Standard Bank: investment key to closing Africa’s energy gap

Standard Bank, Africa’s largest lender by assets, and General Electric have reaffirmed their commitment to Africa at a power financing roundtable held in Washington DC.

The partnership sees both parties aiming to bridge the power financing gap in Africa and forms part of the US Africa Leaders’ Summit, the largest gathering of African heads of state and government as well as key stakeholders to visit Washington on any one occasion.

Financing agreement

The strategic partnership has already seen both companies commit to a US$ 350 million financing agreement aimed at improving access to power infrastructure in Africa. Africa needs to add an extra 300 GW of power generating capacity over the next 15 years in order to meet demand, which is expected to grow at an average annual rate of 3% over the next two decades. According to the International Energy Agency, sub-Saharan Africa requires more than US$ 300 billion in investment to achieve universal electricity access by 2030.

Sim Tshabalala, CEO of Standard Bank Group, says solutions to meet Africa’s growing energy demands will only be possible once developers, governments and funders reach a common understanding of the risks, pricing and regulatory imperatives needed to facilitate the required investment.

Mr Sim Tshabalala, Chief Executive of Standard Bank Group.

Investments in power generation

"There are significant opportunities and a viable investment case for governments across Africa to provide the lion's share of long tenor debt funding given the solid returns on investments in power generation and distribution.”

Tshabalala added: "Standard Bank works with investors to offer them a sustainable and structured model to finance power and infrastructure projects appropriately. On-going strategic partnerships with stakeholders like GE, allows us the opportunity to provide access to energy across the continent. In tandem, we are also playing an active role in supporting the policy reform process that should facilitate additional private sector investment in power.”

Africa’s power infrastructure

Africa’s inadequate power infrastructure is a serious constraint to sustained growth and creates significant transaction costs for firms operating on the continent, which is home to 15% of the world’s population yet produces just 3% of the its energy output.

Decades of inadequate investment in infrastructure along with a lack of policy clarity and poor planning by regional governments means that many sub-Saharan African countries continue to battle inadequate power supply. Power outages cost more than 5% of gross domestic product (GDP) in Malawi, Uganda and South Africa; and between 1 and 5% of GDP in Senegal, Kenya and Tanzania.

Innovative funding solutions

While the continent has seen heavy investment in the natural resource sector, global investors are quickly realising the potential benefits of investments in other sectors such as power and infrastructure. Financial institutions such as Standard Bank are pioneering innovative funding solutions to help close the energy gap on the continent.

"Standard Bank's view is that there are many financing options on the table, if the economic opportunity is considered seriously,” said Tshabalala. “For example, new generation planning requires a complete financial model. Critical to success is the need for greater certainty in terms of creating environments conducive to investment which then makes it easier to attract the required investment into the sector, especially within emerging markets.”

Pricing hurdles

He cautions however, that in terms of pricing, there are still many hurdles to overcome. One example is where power tariffs are set below the replacement cost of production, which then acts as a disincentive to investment in new plants.

"The bottom line is that African governments need to take these harsh economic realities into consideration and advance sector reforms. Only then will they boost their access to capital markets and better position themselves to fund the large-scale power developments that are crucial to their economic futures," Tshabalala concluded.

Source: Standard Bank

Edited by Katie Woodward

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/06082014/investment-key-to-closing-africa-energy-gap-1209/