Battery energy storage systems (BESS) are becoming increasingly key to achieving solar project bankability in Africa, according to a webinar hosted by the Africa Solar Industry Association (AFSIA).
The second day of AFSIA’s four day e-conference on storage solutions focused on addressing the financial considerations when deploying solar energy storage across Africa.
Zoë Pierre, Investment Principal at African Infrastructure Investment Managers (AIIM), told attendees that while Africa has world-beating solar resources, bankability is increasingly dependent on delivering flexible, dispatchable power.
Pierre said AIIM, which develops and manages private equity funds for African infrastructure projects, is increasingly focused on platforms that combine solar, storage, flexible dispatch and sophisticated market participation.
“That’s where we think long-term value creation is going,” Pierre said. “The winners of Africa’s energy transition won’t just generate renewable power, they’ll deliver it when the system needs it most. Africa has incredible renewable resources, the challenge is flexibility and bankability.”
Pierre added that storage is likely to scale fastest in African markets where regulation is evolving alongside renewable growth and cited South Africa, Egypt, Zambia, Namibia and Kenya as key examples.
When asked by an attendee why projects fail to materialize on the continent, Pierre said the bottlenecks are execution and structure rather than technology.
“Projects fail because of structuring,” Pierre explained. “They fail because the offtake is weak, because grid access is uncertain, because development capital is insufficient, because the funds underestimate transmission risk, or because the risk allocation between parties is fundamentally unbankable.”
“You need credible counterparties, clear dispatch frameworks, robust engineering, procurement and construction (EPC) structures, bankable operations and maintenance (O&M) contracts, credible resource studies and experienced management teams.”
Pierre also recommended that developers be careful with their spend from day one so their net negative is not so high that it deters investors.
“I think there’s often an underestimation of how much time it takes to get a concept and memorandum of understanding into a structured power purchase agreement, into a structured lending agreement, into a fully vetted EPC agreement with warranties built in. A lot of that is actually just coming from developer experience,” Pierre said. “It’s very unlikely that your first one is going to be the winner.”
In a session focused on Africa’s commercial and industrial (C&I) market, Michael Iwu, Business Development Manager at Empower New Energy, said that while the cost of BESS is declining, it remains expensive for many businesses to invest upfront.
Iwu highlighted local debt market constraints and currency and credit risks as additional financing challenges facing the C&I market as he called for innovative financing models to align stakeholder incentives and create predictable cash flows.
He cited power support agreements, otherwise known as a lease to own model, as the best financing model for accelerating C&I storage adoption in Africa.
“If you want to invest and predict your revenues, I think you should go for a fixed monthly payment model, which is a power support agreement,” Iwu said, while adding other financial models that work for the market C&I include an Energy-as-a-Service model, a blended finance approach and portfolio aggregation.
Iwu also presented attendees with several risk mitigation strategies for those interested in investing in Africa.
“I would advise you to look at long term financing, minimum of 10 years, and ensure you include some form of type of pay clauses in the agreement or fixed monthly payments to ensure revenue certainty,” he said.
In a discussion of how to scale C&I storage in Africa, Iwu suggested standardizing contracts and technical specifications to reduce costs and speed up deal executions and access to local currency financing and hedging solutions to manage foreign exchange risk.
When asked what is needed to attract more private capital into the sector, Iwu said collection rates remain a major risk for projects in Africa.
“Developers should address that risk by working with credible partners and demonstrating you are able to manage the risk of collection,” he said. “Contracts should be bankable, and some form of bank guarantee is needed to give investors confidence that their investments will be recovered.”
“We have seen many investments in Africa where investors struggle to recover their funds. But if project developers work with EPCs to ensure investments can be recovered, there is significant capital available to scale projects.”
AFSIA’s e-conference on storage, now in its sixth edition, concludes tomorrow with a session covering the storage market outlook on the continent.
Data collected by the association estimates more than 31.8 GWh of storage projects are under development in Africa.
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