Investments |
An investor’s guide to hydropower in Africa
To help meet the needs of a rapidly growing population, and as the world moves towards net zero carbon, African nations will become increasingly reliant on hydropower, which is the continent’s main source of renewable energy. However, to fully realise its potential, the African hydropower sector needs to see significant investment over the coming decades. A new investor guide to hydropower is hoping to pave the way across the continent for host governments, private investors and funding parties
Above: Sunset in Marrakesh, Morocco. With 100% of the population having access to electricity the government wants to focus on optimising existing hydropower stations and developing new pumped storage projects to manage peak electricity demands
Below: Bin el Ouidane Dam in Morocco
AFRICA IS A CONTINENT with an acute need for electricity. Almost 580 million Africans have no access to electricity. By 2040 electricity demand is expected to triple and by 2050 its population will double. Improved access to reliable, clean and safe power is viewed as an essential step for African countries to meet UN Sustainable Development Goals. From a hydropower perspective, Africa is described as being interesting. Hydro is the main renewable resource with over 37GW of installed capacity which currently amounts to 17% of electricity generation (projected to increase to 23% by 2040). Africa also has the highest untapped hydropower potential in the world with only 11% being utilised. However, according to a new report by law firm Addleshaw Goddard, Africa has seen relatively low levels of power sector investment when compared with North America, Asia and Europe. As the report states: “The low level of privately funded power sector investment is in part driven by the perceived risk of investing in African electricity markets due to a range of commercial and legal risk matters such as customary land rights, resettlement, political risk and market structures. However, whereas many of these risks can be mitigated at an acceptable cost, the challenges of transacting with often poorly performing state-owned entities, institutionally weak host government counterparts and very shallow local capital markets still pose significant challenges.” Hydropower, particularly larger scale projects, are complex and capital intensive, the report
acknowledges. However, with power sector investment needs exceeding US$100 billion per annum until 2040, “mobilisation of a greater proportion of private capital into transitional energy projects in Africa must be a key influencer for policy decisions”. “This is not a new matter,” said Rory Connor, Partner at Addleshaw Goddard, “but it is as important now as it has ever been.” Connor goes on to explain how Addleshaw Goddard has collaborated with ten other law firms in Africa to produce a new report, called An Investor’s Guide to Hydropower in Africa, which attempts to highlight the legal issues associated with hydro development across the region. “Legal issues with projects and investment tend to fall
into two broad categories,” Connor said. “Commercial legal issues are concerned with putting economics and engineering into words and looking at how commercial and legal issues are managed and allocated through contracts, companies, treaties and other legal instruments. While there are also the mandatory legal issues of the relevant host country such as economic regulations, public procurement, permitting, licensing, and environmental water rights etc.” The report focuses on these two particular limbs of hydropower development and helps host governments, private investors, funding parties and in- country procuring entities gain a better understanding of the legal bankability issues which are relevant to the development of certain hydropower projects in Africa. It also provides an overview of the legal systems and laws relevant to the hydropower sector of the ten countries featured in the report. “We would have loved to do a report featuring the 54 countries of Africa but it wasn’t practical so we selected ten countries based on a range of factors including size of economy, investment activity, policy development, existing hydropower and untapped hydro resources,” Connor explained. The ten featured countries are:
1. Cameroon –With 792MW of installed hydropower capacity, Cameroon is among one of the countries with the largest hydropower potential at over 12,000MW. Currently six out of ten Cameroonians have access to electricity. The country’s five operating hydropower plants are the only renewable energy sources on the grid and account for 56% of total installed capacity.
2. Ethiopia – With over 4000MW of installed hydro capacity, and 45,000MW of estimated potential,
44 | October 2021 |
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