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Renewable energy feasibility in Ethiopia: Analysing financing options

RES4Africa together with BonelliErede recently discussed project finance, mitigation tools and more during an online meeting that focused on Ethiopia and its renewable prospects.

BonelliErede, an international law firm, along with the RES4Africa Foundation, an organisation dedicated to promoting renewable energy in Africa, addressed the management of bankability issues regarding renewable energy projects in Ethiopia with governmental counter-parties.

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The conversation covered important points including the key factors for project finance, potential risks and mitigation tools. Participants spoke at length about the potential of renewable energy to combat climate change and the lack of energy security in Ethiopia, in addition to the government’s willingness to embrace the transition from biomass to more sustainable alternatives.

Duncan Keil, managing partner of Africa FX led the discussion that involved Riccardo Bicciato, Partner at BonelliErede, and Matteo Cavadini, head of business development East and West Africa – Enel Green Power.

Riccardo Bicciato touched on several matters in his presentation, including:

  • How the cost of capital remains a crucial element in every renewable energy investment decision and can significantly influence the business case of a project
  • Outlining the different risks associated with preconstruction and construction/operational phases, such as legal and regulatory frameworks, land permits with the former and environmental, political, and financial risks with the latter
  • The best approach to mitigate such risks, with the core approach being to share the burden among the parties that are best placed to handle them efficiently
  • Why failing to allocate risks properly can have serious consequences ranging from deterioration of the terms and conditions of the financing, and increase of overall spending, to the project being delayed or outright cancelled

Matteo Cavadini, followed with an overview on:

  • Macro country factors that impact project bankability such as a stable political environment, well defined energy policies, a healthy financial structure, and clear legal and regulatory frameworks
  • Proper tender processes for projects such as only allowing reputable bidders to be involved with no free-riders or speculative bidders, no material changes to the tender process close to the submission date or after being awarded, watertight timelines and sound governance of the entire process
  • The need for Ethiopia to have a comprehensive renewable energy plan and roadmap to achieving targets, in addition to more independent bodies that can support the government with procurement procedures

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Ethiopia’s renewable energy future

Closing remarks were delivered by Antonio Passero, sub-Saharan program manager at the RES4Africa Foundation, who stressed the importance of the private sector working with the Ethiopian government to see that renewable energy projects come to fruition in the nation.

Commenting during the webinar, Riccardo Bicciato, said: “Ethiopia embarked on a bold journey when it announced its Climate Resilient Green Economy (CRGE) Strategy, with objective of transitioning the nation into a climate resilient green economy by 2025.

“The significant opportunity for renewable energy to form a key pillar of this plan is clear, however project finance issues associated with such projects pose a threat to their viability. At BonelliErede, we remain committed to counselling clients on how to overcome these hurdles with practical mitigation actions. It is our firm belief that together with private lenders and leading energy players, we can help Ethiopia drive the most value from its natural resources and ensure energy security for its people for years to come.

“Ethiopia has a huge potential in terms of photovoltaic, hydroelectric, geothermal and wind energy.” commented Roberto Vigotti, RES4Africa’s Foundation Secretary General “To exploit the renewable resources of this country is the strategy to pursue and guarantee its sustainable development. Both the public and private sectors play a crucial role in this process and promoting this type of synergies is at the heart of the work that RES4africa carries out together with its partners.”

Nomvuyo Tena
Nomvuyo Tena is a Content Producer at Clarion Events Africa and is as passionate about the energy transition in Africa as she is about music and Beyonce.