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Africa GreenCo Overview 14 March 2017
AfricaGreenCoOverview
14March2017
WhatisAfricaGreenCo?
AND IntermediaryCreditworthy
O6aker
PowerPoolPar:cipant(Trader)
- Reduce transaction time and cost - Make more projects bankable - Improve project finance terms - Increase financial capacity for
utilities and sovereigns - Access point for better risk
management
- Grow competition in markets - Facilitate growth of cross-border
and inter-regional power trading - Increase market liquidity - Reduce default and outage risk - Regional resource optimisation
o Animplementa;ontoolforSDG7o Acatalysttounlockprivatesectorinvestmentinrenewableenergygenera;on
projectso Anefficientstructureforthedevelopmentcommunitytoenterintopartnership
andcoopera;onwithAfrica
OverviewofNeedandReality
q Genera;onneed:AfDB:160GWby2025foruniversalaccess
q Genera;onGoals:COP21–AREI:300GWby2030ofcleanenergyaddi;ons
q CurrentReality:1990to2013,only24.85GWinSSA(SouthAfricaaccountedfor9.2GW)
q SSAfundingneed:AfDB:Anaddi;onalUSD40-70bnperyeartoachieveuniversalaccess
q CurrentFunding:es;matedatUSD4.6billionayear,50%publicfunding
q IPP/PPPProjectstodate:Only59IPPprojects>5MWinSSA(excludingSouthAfrica),totalling$11.12bnininvestmentsand6.8GWofinstalledgenera;oncapacity,ofwhichonly7IPPsinSADC(excludingSouthAfrica)(Eberhard2015).
q SAPP:USD90bnovernext2decades(Deloi[e)
q Privatesectorinvestmentrequiredasneithertheregionalu;li;esnorgovernmentshavesufficientbudgetaryresourcestofund
Currentcontext
q Manyu;li;esarecashconstrained/dependentoncentralgovernmentforbudgetarysupportandcustomerbasesaresmall
q Theshi^towardscost-reflec;vetariffsandimprovementsincollec;onrateswilltake;me
q Withoutacreditworthycounterparty,developersandlendersrequirecreditenhancementthroughsovereignand/orDFI/MFIguarantees
q Thecurrentproject-by-projectapproachtoelectrifica;onisunsustainable:
– Supportthroughexis;nginstrumentsisnotsufficienttoaddressfundinggap
– Creditenhancementofprojectsonaone-offbasisaddscostanddelays
– Nosingleprojectisabletoshi^theactudeofcommercialinvestorstobankability–asystemic/structuralchangeisrequired
– Pucngtheburdenongovernmentstoprovideexplicitandimplicitguaranteesorcounter-guaranteesshi^sthecreditworthinessissuetothesovereignlevel
AfricaGreenCoPan-AfricanVision
q Supportandcomplementglobalandcon;nentwidedrivetowardsuniversalaccess,greenenergyini;a;vesandprogrammes(NEPAD,PIDA,AfDB’sNewDealonEnergyforAfrica,AfricaRenewableEnergyIni;a;ve,COP22,PowerAfrica)
q Catalyseinvestmentingenera;onbyprovidingacreditworthyintermediaryofaker
q Promotecompe;;veelectricitytradeinregionalmarketsbyincreasingliquidity
q Fosterregionalintegra;on,sharebenefitsandimprovesecurityofsupply
q Startinoneregion/powerpoolandgrowtocoverthecon;nent
q OperatethroughanAfricanledorganisa;ontoaligninterestsandpromoteregionalcoopera;on
q Harnessstrongpoli;cal,ins;tu;onalandinvestorsupport
q WhathassucceededinotherpartsoftheworldcansucceedinAfrica
Precedent:PowerTradingCorpora;onofIndia
q CreatedapowermarketinIndiaandtheneighbouringcountriestoop;mallyu;lizetheresourcesavailabletogeneratepowerandencourageprivateinvestmentsintothepowersector
q Ini;alequitypar;cipa;onbyPowerGridCorpora;onofIndiaLtd(POWERGRID),NTPC,PowerFinanceCorpora;on(PFC),withNHPCjoininglater
q PurchasedpowerfromprivateprojectsandsoldtotheStateElectricityBoards,regionalu;li;esandindustrialconsumers
q Enablelarge-projectstonego;atewithasinglecreditworthybuyertoeliminatepaymentrisksforlarge(mega)projectsandsubstan;allyreducethetarifffromsuchprojects
q A[ractviableinvestmentsinthepowersectoronthestrengthofamul;-buyermodel
q Mul;buyermodelfacilitatesroutetomarketforsurpluspowerandincaseofdefault
DesignPrinciples
Africa GreenCo structure driven by nine key priorities: 1. Legally and financially creditworthy 2. African owned and led 3. Complementing and collaborating with existing initiatives 4. Scalable 5. Operating at a regional level 6. Benefiting utilities and sovereigns 7. Benefiting project developers and investors 8. Incorporating blended capital from concessional and
commercial sources 9. Financially sustainable
AFRICAGREENCO
Investors IPPCapital
Utility EndUsersPPA PSA Power
Intermediary&CreditworthyOfaker
o CreditworthyofakerunderthePPAo Reducestheperceivedriskoftheprojectforinvestorso Improvesthequantumandcostofcapitalo Hastechnicalandlegalcapacityandframeworktoexecute
transac;onsmoreefficiently
AFRICAGREENCO
Investors IPPCapital
Utility2 EndUsersPPA PSA Power
Utility1 EndUsersPSA
Power
PrivateOfftakerPSA
AFRICAGREENCOInvestors IPP
CapitalUtility1 EndUsers
PPA PSA Power
Utility2 EndUsersPSA Power
DefaultonPSA
Formorecomplextransac;ons,AGCwillalsoactasanaggregatoranddiversifierofrisks.
AGCreducesdependenceonindividualofakersanda[ractsinvestmentonthebackofamul;-buyermodel
Intermediary&CreditworthyOfaker
PowerTrader
Inaddi;ontoitsroleasanofaker,AGCwillalsopar;cipateintheregionalpowermarkets,promo;ngcrossborderpowertransac;onsandamore
dynamicandliquidshorttermpowermarket.
AGC’sprimaryaimistomakemoreprojectsbankableandincreaseaccesstoreliable,affordableelectricity–butitssecondaryimpactsincludeenhancingvalueformoney,improvingmarketefficiencyandpromo:ngsustainableeconomicdevelopment
Impactpoten;al
q Projectlevelimpacts– Reducingcostofcapital– Simplifyingandaccelera;ngtransac;onexecu;on– Broadeningthepoolofinvestorsforbothnewprojectsandrefinancings– Providinganefficientroutetomarketforsmallerprojectsthroughaggrega;on– Cushioninginvestorsfromregulatorychange/powermarketunbundling– Ac;ngasanentrypointforthirdpartycreditmi;ga;ononaporkoliobasis
q U;litylevelimpacts– Increasinginstalledcapacity– Reducingaveragecostofpowerthroughlowertariffsandreducedrelianceon
expensiveshorttermemergencypower– Increasingrevenuesthroughmoreefficientuseofexis;ngassets– Releasingresourcestofocusonins;tu;onalcapacitybuilding,opera;onal
efficiencyandimprovementstotransmissioninfrastructure– Facilita;ngthemovetowardslocalcurrencydenominatedPPAs
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AGC’sprimaryaimistomakemoreprojectsbankableandincreaseaccesstoreliable,affordableelectricity–butitssecondaryimpactsincludeenhancingvalueformoney,improvingmarketefficiencyandpromo:ngsustainableeconomicdevelopment
Impactpoten;al
q Sovereignlevelimpacts– ReducetheprobabilityofsovereignPPA-relatedcon;ngentliabili;es
crystalising– Helpavoidtheeconomicimpactofoutagesands;mulateeconomic
development
q Regionalimpacts– Supporteffortstoharmoniseregionalregula;ons– Catalysemoreac;veregionaltradeandhelpdeveloptheregionalpowerpools– Promoteregionalresourceop;misa;on– Helpbuildthecaseformoreinvestmentinregionaltransmission,
interconnec;onandgridmanagementbyincreasingtradedvolumesq Socio-economicimpacts
– Avoidemissions– Createemployment– Improveaccesstobasicservicesincludinghealthandeduca;on
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Impactsoverview
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Legal&GovernanceStructuringOp;ons
- Legal entity, shareholding and/or membership in the company, will be structured:
• for sovereign African countries to be members and have ownership; • to attract capital from the donor/DFIs and the private sector; • to allow different classes of investors with different risk appetites; • to minimise political interference in governance and operations; • to provide adequate international status and immunity • to ensure the business can be operated efficiently
- Four principal legal structure options
Independent International Organization
An international treaty organisation
AU special agency / subsidiary with separate corporate entity
National company with potential for regional expansion via an intergovernmental agreement.
Example AFC
ATI
ARC
AGF
1
2
3
4
Na;onal,interna;onaloracombina;on?
Na;onal
Establishedunderna;onallaw
Quicktoestablish
Recognisablelegalform
Fitswithinexis;ngframeworks(e.g.SAPP)
Subjecttona;onallaws/regula;ons
Closelyiden;fiedwithhostcountry
Possibletosell/float
Interna;onalEstablishedundertreaty
Lengthyestablishmentprocess
Flexiblestructure–determinedbysignatories
Mayoperateabovena;onallaws/regula;on
Privilegesandimmuni;es
Independent/regional/scalable
Maya[ractODA/IDA
• Foundermember(s)• Subsequentmembers• Entry/exitrules
MarketOp;ons
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AfricaGreenCo’smandateispan-African,butge\ngstartedrequiresfocusingonamanageableareaandselec:ngthisstar:ngpointiscri:caltoAGC’ssuccess.
q Maincriteriaforselec;on:– Capacityforregionaltransmissionandcross-bordertrading– EnablingenvironmentforIPPs– Localpoli;calsupportforRenewableEnergy
q Coordina;onwithparallelregionalini;a;ves
q Complementaritywithwiderpowersectorreforms
EastAfrica WestAfrica SouthernAfrica
SouthernAfricaExRSA
PowerPool EAPP WAPP SAPP SAPPDataYear 2014/15 2013/14 2014/15 2014/2015Installedcapacity(MW) 53,296 9,912 61,363 14,876HydropowerShare(%) 20% 34% 21% 78%ThermalShare(%) 72.4% 66% 62% 22%OtherREShare(%) 7% 0% 17% 0%TargetREShare N/A N/A 32%(2020)
35%(2030)N/A
GridInterconnec;on Medium Low High MediumTradingplakorm Medium Low High HighCurrentIPPs 44/High 24/Low 74/High 7/LowIPPEnvironment High High High MediumREPolicySupport High Medium High Medium
SADCasini;alfocusmarket
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Acerconsideringthemarketdynamicsinthe3keyAfricanpowerpools,SADC/SAPPwasdeterminedtobethemostappropriateregionforproofofconcept
q SADCmarketfeatures:– Capacityforregionaltransmissionandcross-bordertrading– EnablingenvironmentforIPPs– Localpoli;calsupportforRenewableEnergy
q Alignmentwithregionalini;a;ves– RERAIPPFramework– REEESAP– RIDMP– SACREEE
q Complementaritywithwiderpowersectorstructuresandreforms– SAPPprovidesfor‘ServiceProvider’members– Marketunbundling
AGCwillcon:nuetoengagewiththetheotherRECsandpowerpoolswithaviewtosubsequentrollout.
SAPPCross-BorderPowerFlowCorridors
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SAPPhassufficientlyrobustinterconnec:onsandplansforgreatergridintegra:onthatcreatesasuitablecontextforAGCimplementa:onq 20ac;vecross-bordergridinterconnec;onsq 11plannedaddi;ons–atleast6maycomeonlineby2020q Conges;oncanbeaddressedthroughmarketsplicng,counterflow
trade/radialmodetransac;ons
SAPPRegionalMarket
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Thereisalreadysubstan:alcross-borderpowertradingac:vitythroughlongtermfixedcontractsandshorttermcompe::vepowermarkets
q Bilateralcontractsdominate– 18+contractsin2015– 8TWhtradedin2015– 94%marketsharein2014-15,fallingto
80-85%marketsharein2016
q Ac;vecompe;;vemarket– DAM,IDMandnowFPM– 50-100GWh/$3.5-5mtradedper
month– Deficit:only20%ofbuyorders,and70%
ofsupplyorderstransacted– SAPPforecast10%growthy-o-y
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16 0
20
40
60
80
100
120
140
Transacted
volum
eGW
h
SAPPCompe::veTradingAc:vityNo. Supplier Buyer Capacity(MW)1 HCB Eskom 16002 Eskom MOTRACO 9503 ZESA NamPower 150-804 Aggreko ZESCO 148-405 Aggreko NamPower 1086 APR BPC 70+357 Eskom BPC 3008 Eskom NamPower Asrequired9 EDM BPC 5010 HCB ZESA 15011 Eskom LEC Asrequired12 Eskom SEC Asrequired13 EDM SEC Asrequired14 EDM ZESCO 15015 HCB Eskom 25016 Eskom ZESCO 30017 Karpowership ZESCO 100+30018 ZESCO NamPower 50
ProjectPipeline
q RenewableenergyIPPsacoreelementofSADCenergyplans
q Botswana,Zambia,Mozambique,NamibiaproposedpilotcountriesforAfricaGreenCodueto:– Ac;vetradingpartnersinSAPP– REpoten;al– Investorfriendliness
q Botswana,Zambia,NamibiaalsopilotcountriesforRERAIPPFramework–collabora;ontofacilityimplementa;on
q Neartermfocusonfinancialpragma;sm:small-mediumprojectsinordertobuildadiversifiedporkolio
q Ini;altargetprojectsize5MW–100MW
q Scalable–onceconceptproven,cansupportlargerprojects
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AfricaGreenCoOpera;ngModeRisks
o Risk:Ofakerdefault
o Objec;ve:KeepIPPwholeandpreventPPAtermina;on
o Mi;ga;on:Abilitytosecurealterna;vepurchaser
o Technicalconstraint:Wheelingcapacity
o Regulatorysupport
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Example–Projectwith2o6akersandsomecapacitysoldonDAM
OfakerDefaultandWheelingRights
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IPP
AGC,Ofakers1&2PointofDelivery
TSO
TSO/Ofaker1Load
TSO
TSO Ofaker2
OffTaker2Cap;veLoad
ToSAPP
TSO
TSOGenerator
Ofaker2PointofDeliveryforTSOpower
IPP/TSOPointofinterconnec;on
Ofaker2
Example–Projectwith2o6akersandsomecapacitysoldonDAMBusinessasusual-NODEFAULT
OfakerDefaultandWheelingRights
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IPP200MW
AGC,Ofakers1&2PointofDelivery
TSO
TSO/Ofaker1Load
TSO
TSO
Ofaker2Cap;veLoad
ToSAPP
TSO
TSOGenerator
Ofaker2PointofDeliveryforTSOpower
IPP/TSOPointofinterconnec;on
20MW-DAM
200MW 90MW
90MW
90MW
90MW200MW
Ofaker2
Example–Projectwith2o6akersandsomecapacitysoldonDAMBusinessasusual–OFFTAKER1DEFAULT
OfakerDefaultandWheelingRights
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IPP200MW
AGC,Ofakers1&2PointofDelivery
TSO
TSO/Ofaker1Load
TSO
TSO
Ofaker2Cap;veLoad
ToSAPP
TSO
TSOGenerator
Ofaker2PointofDeliveryforTSOpower
IPP/TSOPointofinterconnec;on
20MW-DAM
200MW 180MW
0MW
180MW
180MW200MW
Ofaker2
Example–Projectwith2o6akersandsomecapacitysoldonDAMBusinessasusual–OFFTAKER1and2DEFAULT
OfakerDefaultandWheelingRights
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IPP200MW
AGC,Ofakers1&2PointofDelivery
TSO
TSO/Ofaker1Load
TSO
TSO
Ofaker2Cap;veLoad
ToSAPP
TSO
TSOGenerator
Ofaker2PointofDeliveryforTSOpower
IPP/TSOPointofinterconnec;on
20MW-DAM
200MW 180MW
0MW
180MW
180MW200MW
Ofaker2
AGCtosupplynominatedcap;veload(withpriceincen;ve)–i.e.sameendusersupplieddirectbyAGCOfakers1&2toguaranteewheelingtonominatedcap;veloadMayneedESCROWaccount
Example–Projectwith2o6akersandsomecapacitysoldonDAMBusinessasusual–OFFTAKER1and2DEFAULTandNOCAPTIVELOADOFFTAKE
OfakerDefaultandWheelingRights
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IPP200MW
AGC,Ofakers1&2PointofDelivery
TSO
TSO/Ofaker1Load
TSO
TSO
Ofaker2Cap;veLoad
ToSAPP
TSO
TSOGenerator
Ofaker2PointofDeliveryforTSOpower
IPP/TSOPointofinterconnec;on
20MWDAM+180MWDAM/Bilateral
200MW 0MW
0MW
0MW
0MW200MW
Ofaker2
AGCtofindbilateralofaker(s)inSAPPorsellonDAMintheinterimWheelingbasedonSAPPRules(Priori;sa;on)DAMtradespaidaccordingtoSAPPrules,Bilateraltradespaidasnego;ated
CurrentStatus
FeasibilityStudy
ProofofConcept
Scale
- COMPLETE - Based upon hypothetical portfolio of projects - Incorporates technical analysis - Includes financial structuring - Broad industry support obtained (including SAPP,
RERA, KfW, DBSA)
- Proof of concept expected in Zambia
- Leverage existing market infrastructure
- Complement parallel initiatives
- Expand capital base to support growing portfolio
- Replicate initial transaction, tailoring strategy to new markets
Implementa;onPlan
- Establish a concrete pipeline of projects within SADC - Detailed technical and regulatory review - Further develop legal and regulatory structure - Prepare financial structure & business plan
NextStepsTimeline
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Furtherinforma;onandcontactdetails
Website:www.africagreenco.com
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CathyOxbyCommercialDirector
AnaHajdukaFounderandCEO
LovemoreChilimanziTechnicalDirector
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ThankYou
