This article is based on an interview with Chris Antonopoulos, CEO of Lekela Power, that took place at The Global African Investment Summit on 2 December 2015 in London, United Kingdom. Lekela is a majority investor in large renewable energy projects, with an exclusive focus on Africa.
The renewable energy sector is gaining traction in many African countries. Until relatively recently it was nearly impossible to construct a solar or wind farm without a government subsidy – it would’ve been simply too expensive.
But the costs of the technology have gone down by about 50% over the last five years. Investors can now finance entire projects themselves. Growth of the industry is also being driven by maturing renewable energy technology. This combination of reduced technical risks and lower costs is encouraging investment.
It’s not just solar that’s an obvious fit for Africa – there are also many lucrative locations for wind. With only about 30% of Africans currently having access to reliable electricity, the continent offers renewable energy investors bigger returns than developed markets such as the EU. But success is dependent on each country’s natural resources, legal frameworks and overall political and economic situations.
Depressed oil prices have not stopped the development of renewable energy projects. The fundamentals of the industry remain intact regardless of the oil price. Renewables face no volatility in terms of input expenses – the cost of wind or sunlight will always be zero. This provides stability to investors.
Attractiveness to governments
Many governments now see renewables as a viable option, and are making moves to make it part of the energy mix.
Renewable energy is a great way for governments to boost employment. Typical projects create between 600 and 800 jobs during the construction phase. It’s rare to see this labour imported.
It takes about 18 months to complete a renewable project, but the first power can often be generated after only nine months. This provides governments with relatively quick benefits – jobs are created within weeks and the country has more energy capacity in less than a year.
With traditional energy projects it can take up to four years to deliver power to the grid.
However, for the sector to thrive, African governments need to create the right legal frameworks and policies to attract investors. In many countries there already seems to be the political will to stimulate investment in the sector.
Chris Antonopoulos of Lekela says he is surprised at how fast the company has been able to grow. After little more than a year in business, it already has 1,200MW under construction across nine projects.
Private sector success
It is common for African companies to be involved across the value chain in order to avoid inappropriate partners and control the quality. However, Lekela has a horizontal structure – the technology is bought from tier-1 suppliers and the energy is sold to the public utility company. For this reason it does a thorough due diligence on all partners and continually monitors political and economic stability in each country.
As Antonopoulos put it: “We would not venture out and go with someone who does not have a lot of experience.”
As for many companies in Africa, creating a social face is a part of their strategy. Many foreigner companies in Africa want to be viewed as part of the community instead as a foreigner. This is necessary due to the long-term nature of the projects – it’s almost expected that within 20 years there will be major political or economic changes in a country – and being considered positive for the community is a good way to protect the company’s interests.
To create this goodwill with the community, Lekela donates to local schools and assists with the improvement of hospitals and roads. Hiring locally also helps with goodwill and has financial benefits – there is no need to import many times more expensive foreign workers.
Another key relationship is with the government. They’re the main clients – the owners of the utility company – so the relationships are nurtured.
Renewable power is a natural fit for Africa in terms of the energy landscape and the available natural resources. The sector will continue to grow and provide a lot of investment opportunities.
Bertrams Lukstins is a markets insights consultant specialising in the emerging African market. Services include: market entry, strategic research, and business model analysis and research. Please see Investing in Nigeria – a recent report by Bertrams commissioned by SSAinsights.com. [email protected]