HomeRegional NewsAfricaConservative financing attitude hindering project bankability

Conservative financing attitude hindering project bankability

Exclusive interview with Ørjan Alexander Pedersen, founder and COO of Empower New Energy and panellist at the upcoming Future Energy East Africa on “Improving the outlook and bankability of mini-grid projects – how do we heighten the financial appetite for the sector?”

“We are currently working on financing four projects in East Africa, both solar PV and run-of-the-river hydro, and a few more in West Africa.”

Let’s start with some background on your organisation and your work in the energy sector?
Empower New Energy is a renewable energy impact investment fund, focused on renewable energy investments in Sub-Saharan Africa, with a particular focus on East Africa. Our fund is an open-ended evergreen fund with a blended finance fund, with investors ranging from DTIs to private impact investors. The fund is structured as an impact accelerator fund and we work both with IPP projects and commercial and industrial projects and our sweet spot for investing is 1-10 mill USD per project.

We work in a partnership model with several developers in the region and we have a strong focus on the impact of the investments in terms of the SDGs, in particular, affordable and clean energy, work creation, gender equality and climate action. Empower New Energy was built to find a solution to the financing gap of the smaller scale projects, where the traditional or non-recourse project financing is not suitable due to the time and cost of this type of financing. We rather see the investments as a portfolio of investments and we raise debt and leverage climate finance on the portfolio of projects which span over multiple off-takers, technologies and countries.

Unlike the traditional investment companies, we work in partnership and close collaboration with project developers to raise the quality and bankability of the project in order to achieve the most competitive financing on the projects and lower the cost to the end clients.

Any east African projects that you are involved in that you are particularly excited about at the moment?
We are currently working on financing four projects in East Africa, both solar PV and run-of-the-river hydro, and a few more in West Africa – I can’t go too much into the projects as they are in due diligence and financial closing. But we are very excited about the drive in the commercial and industrial space and seeing companies that are putting the climate action high on their agenda and how they would like to contribute to the climate solution rather than being a cause. It is very encouraging to see the will to adapt in this market as well as the strides that are being made to find solutions for mini-grid projects both on a regulatory and business model level.

What is your view are the challenges to getting financing for energy projects in East Africa?
In my view the challenges for financing renewable energy projects in East Africa are down to a conservative financing attitude, trying to rely on a financing model which is not fit for purpose and the perceived risk of renewable energy and local markets. I believe that to a large degree one compares smaller scale renewables with large-scale infrastructure energy projects and tries to fit them into such a box. Leaving the financing proposals with an enormously detailed due diligence burden and fixed upfront financing cost, making investment unattractive.

What is your vision for the energy sector in the region?
Our vision is a large amount of smaller scale projects being built around industry, agriculture and commercial, to increase the speed of change from fossil energy to a renewable energy society. Ensuring a distributed energy production connected to a grid backbone that gives a much higher resilience of energy, and less vulnerable to natural disasters and changing of fossil prices. Giving the clients more reliable power and more stable prices of energy so that the client has a better prediction of long-term energy prices and can build their business without large cost volatilities.

At Future Energy East Africa, you are part of a panel discussion on “Improving the outlook and bankability of mini-grid projects – how do we heighten the financial appetite for the sector?” – what will be your message at the event?
We have started quite a few conversations around financing mini-grids which we see as an exciting market, with some unique challenges and we hope that we can find some good solutions to some of these challenges. One key challenge is credit data on the end consumer, and I hope in a joint effort we can convince the mobile phone companies and the banks to open up this information so energy can be sold at a much lower tariff rather and that the regulators can ensure a long-term perspective for the operators of the mini-grids.

How important is Future Energy East Africa on the region’s energy calendar?
Future Energy Africa is one of the key events in the renewable energy space and is an arena for open discussion and sharing of ideas to tackle some of the key issues in the energy space.

Anything you would like to add?
Empower hopes that this year’s event will be as fruitful and encouraging as last year’s event and we look forward to meeting with new and old participants for a couple of days of good discussion and sharing of ideas and continue to expand our partnerships of renewable energy developers.

Future Energy East Africa 2018