The war against Putin and climate change: Innovating solar investments across Africa

Disruptive clean-tech innovations will play a vital role in the parallel war against climate change and against Russia’s fossil grip on Europe. This is the last of 4 articles I have written this summer about four Scandinavian start-ups that each introduce new solutions to different parts of the global challenge.

Disclaimer: The writer is founder Empower New Energy

The completion of a constriction at one of Empower New Energy Solar investments. Photo by Gree Solar

What does Africa's energy sector have to do with the war against Putin and climate change? Admittedly, in a global context, Africa's consumption of oil is modest. But nevertheless, Africa imports of petroleum products equals the size of all Russia's export; 2 million barrels per day. And more importantly: More than 70 per cent of Africa’s fast-growing consumption of electricity is fuelled by fossil energy. Africa's population is set to double by 2050, and its energy use will at least quadruple. It is not only Europe and the US that needs a Green Deal, but Africa is also in dire need of one. If not, the continent risk to become tomorrow's "climate bomb." During my 8-years heading up business development in Scatec, I had the privilege of pioneering utility-scale development solar energy across Africa, Middle East and South Asia. We achieved awesome results developing, financing, and building large-scale PV for government-owned utility-companies. But during these years I was equally struck by the number of developers of small and mid-sized projects who had to struggle for years to attract capital to finance their projects. Very often, they didn’t succeed. That’s why I in 2017 decided, together with my two co-founders Alexander and Susie, to establish a company - Empower New Energy whose business ideas it is to bridge this financing gap.

Africa’s electricity sector is generally under-developed and under-performing. Companies in Africa pay on average 30-50% more for electricity than what is common elsewhere in the world. Especially in sub-Saharan Africa, poorly developed power grids, inadequate maintenance and low production capacity mean that both companies and households suffer from regular power outages and an extensive dependence on diesel-powered gensets. It is estimated that more than 100 GW of diesel generators have been installed in sub-Saharan Africa. According to IEAs Africa Energy Outlook 2022, there are more than 25 countries where these highly polluting generators make up more than the country's publicly developed power grid.

The potential for solar power in Africa is huge. The continent represents about 60 % of the world’s solar energy potential but has installed less than 1 % of the world’s solar panels. Clearly there is a need for utility-scale solar and wind power across Africa. But development of utility-scale power projects is slow. Most places in Africa the electricity grid needs to be extended or upgraded to accommodate large solar and wind farms. In addition, poor governance and weak finances is holding investments in the utility sector back. Distributed solar on the other hand, delivering electricity directly to end-users, can be financed and deployed faster. In 2018, the total market in Sub-Saharan Africa for solar PV in the commercial and industrial (C & I) sector was estimated to not more than 74 MW, but is now showing a healthy growth. An increasing number of businesses across Africa - in manufacturing, mining, agriculture, and service activities - discover that they can obtain affordable and reliable electricity by procuring solar power produced locally. And it is not only costs and performance that is driving the demand. More and more often we encounter Africa-based business managers who like their counterparts in Europe and elsewhere highlights the value of replacing fossil energy with renewables, improving the environmental performance of their company.

But the challenge for companies is first and foremost financing. Diesel generators have small up-front costs but expensive to operate due to high fuel costs. Solar photovoltaic power, on the other hand, has relatively high capital costs but very low operating costs. Bank financing is expensive and often not available for this type of investment. Development banks and international energy companies are also not an alternative for industrial power plants of this size, as the projects on an individual basis are too small to justify the overhead and transaction costs. The challenges described above are particularly acute in Africa, where the average cost of capital for solar investments according to IEA can be up to seven times higher than in Europe and North America. This is where Empower New Energy's portfolio investment platform makes a difference. We provide the energy-users “peace of mind”, by financing 100% of the plant with equity capital so that the end-user does not have to look for up-front payments or bank loans. Following a thorough quality assurance of the projects, the local project company set up by Empower enters a 15–25-year off-take contract for the supply of electricity with the local off-taker company. Construction, operation, and maintenance is taken care of by Empower's project partner, overseen by Empower. At the end of the contract period, the ownership of the solar plant is transferred to the off-taker company who will then benefit from almost free electricity for many years still.

Does Empower’s business model work? During the three years that has passed since its launch of its impact fund, Empower has co-developed, financed and set up with its local partner Rensource a 0,7 MW ground-mounted solar farm for Nigeria’s largest chicken farm, Premium Poultry. In Ghana, the company has in partnership with Stella Futura co-developed and executed a 0,7 MW solar rooftop plant for the plastic recycling and manufacturing plant Miniplast. In Egypt, Empower has successfully in partnership with the local partner Gree Solar executed five roof-mounted solar power plants for different manufacturing companies in the Cairo region, and new plants are currently under construction for the chocolate manufacturer Barry Callebaut and the agri business Ghana Nuts, in partnership with CMR Group and the local developers Stella and Cork respectively. As a result of the company’s first 5 MUSD in investments, creating or protecting more than 500 jobs and representing a lifetime saving equal to more than 100 000 tons of CO2.

Following the successful results from its demonstration phase, Empower has the last months signed solar investment contracts with more than 10 industrial and agricultural off-takers in Egypt, Morocco, Ghana and Nigeria. Its pipeline of investment opportunities solarising businesses in Africa equals more than 100 MW. In partnership with its cornerstone equity investors Norfund and ElectriFi – and supported by the Norwegian development agency Norad as well as the AfDB managed SEFA (Sustainable Energy Fund for Africa) - the company is now in the process of raising 70 MUSD in equity capital from a few leading international impact investors to scale up investments in distributed solar for Africa. Empower’s Africa- venture is not without risk, but not doing it in this two-front war is more risky.