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Monica_55905 Jun 26

A NEW REALITY OF RENEWABLE SOLUTIONS TO END ENERGY DEFICIENCY

A NEW REALITY OF RENEWABLE SOLUTIONS TO END ENERGY DEFICIENCY image
Actis is a leading private capital investor in the growth markets of Africa, Asia and Latin America.  Lekela delivers sustainable, reliable and competitively-priced power to governments, utilities and large-scale industrial projects. 
With c120 investment professionals, operating across 17 offices, Actis has raised over US$15bn since inception, and deployed capital across the real estate, private equity, energy and infrastructure asset classes. Lekela’s current portfolio includes more than 1,300 megawatts across projects in Egypt, Ghana, Senegal and South Africa.

What is your perception of the energy shortage in Africa at the moment, especially load shedding in South Africa? Has this situation potentially triggered some out-of-thebox solutions?

Lisa Pinsley: The space we have traditionally played in is largescale utility-connected power, and we continue to see that this space will play a large part in Africa’s growth going forward, both renewables and gas. But we also see innovations in the market, either in the commercial and industrial (C&I) space, storage, mini-grids and solar home systems.

In the C&I space, companies are building their own power plants, often installing solar or diesel generation for their own usage, because they cannot receive reliable power from the grid and also may be able to self generate at a lower tariff. We see this C&I trend increasing, especially when the regulation and financing are in place to allow it to happen. We’re tracking that expansion and potentially looking into investing in the space moving forward. So, still large-scale generation, but not always selling to the government-owned utilities - rather companies buying it themselves.

One important differentiation within the C&I space in that is that you can either put the power plant on the company’s site, so you don’t have to ask the utility to wheel the power for you, or you locate it somewhere else, have the utility wheel it for you, and then sell to the customer. Actis is involved in other markets  in Latin America and Asia where this wheeling arrangement is common in the C&I space. We haven’t seen that as much in Africa yet, due to regulatory or frankly political concerns.

Therefore, most of the C&I or self-generation happens onsite. If Africa’s different regulatory environments can move towards allowing wheeling of power, then that would certainly open up much more opportunity for that kind of investment and generation. On a smaller scale, we’ve seen a lot of solar home system players such as M-kopa and BBOXX emerging. That’s a very interesting and dynamic sector with a lot of investment including different multilateral players in Africa. We’re following it closely although have not invested to date, as we see it more as a financial services play, rather than the kind of risk profile that we normally see in longer term power off-take agreements with larger-scale investment.

As for other opportunities, people are looking at mini-grids, and we are keeping a watching brief as these businesses scale. We are also actively tracking a growing market in storage, whether included in a utility scale generation project, or standalone storage projects. We think that’s going to be big within the next five to ten years in Africa. On the storage front, we’ve been in a number of discussions
with different African utilities - we received a USTDA grant to work on a storage project in Kenya for example in 2019 - and generally this will be an area of focus moving forward.

James Magor: And just to add to that, obviously Lisa is talking from the generation supply side - across Actis we are also on the off-taker side as well, on C&I in solar in particular. Our real-estate investments in South Africa and elsewhere on the Continent are looking for opportunities to install rooftop solar PV to supplement their power supply and displace diesel generators. We’re seeing that kind of theme on the private equity side, where we’ve made investments in companies with large distribution warehouses and manufacturing facilities.

There’s a lot of opportunity there to install rooftop solar. So in the C&I space, it’s no longer just the large mines and heavy industry looking at captive power supply, it’s also new sectors like shopping malls, supermarkets and logistics companies, and Actis is actively promoting sustainable power across South Africa and the rest of the continent.

Jennifer Boca: On the battery storage side, we’re also exploring that for one of our projects in Senegal, so there’s definitely a focus on battery storage as Lisa mentioned.

Do you think renewables are going to be the biggest wave in terms of annihilating energy poverty? Or do you think there’s still a 50% split between them and traditional fuel?

Lisa Pinsley: We think there’s a very, very strong case for renewables going forward, so renewables form a large part of our investment strategy in our energy and long-life infrastructure funds. But there are also important near to medium-term opportunities in thermal energy, especially gas, which is lower carbon emitting than liquid fuels or coal, but still provides that large-scale baseload power that can be flexible to offset the intermittency of renewables. This makes sense especially in places around Africa with domestic gas reserves. For those who don’t have domestic reserves, there are opportunities to import gas for reasonable prices.

James Magor: From an energy poverty perspective the idea that renewables are only affordable with subsidies is a bit of a misconception. It is, in many of our markets, the least cost source of power, so absolutely renewables are the key part in alleviating energy poverty. But as Lisa said before, renewables alone are not the solution. There’s still a need to balance their intermittency – batteries may come in to play that role - but a grid exclusively running on renewables and batteries is still not possible in many scenarios.

The idea that renewables are only affordable with subsidies is a bit of a misconception. It is, in many of our markets, the least cost source of power, so absolutely renewables are the key part in alleviating energy poverty.

What are, at the moment, your most ambitious live projects?

Jennifer Boca: At Lekela, our most ambitious project is Taiba Ndiaye Wind Farm, a 158MW wind project in Senegal, which will provide a 15% increase in the country’s generation capacity. The project has undergone an extended development process but is now partly operational, with the final phase coming online in the coming months. It’s the first utility-scale wind power project in Senegal and the largest in West Africa. The fact that there hasn’t been another project of that scale in the region added some development challenges, but since the start of construction the project has been going from strength to strength.

Apart from the power generation, there’s also our work with the local community. As part of our community investment strategy for Lekela, we’ve been working with the local community to develop enterprises.

For the area itself, which has a lot of farming activity, especially mango farmers, one of the things we’ve been doing is trying to assist them by setting up local markets. Hopefully we’ll be working with them towards building a mango processing plant, to add value to their produce as well as increase production. The other thing we’ve been doing is training - working with local youths to facilitate electrical training to allow them to partake in wind farm operations, and also giving them training during construction.

So Senegal is of course our most ambitious project, but we’ve also just closed 250MW wind power in Egypt, in the Gulf of Suez. Very different, in the sense that this project is in the middle of nowhere in the desert, and the biggest challenge for us is how to mitigate the impact on birds. We’ve just starting construction there, and are situated in the fringe of an important flyway for migratory birds, which means we have to meet very strict performance standards in order to avoid collisions. In order to do this, we came up with a bird monitoring program, which means we have to work very closely with biodiversity experts and together continue to monitor the birds, understanding their trajectories onsite. Based on that we then need to develop the shut-down programme during both migratory seasons - Spring and Autumn. So our take on it has been to try to be sector leaders in how we do this, getting the best brains around to help us build this shutdown programme, and working very closely with the Egyptian authorities. It’s still very early days as we’re just in the process of putting the data together.

The nearest community is 25km away, however at Lekela we consider local community engagement and relations as apriority. One of our key aims is to maximise local employment on the wind farm, so it’s important for us to have a local presence, encourage our contractors to identify skilled local individuals, but also to provide local training opportunities where there might be skills gaps. We’re also working closely with the Ministry of Energy to establish a women’s empowerment programme in the sector. The first steps are to establish training and apprenticeship opportunities for women, with the broad aim of improving the gender balance of the power sector.

James Magor: I think one feature of Lekela and Actis’ projects is that we look at the renewable power sector through the lens of a Just Transition to a low carbon economy. We’re very mindful that whilst renewables are part of the solution from an environmental perspective, it’s important to also consider the social implications of the low carbon transition, and recognise that relative to traditional thermal power, renewable energy isn’t necessarily the greatest sector for generating employment opportunities. Therefore, we must look at innovative ways of ensuring these regions benefit socially from renewable power, not just environmentally. A lot of the work that Jennifer is doing is framed within that Just Transition lens.

We’re also mindful of potential human-wildlife conflicts associated project development.. You can see across the wind sector there is quite an unfortunate correlation between sites that are good for wind power and sites that are good for bird life. So while we’re developing a large windfarm in Kenya, in a region that is quite sensitive to avian fauna, we’re also working closely with conservation NGOs and national experts to develop mitigation for our project, that ensures wind power can be developed safely without posing a threat to local wildlife. That mitigation programme includes things like shut-down on demand, as Jennifer mentioned on Egypt.

We’re also looking at removing potential food sources such as animal carcasses, to ensure vultures are not attracted to the project area where they might be in contact with the turbines. Then, on the conservation side, we’re partnering with four international and local Kenyan NGOs, to expand an antipoisoning programme across the Southern Rift Valley; a region which is crucial for the protection and long term survival of these vulture species. So our projects, in Kenya and Egypt, are essentially pioneering solutions that allow wind power and wildlife to co-exist harmoniously.

We briefly mentioned battery storage as the next big thing in tech, but is there any other latest tech advance that could potentially push the advance of renewable energy in Africa?

James Magor: The development of Smart Grids around the world will probably be the next big thing in tech, especially the interconnection between appliances. In addition, the global adoption of the Sustainable Development Goals (SDGs), by public and private sectors, has highlighted the urgent need for investment in the development of affordable clean energy, especially in Africa. If you look at SDG7, which concerns clean energy and global access to power, the vast majority of the investment required to achieve that goal needs to be directed into the African power sector and this is likely to further advance the Continent’s renewable power sector.

Jennifer Boca: To broaden that point, considering the SDGs through an impact lens can be helpful when we’re working locally as it helps us to connect with global efforts. Our core business deploys utility-scale power for grids but at the same time we look at how to improve local access to energy services for under-served communities through social investment programmes. By considering the wider picture, we are having a positive impact on access to power at multiple levels.