Financing Africa’s Renewable Energy Transition: Public-Private Partnerships

The International Renewable Energy Agency (IRENA), in its Africa 2030: Roadmap for a Renewable Energy Future report, acknowledges that “Africa faces an enormous energy challenge.” Energy demand across the continent has soared as a result of its growing population and economic growth. Despite this positive economic growth IRENA estimates that Africa’s renewable energy “Transition would require on average USD 70 billion per year of investment between 2015 and 2030.” This begs the question of where this financing is going to come from.

Generating new renewable energy is expected to cost USD 45 billion while the remaining USD 25 billion will be needed for transmission and distribution infrastructure. IRENA notes that “A complete overhaul of Africa’s energy supply will require increased renewable energy penetration across [these] three sectors, and would provide enormous socio-economic benefits.” Yet, if these socio-economic benefits, ranging from improved education to health to increased income generating opportunities, are to become a reality, innovative funding mechanisms, strategies and partnerships will be required.

One renewable energy generation program that has already achieved remarkable success, that has received widespread international appraise and could be used as an example by other African governments, is South Africa’s Renewable Energy Independent Power Procurement Programme also known as the REIPPP. One investor into the REIPPP has even been labelled it “The most successful public-private partnership in Africa in the last 20 years.”

The REIPPP is based on independent power producers (IPPs) bidding competitively against one another, against set bidding criteria laid out by the national government, in order to develop, build and operate renewable energy generating power plants of different types such as wind and solar. The program has two core objectives which are to increase the share of renewable energy in the national electricity grid and to maximise the economic development potential of the country. IPPs are invited to submit proposals for the finance, construction, operation and maintenance of renewable energy facilities to the Department of Energy (DoE).

Since 2011, date four bidding rounds have successfully been held, the cost of energy in each bidding round has reduced and 95 renewable energy projects have been developed or are currently still being constructed across the country. Not only are the IPPs, expected to generate the amount of energy they promised in their proposals but they are also expected to contribute to various sustainable development criteria including local job creation, local ownership, local economic development and socio-economic development. Different weightings are attributed to each of these criteria by the DoE.

The Southern African Alternative Energy Association states that the REIPPP has been “Heralded as a great success after they attracted at least ZAR 193bn (approx. USD 13.5 billion) of investment and contracted capacity to help stabilise the nation’s power grid.” It was expected that a fifth bidding round would be held in August 2015 but as yet this has not occurred.

One example of a successful project implemented under the REIPPP is the Bokpoort Concentrated Solar Power (CSP) Independent Power Project. Located in the Northern Cape province it was officially opened on 16 March 2016 and has a net generation capacity of 50 megawatts (MW). Valued at ZAR 5 billion (approx. USD 400 million), its construction created 1,300 local jobs and required the sourcing of ZAR 2 billion worth of locally manufactured components and it is expected to bring an average yearly contribution of USD 2 million of additional investments. Environmentally, the project is also expected to provide major benefits as it will abate approximately 230,000 tonnes of carbon dioxide from the atmosphere each year and will generate enough renewable energy to power around 21,000 houses. Finally, 5% of the Bokpoort CSP Independent Power Project is owned by a local community trust with a further 5% being owned by loveLife, a national South African non-profit organisation, that promotes HIV/Aids awareness and youth empowerment.

While it has not developed a renewable energy PPP program to the same extent as South Africa has, Zambia has also recently held two competitive auctions in which IPPs have been able to bid for the chance to develop, build and operate solar power plants across the country. The programme has been made possible as a result of a partnership between the Government of Zambia, through its Industrial Development Cooperation, and Scaling Solar, an initiative of the World Bank.

Oumar Seydi, the IDC Director for Eastern and Southern Africa, told CNBC Africa, that he believes “The partnership between Scaling Solar and IDC Zambia is successfully delivering the affordable renewable energy needed to ease the country’s ongoing energy crisis.” He added that “Access to electricity is vital for achieving development goals. In Zambia, Scaling Solar has helped create a market that will make it easier for the public and private sectors to work together to meet the country’s energy needs and expand opportunities for families and businesses.”

The public-private partnerships between the Government of Zambia and the private IPPs, which are facilitated by Scaling Solar, are expected to help the government add 600 MW of renewable energy to the national grid. The first auction round, which was held in July 2015 added 73 MW of renewable energy to the national grid and was heavily oversubscribed. Overall, 48 IPPs submitted bids, from which seven proposals were selected for consideration and then two were selected due to their bids yielding the lowest solar power tariffs recorded across Africa at the time.

CEO of IDC Zambia, Andrew Chipwende, acknowledges the importance of public-private partnerships in being able to develop such renewable energy projects in his testimonial on the Scaling Solar website. He says “For quite a long time, we’ve had quite a bit of interest from the private sector in terms of investing in renewable energy in general, and in solar in particular. We haven’t had the coherent structure within which to implement this. I think with Scaling Solar, what we’ve been able to do is to develop a coherent, transparent process that the investor and investing public, the private sector, are able to work towards as well as the public institutions on the government side — that is, the IDC as investment vehicle and the state utility as off-taker, to have predictability and to have a clearly defined process that should be followed towards the attainment of this 600 megawatt target which has been set for renewable energy in Zambia.”

The success stories of South Africa, and more recently Zambia, clearly suggest a few key lessons for successful renewable energy programmes involving PPPs in other African countries. If the government’s procurement process is well design and transparent, it’s clear that private investors are willing to get involved. With the costs of renewable energy technologies rapidly falling the incentive for them to get involved will likely only increase. Secondly, the development and implementation of renewable energy procurement programmes can not only lead to an increased supply of renewable energy, but also other economic and social benefits. These will likely vary in both impacts and their size from plant to plant depending on the socio-economic challenges faced by nearby communities. Finally, the South African and Zambian examples, show that for private sector investors to become involved they require clear procurement and policy frameworks. If national governments lack the expertise to set up such frameworks on their own they can enlist the support of external stakeholders such as the World Bank through its Scaling Solar initiative which also supports solar power developments in Senegal, Madagascar and Ethiopia.