Scaling Up Investment in Clean Energy David Bowers Vice President Africa Finance Corporation Note: The views and opinions expressed in this presentation are those of the presenter and do not necessarily reflect the official policy or position of Africa Finance Corporation

AFC Background An investment grade rated multilateral finance institution established to help address Africa’s infrastructure needs, while seeking a competitive return on capital for its shareholders Overview: Founded 2007 as a joint venture between public and private investors International organization established by treaty Private sector majority shareholders, include leading pan-African commercial banks USD 3.92bn in total assets USD 4.4bn cumulative amount disbursed Growing financial advisory and treasury services franchise Leading regional public sector adviser on infrastructure Strong expertise as project developer in Africa; Founder of Africa Infrastructure Development Association (AFIDA) Key Sectors: Oil, Gas, Power, Transport, Telecoms, Mining and Heavy Industry Over 77 professional staff *As of June 2017

Scaling Up Clean Energy Is it possible?

Challenges at Utility Scale Cost reflective tariffs Collections from customers only cover [30-40]% of the value of capacity and energy in the supply chain Causality dilemma reliable electricity investment supporting tariffs

Compounded Liquidity Gaps Current State of the Industry – Impending Systemic Collapse Compounded Liquidity Gaps Weaknesses across the value chain creates funding gaps, thus reducing ability to service debt, cover operations & invest capex to upgrade network within the Value Chain Capacity, Energy & Fuel Charge DISCos NBET, NERC, TCN &Others GenCos Actual Collections for Market Settlement c. 40-50% of DISCO Collections Average Collections: c.60-70% Unpaid Bills: c. 30-40% c. 30% of Gas invoices paid c. 50-60% of Genco Invoices remain unpaid c.40-60% of Genco and Gas supply invoices covered by NBET Gas Provider Payment proceeds to Gencos not sufficient for Genco financing and operating costs Cost reflective tariffs are critical Inadequate Cash flow to cover Capex investment requirements c. 70% of Gas invoices remain unpaid Portion of cost not covered by tariff Cash flows generated by sector barely sufficient to cover basic costs: financing costs, overheads & c. 50% of energy costs; tariffs also not sufficiently cost-reflective *Based on 2015 industry data

Challenges at Utility Scale Cost reflective tariffs Collections from customers only cover [30-40]% of the value of capacity and energy in the supply chain Causality dilemma Government support Project finance 101: “Allocate the risk to the party most able to manage it” Currency availability and convertibility FX rate Offtaker creditworthiness/solvency Grid stability Government Commitment Predictable process Setting expectations Solar PV tariff of 1.78¢/kWh in Middle East 6¢/kWh in Zambia Appropriate return for risk Certainty of execution

Alternatives Captive power Transfer offtaker credit risk from utility to creditworthy corporates or industrials Challenge: few corporates/industrials with sufficient demand to support utility-scale Unconventional credit analysis of offtaker required Minigrids – solar, energy storage, modular LNG These solutions provide energy directly to end users, occasionally bypassing utilities Challenge: business models are much more reliant on consumer uptake, presenting a different risk profile than many utility scale electricity investors are accustomed to Strong business solutions attract financing, but it may come from other sources