At the AEF 2019, as part of insightful discussions we had with leaders of the industry (Samaila Zubairu from AFC, Ricardo Machado from Aenergy, Romain Py from AIIM), we’ve talked this time to Grant Henderson and Nacim Bounouara from DLA Piper. See main points discussed below:
- Importance of Standardisation for documents
- Tender vs Unsolicited bids
- PPA and tariffs
Want to listen to the Live Interview? Click HERE
INTERVIEW
RiA (Q1): Good morning Gentlemen, it is a pleasure for me to have you here talking to us at Renewables in Africa. We are a clean energy engineering consultancy and also a media platform spreading the “green” gospel. We want to look at some of the challenges that we’ve seen from project development in Africa but more from a legal point of view. So, first of all, you both represent a very major law firm in the sector presently in more than 20 countries and I’m sure you can tell me more. Can you briefly introduce yourselves?
GH (A1): My name is Grant Henderson. I’m a partner in DLA Piper, in the energy and infrastructure project practice. I spend my time between Lusaka, Zambia and Johannesburg, South Africa and I’ve spent the last 15 to 20 years doing deals across various sectors in Africa.
NB (A1): Morning! I’m Nacim Bounouara. I’m a partner in energy and infrastructure team based in London. I’m originally from Algeria so for me the continent is home.
RiA (Q2): At what stage does DLA Piper get involved in a project and also what size of projects are you interested in?
GH (A2): From my perspective, the earlier we are involved with our clients in a project, the better. To be involved from the onset, in my experience always makes it better, more manageable and more understanding of the issues from the beginning. You are not parachuting in a later stage when things have happened in certain ways that might not be best for the client. So, I think being involved at inception is preferable. In terms of project or deal size, we are involved from small (10/15 MW projects) to as big as they happen, hundreds of Megawatts.
RiA (Q3): What happens to sub Megawatts projects? Would you be interested?
GH (A3): In a sub Megawatts projects. There is no reason not to be interested.
RiA (Q4): One of the key issues we talked about is that of having standardized documents. First of all, for you, how relevant is it and secondly, in case it is needed, who writes it?
NB (A4): It’s a very good question. I think it’s something that you can see relevant in Africa but also in other regions of the world. Each time there is a new product or a new way of doing business, people start to think about having a standard template as we start to see a number of documents. There is energy spent negotiating bespoke arrangements and when people start to understand a little bit better, the product makes sense to have a template. For example, in Europe, with corporate PPAs where people are working on a template to make sure that the market can accept it and involve everyone. In Africa, it’s the same rationale where you can already see programs where you see people thinking about putting this into practice. Scaling solar is an example; trying to have a very fast tender, keeping costs very low and standardized documentation which could work for everyone, balanced and acceptable to local governments and international locations. It’s all about trying to find the right balance but yes, it is useful to have a template. One can work on the basis of a country. You can put a program and line that up for a few years with backing from international financial institutions like African Development Bank and others. It may be trickier if you are looking outside the country, in different regions as laws are not the same and politics are not always aligned. It’s a cross-border transaction so by nature it would be more challenging.
GH (A4): The regulatory frameworks in countries are different and so it becomes a challenge to rule out a region. I think, as we’ve said, it can work in a country and Scaling solar is an example. The idea is ultimately to have a suit of bankable documents that allow projects to be delivered at reduced cost and therefore the cost of the Kilowatt hour is reduced which is what governments want. Governments want power as cheaply as possible.
NB (A4) CONT’D: There might be regions where there is a potential for actually trying that like ECOWAS where you already have an alignment of the rule of law in those countries. Maybe this is where we can potentially try something at a more regional level.
RiA (Q5): You mentioned Scaling solar a couple of times. This is a program that seems to be working relatively well. So, can I confirm that you have a preference for the tender approach talking about a deal as opposed to bilateral agreements? Which is the best from a legal standpoint?
GH (A5): I wouldn’t say there is one better than other. I think they both serve a purpose in delivering more power to the continent and you can understand why. For example, Scaling solar in Zambia and in Ethiopia, you can understand why governments want those types of programs because as Nacim said, they deliver power fast. You go through your tender process; you have standardized projects that the bidders, the lenders understand. The EPC contractors and service providers also understand so you can deliver the project quicker. I think there is still a place in the market for independent unsolicited projects; we see them in lots of countries. That’s how I would see it. Nacim, I don’t know if you have different view?
NB (A5): No, I think that’s right. I think the first approach is to say a tender perhaps brings a little bit more value for money for the government. We need to look beyond that and see what technology is involved, the depth of the market and to see if it is easy to put in place a tender. There are many ways of doing it as Grant mentioned. I think what is important especially from a country’s perspective is to try to surround one’s self with advisors like financial, technical and legal advisors. We’ve seen it in Morocco with Masen, and they’ve been very successful. I worked on the first few projects; the 3 phases of those big solar projects in Morocco. It’s amazing to see when the country and agency are surrounding themselves with people who have seen it elsewhere and can actually benchmark the standard with other countries, emerging markets but also more developed markets. It brings additional value to the government.
RiA (Q6): That’s a brilliant response. One of the most important documents arguably is the PPA. Inside the PPA, more importantly, is the tariff. From the legal standpoint, what sort of risk would you warn your clients about when they negotiate thus tariff?
NB (A6): Tariff is something that you bid. You have to be extremely competitive looking at your capital costs; it’s just the output of many different parameters. I think beyond tariff, for the sponsors, they would be looking at risk allocation and obviously credit worthiness of the off taker. That’s the key for them. There are other issues like making sure that the land is available, and the rights of the land are clear and certain and assess to the grid. Today, we live in a world were tariffs are very low especially on the PV market. You have to be very aggressive to win these days.
GH (A6): On a bilateral basis, if you negotiate on an open basis, you arrive at a parameter for the internal rate of return (IRR) that the off takers and funders are happy with. Ultimately, that’s what drives the tariff.
NB (A6) CONT’D: IRR and appetite for risks. Managing risks and risks allocation. It’s a combination of both.
RiA (Q7): Thank you so much for your insight. It was a pleasure talking to you on behalf of Renewables in Africa. Have a good conference!
GH (A7): Thank you!
NB (A7): Thank you very much!
Listen to the interview HERE
Do you wish to speak to speak to RIA and share your thoughts and ideas about our sector? Get in touch with us. Contact us at: tony@renewablesinafrica.com or aurelien@renewablesinafrica.com
