The sustainable energy sector holds opportunities for collaboration

The sustainable energy sector holds opportunities for collaboration

The founder of Africa GreenCo how shared expertise between Africa, India and the UK can lead to noteworthy developments in emerging markets.

Over the last 10 years, sub-Saharan African trade and economic diplomacy have slowly trended away from developed countries and toward emerging economies. Since 2006, the region's exports to the United States has declined by 66 per cent, whilst exports to India have more than doubled.

Exports to the UK are not yet as significant but could become so with the right impetus. Many African countries are today seeking trading partners based on equal opportunities and mutually beneficial trading partnerships, opening the doors to increased opportunities for both Indian and UK trade - trade based on innovative forms of international partnerships, and far removed from past mistakes such as the belief that the traditional giver-receiver logic could fully promote mutual accountability and empower authentic ownership of the development agenda.

Today, it is crucial that new forms of partnerships capture the nuances of the global economy, and recognise that there is, and should be, an ongoing rebalancing of geopolitical and economic power in favour of emerging and developing countries. Both India and the UK are extremely well placed to enter into such partnerships, chiefly because they can leverage significant cultural and social bonds with many countries in Africa.

India-African relations have for a long time been based on shared notions of anti-colonialism and anti-racism. Whilst such bonds with the UK can inevitably be contentious, the UK can still emerge from its post-colonial shell with a positive offering for the future, and true win-win trading partnerships to both Africa and India on an equal footing basis.

The last twenty years have seen the UK and India diverge in this area. Until the late-1990s, Britain accounted for nearly 7 per cent of the continent's imports.

Now, the entire continent accounts for just 3 per cent of all UK goods and service exports - less than is exported to most European countries. Meanwhile, bilateral trade between India and Sub Saharan Africa has been increasing: from $7.2 billion in 2001 to $63 billion in 2017­18.

Today, there are opportunities for growth and collaboration for the UK, India, and Africa in many areas:

1) Agriculture Big data and mobile communications have the potential to revolutionise African agriculture; UK funding and technology, and Indian experience in achieving its 'green revolution', have much to offer the continent with the greatest capacity worldwide for agricultural growth.

2) Digitalisation Burgeoning youth populations in both India and Africa have to be integrated into the labour market, and the latter adapted to the impacts of the Fourth Industrial Revolution; knowledge exchange through educational programs between India-Africa and the UK should be encouraged, and digitalisation and other services industries expanded.

3) Sustainable Energy The countries of Africa and the Indian subcontinent are among the most vulnerable in the world to climate change. Focus on sustainable energy, climate change mitigation, and adaptation will become particular priorities as the climate - together with the economies and livelihoods that depend on it - change.

There should be an urgent focus on solutions, driven by South-South-North collaboration on both mitigation and adaptation.

Africa-India-UK knowledge flow in the sustainable energy arena holds particularly important opportunities: India is one of the countries with the largest production of energy from renewable sources; renewables account for 34.6 per cent of total installed power capacity.

India is the fourth-largest wind power producer in the world and is further a significant solar producer. Current renewable energy targets in India place India among the most ambitious of world leaders in renewable energy use, something emphasised by its 'Sunshine Countries' International Solar Alliance project, promoting the growth and development of solar power internationally to over 120 countries.

Whilst the UK's own renewable energy development has perhaps been less significant, it nonetheless has a stronger investor presence in Africa than does India, being one of the largest sources of investment in the continent's energy sector.

Such vast experience in renewable energy in India, combined with the UK's strengths in renewables finance, provide an optimum background for collaboration between African countries, India, and the UK in developing new innovative models and solutions for climate change mitigation and sustainable energy development. One example of a model inspired by India, and initiated in the UK (with significant support and leadership from The Rockefeller Foundation, Convergence and P4G and many European Union organisations such as AFD and EC), is currently being implemented in Southern Africa under the leadership of the Government of Zambia, and is our work at Africa GreenCo.

Africa GreenCo has been designed to tackle a creditworthiness constraint in the African power sector through the establishment of an independently managed, creditworthy intermediary offtaker and power services provider, to sit between renewable electricity generation companies on the one hand, and both state-owned and private sector offtakers on the other. GreenCo will operate as a member of regional power pools, aggregate offtaker credit risk and diversify both supply-and demand-side risks on a regional basis.

The GreenCo model represents a practical solution, which recognises and supports the development of power pools, and drives both financial and grid system change in the African power sector. Its focus is a shift from isolated investment and policy 'sticking plasters', towards fully efficient energy markets that attract private sector finance at scale and at an affordable cost.

Whilst GreenCo was initiated in the UK and is currently being set up in Zambia as the first country of operations, it drew inspiration from the success of comparable independent power intermediaries and aggregators in developing markets - and especially those markets that are more context similar to Africa.

The most applicable case study to the GreenCo model is actually PTC India Limited (PTC), formerly known as Power Trading Corporation of India Ltd. PTC was established under the directions of the Government of India in 1999 as a PPP whose primary focus was to develop a commercially vibrant power market in India, being mandated to act as an entity for credit risk mitigation.

The evolution of the Indian power market up to PTC's creation closely mirrors that of African power markets: India had five regional grids each governed by a Regional Electricity Board (REB), comprising the Heads of the member State Electricity Boards (SEBs), which acted as each state's public sector power utility. These regional areas were only minimally interconnected.

During the 1990s, privately financed and operated IPPs were allowed to support the growing demand for power. IPPs contracted directly with SEBs with a guarantee by the State Government and, in some cases, counter-guarantees by the Central Government.

Investment decisions in power generation and transmission infrastructure were uncoordinated and inefficient; there was limited inter-state and almost no inter-region power trading. PTC was developed in response to the Government's decreasing appetite for, and indeed capacity to sign, sovereign and state-level guarantees for IPPs, and out of a recognition that there was scope for more efficient power trading that de-linked power purchases from direct fiscal impact.

Using its capital base, PTC India has to date been able to act as a creditworthy PPA counterparty for 7,000MW of installed capacity from a pipeline of 14,000MW. Even on a conservative estimate of capital costs for new IPPs, this has unlocked well over $5 billion of private investment, and as intended, PTC's involvement as an offtaker since 2004 has resulted in a shift away from government guarantees.

PTC acts as an indicator of the potential impact and financial feasibility of an intermediary model. For GreenCo the key question is then how this model can be adapted to fit African power markets. And while the Indian and African contexts are clearly different, and operating across multiple countries presents additional challenges, PTC's former management has itself acknowledged the striking similarities between the two market contexts, notably:

  • Fragmented State (India) and national (Africa) utilities and transmission infrastructure

  • Growing collaboration and coordination across regional power pools (five in India, four in sub-Saharan Africa)

  • Low average creditworthiness of offtaker utilities

  • Desire to eliminate sovereign guarantees for PPAs

  • High growth in, and latent demand for, power

  • Focus on renewable energy versus fossil fuels

PTC India, therefore, provides a concrete example of the significant role a renewable energy intermediary offtaker, aggregator, and power services provider can play in increasing power generation at lower cost and stimulating the cross border power markets in Africa, especially relevant for countries like Zambia who are well placed to become the power trading hub for the region.

We are working closely with the Government of Zambia on the operationalisation of the business model and will be presenting it at the forthcoming Zambian Economic Summit on “The Future of Economic Diplomacy: Supporting Inclusive Growth and Sustainable Development in Africa” due to take place in July 2019 in Zambia and organised by the Economic Association of Zambia. GreenCo is an example of how shared experiences and shared expertise can bear significant fruit - a true model for South-South-North collaboration opening a more win-win form of diplomatic and economic collaboration.

Ana Hajduka is the Founder & CEO of Africa GreenCo.

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