Switched On: Renewable Energy Investment in Africa

21 Jun 2018

By Jade Palmer, Manager, Corporate Finance - Grant Thornton

 

Invitation to Participate: Grant Thornton, in collaboration with Renewables in Africa, has launched its first Africa Renewable Energy Discount Rate Survey, spearheaded by valuations expert Tomas Freyman. You can access the survey, here

 

Over the past few years we’ve seen accelerating demand and insufficient supply of energy across the African continent, with Sub Saharan Africa (“SSA”) having just 168GW of installed power capacity in 2016 according to the African Development Bank (“AfDB”).  To put this into perspective, the total installed capacity of SSA equated to just 20% of Europe’s in 2016, despite having a population that is 60% greater.

This shortfall is further emphasised by the World Bank’s economic growth forecasts for SSA which are expected to increase from 2.4% in 2017 to 3.2% in 2018 with six of the world’s ten fastest growing economies situated within SSA, namely; Cote d’Ivoire, Djibouti, Ethiopia, Ghana, Senegal and Tanzania; and they all need power.

Despite the abundance of renewable energy resource across the continent, including solar, hydro and geothermal resources, these remain relatively untapped. To date this has largely been as a result of the following three broad challenges facing infrastructure investment into Africa:

  • political uncertainty and weak regulatory environments
  • skills shortage
  • increased complexity around financing

These aforementioned challenges and the lack of transparent information, have meant that investment into infrastructure on the continent has struggled to gain momentum due to the perceived risk. This is further bolstered by the constrained secondary transnational market which has meant that current investors are often relying on their own experience and advisory teams for their evaluations. 

Jade Palmer, Manager in the Grant Thornton valuations team, notes that, “The issue is not a shortage of capital, but rather a shortage of information for investors to make informed decisions.”

Creating a better understanding of the investment climate and prospective returns for renewable energy projects across the African continent will be crucial for enabling the flow of inward investment and securing its future energy supply.

Grant Thornton’s new survey looks to help resolve this dilemma by collating this information and reaching out to those investors seeking opportunities in Africa. 

“As a team specialising in valuing renewable energy projects, the first question I get asked by any fund or investor across renewable energy is: Where are you seeing the market?,” Tomas Freyman,  partner at Grant Thornton.

“And really, the question is where is pricing across these assets?

“It all comes down to cost of capital or discount rates that are being used to discount forecast cash flows to the valuation date, therefore having a robust view on where pricing is across those technologies is very important.”

 

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