadrupling of generating capacity in sub-Saharan Africa to 385 GW by 2040, with renewables comprising 173 GW of that (from 1 GW of 90 GW currently). The figure is skewed by large-scale hydropower, but even if hydro is excluded altogether, power from renewables should reach 80 GW.

The amount of potential power in Africa is truly tremendous. Now that the economics make sense, the investment floodgates have opened. McKinsey forecasts that if each country builds what it needs, US$490 billion in capital would be required for generating capacity. It’s not a stretch to imagine that renewables would be responsible for around half of that capacity. These are big numbers.

Power Africa, the plan by US President Barack Obama’s administration to add 30 GW of generation across sub-Saharan Africa is well under way. This will see US$7 billion of investment by the time the five-year programme is complete in 2018.

Investment in renewable-energy projects is particularly centred across four countries, however: South Africa, Kenya, Ethiopia, and Ghana. Excluding South Africa, the three account for 95% of the 4.2 GW of renewable energy projects in development, reports Clean Energy Pipeline. Half of this capacity is from geothermal projects (in Kenya and Ethiopia), with the remainder relatively evenly split between solar and wind.

In South Africa, the picture looks slightly different, with wind and solar photovoltaic (PV) projects dwarfing the concentrated solar power ones awarded in the Renewable Energy Independent Power Producer Procurement (REIPPP) programme.

The REIPPP is perhaps the crowning achievement of the Department of Energy (DoE). Since 2011, it has attracted ZAR168 billion in private-sector investment. By the time the projects in the most recent bidding window (four) are commissioned, 5 243 MW will have been added to the grid. This is about 10% of Eskom’s total generating capacity.

The DoE isn’t stopping there. An additional 1 800 MW is to be allocated and Minister of Energy Tina Joemat-Pettersson has announced that the process to procure another 6 300 MW has started. This will take the total renewable figure to 13 GW – not too far off government’s official target of 17.8 GW of solar and wind energy capacity by 2030.

Given the rate of investment to window four, we can likely expect at least another ZAR200 billion of private-sector money to be committed to renewables to get the planned 8 100 MW on stream. That will be a total of nearly ZAR400 billion (or about the cost of two large coal-fired, baseload power stations).

The plan by Obama’s administration to add 30 GW of generation across sub-Saharan Africa will see US$7 billion of investment by 2018

Five large South African commercial banks, Standard Bank, Barclays Africa Group, FirstRand (through RMB), Nedbank and Investec, have financed most of the REIPPP projects along with investment-services provider, the Old Mutual Group. The World Bank’s Public-Private Infrastructure Advisory Facility (PPIAF) says debt funding from the banks totals ZAR57 billion, out of the roughly ZAR90 billion in committed projects in the first three bidding windows. Development finance institutions provided ZAR27.8 billion, with the remainder from pension and insurance funds.

Across the first three windows, ‘Nedbank had been involved in the most projects (23) followed by Standard (17), ABSA (14), RMB/FirstRand (11) and Investec (4).

‘These banks have all played lead debt-arranging roles, although not for all deals, and in a number of projects, have also participated as co-senior lenders or as providers of subordinated mezzanine debt’.

Prior to window four, Nedbank’s debt exposure was approaching ZAR18 billion, with Standard Bank just behind that at ZAR16 billion (the latter’s funding came primarily from the bank’s ZAR20 billion renewable-projects finance deal signed with its major shareholder, the Industrial and Commercial Bank of China in 2013). RMB (FirstRand) was at ZAR13 billion and Absa (Barclays Africa Group) around ZAR10 billion. Old Mutual had funded US$490 million in 2013 alone and in rounds one to three it was involved in over 30 projects.

The PPIAF says that most remaining local debt funding has come from the Industrial Development Corporation, which participated in 20 projects, and the Development Bank of Southern Africa, which participated in 16.

Foreign development banks are participating too. In September this year, the US’ Overseas Private Investment Corporation (OPIC) announced that it would invest up to US$400 million in a 100 MW solar thermal plant in the Northern Cape.

According to the developer, SolarReserve, the project is financed by ZAR5.6 billion in debt and ZAR2.4 billion in equity from local and foreign institutions. The project was commissioned under the third bidding window of the REIPPP.

While their investment in local projects dwarfs any foreign capital, South African banks have also been very active in renewable projects across the continent. The four largest have significant footprints in sub-Saharan Africa, and local market expertise is critical.

In October last year, RMB announced the finalisation of funding agreements for a US$900 million 350 MW gas-fired plant under construction in Tema, Ghana.

RMB acted as co-ordinator and lead arranger of US$650 million in debt facilities (the balance of the funding was provided as equity by the plant’s shareholders).

While not strictly ‘renewable’ energy, the Cenpower plant is important as it’s the country’s first independent power producer project to be funded by commercial banks.

In August, UK renewable-energy developer Blue Energy announced it will build a US$350 million 155 MW solar PV plant in Nzema in Ghana. By the time the plant is complete in 2017, it will be among the five largest in the world. It will single-handedly meet 20% of the Ghana government’s target of generating 10% of its power from renewables by 2020.

The EUR623 million 310 MW wind power project on Lake Turkana is the largest single private investment in Kenya to date

Ethiopian projects are looking to add around 570 MW in the three years to 2016, mostly from wind projects (with some geothermal). The country’s US$294 million 120 MW Ashegoda wind project is one of the largest in the East Africa region.

The EUR623 million 310 MW wind power project on Lake Turkana, in which Nedbank Capital is involved, is the largest single private investment in Kenya to date. Having reached financial close in March last year, it will be the largest wind farm in sub-Saharan Africa and in the top 10 globally once complete.

The project’s capacity is equivalent to nearly 20% of the country’s generating capacity, and will be the cheapest form of electricity in Kenya.

By comparison, geothermal units at Olkaria will each add somewhere between 60 MW and 140 MW of capacity in Kenya.

The fact that South African banks and finance institutions are playing such a large role speaks to the challenges in securing project funding in many of these markets. In francophone Africa, French banks have been particularly active. Local dollar-debt markets are not mature in the region, and more importantly, there is significant foreign exchange risk.

Development finance institutions such as the African Development Bank, World Bank (and International Finance Corporation) and Development Bank of Southern Africa, as well as those from Europe are involved, more often than not. The US, under Obama’s Power Africa initiative, has ‘mobilised’ many of its government agencies, including OPIC and its Export-Import Bank to help finance projects. OPIC alone will provide US$1.5 billion of the initiative’s US$7 billion investment target. For one, Standard Bank is using a US$250 million OPIC facility to finance projects across the continent.

Bloomberg New Energy Finance forecasts that ‘investment in clean energy, excluding large hydro in sub-Saharan Africa’ has been around the US$6 billion-a-year level for the last three years (including 2015), and will ‘accelerate to US$7.7 billion in 2016’.

According to Victoria Cuming, senior analyst at Bloomberg New Energy Finance: ‘Sub-Saharan Africa is not new to renewable energy… What is different now is the breadth of activity, with wind, solar and geothermal exciting interest in many different countries, and the potential for further growth.’

By Hilton Tarrant
Image: Gallo/GettyImages