For an inclusive business model in Sub-Saharan Africa: The case of renewable energy

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1 For an inclusive business model in Sub-Saharan Africa: The case of renewable energy To address the economic, social and environmental challenges of the energy situation of Africa, GreenWish is developing an innovative and inclusive investment business model in the renewable energy sector. This model is based on the competitiveness of renewable energies, the financial implication of local investors and the involvement of local communities. It leads to economic growth, financial inclusion, social development and environmental preservation. For an energy revolution Here are the damning facts: Sub-Saharan Africa has the lowest electrification rate and the highest power generation cost in the world. Excluding South Africa, the continent is home to close to 900 million people but has an installed power generation capacity of only 45 GW 1. By contrast, Sweden enjoys the same installed capacity but for a population of 9.6 million people. Over 600 million of African people do not have access to electricity. The demographic and economic pressure increases every year the urgency to solve the energy situation, that has become the main issue of the continent s economic and social growth. These challenges are, first, social and political. In urban areas, the energy bill can sometimes represent up to half of a household s budget, limiting its purchasing power and creating frustrations. Recurring power failures often trigger social pressures, even leading to strikes as it has happened in Senegal. In rural areas (where lives 63% of the population) the electrification rate, almost equal to zero in many countries, slows down the development of the agricultural potential and massively contributes to rural exodus. The low electrification rate of rural areas also creates gender disparities, a consequence that is not frequently mentioned. Women are strongly affected in their daily domestic tasks by the lack of energy, lightening, storage capacity and farming mechanization. They also suffer from education access disparities. Only two additional hours of lightening per day would 1 Africa Progress Panel report

2 allow women to study and endorse their house duties at the same time. But energy infrastructures are also an imperative economic need. Energy intensive sectors such as telecoms, processing and cement industries for which energy can represent up to 50% of their operation costs are condemned to remain noncompetitive. Africa is losing 2 percentage points of growth per year because of electricity shortages! We also estimate that raising Africa s electrification by 100% would lead to an annual 10/15 % economic growth of the continent over a 15-year period. Energy is often the first budget for the States who subsidize their national utilities that are usually in a structural deficit, limiting investment capacities for other national priorities. The energy mix is currently sub-optimal, especially for a continent that possesses large renewable resources. Solar, hydroelectric, wind, biomass or geothermal the potential production of renewables in Africa was estimated to TWh. In most cases, those energies have also appeared to be economically competitive in a high-carbonated energy mix that delivers expensive generation costs. Africa has become the «last frontier» for renewable energies. Strongly affected by global warming and still very dependent on fossil fuels (that represent approximatively 50% of the installed capacity), the continent is elaborating a new energy mix. The leapfrog of Africa is well-known by continent s specialists. It has been considered that Africa s energy sector could follow the same trend as the telecoms sector, by completing the actual energy production of massive and centralized production units by independent and decentralized renewable energy producers (small solar plants, microdams, etc.). A window of opportunity is opening for this change to happen: renewable ernegy costs of installation, that were prohibitive in the past, are now competitive, in particular for solar and wind technologies. Beside if Africa satisfies its energy needs with fossil fuels, the impact in terms of carbon emissions would be disastrous for both the continent and the planet. The example of China, that has grown its installed capacity with up to three thermal plants installed per week, is major warning for the future of Africa s electrification strategy. Beyond the issue of the polluting emissions of fossil fuel combustion, another environmental challenge has to stressed in the context of Sub-Saharan Africa. Congo s forest is the second lung of the planet. But rural populations, that usually have low revenues and no energy access, massively contribute to deforestation. 20 to 25% of the annual carbon dioxide 2

3 emissions comes from forests destruction by fire for agricultural uses. Wood collecting for heating, cooking and coal making is a specific phenomenon in Africa where wood satisfies around 70% of inhabitants energy needs 2. Thus, the access to a competitive and clean energy is for the African continent one of the major challenges for an economic and industrial sustainable and climate-friendly development, allowing wealth sharing and leading to social harmony. Only an inclusive business model could help Africa to reach this goal. An inclusive business model can be defined by an equitable distribution of the benefits of an economic activity between stakeholders on a long term basis. Conversely, the extractive business model encourages short-term profit maximization for a limited number of actors, overlooking environmental and social consequences. An inclusive business model aims at long term value creation, alignment of interest between the parties, transformation and redistribution. The GreenWish s model GreenWish intends to propose an innovative solution to electricity generation and financing needs. The independent power producer model, a public-private partnership, relies on the private sector to take the risk of development, financing and operation of power generation assets, releasing public utilities from these huge investments and allowing them to focus investments on power distribution and transportation activities. With an estimated capacity of 10 terawatts and more than 300 days of sun on almost the entire territory, solar has appeared to be the most promising energy source in Africa, and yet hardly deployed. The solar power production could increase from 15 to 62 GW by , and at a competitive costcompared to fossil fuels. As an example, our 20 MW solar plant located in Bokhol, in the North of Senegal will deliver from July 2016 an average electricity cost of 0.12 /kwh over a 20-year period compared to an average generation cost of 0.28/kWh for a fuel or an aging gas power plant. Alongside preventing the emission of 25,000 tons of CO2 per year, the produced energy will generate a 90m saving for SENELEC s (the Senegalese state-owned utility) and the State s budget over the contract s duration. Building new power generation capacities also creates local jobs. Bokhol power solar plant will indeed creates over a hundred direct jobs and as 2 United Nations Environmental Program (UNEP) 3 Africa Progress Panel report

4 many indirect jobs. And against a common belief, Africa enjoys the investment capacity that will allow the continent to finance its development. The emergence of insurance companies, pension funds but also high net worth individuals creates huge financing opportunities for the actual economy s development. However, such financing source still needs to be mobilized. This requires a financial sector capable of intermediating financing needs of the real economy and regional investors. Mobilizing such investors also requires a certain level of trust toward their States, achieved with a defined and stable regulatory and investment framework, tax incentives and political stability. Such investment opportunity is even more strategic for the continent, that the offer of financial products is scarce on the continent. This leads to the concentration of investments on sovereign bonds, real estate and the few available listed equities. This narrow investment universe contributes to a risky overvaluation of assets, the concentration of investment portfolios and a sub-optimal balancesheet management of financing institutions. GreenWish s model proposes long-term renewable energy investments to regional and international investors, creating financial and social value. Leveraging on our partnership with CGF Bourse, leader of the intermediation of financial products in the sub-region, GreenWish proposes an innovative vehicle denominated in FCFA, under OHADA law and compliant with CIMA Insurance Regulation. Local investors are invited to participate to an investment opportunity into a renewable energy portfolio that targets Western and Central Africa zones. This inclusive business model is virtuous on many respects. Firstly, it commits the States to long term contractual relationships with local private sector and public financial institutions. Moreover, involving local investors in the financing of the region s actual economy creates a leverage effect on the confidence of international investors and financing institutions. In addition, the value created by such investments will directly benefit private investors and indirectly insurance subscribers in the case of insurance companies, but also create source of funding for social investments such as social housing or healthcare, in the case of public institutions. To seal this inclusive business model, the governance structure of the vehicle is designed to involve the investors in decision-making processes, offering them transparency and alignment of interests. 4

5 About GreenWish Founded by Charlotte Aubin Kalaidjian and Gilles Parmentier, GreenWish Partner is a dedicated investment company specialized in solar assets in Sub-Saharan Africa. Through its investment holding Greenwish Africa REN, that targets a size of 50m, GreenWish intends to finance bankable solar projects without subsidies. Such projects will deliver an electricity average price 30 to 50% cheaper than the actual energy mix of many Sub-Saharan countries. The Board of GreenWish Africa REN is chaired by Patrick Ponsolle, former CEO of Suez Group, Executive Chairman of Eurotunnel and Chairman of Morgan Stanley France. GreenWish Africa REN s Investment Committee is chaired by Jean-Louis Vinciguerra, former economic adviser of the Aga Khan Fund for Economic Development (AKFED) and CFO of Pechiney Group and France Télécom. GreenWish Partners 20 Avenue René Boylesve, Paris, FRANCE contact@greenwishpartners.com 5