Making Room for Renewables in Sub-Saharan Africa

at least a dozen tangoeezies. One I had, or maybe two or three or four was one evening over the course of a long meeting at the pool deck of my hotel overlooking the Indian Ocean. The meeting was with the representative one of the major development banks, who was more than happy to chat for some reason, and since I was there to find out as much as I possibly could, I was perfectly content to sit there and sip the tangoeezi and listen. One thing he said has

stuck with me all these years later. He said he's not interested in funding or building power generation assets in Tanzania are subsuri in Africa anymore. He said, there's enough

of that, there's enough generation, there's enough power plants. He said, the only thing that matters, the only thing the region needs and the only thing he's going to work on this transmission or power lines to get the electrons from A to B. Today we've got Antoine, Vania Jones and energy analysts from BANFS Europe, Middle East and Africa team in to tell us if that's right or not. He'll walk us through some of the challenges and some of

the opportunities across Sub Saharan Africa. Our discussion will be based on a report he recently published titled Sub Saharan Africa Market Outlook. I will say in our discussion with Antoine, we really just scratched the surface. There's a lot going on in this reason and a lot to consider for

those looking at this market. I would encourage Benough clients to have a look at this report on BNF dot com, the BENF mobile app, or the Bloomberg terminal to get further details and for topics we don't cover in this short conversation. As always be if does not provide investment or strategy advice, and you can hear a full disclaimer at the end of the show. If you like the show, please go ahead and rate and review us on Apple podcast or wherever you listen. I'm Mark Taylor here with

Dana Perkins and you're listening to Switched on the BENF podcast. Antoine, thank you for joining us today. Thank you very much. Dana, great to be here. We are going to talk about sub Saharan Africa, and I would love for us to just kind of set the ground a little bit as we get started. How are we defining this region because actually it doesn't have a straightforward definition, does it. No,

it doesn't. And you see a lot of different definitions for sub Saha in Africa at being if we take a pretty expansive definitions, so everything sort of south of Morocco, south of Egypt we count as sub Saha in Africa. What does energy look like in this region of the world right now? So energy looks very different to how

it looks in a lot of other regions. I mean, basically, we have a wide range of countries with different geographies, which are very different energy systems, and the technologies they

use to electrify their populations varies enormously. But one thing that really is common across the board is the fact that many large segments of the population don't have access to actricity, So only about seven countries have more than half of their population having access to actricity, which is pretty shocking, but otherwise it really very You have countries that depend on the hydro countries that really burn a lot of coal, and countries that are relying on importing

costly fuel so oil usually heavy fuel oil diesel, which is very expensive. So as we get into this report, can you tell us kind of the big questions you

were hoping to answer in doing the research. So the report was commissioned by the Department for International Development of the British government and the big question we were given to begin with was look into the state of play for renewables, so what investments have amazing and where we're going just across the board, which is pretty wide question, and it got even wider because realized that as we went into the subject, we actually had to understand what's

going on in other sectors and with other technologies because obviously everything is linked. So we ended up just trying to understand the big trends affecting the power sector across the board, looking at everything from electrification to coal and to renewables and clean energy investment, and this clearly doesn't seem like a report you can do just by you know, downloading some data from some site I don't know, in doing some modeling on at your desktop. It seems to

get to get out there and do it. So we're very lucky at BENF, especially with our emerging market coverage. So we have a yearly project called Climate Scope where we send our analysts across the world to collect exactly the kind of data that we rede on for this kind of report, and that's often hard to get, so it involves going to countries and trying to convince people basically to give you data and information, do interviews with

them and see what they can get in return. So, for example, I went to Senegal and caught Devoir last year and ended up sitting down with as many stakeholders as I could, whether it was development agencies or government, the ministries, regulators, education agencies and just having conversations about what's going on and seeing what kind of data they

could share. What was the feel was that was it that Africa is open for business or subsity in Africa is open for business, or is that there's just so many challenges, you know, they're hard to over come. So it really varies from country to country. So with this project, explicitly we look at renewables and renewables investment, and the

picture really differs from depending on where you look. There's some countries like Garder for example, where governments have come out and said that they actually think that so it's a bit too expensive for their needs, whereas others like Senegal is an example, really see the benefits of the cost of decreases we've seen in recent years, and I really want to use that to help wean themselves off more expensive options such as relying on heavy fuelil and

diesel to power their populations. So as we're looking at this as a region, I know it's difficult to take a series of independent countries and kind of tease out some themes. We're going to do our best here today to see, you know, a little bit about what the future holds. As you were doing this research and kind of looking towards the future, kind of what was the bright spot that you saw in here. Let's start with

up tunity is rather than challenges. Sure, so subside Africa is starting from quite a low base in terms of renewables investment. And for example, when you look at emerging countries across the globe, a hundred and seven gigawatts of clean energy was installed over eighteen and when you look at South side Africa, that accounted for less than one percent of that total figure, which is really not that much.

So we're starting from a very low base. But what we are seeing is is pretty rapid growth, which really rivals what we're seeing in the fastest growing regions in the world in terms of the rate at which renewable energy investments are accelerating. So, for example, we track and we have forecasts for solar for as a technology that we look at in particular, and we're seeing double the amounts of the capacity of solar installed in one compared

to twenty eighteen, which is a pretty big leap. So if you're seeing this rapid growth, where is it coming from? Who are doing these projects? So it's interesting because SUBSIG in Africa is quite unique in how important donors are and that can be development finance institution multilaterals like the World Bank, and they often work in partnership with countries to set up procurement programs. So these are schemes which provide subsidies and support for developers who want to develop

renewables projects. So when we look at different countries, we we raid and see and look at what kind of environment they offer for investors. But it's also good idea to see where the donors are looking. And one of the big things we've seen are some headlines being made with record low prices across much of the region through procurement programs like renewable energy auctions under skating Soda, for example, which was backed by the World Bank. So I think

I'm gonna have to take us down and nurch. When I read this report, it seemed pretty bleak to me that there are actually some substantial challenges that face developers or countries and trying to procure renewable power. One of them makes me wonder, like what is driving the growth of renewals because in the report you said that a lot of these markets are oversupplied for energy, but there's a lot of energy that's unavailable, So actually, could you

just explain that for us? What does it mean that there's an oversupply of energy? And yeah, definitely when you're talking about some in some cases half of the country not having access to energy, how is that and oversupply, So that's a really good question. So there's two levels

to this. One of them is when you look at certain countries, we look at their demands, so the overall power that's consumed by the population, and in a lot of cases you actually see that there is enough in terms of what's called nameplate capacity, so the amount of capacity that is represented by power plants that are built and are running in the country to to cover that demand, which is a bit of surprise to many people. But

there are two things to bear in mind. The first is that the amount of time that those power plants are available, it really can vary dramatically, so you can have years where, for example, there are droughts and big high dragic dams that supply half the country's population just aren't able to provide as much accredity as you'd want.

That's worsened by the fact that a lot of these power plants are aging and lacking in investment, which means that they really struggle to perform to their full capacity.

And the other side of this is that demand is often constrained by transmission so there and distribution, so there's a lot of investment that's required in power grids in particular, and this is one of the massive challenges is that demand is what we call constrained by the fact that not enough transmission is being built, and that's because it's a risky business and there really isn't that much private

investment at the moment. That's something that we're seeing to change, but it's seeing changing, but it's taking time and really only just taking off. How are you seeing it change? Um? For example, countries like kenya Um have a handful of projects maybe five sort of power lines that are privately back there in the works, but that's again they're all

under development at the moment. And the British government has also created a company called grid Works, which was launched last year and serves to invest specifically in power grids. So there's this recognition that we really need to focus on investment in transmission as well as building power plants and renewable energy capacity to flow over those transmission and

distribution power lines. So you're talking about how there's oversupply, but maybe that has to do with the fact that all of these things are ultimately by these things by the way, I mean energy supply, Our individual little islands and to themselves, and this could be an opportunity for countries to lean on each other and lean on each other's energy systems. But what's really standing in the way

of a more expansive grid connection. So that's completely right, and there are a lot of countries that are trying to interconnect, so they're trying to build power cables that are cross border and so they can draw from each other's um well, they can benefit from each other's relative

you can say strengths in terms of energy production. So you might have one country where, for example, in Europe, you have countries that proved sort of solo at one point that might benefit another country where the wind isn't blowing as much and they aren't able to produce. So that can be great in terms of maximizing how economical your power fleet is. And that's something that we're seeing being recognized in Subside in Africa through what's called power pools.

So there are a number of different power pools that are being created and they're basically sort of organizations that are being set up to encourage the trade of electricity across borders. And one of the most successful and early examples of this is a Southern African power pool which has been up and running for what for the last two decades, and we've seen some ups and downs, And basically one of the big issues is the fact that

a lot of generation fleets remain quite small. There aren't that many private actors involved in generation, and there's again this lack of investment in transmission assets, which really slows

down progress in other regions. In your opinion, would you say that these power poles and this investment into the grid is being treated as a matter of priority above or behind building additional capacity, so the issues that politically there isn't as much impetus behind a lot of these projects because of the fact that very often trading with other countries isn't seen as that attractive for administrations that want to be seen as providing power to their constituents.

So very often high levels of high profile power projects will get more in the way of political support than a transmission line that could help to sell electricity to another country to recap there's kind of the issue of the power pulls that could be more expansive. There's the one of high capacity but low availability or lesson availability. There's also the issue of legacy power purchase agreements for older plants. But let's talk also about the challenge of

off taker. So you're in ependive power producer an IPP. You want to go build a power plant in some country, but you might struggle to get paid. Is that right? That is right, And we perform a yearly update of how we see off taker risk, which is basically the risk that you don't get paid in time or in full when you sign a power purse agreement with an off taker. And when you look at Africa, the picture is,

like you said, pretty bleak. It's not great. There are a lot of countries where it is very risky to enter into these agreements and it means that you have to invest in various forms of guarantees and insurance which make projects more expensive and also excuse the playing field towards bigger projects. And that's basically down to the fact that effectively most of the region's utilities are bankrupt. And

that's for various reasons. But there's only really the World Bank has done a comprehensive report on the subject that you found that it's only really in Uganda that UM utilities are able to cover their operating expenses, which is really one of the big hurdles facing the sector. But it means that donors and very multi lasteral institutions have a role to play in terms of supporting these projects and creating the frameworks, and that's something that we are

seeing over the last few years. Or what is different in Uganda that the utility is able to coverage cast.

So the young power sector was reformed towards the back end of the ninety nineties and what we call sort of liberalized unbundled, which means that the historic monopoly on the operations of the power sector, so you had one company that was doing everything from producing power to selling it to customers, and those various businesses got broken up and we're actually, after a few hiccups and a lot of political pushback, like it hadn't been a smooth ride,

managed to find a way of operating efficiently. And that's something that that really is an exception and is down to a lot of factors that are particular to Uganda, um but liberalization and breaking up monopolies isn't always the

way forwards. We saw in Nigeria also had a very comprehen and breakup of its historic utility and creating many local distribution companies called discoes, but actually we see that most of them are also bankrupt, and it shows that this idea that liberalization is the way forward does have a lot going for it, but it's not a panacea to the region's problems. When we talk about Africa and Sub Saharan Africa specifically and providing access to people who

don't currently have access to energy. There has been some discussion around this view that maybe the grid could look very different and maybe the way these central utilities that we're used to seeing where we're sitting right now in Western Europe or where Mark and I are from in the United States, that that's not the way that things need to be done, and that maybe we could have a very fragmented, just locally handled grid from here to there,

which doesn't support the ability to trade power across lines unless you've got great connection, really really organized. How would you say those two scenarios compare with one other, because

they are at arts. You either have to go big and organize or you have to go really fragmented, do you not, So it's non either or Some countries treat it as an either rule and in countries like got de Voir, for example, the build out of the grid has been quite successful of the main transmission grid, and that means that there's less um sort of political interest in creating a framework that be favorable for more distributed options.

When we talk about distributed options, that can be anything from a small solo home kit which would power a household and really not any big appliances in a lot of cases, to a mini grid, which could power whole community. And they're very different in terms of business cases and in terms of the level of subsidies or financing that

they need. In Uganda, for example, the government has been creating concessions, so sort of staking out areas that are to be electrified, specifically by mini grids, and provide a subsidy as well for that to happen and cover connection costs and expenses that really make it make projects viable because a lot of these projects, like most historical electrification experiences throughout the world, I really rely on government funding. So let's say I'm looking at the subsecurrent African market

to potentially build a product there. What do we need to know? We've outlined the challenges, but we've also outlined that there's demand, so what do I need to know before I jump in? So you need to be tracking, UM, what tenders are being put out, what auctions are being held, what kind of criteria UM those auctions are being held under. It's also a good idea of understanding the sort of

longer term trends that are happening in these markets. So if you're looking at rural electrication distributed options, it's really useful to look at a lot of these countries have established of roadmaps for utrification which can really help investors understand what they're expecting in terms of many goods being built or in terms of the role for for grid extensions. Other than that, targets are often missed and progress towards them is off and lacking, but they do provide a

good idea of what's going on. But one of the biggest indicators of where opportunities lie are is where investment is happening today. So that's something that we try and help our clients with and is something that is worth tracking. So we see a lot of progress in the most promising markets recently happening in markets like Kenya and Senegal, which have been watched for a long time, but are

really starting to bear their fruits today. And that's that's really one of the big challenges is understanding that things can change quickly and that markets that were dormant for a long time can also really light up. So remind me again, what were the two countries that you went to. I went to Senegal and just over the last year for this specific project. So I want to know a little bit about your personal experience. What was it like going and trying to get this information given that it

wasn't a massive data download from a computer. So it really varies on how excited the government is in terms of attracting investment in renewables um and understanding that really getting there, getting this information out to investors, which is ultimately what we do, is is worth their while. And

Incote de Voi, there's a lack of enthusiasm. They really they they've got quite a substantial power fleet already, it's running quite well compared to their neighbors, and there's something of a regional powered giant, whereas in Senegal it's a market that's changing very fast, that really does need renewables, and alongside investments with renewals and future interest in gases, understanding the value of having investors have information at their

fingertips and drawing them in. So from my personal experience, it was very different sort of trying to talk to maybe less enthusiastic Iborians and then going to Senegal where there was more of a recognition that there was a lot to be done, and one from explicitly talking about offering up data and and being willing to answer some quite difficult questions sometimes and then going into this you

probably had assumptions. So what we're the thing that was kind of most interesting or changed your mind the most

in the process of the research. So something that's really interesting is over the last year we've seen headlines being made with these renewable energy auctions that have been held in substit in Africa and countries like Zambia and Senegal and hit really low prices for solo So we're talking four dollar cents per killer what hour or less, which is pretty competitive at an international level and really surprising when you look at the risk profile some of these projects.

And what surprised me was actually that a lot of developers were quite wary about these numbers and a bit frustrated because they saw that when they went to governments and tried to suggest power projects and tried to take part in local tenders, they were being asked for those same prices as we're being hit in these big international

auction schemes. And that was something that was very difficult because it isn't reasonable when you don't have the same sort of de risking frameworks that the World Bank Skating Solo Framework has and m is ultimately something that needs to be really understood as we go forward. So there's a lot of momentum in the sector and in the region, but that also needs to be put into context and that's what we try and do. Antoine, thank you very much for joining us today. Thank you very much, Diana,

thank you. Mark. Bloomberg an e F is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor it should it be construed as investment advice, investment recommendations, or a recommendation as to an investment or other strategy. Bloomberginn e F should not be considered as information sufficient upon which to base an investment decision.

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