Developing Public-Private Partnerships (PPPs) for Africa’s Energy Transition

Public-Private Partnerships (PPPs) have become a widely embraced approach for the implementation of sustainable energy projects. However, PPPs are intricate arrangements that demand expertise and effective communication for their success. When executed correctly, they hold the potential to contribute significantly to establishing sustainable energy security in Africa.

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The Green Energy Africa Summit 2023 is scheduled to take place at the Cape Town International Convention Centre (CTICC2) from the 10th to the 11th of October 2023. This prominent event, renowned for its advocacy of policy reforms and the alignment of Africa’s natural resources, plays a crucial role in paving the way for an equitable energy transition. In doing so, it seeks to ensure that Africa remains an attractive and competitive destination for global financial investment. Diverse stakeholders and leaders will participate in PPPs to facilitate discussions during the summit.

Under the overarching theme of “Unlocking Africa’s Sustainable Energy Potential,” the Green Energy Africa Summit 2023 offers a unique platform for stakeholders across the energy value chain to collaborate, propose innovative solutions, and establish partnerships that will unlock Africa’s extensive socioeconomic potential. A crucial focus of this summit will be addressing the regulatory frameworks necessary to attract investments in clean energy in Africa. If Africa is to truly unlock its sustainable-energy potential and achieve energy security for its people, it cannot do so by working alone. The continent’s physical and social structure, the needs of its citizens and the nature of global energy markets mean it will have to build partnerships. And one of the defining energy partnerships of our time is that between public and private sectors.

PPPs will be fundamental to achieving a just energy transition in Africa. This is acknowledged in many of the most important energy agreements. Just Energy Transition Partnership (JETP) announcement at COP 26, between South Africa and the International Partners Group of the UK France, Germany, the US and the EU, is but one example.

The agreement recognised that the $98 billion in financial requirements over five years to begin South Africa’s 20-year energy transition would need to come from both public and private sectors. The deal involves mobilising $8.5 billion to initiate the first phase of the programme, which will also involve extensive PPPs.

The mechanism of the funding will include loans and guarantees as well as “patient investments” by governments which seek to crowd-in private sector investment to new areas.

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As German Chancellor Olaf Scholz noted, “This is an ambitious start. More needs to follow, particularly in collaboration with the private sector.”

This approach to the energy transition acknowledges the sheer transformative power of PPP relationships. Since the financial crisis of 2008, cash-strapped governments in developed and emerging markets have looked to PPP agreements to finance infrastructure that will help their economies grow.

In Africa, these needs are significant. New estimates by the African Development Bank suggest that the continent’s infrastructure needs are already around $130 – $170 billion a year, with a financing shortfall of about $68 – $108 billion.

However, addressing such shortfalls is not the only advantage of PPPs. The World Bank notes that PPPs hold numerous benefits, besides providing governments with private-sector partners to help them bridge the funding gap.

They allow for the introduction of international private-sector technology and innovation, while also enabling skills transfer through private domestic sub-contractors and state departments.

Governments can also incentivise the private sector to deliver projects on time and within budget to minimise cost overruns.

Ultimately such projects – be they in the area of construction, infrastructure, support services or transition towards a renewables-based energy economy – are aimed at making the host country more competitive, and providing a boost to businesses various sectors.

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In the JETP context, PPPs also look to stimulate development as a means of minimising job losses to legacy industries.

PPPs have already been deployed across the energy sector in Africa, with some success. However, the continent continues to suffer from a yawning energy gap. Two out of three households in Sub-Saharan Africa – around 600 million people – have no electricity.

The rollout of renewable-energy PPPs must therefore not only match the energy outputs of legacy projects, but significantly improve on them, if the continent is to meet its aspirations for the upliftment of its people.

The track record of PPPs in Africa offers many encouraging signs.

Kenya has around 11 IPP energy projects, worth around $2,4 billion, and generating 1 065 MW, and representing more than one-third of Kenya’s total installed generation capacity.

In Nigeria, an ongoing reform of the electricity sector has seen a new power market being established, and several classic, project-financed IPPs taking shape.

South Africa has been slow to restructure the generation components of Eskom, its national electricity utility. However, that tardiness has meant it is now well placed to facilitate private investments in renewable energy through its Renewable Energy Independent Power Producer Programme (REIPPPP). Today, renewables make up about 10% of the country’s electricity capacity, representing 6 200MW of 58GW of installed capacity.

To support its PPP programmes South Africa’s National Treasury has enlisted the support of experienced PPP advisers, as well as various transaction advisers to establish a highly effective procurement group.

This has proved a wise move, and it underscores a critical aspect of the PPP process. These are complex arrangements that require wide consultation and specialised expertise to be implemented effectively. Broad cross-sectoral engagement between private enterprise, government and parastatals is essential to make PPPs work.

African countries and their energy policymakers should look to create these conditions. Ongoing engagement, consultation and sharing of expertise can help to build partnerships that will help to overcome the continent’s power deficit.

Once this is achieved, PPPs can help accelerate Africa’s transition to more sustainable energy systems, providing energy security, reducing greenhouse gas emissions and supporting economic development for all the people of the continent.

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