Renewable Energy Finance for Africa … · Vivek Mittal ! Cape Town May 2016 Millennium Resource...
Transcript of Renewable Energy Finance for Africa … · Vivek Mittal ! Cape Town May 2016 Millennium Resource...
Renewable Energy Finance for Africa
Extracts from Key Note Presentation to the ICA 2015 Plenary
“Implementing Renewable Energy Initiatives in Africa”
Vivek Mittal
Cape Town May 2016
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Millennium Resource Strategies Limited
A Developer’s Consideration
RiskandReward
Capital
Commodities
Technology
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
Developers are good at assuming and managing technology, implementation, O&M and capital – INTRINSIC RISKS They are not able to mitigate Sovereign and tariff related risks – EXTRINSIC RISKS, and want these mitigated by others
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Key Drivers of the Renewable Energy Sector
Global Renewable Energy Trends
$ 2.35 trillion invested in global clean energy between 2004-2014
Annual rate is $ 300 – 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
Africa Renewable Energy Trends
$ 21 billion invested over last 10 years – 90% concentrated in six countries
$ 6.0 billion invested in 2014 compared to $ 350 billion 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
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GDP vs. kWh Increasing electricity consumption in productive uses leads to increased GDP
and Increasing GDP results in higher levels of electricity consumption
An estimated 180 – 350 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 ….
But it is not!
N.Af
SSA S.AsiaSSAxSA
-50%
Angola
Botswana
Burundi
CaboVerde
CameroonChad
Rep.ofCongo
Coted'Ivoire
DjibouI
Ethiopia
Gambia
Ghana
Guinea
Kenya
LiberiaMalawi
Mauritania
Mozambique
Niger
Nigeria
Rwanda
Senegal
Somalia
SouthSudan
Sudan
Swaziland
TanzaniaTogo
Uganda
Zambia
Zimbabwe
Algeria
EgyptMorocco
Tunisia
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
- 400 800 1,200 1,600
GDP
/Cap
ita(U
S$)
kWh/capita
Regions
(SSA)Sub-SaharanAfrica
Africa
(N.Af)N.Africa
Average(LOBF)
140GW@2013
6.0%p.a.GDPgrowth=320GW@2030
8.5%p.a.GDPgrowth=490GW@2030
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Off-Grid Proposition
600 million without access to modern
energy
= 60 billion kWh = 35,000 MW
@ 100 kWh p.p. per year
Carbon mitigation,
Health, Education, Long term
employment
20-50% of household income or
$100–120 billion p.a. @ $1.7-2.1/kWh
$140/8-10 W unit 12 – 18 months finance
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GDP vs. kWh $2.0-6.0 GDP/kWh across the development spectrum
Why is GDP/kWh in SSA 2.0 – 6.0x of the world constant of $ 4.0 GDP/kWh?
Non-energy driven GDP activity or unaccounted for self-generation of power? Off-grid and back-up power is estimated at 120-150 GW = 40% of kWh used from the grid. This represents 25 billion liters p.a. of diesel fuel purchases in Africa at an estimated cost of $25 billion p.a. = 2x of required investment rate in renewables
N.Am
ECAME
EAPN.Af
LAC
SSA WORLD
LACxBRA&MEX
EAPxJP&CH
S.Asia
SSAxSA
-50%+50%
Angola
Benin
BurkinaFaso
Burundi
CaboVerde
Cameroon
CentralAfricanRepublic
Comoros
Dem.RepofCongo
Rep.ofCongo
Coted'Ivoire
DjibouI
Eritrea
Ethiopia
Gabon
Gambia
Ghana
Guinea
Guinea-Bissau
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mali
Mozambique
Namibia
Niger
NigeriaRwanda
SenegalSomalia
SouthAfrica
SouthSudan
Sudan
Tanzania
Togo
Uganda
Zambia
Zimbabwe
Algeria
Egypt
Libya
Morocco
Tunisia
Afghanistan
Bangladesh
Bhutan
India
Maldives
NepalPakistan
SriLanka
Bermuda
Canada
UnitedStates
Australia
Cambodia
China
FrenchPolynesia
HongKong
IndonesiaJapan
S.Korea
Macao
Myanmar
NewZealandPhilippines
Singapore
SolomonIslands
Tonga
Vanuatu
-
4
8
12
16
20
24
28
10 100 1,000 10,000 100,000
GDP
/kWh(2013US$)
kWh/capita(logscale)
Regions
(SSA)Sub-SaharanAfrica
(N.Af)N.Africa
(SA)SouthAsia
(N.Am)NorthAmerica
(ME)-MiddleEast
(LAC)-LaInAmerica&Caribbean
(ECA)-Europe&CentralAsia
(EAP)-EastAsia&Pacific
Lineofbestfit
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Affordability of Energy
0
10
20
30
40
50
60
Libe
ria
Gambia
BurkinaFaso
Madagascar
Sene
gal
Mali
Chad
Coted'Ivoire
Gabo
n
Benin
Togo
Ghana
Rwanda
Cameroo
n
Ethiop
ia
Guinea
Morocco
CentralA
fricanRep
ublic
Burund
i
Malaw
i
DRC
Nam
ibia
Tunisia
Niger
Tanzania
Mozam
biqu
e
Nigeria
Rep.ofC
ongo
Kenya
Algeria
Sudan
Zambia
Ugand
a
Egypt
Angola
Lesotho
SouthAfrica
Libya
Zimbabw
e
Commercial–ResidenJalTariffs
Industrial
0
10
20
30
40
50
60
HydroLarge
HydroSm
all
Geothe
rmal
Bio-mass
Onsho
reW
ind
SolarP
VLarge
SolarP
VSm
all
CSP
DieselFire
dBa
ck-up
LevelisedCostofEnergy
IRENA “REMAP 2030”, June 2014
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RES is within grid
parity for most
African countries
Clean Energy Investments
- 2,000 4,000 6,000 8,000 10,00012,000
BotswanaGhana
MozambiqueCameroonTanzaniaNigeria
Coted'IvoireDRC
RwandaSenegalZambiaUganda
SierraLeoneZimbabwe
AlgeriaMorocco
EgyptEthiopiaKenya
SouthAfrica
CleanEnergyInvestment($m)
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Six countries with the highest
tariffs and poorest affordability
account for 45% of African
population without energy
access
RES Investment is concentrated in
six countries with the best mix of
policy and commodity certainty
ICA Survey: Investment Consideration
0 1 2 3 4 5
BuildingPermit
Equipmentsupply&construcIonservices
Transporttosite
Skilledstaffandlabour
InformaIononpolicies,procedures,targets,etc.
LandAcquisiIon
ConstrucIonequity
ConstrucIondebt
GridAccess
Developmentcapital
Credit-worthyoff-takerarrangements(PPA)
RelaJveDifficultyofDevelopment(5=VeryDifficult)0 1 2 3 4 5
ReducingthecostofequipmentandconstrucIon
InformaIongatheringanddisemminaIon
Projectdevelopmentassistance
Energyaccess
CurrencystabilityandconverIbility
Availabilityofskillsstaffandlabour
Credit-worthyuIliIes
Accesstotransmissioncapacity
PoliIcalstability
Energyaffordability
Availabilityofdevelopmentcapital
Certaintyofregulatoryframekworks
Clarityofregulatoryframeworks
TargetEnablers(5=VeryImportant)
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Off-Take Risk: Regulatory Clarity & Certainty
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Reliability
Cost
Resilience
Old Customer
New Customer
Off-Grid
Impact of Risk on Capital The difference in Life-cycle Levelised Costs of Project in South Africa vs. Sub-Saharan Africa is most likely to arise from
the capital structure and cost of capital
A perception of higher risk drives lower debt tenor and this lowers leverage and increases the need for more equity funding.
Sub-Saharan projects is in itself attract
equity with a 4-5% premium to South African projects.
This overall higher cost of capital drives
a need for tariffs to 50% higher for Sub-Saharan Projects.
We need to find a path to attracting
lower risk premium for Sub-Saharan projects
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2.8 2.7
1.6 0.8
2.7 3.1
0.8
4.9
0.4
1.3
0
2
4
6
8
10
12
14
S. Africa Sub Saharan Africa
Levelized Costs (USD cents/kWh)
Tax
Equity Return
Interest
O&M
Capex
Conclusions
q 300+ GW of demand today in Africa vs. 140 GW on the Grid. Substituting off-grid and back-up
demand of 150 – 180 MW and adding a further 150-200 GW to match GDP growth by 2030 is well achievable.
q $ 12-15 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)
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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;
http://www.icafrica.org/fileadmin/documents/2015/Annual_Meeting/ICA_Plenary_-_Background_Paper__FINAL_2_.pdf
Vivek Mittal [email protected]
+44.7718.976361
Thank you!
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