INVESTING IN RENEWABLE ENERGY: Perspectives from the REIPPPP image

INVESTING IN RENEWABLE ENERGY: Perspectives from the REIPPPP

Lucy Chege from the Development Bank of Southern Africa (DBSA) takes us through the need to utilize renewable energy as part of a country’s energy mix

In Sub-Saharan Africa, there is increasing emphasis and awareness of the need to utilize renewable energy as part of a country’s energy mix. There are low levels of electrification in Sub-Saharan Africa, with an  600 million(1) people without  access to electricity. This, combined with the intentions to move towards a lower carbon future make the task ahead massive. Governments have recognized the need to work together with the private sector in order to achieve the stated objectives

There are strong indications to suggest that there has been wider adoption of private sector investment in the energy sector in various countries. Recognizing the extent of the investment and capacity required, the Independent Power Producers (IPP) Office was set up in South Africa. The IPP Office is a joint initiative by the Department of Energy, the National Treasury and the Development Bank of Southern Africa. The initial task of the IPP office was to implement the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP).

It has been widely acknowledged internationally that within the last decade there has been tremendous progress in the REIPPPP. Prior to this there had been a few sporadic renewable energy projects but with the renewed emphasis, a significant number of projects reached financial close are operational. The officials in the IPP office must be applauded for their concerted efforts in creating the IPP market. The inclusion of communities and local partners in the projects is also noteworthy and contributes to the long term sustainability of the projects.

From an investors point of view the following criteria have been critical to the success of the programme. Firstly, there is clarity around the legal and regulatory framework.  Secondly, a clear transparent competitive procurement regime has been essential in providing certainty around the procurement process and sanctity of contracts. Thirdly, from a project bankability perspective, the fundamentals based on the due diligence of the projects need to be sound. In addition, the sustainability imperatives embedded in projects enable them to achieve both delivery of the required MW and socio-economic objectives.

The profile of the investor base includes both debt and equity investors and has also matured over time. One unique aspect has been the participation of institutional investors in these renewable energy projects. The profile of the projects is well suited to their long term investment horizon and objectives.

Looking ahead, the prevailing question remains regarding how the above positive momentum can be maintained and how the successes can continue to be replicated in other countries as appropriate. In light of the positive sentiments and perceived good-will, this renewable energy story will continue.

 

1. McKinsey (2015). A Brighter Africa.