On November 4, on the margins of COP22 in Marrakesh, Africa50 CEO Alain Ebobisse moderated one of the closing plenaries of the annual Africa Renewable Energy Forum, “The Crucial Contribution of Independent Power Projects in Sub Saharan Africa.”
Panel members included the Senior Energy Officer of the South Africa IPP office (Ngobeni), a White and Case legal expert (Vaissier), and business development heads of the power companies Mainstream Renewable Power (Thompson), SolarReserve (Jessop) and eleQtra (Avery).
The discussion revolved around the following themes:
- How systematic power sector planning is crucial to identifying the generation projects, including IPPs, that best meet a country’s needs.
- How competitive procurement of IPPs helps ensure that projects are implemented transparently and at the lowest cost.
- The relative advantages and disadvantage of competitive bidding over direct negotiation of IPPs.
- The financial viability of utilities as a factor in attracting IPP investments
- The importance of a positive investment climate and well-functioning regulatory regime.
Overall the panelists remained optimistic about the future of IPPs in Sub Saharan Africa, although they were cognizant of the obstacles. South Africa was cited as the country that has come farthest in the kind of planning necessary to project future electricity demand and decide on best supply options. It also sets realistic timelines on how long it will take to procure, finance, and build the required generation capacity and what kind of power to favor. Renewable energy use and IPPs have been particularly well developed.
The lack of competition in procuring new generation capacity has drawbacks ranging from higher prices to weaker governance of the electricity sector. Competitive procurement can stimulate the development of bankable projects, especially in renewable energy. However, African governments often do not offer tenders with clear ground rules, reliable timelines or standardized long-term contracts. While some governments may not have the know-how to structure tenders, experienced advisers can be brought in.
Sometimes unsolicited offers and direct negotiation are the shortest route to implementing urgently needed projects. However, to negotiate reasonable contracts governments must develop the capacity to assess the cost competitiveness of projects and the capabilities of project developers. In some cases, unsolicited bids can be made more transparent by subjecting them to a public tender.
Most IPPs are project-financed, and their bankability rests on secure revenue flows. Developers are reluctant to commit their funds unless their partners, be they utilities or large customers, are financially viable off-takers. Although credit enhancement and security measures can mitigate risk, a financially strong off-taker remains key for securing long-term contracts with IPPs. Improving the performance of utilities and the regulatory and investment climate in general must therefore remain country priorities.