Q2 2022 - (released August 2022)
SA's quarterly Private Equity & Venture Capital magazine
Renewed energy with Anergi
by Michael Avery
While South Africa still struggles to get to grips with loadshedding, 15 years after the term was first coined, Harith General Partners, one of the largest investors in Africa's infrastructure, and Anergi Group, a leading African power provider, have partnered to establish the Pan-African Renewable Energy Fund (PAREF) to accelerate renewable energy adoption across the African continent.
Harith CEO, Sipho Makhubela explains that Anergi is a company that Harith controls and manages, and the partnership is the logical next step in its evolution.
“They've been doing African-based power investments for years,” says Makhubela, “and we started investing in that business in 2008. And so it really is a good mix for us, not only to use our own experience as a standalone, having worked on the continent, but also for Anergi itself, being specifically focused on the African power sector. It made sense for us to then pull together and use our strength and their strength to specifically focus on the opportunity.”
Anergi’s portfolio comprises five operating assets and a total installed renewable and thermal capacity of 1 413MW, supplying up to 23 million customers across Ghana, Kenya, Nigeria and South Africa.
The IEA estimates that closing the energy access gap in sub-Saharan African countries will require an estimated annual investment of $28bn from now until 2030, including $13bn for mini-grids; $7,5bn for grid investments and $6,5bn for off-grid investments.
“The timing could not have been more perfect, right? We are all on board with what needs to happen with the transition; no debates there. But what's important to us is for Africa not to be left behind. There is no better resource, whether it's wind, or having the sun, for what Africa has to provide. For us, our solution needs to be African-based, together with an Africa-focused team, for Africa’s sake itself, to ensure that we are at the forefront of delivering on our requirements, and with African-led solutions.”
Cost inflation is emerging as a significant immediate challenge in the renewable build out globally. At a recent renewable energy conference in Europe, industry leaders warned that raw material and logistics inflation, coupled with downward price pressures from auctions, have led to an unsustainable situation where wind OEMs are selling at a loss, with the sector unable to deliver Europe's planned tripling of wind capacity by 2030. And bidders in the REIPPP Bid Window 5 have struggled to reach financial close, so the cost pressures are spilling over into the local market.
“Certainly, there's a lot of experience that came through the South African renewables programme. For a long time, that programme pretty much led the world in terms of how it gets done, where pricing is going. And that's been a downward pressure trend for some time,” says Makhubela. “But from a long-term point of view, we don't see it as a major threat. It certainly talks to the issues of today, and how those issues get dealt with systematically over the years. We don't see that in that trend. So yes, the point is, there's pressure on returns; there's no doubt about it. But in fairness, that pressure on returns, on the other hand, has been cushioned by the downward pressure on the cost per megawatt hour, so it does help.”
Makhubela is encouraged by the growing secondaries market for renewable power projects, which is starting to offer a viable exit path for first risk investors and project developers in South Africa, while progress remains frustratingly slow in the rest of Africa.
“I'm a pan-Africanist and we do need a thriving secondary market because, for a long time, it's been a barrier to new capital flowing in because it then looks at ‘how do we exit?’ The general trend on exit has not been as great as we'll see in other sectors, and certainly what you see in South Africa. So, as that is happening here, it is good for the continent to start having a track record on the secondary market. Certainly, you're not seeing that elsewhere, as much as you are seeing it here.”
At an initial $300m, PAREF will be key to bridging the energy access gap across the continent, while contributing to the just transition in energy by accelerating African economies’ move to low-carbon in a socially responsible manner.
PAREF’s investments will seek to accelerate the execution of renewable energy projects on the continent through innovative development and financing mechanisms, targeting both greenfield and brownfield projects.
Looking at the long term, Makhubela sees huge potential in the possibility for industrial-led growth through localisation, but is rather more diplomatic when pressed on the localisation rules that have delayed bidders from reaching financial close in Bid Window 5.
Ironically, South Africa’s economy will only return to the sort of growth needed to truly transform if the government rolls back its fixation on bureaucratically enforced localisation and transformation. While all can agree with the need to create a more inclusive economy, like RMB CEO James Formby pleaded recently, we need to stop putting the localisation cart before the priority growth projects horse. And this applies equally to the large-scale renewable energy build out in South Africa.