Africa is uniquely placed to build a sustainable, renewable energy matrix with immense potential. From a local perspective, Botswana stands a chance to play a big role in this burgeoning industry, according to Sheperd Aisam, Head of Corporate and Investment Banking at Stanbic Bank Botswana.
How quickly, efficiently and at what cost the continent builds this energy infrastructure will be influenced by sovereign wealth, governments’ commitments and capital markets. “With her current wealth, natural resources and access to capital markets, Botswana needs to devise policy requirements to take advantage of these resources,” said Aisam.
The World Bank estimates that only 24% of people across sub-Saharan Africa have access to electricity. Furthermore, limited, inefficient or expensive distribution networks ensure that the bulk of what little power is available is narrowly concentrated in a handful of countries and commercial centres. Botswana’s planned national interconnector and transmission infrastructure projects are a crucial step in the right direction to take advantage of this opportunity.
Rapid evolution of renewable energy generation and distribution technology provides a range of new sustainable energy alternatives. “Baseload remains critical, and with multiple baseload projects underway or at planning stage, the generation mix is now ready to accommodate more renewable energy,” Aisam added. While there is not much wind resource, there is an abundance of solar resource with almost the whole country getting 3200 hours of sunlight annually, and that’s where the opportunity is.
Smaller renewable projects, while often generating less power, can nevertheless support growth in investment if focused on the most productive sectors of an economy through focused investment. The mining sector is one potential off-taker for such projects.
Renewable energy projects also have the advantage of costing less the longer they operate, depending on the specific technology and operate and maintenance agreements. This means that once they are paid off, through tariff structures that correctly reflect cost; they can be re-focused on supplying cheaper power to non-capital generating elements of the economy.
While project finance is often raised in foreign currency, project revenues on the continent are generally denominated in local currency. Where the exchange rate between the currency of revenue and the currency of debt diverge, the cost of debt increases dramatically. This carries the risk of extending repayment periods – or defaulting entirely – with exponential cost implications over the long term.
However, various risk management products are available to help developers hedge against this risk. In addition the attempts currently being made by legislators across the continent to deepen domestic capital markets should be encouraged and Pan-African multilateral forums would do well to consider how Asia and other emerging regions deepened local capital markets as a critical development enabler.
While developing a diverse matrix of traditional and renewable energy supply on the continent requires long-term institutional development, shorter-term challenges requiring immediate attention when considering energy projects on the continent include: Countering the effect of lower commodity prices and US dollar strength by; lending against ring-fenced security or cash, allowing pre-paid charges to reflect currency depreciation, seeking innovative non-US dollar denominated financing, or selling off operating assets; Avoiding project cost and time creep by focusing on realistically-sized power projects determined by greatest developmental or earning returns.
It also includes countering environmental damage and cost while reducing project delivery time-frames by up-weighting renewables in the energy mix.
Despite current challenges, Botswana fares better than most and stands uniquely placed to develop a diverse and sustainable energy mix, and in the shortest time. “The strategic use of renewables can also deliver this at the lowest costs and with least environmental impact. This is while building energy infrastructure with the longest shelf-life addressing the long term power needs for the country and indeed the continent,” said Aisam. “Botswana is one of the few countries best placed to swiftly counter the above-mentioned challenges and take a leading role in the development of the continent’s power sector.”
Stanbic Bank continues to wield influence in the power and infrastructure sector, with a wealth of independent experience as well as through leveraging the experience of parent, Standard Bank Group. “Stanbic Bank Botswana stands ready to tap into the deep experience in scoping, planning and raising capital for numerous Independent Power Producers (IPP) and Private Public Partnerships (PPP) across the continent. This has positioned the Bank to identify the key institutional attributes that drive the efficient and successful leveraging of global capital for the development of power infrastructure,” added Aisam.