African solar must find its feet beyond development finance

The issue is further exacerbated by the fact that many eager developers have pools of capital ready to be deployed in the region, but the common refrain is that there is a lack of projects. The sorts of projects that do tend to get picked up in Africa have been years in the making; many with no foreseeable financial close in sight.

“Really the projects that are getting done unfortunately are the ones where you still have external agencies coming in and setting up a programme providing credit support, such as Scaling Solar [and] Get FIT. Even with the Egyptian programme you have the IFC and the EBRD heavily involved in that,” said Fèvre. “It's not true private investment, there is still that development side to what is happening in Africa and I think that is a big difference to a lot of other countries in the world.

“Really for the power market to take off in Africa, you've got to break that link. It's got to be viable on its own two feet.”

“Some of the large DFIs have said that they actually do not want to continue with that role because they've also got limited budgets; and are working out how they can deploy their resources in such a way so that they can catalyse a private sector investment,” Baker McKenzie’s Wildu du Plessis told PV Tech.

“The IFC and others are thinking of moving from pure financing to guaranteeing or mitigating risks for providers of capital,” Yasser Charafi, principal investment officer, new business lead at the IFC confirmed.

A further problem with African renewables relying on development finance is the issue with the sophistication and size of local financing markets on the continent.

“Because your revenue is typically not dollar-based for African energy projects, getting funding in dollar terms from DFIs creates a huge potential mismatch and makes the hedging incredibly expensive,” explained du Plessis. “A lot of focus needs to go into how to develop local currency funders in any particular market.”

This affects certain markets more than others; Botswana for example is able to rely on dollar income from the country’s diamond industry and South Africa’s large local banks are willing to fund the country’s renewable energy projects. In other countries, such as Uganda, Kenya or Tanzania for example, the currency mix can be constrictive, with the only solution lying in unlocking capital markets to release capital funding.

An underdeveloped financial economy with long lead times for projects is still off-putting for many commercial and private investors.

Salvador Namburete, Mozambique’s former energy minister, said at AEF that this year Mozambique had nine renewable energy projects representing over 1GW of capacity, but only four made it to implementation.

“What is the problem?” he asked. “Planning or execution? Both. We need to dedicate certain amounts to feasibility studies, and need to overcome the issue of reluctance to working together. In order to induce private investment, we need market stability.”

The IFC’s Charafi insisted however that financing is not the big constraint for the African market. “The constraints remain in the issue of predictability for investors,” he said. “The question is how to unlock it.”

In terms of financing, Charafi explained that the money for projects is indeed available; firstly from African citizens who are willing to pay for energy.

“People are willing to pay, the cost of not having power is higher than the cost of having power,” he said. “The poorest of the poor are paying in excess of US$0.50/kWh for power.”

Secondly, international financial capital or increasingly domestic capital markets can be sources of funding, as demonstrated by South Africa’s local banks financing the renewable procurement programme (REIPPPP), as well as next generation pension funds and bonds savings markets.

“On the condition that the conditions for safe investment are met, investment will happen,” said Charafi.