POWER MARKET INTERVIEW: “My ambition is to witness the Africa GreenCo concept proven on one project in Zambia and rolled out, in the Southern African Power Pool and then become truly a Pan-African concept in the other Power Pools.”
Let’s start with the new model that you are introducing in Zambia.
Whilst investors are ready to commit funds to power projects that increase electricity production capacity in African countries, they need assurance that they will realise returns on their investments. This requires a creditworthy offtaker to guarantee payments. Most utilities in Africa are not creditworthy, hence their borrowing risk is perceived to be high, thereby requiring cover that increases project cost and tariff. To provide adequate cover they normally turn to governments to give guarantees. This increases government contingent liabilities and locks away resources that could be used for other needy areas like social upliftment, education, health, security and economic development. Government borrowing ceiling also gets reduced by increasing liabilities.
Africa GreenCo is in the process of forming a company that will be capitalised to a high level of creditworthiness through PPP arrangements to be able to offtake power from IPPs with guaranteed returns based on its capital buffer and back to back power purchase agreements and power supply agreements. Part of its risk mitigation measures include portfolio arrangements at both supply and offtake, and diversion of power within the portfolio, or sale through SAPP markets when offtakers default. Africa GreenCo will sit between renewable electricity generation companies on the one hand, and both state-owned and private sector off-takers on the other. The company will be professionally managed and will seek to be an operating member in regional power pools.
Zambia has been chosen as a country for concept proof because of its endowment in renewable energy sources, its centrality in SAPP trade, investor friendliness and its potential for becoming an inter-power pool trade hub between Eastern and Southern Africa. It is also an active participant in SAPP.
What in your view are the main challenges in the sub-Saharan power sector right now?
The cost of electrification is a big issue and will remain so for a while. Achieving universal access, which is a noble and imperative goal for sovereigns, can only be attained through innovative ideas like the GreenCo concept. Acceptance and material support for such ideas is challenging. Integration of new renewable technologies onto the existing grids or forming new islanded grids, still requires change of mind-sets, strong regulatory and utility support.
Where do you see the market going within the next two years?
It appears that both the EAPP and SAPP are headed for surplus power supply in the next two or so years if projects are realised on time in both regions. Investments in South Africa have availed surplus capacity whilst the Grand Renaissance project in Ethiopia will add more power onto the market. Proliferation of renewable energy generation will add onto capacity and energy availability. This gives opportunities for an expanded market place where cost optimisation brings benefits to participants and possibly their customers, there will be increase of opportunities for economic development and closing the gap on universal access.
Continuous development of renewable energy technologies (e.g. storage) will bring technical solutions to grid problems, cost optimisation and diversity of power supply, thereby improving security and reliability of supply to consumers.
Starting with inter-connectivity of the SAPP and EAPP, I see more power pools in Africa getting inter-connected and a Pan-African grid will soon become a reality.
What are your ambitions for Africa GreenCo?
My ambition is to be part of and witness the Africa GreenCo concept proven on one project in Zambia, be rolled out in the country, in the Southern African Power Pool and then become truly a Pan-African concept in the other Power Pools.
About our expert:
Lovemore is a power industry transaction advisor with over 30 years’ experience in the fields of power utility management, electricity markets and regional interconnected system operations. He is a business innovator who has held senior management positions at ZESA in Zimbabwe, BPC in Botswana and Ricardo Energy Consulting (UK). He is a founder member of the Southern African Power Pool interconnected operations and electricity trade. He is the Technical Director at Africa GreenCo, a company that is pioneering a creditworthy intermediary offtaker concept in SADC. He is also contracted by the World Bank to advise the Eastern Africa Power Pool, and is on the Transmission and Distribution conference track advisory board for African Utility Week 2018. He has a track record in advising power utilities, IPPs, government departments and has been associated with development finance partners. He is an Electrical Engineer, senior member of the SAIEE and an MBA.