Wind, solar, hydro and biomass projects will play a major role in meeting Africa's growing power needs, as funders adapt to meet the enormous demand, according to a report from global law firm Baker & McKenzie.
Over 80% of respondents in a survey of 140 senior executives in the energy industry cite Africa's strong wind and solar resources as a primary driver for renewables development. Click here to see the full report.
South Africa and Morocco currently lead the charge into renewables, being the only countries in Africa so far to have introduced large independent power producer (IPP) procurement programmes. Some 83% of survey respondents expect South Africa to account for most new renewables capacity over the next five years, following its ambitious procurement programme.
In addition to existing wind power projects developed on a conventional procurement process and the Taza and Tarfaya IPPs, Morocco has now shortlisted six consortia to develop 850 MW of wind capacity in five projects . It also has ambitious solar plans, including the 500 MW Ouarzazate Project, of which Phase 1 is under construction and Phase 2 under procurement . Meanwhile, Egypt has significant installed wind power capacity in Africa, with new projects in the pipeline.
Renewables on a smaller scale are also attractive, being relatively quick and cheap to deploy relative to fossil fuels, making them suitable in areas where there is no grid connection, where they can also compete on cost with conventional energy sources.
According to the African Development Bank Group, the 48 sub-Saharan countries have a combined installed generation basis of only 68 GW. This is equivalent to that of Spain, a country whose population is less than 5% of that of sub-Saharan Africa.
Solar is named by respondents as having the most potential throughout Africa to help plug this gap, with onshore wind, hydro and biomass also named as obvious possibilities. Almost 90% of respondents say Africa has extensive solar and wind resources.
"South Africa and Morocco are not the end of African renewable energy by any means," says Baker & McKenzie London partner Marc Fèvre. "In East Africa, Kenya and Uganda both have feed-in tariff regimes. There is a lot of interest in geothermal power in the Rift Valley region, while Kenya's Lake Turkana and Kinangop wind farms are both significant projects. In West Africa, Senegal has implemented legislation and a programme to develop renewable energy. Further south, we are working on the first wind farm in Namibia, but it won't be the last."
Debt financing for African renewables is key. Investors need strong relationships with local banks and international development finance institutions (DFIs) to access affordable capital on a meaningful scale. South African banks have so far financed most of the country's programme to bring 6.9 GW of renewables capacity online by 2020. Participation from international banks in African renewables has been limited to date, but 78% of respondents believe non-African banks will become more active in the next two years.
"So far there has been capacity in the market and the top South African banks have dominated," says Baker & McKenzie Johannesburg partner Scott Brodsky. "Nonetheless, we have seen tremendous interest from international banks. Structures will evolve that accommodate this interest. "
Projects are often reliant on funding from DFIs and export credit agencies (ECAs). Over 90% of respondents felt such institutions will continue to play a vital role in financing projects for the next three years at least.
Asia may be one source of additional investment, having invested over $6 billion in non-Asian renewable energy assets in 2012, with Africa an increasingly important target destination.
"I am seeing lots of interest from countries such as Korea, Japan and even Thailand and Malaysia now, in investing in renewables outside their own country," says Baker & McKenzie Sydney partner Paul Curnow. "Asian investors will really focus on countries that have the most attractive renewable policy."
Political risk remains the big question mark, with 68% of respondents putting it top of the list of concerns, higher than regulatory risk (42%), exchange rate risk (37%), compliance risk (28%) and technology risk (18%).
"It is an exciting time for renewables in Africa," said Brodsky. "Renewable energy programmes such as South Africa's will bring much needed power to keep the lights on and drive growth in an energy intensive economy that needs power for key industries such as mining, smelting and pulp and paper."
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