1. 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

2. 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

3. Scaling Up Clean Energy
Is it possible?

4. 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

5. 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 % of
DISCO Collections
Average Collections: c.60-70%
Unpaid Bills: c %
c. 30% of Gas invoices paid
c % 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

6. 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

7. 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