Sub-Saharan Africa — Solving Renewables Project Finance Challenges

Are you an investor looking for infrastructure opportunities in Africa? Are project finance challenges holding you back?

Philippe Valahu has spent 25 years working on emerging market infrastructure finance, and now, as Chief Executive of the Private Infrastructure Development Group (PIDG), he explains the work PIDG has done to boost private investment in renewables in the world’s lowest-income countries.

In 2015 the UN pledged, as one of the new Sustainable Development Goals, to “ensure access to affordable, reliable, sustainable and modern energy for all”.  This is a major ambition. Three billion people worldwide still use wood, coal, charcoal or animal waste for cooking and heating; 1.2 billion have no access to electricity. Half of those without electricity are in sub-Saharan Africa. Meeting this goal would make a very substantial contribution to human wellbeing.

However, this is not only a humanitarian undertaking. Reliable energy is also essential for sustained economic growth. Without energy, goods cannot be produced and services cannot be provided. Without energy, fledgling businesses are unable to grow. And without energy, schools and universities cannot provide the most modern education to potential workers.

Unlocking Private Investment in Renewables in Africa’s Frontier Markets

Since 2008 the Private Infrastructure Development Group (PIDG) has provided financial backing totalling around US$134m to private investors to develop and operate renewable energy projects in the frontier markets of sub-Saharan Africa.

The public-private partnerships we fund have helped private investors from around the world to build commercially-viable infrastructure in the countries where it is most needed.

To date, the renewables projects PIDG has backed will help nearly 10 million people in Africa gain access to clean power.

Working through our specialist infrastructure finance companies InfraCo Africa, The Emerging Africa Infrastructure Fund (EAIF), GuarantCo and Green Africa Power (GAP), private investors have contributed project finance for renewables totalling US$484m, in frontier markets where it would otherwise have been too challenging to invest.

PIDG’s Public-Private Approach

Many potential private investors are aware of the potential demand and opportunities  – power requirements in sub-Saharan Africa are expected to more than double by 2030 – but also fear that the business environment will not be favourable or that the investment will not generate an adequate return. 

PIDG financing helps address these concerns, deploying a small share of total project capital to enable private investors to come in alongside.

We plan to continue to substantially invest in renewable energy projects across Africa to help utilise untapped sources of wind, solar, geothermal and run-of-river hydropower. These have capital costs for installation, and do require some maintenance, but the ‘fuel’ is free.

We have a number of projects in our pipeline but are actively looking for more — both on-grid and mini-grid or off-grid.

On-grid

In Rwanda, the Gigawatt solar field is providing 70,000 more people with electricity as the first private utility project of its kind in East Africa. PIDG company EAIF’s 17 year loan to the project was longer than the average tenor available in the region. This helped IPP Gigawatt Global secure the necessary funding in just three months.

Also in Rwanda the KivuWatt biogas plant, developed and operated by ContourGlobal, has overcome significant technical barriers, using floating barges to extract toxic methane from the bed of Lake Kivu to generate much-needed renewable electricity. With finance provided by EAIF’s loan to the project, almost 2.5 million people have gained access to 25MW of renewable energy. This has substantially boosted Rwanda’s existing 85MW installed capacity.

Beyond the Grid

Whilst many of our investments to date have been to on-grid projects we recognise that transmission and distribution issues are holding back growth, so we have also recently begun exploring mini-grid and off-grid solutions.

In Tanzania, Redavia’s innovative solar PV containers – solar “in a box” – will transform operating conditions for SMEs and help raise living standards. Redavia GmbH installs solar panels in shipping containers which can be assembled on site and offer power to residents in remote regions on a rental basis. PIDG company InfraCo Africa’s early-stage funding has enabled two 100KW pilot projects in the rural communities of Isenzanya and Shitunguru, in the south-western Mbeya region.  If the pilots are successful there is the capacity for up to 30 containerised grids to be installed across Tanzania. The technology – which is quick to install, taking just a few days to connect once it is on site – could mark an important turning point for reliable off-grid methods of power for rural regions.

Achieving More

For each project private investors have led on delivering the progress that has been made, working closely with governments.

But there is still an enormous amount to be done, and PIDG is determined to do more. One of the most exciting projects we are currently working on is a proposed geothermal power station in the volcanic Corbetti Caldera, 150 miles south of Ethiopian capital Addis Ababa, which could generate up to 500MW when it is complete.

Why We Do It

Simply put: PIDG uses small amounts of public capital to help spread risk, so that private investors can take on projects which will drive social and economic growth in some of Africa’s most challenging markets.  Our work has a dual aim – to promote economic development and reduce poverty. 

When a project is complete and begins to flourish, we sell our share to private investors and reinvest profits into future projects.

My hope is to improve the number of infrastructure projects that reach completion and so increase prosperity and growth in our target countries. If we are to meet the SDGs we must substantially improve access to clean energy and clean running water, and better transport facilities. By bringing public and private finance together, I am ambitious to make this happen.

PIDG is a multi-donor organisation with Members from seven countries (UK, Australia, Switzerland, Sweden, Norway, the Netherlands, Germany) and the World Bank Group.

Lead image credit: InfraCo Africa / Redavia GmBH

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Philippe Valahu is CEO of the Private Infrastructure Development Group (PIDG), a donor-government-backed development finance organisation which partners with private investors to help fund infrastructure in the world's lowest-income countries. He is an experienced infrastructure financier with more than 20 years international experience in both private and public sectors. Prior to joining PIDG he was based within the World Bank Group's Multilateral Investment Guarantee Agency (MIGA) where he was the Global Head for MIGA's Infrastructure team.

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