Africa GreenCo Overview - au.int is Africa GreenCo? AND Intermediary Creditworthy ... , Power...

AfricaGreenCoOverview

14March2017

WhatisAfricaGreenCo?

AND IntermediaryCreditworthy

O6aker

PowerPoolPar:cipant(Trader)

-  Reduce transaction time and cost -  Make more projects bankable -  Improve project finance terms -  Increase financial capacity for

utilities and sovereigns -  Access point for better risk

management

-  Grow competition in markets -  Facilitate growth of cross-border

and inter-regional power trading -  Increase market liquidity -  Reduce default and outage risk -  Regional resource optimisation

o  Animplementa;ontoolforSDG7o  Acatalysttounlockprivatesectorinvestmentinrenewableenergygenera;on

projectso  Anefficientstructureforthedevelopmentcommunitytoenterintopartnership

andcoopera;onwithAfrica

OverviewofNeedandReality

q  Genera;onneed:AfDB:160GWby2025foruniversalaccess

q  Genera;onGoals:COP21–AREI:300GWby2030ofcleanenergyaddi;ons

q  CurrentReality:1990to2013,only24.85GWinSSA(SouthAfricaaccountedfor9.2GW)

q  SSAfundingneed:AfDB:Anaddi;onalUSD40-70bnperyeartoachieveuniversalaccess

q  CurrentFunding:es;matedatUSD4.6billionayear,50%publicfunding

q  IPP/PPPProjectstodate:Only59IPPprojects>5MWinSSA(excludingSouthAfrica),totalling$11.12bnininvestmentsand6.8GWofinstalledgenera;oncapacity,ofwhichonly7IPPsinSADC(excludingSouthAfrica)(Eberhard2015).

q  SAPP:USD90bnovernext2decades(Deloi[e)

q  Privatesectorinvestmentrequiredasneithertheregionalu;li;esnorgovernmentshavesufficientbudgetaryresourcestofund

Currentcontext

q  Manyu;li;esarecashconstrained/dependentoncentralgovernmentforbudgetarysupportandcustomerbasesaresmall

q  Theshi^towardscost-reflec;vetariffsandimprovementsincollec;onrateswilltake;me

q  Withoutacreditworthycounterparty,developersandlendersrequirecreditenhancementthroughsovereignand/orDFI/MFIguarantees

q  Thecurrentproject-by-projectapproachtoelectrifica;onisunsustainable:

–  Supportthroughexis;nginstrumentsisnotsufficienttoaddressfundinggap

–  Creditenhancementofprojectsonaone-offbasisaddscostanddelays

–  Nosingleprojectisabletoshi^theactudeofcommercialinvestorstobankability–asystemic/structuralchangeisrequired

–  Pucngtheburdenongovernmentstoprovideexplicitandimplicitguaranteesorcounter-guaranteesshi^sthecreditworthinessissuetothesovereignlevel

AfricaGreenCoPan-AfricanVision

q  Supportandcomplementglobalandcon;nentwidedrivetowardsuniversalaccess,greenenergyini;a;vesandprogrammes(NEPAD,PIDA,AfDB’sNewDealonEnergyforAfrica,AfricaRenewableEnergyIni;a;ve,COP22,PowerAfrica)

q  Catalyseinvestmentingenera;onbyprovidingacreditworthyintermediaryofaker

q  Promotecompe;;veelectricitytradeinregionalmarketsbyincreasingliquidity

q  Fosterregionalintegra;on,sharebenefitsandimprovesecurityofsupply

q  Startinoneregion/powerpoolandgrowtocoverthecon;nent

q  OperatethroughanAfricanledorganisa;ontoaligninterestsandpromoteregionalcoopera;on

q  Harnessstrongpoli;cal,ins;tu;onalandinvestorsupport

q  WhathassucceededinotherpartsoftheworldcansucceedinAfrica

Precedent:PowerTradingCorpora;onofIndia

q  CreatedapowermarketinIndiaandtheneighbouringcountriestoop;mallyu;lizetheresourcesavailabletogeneratepowerandencourageprivateinvestmentsintothepowersector

q  Ini;alequitypar;cipa;onbyPowerGridCorpora;onofIndiaLtd(POWERGRID),NTPC,PowerFinanceCorpora;on(PFC),withNHPCjoininglater

q  PurchasedpowerfromprivateprojectsandsoldtotheStateElectricityBoards,regionalu;li;esandindustrialconsumers

q  Enablelarge-projectstonego;atewithasinglecreditworthybuyertoeliminatepaymentrisksforlarge(mega)projectsandsubstan;allyreducethetarifffromsuchprojects

q  A[ractviableinvestmentsinthepowersectoronthestrengthofamul;-buyermodel

q  Mul;buyermodelfacilitatesroutetomarketforsurpluspowerandincaseofdefault

DesignPrinciples

Africa GreenCo structure driven by nine key priorities: 1.  Legally and financially creditworthy 2.  African owned and led 3.  Complementing and collaborating with existing initiatives 4.  Scalable 5.  Operating at a regional level 6.  Benefiting utilities and sovereigns 7.  Benefiting project developers and investors 8.  Incorporating blended capital from concessional and

commercial sources 9.  Financially sustainable

AFRICAGREENCO

Investors IPPCapital

Utility EndUsersPPA PSA Power

Intermediary&CreditworthyOfaker

o  CreditworthyofakerunderthePPAo  Reducestheperceivedriskoftheprojectforinvestorso  Improvesthequantumandcostofcapitalo  Hastechnicalandlegalcapacityandframeworktoexecute

transac;onsmoreefficiently

AFRICAGREENCO

Investors IPPCapital

Utility2 EndUsersPPA PSA Power

Utility1 EndUsersPSA

Power

PrivateOfftakerPSA

AFRICAGREENCOInvestors IPP

CapitalUtility1 EndUsers

PPA PSA Power

Utility2 EndUsersPSA Power

DefaultonPSA

Formorecomplextransac;ons,AGCwillalsoactasanaggregatoranddiversifierofrisks.

AGCreducesdependenceonindividualofakersanda[ractsinvestmentonthebackofamul;-buyermodel

Intermediary&CreditworthyOfaker

PowerTrader

Inaddi;ontoitsroleasanofaker,AGCwillalsopar;cipateintheregionalpowermarkets,promo;ngcrossborderpowertransac;onsandamore

dynamicandliquidshorttermpowermarket.

AGC’sprimaryaimistomakemoreprojectsbankableandincreaseaccesstoreliable,affordableelectricity–butitssecondaryimpactsincludeenhancingvalueformoney,improvingmarketefficiencyandpromo:ngsustainableeconomicdevelopment

Impactpoten;al

q  Projectlevelimpacts–  Reducingcostofcapital–  Simplifyingandaccelera;ngtransac;onexecu;on–  Broadeningthepoolofinvestorsforbothnewprojectsandrefinancings–  Providinganefficientroutetomarketforsmallerprojectsthroughaggrega;on–  Cushioninginvestorsfromregulatorychange/powermarketunbundling–  Ac;ngasanentrypointforthirdpartycreditmi;ga;ononaporkoliobasis

q  U;litylevelimpacts–  Increasinginstalledcapacity–  Reducingaveragecostofpowerthroughlowertariffsandreducedrelianceon

expensiveshorttermemergencypower–  Increasingrevenuesthroughmoreefficientuseofexis;ngassets–  Releasingresourcestofocusonins;tu;onalcapacitybuilding,opera;onal

efficiencyandimprovementstotransmissioninfrastructure–  Facilita;ngthemovetowardslocalcurrencydenominatedPPAs

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AGC’sprimaryaimistomakemoreprojectsbankableandincreaseaccesstoreliable,affordableelectricity–butitssecondaryimpactsincludeenhancingvalueformoney,improvingmarketefficiencyandpromo:ngsustainableeconomicdevelopment

Impactpoten;al

q  Sovereignlevelimpacts–  ReducetheprobabilityofsovereignPPA-relatedcon;ngentliabili;es

crystalising–  Helpavoidtheeconomicimpactofoutagesands;mulateeconomic

development

q  Regionalimpacts–  Supporteffortstoharmoniseregionalregula;ons–  Catalysemoreac;veregionaltradeandhelpdeveloptheregionalpowerpools–  Promoteregionalresourceop;misa;on–  Helpbuildthecaseformoreinvestmentinregionaltransmission,

interconnec;onandgridmanagementbyincreasingtradedvolumesq  Socio-economicimpacts

–  Avoidemissions–  Createemployment–  Improveaccesstobasicservicesincludinghealthandeduca;on

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Impactsoverview

13

Legal&GovernanceStructuringOp;ons

-  Legal entity, shareholding and/or membership in the company, will be structured:

•  for sovereign African countries to be members and have ownership; •  to attract capital from the donor/DFIs and the private sector; •  to allow different classes of investors with different risk appetites; •  to minimise political interference in governance and operations; •  to provide adequate international status and immunity •  to ensure the business can be operated efficiently

-  Four principal legal structure options

Independent International Organization

An international treaty organisation

AU special agency / subsidiary with separate corporate entity

National company with potential for regional expansion via an intergovernmental agreement.

Example AFC

ATI

ARC

AGF

1

2

3

4

Na;onal,interna;onaloracombina;on?

Na;onal

Establishedunderna;onallaw

Quicktoestablish

Recognisablelegalform

Fitswithinexis;ngframeworks(e.g.SAPP)

Subjecttona;onallaws/regula;ons

Closelyiden;fiedwithhostcountry

Possibletosell/float

Interna;onalEstablishedundertreaty

Lengthyestablishmentprocess

Flexiblestructure–determinedbysignatories

Mayoperateabovena;onallaws/regula;on

Privilegesandimmuni;es

Independent/regional/scalable

Maya[ractODA/IDA

•  Foundermember(s)•  Subsequentmembers•  Entry/exitrules

MarketOp;ons

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AfricaGreenCo’smandateispan-African,butge\ngstartedrequiresfocusingonamanageableareaandselec:ngthisstar:ngpointiscri:caltoAGC’ssuccess.

q  Maincriteriaforselec;on:–  Capacityforregionaltransmissionandcross-bordertrading–  EnablingenvironmentforIPPs–  Localpoli;calsupportforRenewableEnergy

q  Coordina;onwithparallelregionalini;a;ves

q  Complementaritywithwiderpowersectorreforms

EastAfrica WestAfrica SouthernAfrica

SouthernAfricaExRSA

PowerPool EAPP WAPP SAPP SAPPDataYear 2014/15 2013/14 2014/15 2014/2015Installedcapacity(MW) 53,296 9,912 61,363 14,876HydropowerShare(%) 20% 34% 21% 78%ThermalShare(%) 72.4% 66% 62% 22%OtherREShare(%) 7% 0% 17% 0%TargetREShare N/A N/A 32%(2020)

35%(2030)N/A

GridInterconnec;on Medium Low High MediumTradingplakorm Medium Low High HighCurrentIPPs 44/High 24/Low 74/High 7/LowIPPEnvironment High High High MediumREPolicySupport High Medium High Medium

SADCasini;alfocusmarket

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Acerconsideringthemarketdynamicsinthe3keyAfricanpowerpools,SADC/SAPPwasdeterminedtobethemostappropriateregionforproofofconcept

q  SADCmarketfeatures:–  Capacityforregionaltransmissionandcross-bordertrading–  EnablingenvironmentforIPPs–  Localpoli;calsupportforRenewableEnergy

q  Alignmentwithregionalini;a;ves–  RERAIPPFramework–  REEESAP–  RIDMP–  SACREEE

q  Complementaritywithwiderpowersectorstructuresandreforms–  SAPPprovidesfor‘ServiceProvider’members–  Marketunbundling

AGCwillcon:nuetoengagewiththetheotherRECsandpowerpoolswithaviewtosubsequentrollout.

SAPPCross-BorderPowerFlowCorridors

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SAPPhassufficientlyrobustinterconnec:onsandplansforgreatergridintegra:onthatcreatesasuitablecontextforAGCimplementa:onq  20ac;vecross-bordergridinterconnec;onsq  11plannedaddi;ons–atleast6maycomeonlineby2020q  Conges;oncanbeaddressedthroughmarketsplicng,counterflow

trade/radialmodetransac;ons

SAPPRegionalMarket

19

Thereisalreadysubstan:alcross-borderpowertradingac:vitythroughlongtermfixedcontractsandshorttermcompe::vepowermarkets

q  Bilateralcontractsdominate–  18+contractsin2015–  8TWhtradedin2015–  94%marketsharein2014-15,fallingto

80-85%marketsharein2016

q  Ac;vecompe;;vemarket–  DAM,IDMandnowFPM–  50-100GWh/$3.5-5mtradedper

month–  Deficit:only20%ofbuyorders,and70%

ofsupplyorderstransacted–  SAPPforecast10%growthy-o-y

Apr-13

Jun-13

Aug-13

Oct-13

Dec-13

Feb-14

Apr-14

Jun-14

Aug-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Feb-16

Apr-16 0

20

40

60

80

100

120

140

Transacted

volum

eGW

h

SAPPCompe::veTradingAc:vityNo. Supplier Buyer Capacity(MW)1 HCB Eskom 16002 Eskom MOTRACO 9503 ZESA NamPower 150-804 Aggreko ZESCO 148-405 Aggreko NamPower 1086 APR BPC 70+357 Eskom BPC 3008 Eskom NamPower Asrequired9 EDM BPC 5010 HCB ZESA 15011 Eskom LEC Asrequired12 Eskom SEC Asrequired13 EDM SEC Asrequired14 EDM ZESCO 15015 HCB Eskom 25016 Eskom ZESCO 30017 Karpowership ZESCO 100+30018 ZESCO NamPower 50

ProjectPipeline

q  RenewableenergyIPPsacoreelementofSADCenergyplans

q  Botswana,Zambia,Mozambique,NamibiaproposedpilotcountriesforAfricaGreenCodueto:–  Ac;vetradingpartnersinSAPP–  REpoten;al–  Investorfriendliness

q  Botswana,Zambia,NamibiaalsopilotcountriesforRERAIPPFramework–collabora;ontofacilityimplementa;on

q  Neartermfocusonfinancialpragma;sm:small-mediumprojectsinordertobuildadiversifiedporkolio

q  Ini;altargetprojectsize5MW–100MW

q  Scalable–onceconceptproven,cansupportlargerprojects

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AfricaGreenCoOpera;ngModeRisks

o  Risk:Ofakerdefault

o  Objec;ve:KeepIPPwholeandpreventPPAtermina;on

o  Mi;ga;on:Abilitytosecurealterna;vepurchaser

o  Technicalconstraint:Wheelingcapacity

o  Regulatorysupport

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Example–Projectwith2o6akersandsomecapacitysoldonDAM

OfakerDefaultandWheelingRights

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IPP

AGC,Ofakers1&2PointofDelivery

TSO

TSO/Ofaker1Load

TSO

TSO Ofaker2

OffTaker2Cap;veLoad

ToSAPP

TSO

TSOGenerator

Ofaker2PointofDeliveryforTSOpower

IPP/TSOPointofinterconnec;on

Ofaker2

Example–Projectwith2o6akersandsomecapacitysoldonDAMBusinessasusual-NODEFAULT


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IPP200MW


TSO

TSO/Ofaker1Load

TSO

TSO

Ofaker2Cap;veLoad

ToSAPP

TSO

TSOGenerator



20MW-DAM

200MW 90MW

90MW

90MW

90MW200MW

Ofaker2

Example–Projectwith2o6akersandsomecapacitysoldonDAMBusinessasusual–OFFTAKER1DEFAULT


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IPP200MW


TSO

TSO/Ofaker1Load

TSO

TSO

Ofaker2Cap;veLoad

ToSAPP

TSO

TSOGenerator



20MW-DAM

200MW 180MW

0MW

180MW

180MW200MW

Ofaker2

Example–Projectwith2o6akersandsomecapacitysoldonDAMBusinessasusual–OFFTAKER1and2DEFAULT


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IPP200MW


TSO

TSO/Ofaker1Load

TSO

TSO

Ofaker2Cap;veLoad

ToSAPP

TSO

TSOGenerator



20MW-DAM

200MW 180MW

0MW

180MW

180MW200MW

Ofaker2

AGCtosupplynominatedcap;veload(withpriceincen;ve)–i.e.sameendusersupplieddirectbyAGCOfakers1&2toguaranteewheelingtonominatedcap;veloadMayneedESCROWaccount

Example–Projectwith2o6akersandsomecapacitysoldonDAMBusinessasusual–OFFTAKER1and2DEFAULTandNOCAPTIVELOADOFFTAKE


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IPP200MW


TSO

TSO/Ofaker1Load

TSO

TSO

Ofaker2Cap;veLoad

ToSAPP

TSO

TSOGenerator



20MWDAM+180MWDAM/Bilateral

200MW 0MW

0MW

0MW

0MW200MW

Ofaker2

AGCtofindbilateralofaker(s)inSAPPorsellonDAMintheinterimWheelingbasedonSAPPRules(Priori;sa;on)DAMtradespaidaccordingtoSAPPrules,Bilateraltradespaidasnego;ated

CurrentStatus

FeasibilityStudy

ProofofConcept

Scale

-  COMPLETE -  Based upon hypothetical portfolio of projects -  Incorporates technical analysis -  Includes financial structuring -  Broad industry support obtained (including SAPP,

RERA, KfW, DBSA)

-  Proof of concept expected in Zambia

-  Leverage existing market infrastructure

-  Complement parallel initiatives

-  Expand capital base to support growing portfolio

-  Replicate initial transaction, tailoring strategy to new markets

Implementa;onPlan

-  Establish a concrete pipeline of projects within SADC -  Detailed technical and regulatory review -  Further develop legal and regulatory structure -  Prepare financial structure & business plan

NextStepsTimeline

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Furtherinforma;onandcontactdetails

Website:www.africagreenco.com

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CathyOxbyCommercialDirector

[email protected]

AnaHajdukaFounderandCEO

[email protected]

LovemoreChilimanziTechnicalDirector

[email protected]

30

ThankYou

Africa GreenCo Overview - au.int is Africa GreenCo? AND Intermediary Creditworthy ... , Power...

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