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Africa Business News of Saturday, 20 March 2021


Emerging Africa Infrastructure Fund to invest in West African hydro and solar

The Emerging Africa Infrastructure Fund (EAIF) plans further investments in hydro and solar power in West Africa after making a loan for a solar power plant in Burkina Faso.

Talks on the hydropower investment in an unnamed country in Francophone West Africa, which will be worth at least $100m, are “very well advanced” and may be concluded in the next couple of weeks, says Paromita Chatterjee, investment director at Ninety One, the asset manager that runs the EAIF.

The EAIF this month agreed to lend €29m ($34.5m) to build a 30MW solar plant to supply the national grid in Burkina Faso. The government-initiated plant, which is being developed by Urbasolar, will be near the town of Pâ, 250km southeast of the capital, Ouagadougou. The installation will be the country’s second-largest solar power plant and will supply 150,000 households.

The fund is in discussions for an additional solar investment in the same part of Burkina Faso with a similar capacity, which may be concluded in the next three months, Chatterjee says from London.

The country’s abundant solar resources, low electrification and a reliance on imports and thermal power is the “perfect combination” of factors which led EAIF to invest, Chatterjee says.

Burkina Faso, which aims to produce 30% of its electricity from solar power by 2030, has one of the world’s lowest rates of electrification. According to Lighting Africa, only 3% of the rural population is connected to the grid.

The EAIF, which is part of the Private Infrastructure Development Group (PIDG), makes loans to finance infrastructure projects in frontier African markets where bank finance is not available.

It has supported 20 renewable energy projects across Africa, making $350m of loans to private-sector developers to provide 825MW of renewable energy. It plans to seek new funds this year.

Default risk

The EAIF, which had capital of $1bn in 2018, sources its funds from governments and private-sector investors. The governments of the UK, the Netherlands, Switzerland, and Sweden provide equity, while private-sector investors including Allianz and Standard Chartered contribute debt. That means governments are first to take the hit if there is a loss-making investment.

Ninety-one, based in London and Cape Town, de-merged from South Africa’s Investec Asset Management in 2020. The firm is listed on the London and Johannesburg stock exchanges.

The fact that some countries in West Africa have a lack of independent power projects (IPPs) is a barrier to the wider penetration of renewable power in the region, Chatterjee says. This means that getting the first IPPs off the ground takes longer and is more expensive. “Discussions can take months or years,” she says.

The intermittency of many kinds of renewable power means that a stable baseload supply is needed, but some West African countries don’t have one, says Chatterjee. She’s confident that falling prices for solar batteries and storage solutions will “change the game” for solar power in Africa.

The market perception that African projects are riskier means that the bar is set higher for investment and defaults are rarer than elsewhere, Chatterjee says.

She points to a global study of project finance bank loan defaults between 1983 and 2019 published this month by Moody’s, showing that western Europe, North America and Latin America account for 76.8% of total defaults.

Based on the global survey of 9,332 projects, Africa has a project finance default rate of just 4.5%, Moody’s says, lower than anywhere in the world except western Europe and the Middle East.

Project financiers are less likely to lose their money in Africa than in most parts of the world, which should help to boost solar and hydro projects on the continent.

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