New guide on hydropower investment in Africa highlights huge opportunities

Africa has the most acute need for energy investment of any continent. An estimated 578 million Africans have no ready access to electricity.

While hydropower is the main provider of renewable electricity in Africa with over 38 GW of installed capacity, the continent has the highest untapped potential in the world, with only 11 per cent utilised.

Addleshaw Goddard, with assistance from the International Hydropower Association (IHA), has now released ‘An investor’s guide to hydropower in Africa’ to provide investors with essential information to support the sustainable development of hydropower projects.

Rory Connor, Partner, Infrastructure Projects & Energy at Addleshaw Goddard and principal author of the guide, said: “In order to develop hydropower resources in Africa, significant investment will be required particularly from the private sector.

“Very little privately funded hydropower investment has taken place compared to power sector investment in Europe, North America and Asia however. This is in part because of the perceived difficulty of investing in African electricity markets due to a range of legal and commercial  risks related to customary land rights, resettlement,  and market structures.”

According to the World Bank, around US$100 billion of infrastructure investment is needed in the region, however of the more than $8 billion invested in infrastructure in 2017, less than 3 per cent came from the private sector.

The new guide will help host governments, private investors, funding parties and in-country procuring entities understand the legal bankability issues, legal systems and law relevant to the hydropower sector of the 11 countries featured.

Alex Campbell, Head of Policy & Research at IHA, said: “Hydropower remains the main renewable resource in Africa, accounting for over 70 per cent of renewable electricity in the region and about 16 per cent of the total electricity share.

“With ongoing efforts towards universal electricity access and the low carbon energy transition, there is considerable room for sustainable growth in new hydropower capacity. We expect hydropower to increase to more than 23 per cent of the total electricity share by 2040.

“To ensure that new capacity is developed in accordance with international good practice, it is important for investors to be aware of the sustainability tools now available for assessing new projects.

“These are the Hydropower Sustainability ESG Gap Analysis Tool (HESG) and the Greenhouse Gas Reservoir (G-res) Tool. The HESG provides a way to identify any gaps in environmental and social performance, while the G-res Tool enables the estimation and reporting of net greenhouse gas emissions from a reservoir.”

A webinar held by IHA on 19 May 2021 on the topic of hydropower investment in Africa discussed the report and the Nigerian electricity market, as well as broader investment opportunities and risks.  

In addition to Mr Connor, who presented on the new guide, guest speakers included: Wolemi Esan, Partner at Olaniwun Ajayi; Henry Paul Batchi Baldeh, Director of Power Systems Development at the African Development Bank (AfDB); Dr Judith Plummer Braeckman from the Centre for Sustainable Finance, University of Cambridge Institute for Sustainability Leadership; and Moises Machava, Executive director at Hidroeléctrica de Cahora Bassa. The webinar was chaired by Anton-Louis Olivier, CEO at REH Group.

Commenting on factors that the AfDB considers when investing in new infrastructure, Mr Baldeh said: “There’s no shortage of money as long as your project is bankable. The challenges lie in larger projects… when you look at projects above 500MW, we must take a fresh look at how we prepare these projects, we need partnerships at different levels to get them to market. The most important thing is that the project needs to have a market and be competitive over its economic asset life and also factor in climate change.”

Dr Plummer Braeckman spoke about the opportunities for investors with smaller projects: “There is a lot of private interest in smaller projects. Small project opportunities are starting to emerge relating to existing infrastructure and the next focus will be on the retrofitting of projects, given the huge number of dams and reservoirs that are not currently electrified.”

In relation to bankability, Mr Machava added: “One of the challenges that most of the countries in Africa have been facing is their country risk – most of the countries have very low credit rates. This increases their interest rate. Another risk has to do with political risk. These are important challenges that we have to deal with when discussing the bankability of new projects in Africa.”

Download the new investor guide.

Read more about hydropower in Africa, the HESG and the G-res Tool.

Watch the webinar online.

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