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:
This week, it is great pleasure to be talking to one of the Pioneer of the Solar Industry. After a career in Politics and then working for the legendary Scatec Solar, our guest today is starting on a new path: Launching a fund focusing on small and medium-scale renewable energy projects in Africa. We cover a broad range of topics among which
- His background before Empower New Energy
- Empower New Energy and its fundraising
- How to scale up Funds like Empower New Energy?
- the challenges encountered
- Countries coverage
- Collaboration with partners
Want to listen to the Live Interview? Click HERE
RiA (Q1): Good morning Terje, how are you today?
TO (A1): I’m very fine. Good morning to you as well.
RiA (Q2): We’ve known each other for two years. I know you are already working on these fantastic ideas. It took you more time than anticipated, but you are here and it’s good to see you travel that far. I couldn’t resist to get you into one of our podcasts so you can talk to our audience about the fund you put together. We’ve shortlisted 10 questions for you and hopefully we should be able to cover most of what you are doing today. Is it okay for you Terje?
TO (A2): Very good, looking forward to it.
RiA(Q3): It would be good to introduce yourself and your fund “Empower New Energy”.
TO (A3): I have a background a bit difficult for people to understand because I started out as a young politically engaged person. Then, I worked for the government with the prime minister as a chief adviser. I’d been in various roles within the industry, but I’ve always been looking for areas where we could innovate the interface between business and society. About 10 years back, I was still a chief editor of a publication and a think tank called “Monday Morning”. We made some very important work on the climate. It became, to me, a revealing moment when I dig into the whole “what’s happening to our environment” and I said: “I cannot continue doing what I’m doing now”.
We started out with this idea that we would make solar affordable in Africa. And 10 years ago, that sounded like a crazy idea. I went to South Africa in 2009 and started developing solar systems for Scott solar. We went to Mali, Rwanda, Jordan and Egypt. And what has happened during these years is just fantastic when you think about it.
The cost of electricity from solar has come down more than 70, 80%. But during all these years I discovered that there was a big hole in the market because all the projects that received international funding, were big and traditional. Whereas the big potential in Africa is to empower the local industry, the local communities with renewables and so the purpose of starting up again with a new venture two years ago was to see if it’s possible to raise money to fund this.
RiA (Q4): You announced recently your series A and 60% of DFIs were part of the fundraising. Your experience could be very helpful for many other funds that tried to come into existence. Was it challenging to convince them to accompany you?
TO (A4): Yes. We have two types of investors. First type: multi-lateral banks, bi-nationals and the various development finance institutions. They are all very much laser focused and experienced in financing utility scale, utility project with governments as off takers. So they are used to these huge documentations and contracts. It was very straight forward. What I’ve been struggling with is to convince these governments that if we really want to make a difference now we need to move out of our comfort zone and look to finance things, which are not as streamlined nor as traditional as a utility scale project.
The other challenge was the private side. We are living in a time where there were a lot of talks about impact investments and they make good money. And many funds focus on impact investments, but what I discovered is they’re not looking at the renewable assets in Africa. They look at more conventional type of green assets which are more mature and lower risks. I’ve identified several private investors who are ready to move with us together with the DFIs. These private impact investors, who are very keen to go forward, are all old pioneers in their areas because they had to move out of their comfort zones to do this.
RiA (Q5): You mentioned to me is that is important that the industry doesn’t focus on utility scale project. Why is it so important to look at local and small projects in the continent as well?
TO (A5): Well, the share of fossil fuel in the energy and electricity generation in Africa actually increased, while everybody’s talking about renewables. And most of the communities or businesses, that you meet in sub Saharan Africa, are partly dependent on diesel generators.
So if we really want to speed up the transmission, we cannot sit and wait for an ideal grid or ideal energy system. We need to work with the communities and companies who have energy consumption and ready to replace these generators. And there are hundreds of opportunities like this in Africa. Of course, there are the payment and regulations risks. But we can move much quicker than just sitting and waiting for the governments to come up with an ideal grid.
RiA (Q6): Funds like yours are needed, how can we scale up these solutions?
TO (A6): We have invested into an interactive collaborative web based platform, so that when we signed a partnership agreement with developers in Nigeria or in Kenya, they have access to the same collaborative tools that we have. There are a lot of things that needs to be in place for the project, even if it’s only half a megawatt. But it can be speeded up by standardisation and we make the tools available for our partners.
RiA (Q7): You already touched on the next question. Regarding the challenges that you encounter with your business, can you mention some of them and how did you overcome them?
TO (A7): The biggest challenge of course is that we are not looking for government guarantees for payments of the project. In order for us to make money and secure a return, we normally have a payback period of maybe nine years of the project. We need to go to have ideally 15, or between 10 and 16 years, and that is a challenge of course for many to commit. For payment problems, we are looking to mitigate the risks, with breach of contract or partial guarantee from businesses. Most currencies are a big issue in Africa because we know that many clients are skeptical about linking the payments to US dollar.
It’s important to find the right balance. These are issues which we can handle, so I’m not so concerned about these challenges. But I’m concerned about the speed of things. Many governments are still unclear about what is allowed or not for companies. These governments should create a framework, so that the companies can safely enter such contract without any regulatory risk.
RiA (Q8): How are you planning on sourcing those projects to make sure that you meet your returns?
TO (A8): We are not developers, EPC nor a company that builds. We believe in partnerships. We team up with developers and we bring in the money. We have a code of conduct, which relates to how we do business and the basic principles of governance and transparency. And then, we work with selected power developers with experience in the industry and a track record in the country. Previous projects or, at least, references are important for success.
The developers are responsible for securing the various documents and various development work. We are an investment platform, so the developers can work with us in total transparency.
RiA (Q9): the target countries you have selected seems to be the usual suspects. What about the other countries?
TO (A9): These initial countries have mature governments and commercial and industrial customers ready to invest. The potential is huge for countries like Nigeria, Tanzania, Sierra Leone, Zambia, democratic Republic of Congo. Countries with the strongest industrial sector have unsubsidized electricity prices.
RiA (Q10): You mentioned that your initiative is a platform. Are you collaborating and inviting local African investors to work with you?
TO (A10): Yeah. We are not dependent on the investor owning 100% of the project, so we are very open. We are discussing with potential African investors to invest together in a project in Ghana. This will be increasingly important to have local African investors for local ownership. They can take a significant equity stake with us.
RiA (Q11): How can Renewables in Africa help you in your mission?
TO (A11): Spread the word. For developers with quality projects looking for an equity partner, there’s now a possibility to contact us and we will do an initial assessment. We will meet them and get some information and then enter a partnership agreement. Equity funding is available now and we are ready to evaluate opportunities.
RiA (Q12): what size project are you looking at?
TO (A12): Between one and 10 megawatts. But, typically, the current projects have an investment ticket between one to three million US dollars. So the sweet spot is somewhere between half a megawatt up to five megawatts.
RiA (Q13): How long does the application take to get funding?
TO (A13): From the initial screening to the agreements and all the required contracts, I would say three to six months.
RiA (Q14): Terje, it was a pleasure for us to talk to you today. We’ve learned a lot about your new fund “Empower New Energy”.
TO (A14): Opportunities are there, so let’s just speed up. Like the the President to AfDB said today in New York there is no need for coal anymore and let’s also make sure that we get all these fossil generators out of the industry in the years to come. Thank you.
RiA (Q15): That’s a nice way to finish up. Thank you very much.
TO (A15): Thank you
Listen to the interview HERE
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