The Africa Energy Forum (AEF) is the marquee event for the African energy market. In this article, we look at the key issues at the forefront of delegates' minds during AEF 2019 in Lisbon, which took place from 11th - 14th June 2019.
Five members of our projects team - Jonathan Brufal, Andrew Newbery and Robert Currall from our London office, with Paul Harricks and Thomas Timmins from our Toronto office - attended the 21st Africa Energy Forum, which was held from 11th - 14th June 2019 at the Lisbon Congress Centre. AEF brings together a wide range of actors in the African energy and infrastructure market, covering governments and utilities, commercial banks and development finance institutions, project developers and sponsors, contractors, insurance providers and technical and legal advisors.
The Gowling WLG team started the conference with a cocktail reception held at the Lisbon Skybar. This was a good opportunity to take in the fantastic views and network with guests in an informal setting.
Discussions were productive and wide-ranging, with AEF firmly established as the premier global event for the African energy industry. Our top ten takeaways from this year's event are as follows:
1. The market remains challenging for all participants: a common refrain in panel sessions and generally was that a number of the issues that are discussed today were being discussed at AEF several years ago, and have yet to be resolved.
2. Renewables are here to stay: AEF 2019 took place shortly after the Malindi Solar project in Kenya reached financial close. In Sub-Saharan Africa, more capacity has been invested into renewables than conventional power during 2018 - 2019. Within renewables, most investment has been into wind and solar, with investment into hydropower staying fairly consistent.
3. Off-grid solutions are likely to see continued growth, particularly in West Africa. Storage is an exciting addition to the energy mix, but is not yet at transformative levels in Africa.
4. Governments need to work hard to give developers and lenders confidence that their particular jurisdiction is a favourable place for project development: a promising project can be derailed by an unexpected change in government policy. In particular, lenders need confidence that state-owned utilities and offtakers will meet their payment obligations under PPAs and other offtake contracts, which underpin the whole rationale for a project.
5. Large-scale government programmes are likely to continue to be a key driver of business activity in the energy market in Africa: Ethiopia's tender for 750 MW of solar PV under the auspices of Scaling Solar with IFC (the country's second round after an initial round in 2018) was announced on 16 April 2019, with the results due to be published on 9th July. The sentiment amongst market actors was that this was likely to be a very competitive auction, with subsequent downward pressure on tariffs.
6. Bilateral partnerships with host governments will form an important part of the African investment story in future: Canada was very well represented at this year's AEF, with a number of representatives from the Canadian Embassy, Global Affairs Canada (a body that, amongst other tasks, looks to promote Canadian exporters) and FinDev Canada (Canada's DFI which is seeking to expand its investments into Sub-Saharan Africa that meet its priority sectors of green growth, agribusiness and the financial industry). On 12th June at AEF, the Ethiopian State Minister of Finance, the Honourable Dr. Teshome Tafesse and Paula Caldwell St-Onge, Global Affairs Canada's Director-General for Pan-African Affairs, entered into a MOU for greater future collaboration between Canada and Ethiopia on infrastructure development using the PPP model.
7. Speed is key to successful project development: with a rapidly expanding population (with some predictions of a continental population of 4 billion by 2100), Africa's demand for electricity will only increase. Fast delivery of IPPs is crucial to ensuring that Africans can have the electrification they need to boost economic growth. In many cases it is not the technology that is complicated and lengthens project timelines, but difficulties in establishing robust project structures that give the necessary confidence to governments, sponsors and lenders. There is wide disparity in the timelines for bringing projects to close across the continent: one solar developer told of being able to get a project done in 6 months in Rwanda as against 9 years in Mali.
8. New initiatives are being launched to help bring projects to completion in tighter timescales: the Open Solar Contracts initiative was launched on 13th June during the forum, a joint initiative between the International Renewable Energy Agency (IRENA) and the Terrawatt Initiative, whose goal is to develop (following consultation with interested parties, to take place until 30th September 2019), a suite of robust project documents (including PPA, Implementation Agreement, O&M Agreement, Supply Agreement, Installation Agreement and financing Term Sheet) that can be adapted to different markets with relative ease in order to cut down the time and cost of negotiating small and medium-sized grid connected solar projects.
9. Private sector funding is only part of the picture: DFI support remains crucial to getting deals to close across Africa, to cover the risks that private sector lenders cannot take on. Chinese funding continues to be of growing importance, representing around USD 10 billion (of a total of USD 23 billion) invested into energy in Africa during 2018.
10. An alternative to the blended finance model which has come to dominate project development is needed: the market's reliance on complex project financing structures imposes high transaction costs and long timescales that are not conducive to bringing projects to close quickly and this model is not suited to utility-scale solar. Increased participation from local banks and national pension funds is likely to be part of the answer. The increased entry into the African projects market of cash-rich Middle-East based sponsors and developers who are willing to a greater proportion of projects on balance sheet rather than through project financing is a further notable market development.
Africa remains an exciting, yet challenging, place to invest and do business. Participants need patience, resilience, strong partnerships with governments, contractors, lenders, advisors and co-investors and sufficient financial and technical resources to see projects come to fruition. The key challenge set by several panellists during the conference was that we cannot be talking about the same issues in five years' time.