In March 2024, Konexa, a UK-based integrated energy development and investment platform, closed a USD18 million investment to launch Nigeria’s first private renewable platform. The platform will connect Konexa’s client, Nigeria Breweries PLC, to the grid with 100% green energy supply powering two of its breweries.
The private energy trading license granted by the Nigerian Energy Regulatory Commission to Konexa is not commonly seen in Nigeria. Yet the project exemplifies the growing revolution that is underway across the continent. The C&I sector’s need for reliable power sources is now being matched by a quickening appetite among developers and investors for renewable generation deals to meet this demand.
These deals have many moving parts, meaning stitching them together is a complex undertaking requiring novel thinking and approaches, not least around the legal aspects which generally involve new and shifting regulatory aspects. The Konexa case highlights the need for everything to align – including supply, generation, distribution, offtakers, and the approach to managing aspects like green energy certificates and carbon taxes.
“The C&I market in Africa has become more and more important. In the past it was mainly driven by the low availability of electricity from the public utilities. But now we’re seeing more interest from companies – especially those that export their products to the European market – in procuring renewable energy to enable their operations and help them meet the European Union’s carbon tax rules. For instance, in Morocco, the biggest shift we’ve seen in the past year is growing interest from offtakers in managing and guaranteeing the carbon credits associated with the electricity from renewables.” - Antoine Haddad, Partner, A&O Shearman, Casablanca
Achieving Africa’s 300GW target for renewable power by 2030
Africa’s growing complement of C&I renewables projects underlines the unique role that the continent is positioned to play in the global energy transition. With an abundance of renewable resources – spanning bioenergy, geothermal, hydropower, ocean, solar and wind – the continent’s potential for green power generation is enormous.
Recognising this, the 2023 Nairobi Declaration – the basis for Africa’s common position on the global climate change process – has underscored the need for rapid deployment of renewable energy to simultaneously address the continent’s complex economic, societal and climate objectives. To support this drive, the Declaration calls on the international community to help it achieve the goal of increasing Africa’s renewable generation capacity from 56GW in 2022 to at least 300GW by 2030.
It’s an even more ambitious objective than the global pledge to triple renewable capacity agreed upon at the 2023 United Nations Climate Change Conference (COP28). And the active involvement of the private sector will be pivotal to achieving it.
Africa’s diverse landscape – for both energy and renewables
In discussing the energy landscape in Africa, it’s important to emphasise the immense diversity between the continent’s different countries and regions. Take electricity generation capacity. South Africa has 45GW of installed electricity on its grid. By contrast, Nigeria, with a similar GDP, has less than 4GW installed.
Outside the main economies, the installed capacity in many African jurisdictions is very low and there is next to no grid infrastructure at all. As these economies have grown, they have looked to meet demand through other means such as diesel generator sets, mini-grids or co-located generation and consumption.
“The way renewable power projects will happen in countries with minimal installed capacity and grid infrastructure will be different. Rather than having huge transmission lines across the country, they could site renewable generation close to homes or business operations, with mini grids to distribute electrons to a smaller area. We are seeing very clever approaches emerge in those parts of Africa with less transmission infrastructure where renewable generation will be localised to where the consumers are.” - Alexandra Clüver, Partner, A&O Shearman, Johannesburg
The same degree of diversity also applies to installed renewable generation capacity. According to Ember’s Global Energy Review 2023, Africa’s leading countries for wind and solar share are Namibia (25%), Morocco (17%) and Kenya (16%). But elsewhere in the continent, solar and wind capacity is mostly far below the global average of 12%. That’s partly because the focus, to date, has been on electrification by any means, rather than decarbonisation. However, for both regulatory and reputational reasons, multinational C&I companies in sectors ranging from mining to consumer goods and from brewing to technology are now looking to reduce their carbon emissions.
As a result, the continent-wide drive for energy from renewable sources is rapidly gaining pace and momentum. It’s a trend that raises multiple opportunities for governments and regulators Africa-wide – not just to promote inward investment, jobs and economic activity, but also to find new ways to meet their own burgeoning domestic energy needs.
South Africa in the vanguard
The approaches to achieving these goals vary widely across the continent. The groundbreaking Konexa project in Nigeria used a model that’s now likely to be emulated in other countries. In South Africa, where the energy landscape was dominated by coal until the 2010s, the economy’s dominant mining sector acted as the catalyst for the government to put in place an enabling framework for private power purchase agreements (PPAs) in 2021. Until then, power had to be bought from Eskom, the national utility.
“After liberalisation, the first real step was bilateral agreements for big mining companies procuring large amounts of energy. That was first done behind the meter and then very quickly wheeling through the grid. A&O Shearman was instrumental in getting all the pieces together and facilitating discussions with clients and Eskom to implement the framework. Then the next step was the entrance of energy traders into the market. Rather than trading physical electrons, these players are essentially facilitating accounting offset mechanisms where they ensure construction and procurement of megawatts on the grid, and then build a portfolio of clients or customers to buy those electrons. Then they put the two together.” - Alessandra Pardini, Partner, A&O Shearman, Johannesburg
Market liberalisation in South Africa set the scene for headlong innovation in renewables generation for C&I companies. This began with rooftop solar installations on commercial properties, building up to utility-scale renewables for industrial and mining companies.
Another substantial advance has been the entry of aggregators and energy traders, which turbocharged the speed of market development. Their role? Essentially, arbitraging renewable power from different sources, in different parts of the country and at different times of day, to service clients who would not be able to procure it directly or build it themselves.
Earlier this year, a significant project financing deal was secured for a cluster of renewable energy projects, known as the Koruson 2 situated on the border of South Africa’s Northern and Eastern Cape provinces. This initiative marks Africa’s first traded power deal that has reached financial close.
Koruson 2 harnesses both wind and solar energy and is set to generate a total capacity of 520MW. The initiative offers a chance to improve the stability and robustness of the energy supply and electrical grid within South Africa. It is also expected to stimulate widespread socio-economic development and expansion.
Overcoming key challenges across Africa
Pressures on transmission capacity
Enabling C&I companies across Africa to gain access to the renewable power they so urgently need requires several challenges to be overcome. One of the biggest of these challenges is pressure on transmission capacity – a problem that’s common to most African countries with power grids. Among the innovative approaches being used to address this issue, collaborative initiatives are proving especially effective.
In many countries in Africa, the grids were built before the concept of large transfers of renewable energy was even dreamt of, making it increasingly difficult to connect new generation. Recognising this limitation, in 2019, African energy ministers directed the African Union Development Agency to spearhead the Continental Master Plan (CMP). To maximize utilisation of the continent’s lowest-cost solar, wind and hydropower resources, the CMP calls for a massive expansion of the existing cross-border transmission infrastructure. The target? A seven-fold expansion from 23GW in 2023 to 167GW in 2040.
As well as supporting shared access to resources between neighbouring countries, this dramatic increase in capacity will enable Africa’s hydropower hubs (particularly in central and east Africa) to provide support for flexibility and storage to the large solar and wind installations in all parts of the continent. Major cross-border infrastructure of this sort requires the additional backbone of strong in-country transmission networks. With these in place, according to a 2024 report by the International Renewable Energy Agency (IRENA), volumes of electricity traded would be set to increase almost ten-fold from their current level by 2040 – providing significant new revenue opportunities for many African countries, either as primary electricity exporters or wheeling hubs.
Of the initiatives to date, many involve international collaboration. The governments of Namibia and Botswana are discussing ways to mutually strengthen their transmission networks. They are doing this with the support of private equity providers and the South African Power Pool (SAPP), an inter-governmental organization formed in 1995 to provide sustainable energy solutions across and beyond the South African Development Community (SADC).
Regulatory challenges
A further challenge that C&I renewables projects can sometimes face is regulation. Where state utility monopolies still exist, it can be difficult to set up a system of generation licenses for private sector participants. This makes liberalisation a prerequisite for creating a workable renewables market for C&I customers. Experience shows that once liberalisation commences, the high demand for renewable energy from industries such as mining creates strong incentives for government to continue the process, freeing the market to take off at speed, as happened in South Africa.
“The beauty of having the private sector involved on both sides in these PPA deals is that you can get to close a lot quicker than when you’re dealing with government. The first deals were for captive wind and solar and they closed in a matter of months once the ‘go’ button was pushed on liberalisation. That’s incredibly fast. The companies had already started planning for these projects and as soon as the market was liberalised, it turbocharged the industry.” - Alexandra Clüver, Partner, A&O Shearman, Johannesburg
Financing considerations
Other issues can arise around financing. African banks have historically taken a seven- or eight-year view on a borrower when agreeing to investment-grade corporate lending. While deals with government entities may have a tenure of up to 20 years, local banks’ credit systems have generally not been structured to go to that kind of length for private sector projects. So the fact that private PPAs typically run on a 15- to 20-year term initially made some banks wary of lending to them.
In the past few years, however, banks have become increasingly comfortable with long-term debt on private PPAs and 18-year terms are now commonplace. This mindset shift has been supported by the arrival of a vibrant market in energy trading where the banks can take a view on the strength of the market, as opposed to the creditworthiness of the individual offtaker. In a wheeling arrangement, if the offtaker is unable to fulfill the contract, the asset will not be stranded as it will almost certainly be possible to find a replacement offtaker.
Political and regulatory risk
A final challenge that has traditionally dogged investments in Africa (and other emerging markets) – and not just in renewable generation – is how investors and lenders seek to mitigate political and regulatory change risk. This will never be completely removed, since private PPAs and novel infrastructure projects such as Konexa effectively involve the private sector taking over and developing a historically public asset and function. But, in addition to investment treaty protections that may be available for international private investors, these deals also seek to practically mitigate against political risk in two main ways. One is that the resilient private demand for renewable energy continuing gives greater long-term security. The other is that these projects, through the provision of a consistent and reliable electrical supply to a broad range of consumers, ultimately support further economic development and growth, not just for the private sector participants, but also for the local communities and host economies – as such governments should remain favourably disposed towards them.
A rising tide of projects
Against this background, the momentum behind renewables projects for C&I energy users is building across the continent. A few stand-out examples tell a story of ongoing liberalisation in favour of private PPAs.
In Madagascar, the initiative at Ehoala Solar Park to create a ‘sustainable mine’ includes 14,640 solar panels generating 8MW of power during the first phase of the project. This effort is characterized by the adoption of responsible practices such as emission reduction, effective waste and water management, and local environmental restoration, as outlined by the project’s proponents.
Innovations are also underway in financing. Zambia released its first green bond, the first of its kind in the region, to fund solar, wind and other renewable energy projects across the country’s copper belt. As well as supporting decarbonisation of energy, the bond is expected to encourage the development of capital markets in Africa, given the strong interest from investors.
Looking ahead, the influx of tech companies with their datacentres and their substantial energy demands is also set to further amplify the call for renewable energy. This new wave of demand, coupled with the ongoing needs of resource and manufacturing sectors, heralds a future where green power is a priority for Africa’s C&I sector.
A bright low-carbon future for C&I in Africa
As the continent continues to navigate the complexities of energy transformation, the C&I sector is poised to play a pivotal role in driving economic growth, fostering regional integration, and ensuring a green sustainable future for all. There are key challenges to overcome but with ambition and pragmatism the potential for a bright low-carbon future for C&I is on the horizon in Africa.
