Want a stable cash flow? Invest in Africa’s energy sector, says US firm

  

A large proportion of sub-Saharan Africa’s population does not have access to reliable electricity. A 2011 report by Frost & Sullivan, entitled “Mega Trends in Africa: A bright vision for the growing continent”, suggests that investment in renewable energy in the continent will rise to US$ 57 billion by 2020 as interest in wind, solar and geothermal power soars.

Kyle Denning

How we made it in Africa’s Dinfin Mulupi chats with Kyle Denning, managing director of Viability Africa, a subsidiary of US-based Sustainable Energy Financing, about the opportunities in renewable energy on the continent.

What does Viability Africa do?

We bridge the gap between renewable energy project developers in east Africa and investors. We work with organisations that sell for instance cook stoves and solar lanterns to help them finance and implement their projects. We help them get carbon credits and develop and leverage them to secure financing.

The other side of the business involves helping build renewable energy projects like solar stations, wind farms, hydro power plants and biomass power plants. We help secure financing, develop the feasibility studies and environmental impact assessments and negotiate licences and agreements for selling the power generated.

We are also looking at developing our own projects with local partners. For example, we have a hydro power plant in Meru, Kenya that we are hoping to implement. We are exploring multiple joint venture relationships with local companies on other technologies, mainly wind and solar.

Why did you choose to invest in Africa?

Africa is where the opportunities are. It is financially exciting that you can come here as a small company and still make a huge impact. There are tremendous challenges of doing business here and difficult lessons to learn as well. Rwanda and Kenya are two of the leading countries in east Africa in terms of friendly renewable energy policies. They are on the right path.

Renewable energy can play a critical role in sub-Saharan Africa and we want to be a one stop shop in this sector. The returns here can be very good for investors, in addition to the social and environmental impacts that the projects have.

The initial stages of these projects are very risky. They can be funded through grants and later become sustainable. A lot of multinational companies are interested in renewable energy projects in sub-Saharan Africa. Everyone knows Africa is the final frontier.

Do local financiers have the same level of interest in renewable energy projects?

There is interest and a bit of hesitation. Commercial banks are interested, but project financing is very risky and new in Africa. It will take time for the sector to evolve. Investors need to understand that energy projects are extremely lucrative. They can last for 20 to 25 years. If you want a stable cash flow over several years then an energy project is worth investing in.

Describe some of the challenges you are facing

It is difficult to get power purchase agreements here. In Rwanda the government is very open to negotiations. Unfortunately its power sector is very small. In most countries the negotiations take a very long time. There are setbacks in local capacity, limited financing options and policy. These kinds of constraints can scare away investors.

Why is the adoption of renewable energy still low in Africa?

Wind and solar are the most attractive and most hyped about technologies, but they are very expensive and also less efficient. Generally, financing of projects in the early stages remains a major challenge.

Solar is the right technology for Africa. The only constraint now is economics. When you look at the numbers, solar and wind are expensive technologies and produce less electricity compared to hydro power. Energy portfolios are the key to a stable and prosperous energy sector. African countries should have a combination of solar, wind, biomass, geothermal, hydro and fuel oil. I am not opposed to the ‘dirty’ technologies such as fuel oil plants, but I think there needs to be a balance.



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