Richard Charlton, head of infrastructure equity (Africa & Pakistan) at British International Investment (BII), explores why his organisation is continuing to invest in hydropower on the continent
The vital importance of development finance in Africa’s future has become very clear since the pandemic and has come under sharper focus in relation to the Sustainable Development Goals as the effects of climate change are increasingly felt.
According to African Development Bank’s African Economic Outlook 2023, the urgency to fast-track climate action and drive the continent’s inclusive, sustainable development is pressing and estimated that private sector financing will need to grow annually by 36% until 2030 to close the continent’s climate finance gap (estimated at US$213.4bn). To address Africa’s climate financing needs, it reported, as much as US$2.8 trillion is required across 2020-2030. With the addition of the United Nations’ estimate that US$1.3 trillion is required annually to achieve the Sustainable Development Goals, “the magnitude of Africa’s sustainable development financing requirements becomes starkly apparent.”
Speaking from the perspective of BII, Charlton described to African Review the vital role organisations such as his are playing in this struggle, especially in regard to the continent’s energy development.
Charlton commented, “We have 70 years of participation in Africa’s energy history and while some global investors can look at different markets and choose their risk-return, we are, by mandate, focused exclusively on Africa, Asia and the Caribbean. At this point, we have an interest in roughly one out of every three utility-scale IPPs in Africa – whether that is through funds that we invest into which then invest in projects, our debt business, or our direct equity investments. I think this tells you how critical development finance institutions such as BII are to the power development of Africa. Our hope is to continue to bring more commercial capital into the continent and, one day, not be needed.”
One power source that has received its fair share of attention and investment in Africa’s energy history is hydropower, which for many countries in Africa such as Ethiopia, Malawi, Uganda and Zambia, accounts for the bulk of energy generation.
In recent years, there are indications that the pull towards hydropower has diminished slightly against concerns around practicality in a changing climate and the growing influence of solar and wind. Such a topic was cause for debate at this year’s Africa Energy Forum, where Charlton participated in a panel discussing hydropower’s merits, drawbacks and future role. Certainly, while BII has a hand in and is pursuing many avenues of energy infrastructure development on the continent, it has not neglected hydropower as a source of power generation but instead has further demonstrated its faith into this resource to the tune of US$200mn worth of investment alongside Norfund and Scatec ASA, announced last year.
Explaining the traits that still make hydropower an attractive option for the continent, and why BII has committed to further investment, Charlton commented, “One of the great things about hydropower is longevity. Yes, you may need to replace turbines after a certain period but civil structures last and there are assets still operating in Africa which are more than 100 years old. Once you have built them – barring occasional maintenance – they are effectively offering nearly free energy as there are very limited running costs.
“In the last few years there has been more interest in private investment into hydropower. One of the reasons for this is that, with everyone looking to renewables, solar and wind are certainly stealing the spotlight from a headline tariff perspective and governments are considering how to bring more of these online, but there are system-level challenges which hydropower helps with. For some countries in Africa more advanced in this journey with solar and wind – such as Kenya and Senegal – there has emerged difficulties associated with integrating these intermittent renewables. While wind and solar may represent a cheaper form of renewable energy generation, this is only the case when they are able to produce, and you often require storage capacity as well. It may be all well and good having this generation capacity but if the grid is unable to produce every time there is a cloud going over or a calm week or at peak hours after sunset, that is an issue.
“In this way, the kilowatt hours produced by hydropower are not the same produced by alternative renewable sources because it depends when they are produced and how flexible they are. In a net zero world where wind and solar require regulation, batteries can provide shorter duration storage while hydropower can play an essential role in the form of long duration storage, with a regulating function for the grid and providing peaking power. In this way its importance is less about how much energy but more about when it is produced.”
Read the full article, including how BII is ‘walking the talk in terms of hydropower investment, in the August edition of African Review here: https://www.africanreview.com/magazine-archives/african-review-august-2023