Africa Surveyors May-June issue 2023 digital

OPINION
How financial institutions can
drive Africa’s energy transition
Absa recently released its annual financial results and from
this, there are two important numbers to highlight. The first
being that Absa is working on power projects representing
over 2000MWs and the second being that the bank has R45bn in
new power projects in the pipeline. This is on top of the ca. 4GW’s of
projects closed to date.
In the context of our economy, these are considerably significant.
As a South African, it is easy to become disheartened by the ongoing
economic challenges brought about by load-shedding. Whether it is,
factories standing idle when the power goes off, or coming home to
no electricity, the challenges affect all citizens and businesses.
Therefore, when we look at the sheer scale of projects in the
pipeline, we believe that the next few years will be transformative
for our country, our people and the economy.
While Eskom is a major cog in the South African electricity
infrastructure, it is important to realise that the broader ecosystem is
changing quite rapidly, and we should be aware of this shift.
The lifting of the cap on generation projects has opened the door
for several new developments. We are now entering an era where
an independent energy exchange has been licensed and established
to re-sell excess power, and buyers and sellers will be able to
negotiate market-related rates. While there are still questions around
distribution and transmission, this massive leap forward could
potentially serve as a blueprint for the energy transition across the
African continent.
Captive power projects are growing rapidly across the country and
as one of the successful major funders of these projects, we have
learnt important lessons over the last 12 to 18 months that make us
a funder-of-choice for many of these transactions.
Unlike the Government-backed renewable energy projects in South
Africa where we have sovereign guarantees backstopping Eskom’s
commitments under the PPAs (power purchase agreements), for the
captive market, banks and investors have to take a very long-term
view on the off-taker, where the credit quality may not match that
of the Sovereign. In the normal corporate lending world, corporates
typically raise debt financing for much shorter tenors compared to
what is required under a captive Independent Power Producer (IPP)
project with a 20-year PPA.
Banks and investors are now starting to take a view on the broader
energy market, looking beyond the initial power off-taker to a market
where it will be possible to find alternative off-takers for projects
supplying power into the national grid, and eventually to power
18 May-June issue l 2023 www.africasurveyorsonline.com