Actis, the UK-listed private equity group, is to set up a $1.9bn renewable energy business in Africa, in an attempt to tap the continent’s resources and meet its growing demand for electricity.
Lekela Power, as the new company is called, will be a joint venture with Mainstream, a wind and solar developer that already works in partnership with Actis in Chile. Actis will take 60 per cent of the equity in new business — which it said would run to a maximum of $220m — and Mainstream the other 40 per cent, with the rest of the funding provided as debt, from South African banks and development finance institutions.
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Lekela aims to deliver 700-900MW via several projects that will come on stream in the next three years. Actis said it planned to withdraw from its investment — which has come from its $1.15bn Energy 3 fund — after five years.
While Africa’s climate and resources has made renewables investment attractive — given its levels of sunlight, wind and water — economists say that growth in many countries continues to be held back by a dearth of electricity. Routine blackouts cost the continent as much as 4 per cent of GDP, according to the African Development Bank. Total African power generation per capita is as little as a tenth of some other developing regions such as South America.
Actis already has an existing African power company, Globaleq Africa, with operations in five countries including Cameroon and Tanzania. In 2012, it also listed Ugandan power company Umeme in Uganda and Kenya, after buying the “crippled” state utility in 2005.
However, Actis said there was a need for further financing in the continent.
“At the moment, commercial bank interest in the rest of Africa [outside South Africa] is more patchy, so we will work with multilaterals and development finance institutions,” said Lucy Heintz, head of renewable energy at Actis.
“In the past, banks have invested in Egyptian energy before, but HSBC and others have less appetite for Egypt at the moment.”
Lekela will begin with three wind farms in South Africa, which currently relies on coal-fired power plants for 95 per cent of its electricity. Further north, it will set up solar and wind projects in Egypt and Ghana, before looking for more deals in east Africa and elsewhere.
“We’ll be looking at east Africa,” said Ms Heintz. “There is a lot going on in solar in Kenya, some in Uganda, and Ethiopia is an interesting market that we are watching — it has been very active on the state-procurement side in energy. We’ll see whether that market evolves towards more private sector participation.”
Actis said it was confident it could secure revenues from its projects, even though making money from power generation and distribution had been difficult in African markets, as inefficiency and corruption pushed up the price of both connections and collecting bill payments.
“We found with Umeme that the cost of not having electricity is so high, so that once you had a culture of people paying their bills — by setting up drop-in centres to make it easy to pay bills, and . . . now with mobile [phone] payments — people value electricity and they do pay,” said Ms Heintz.
But she added: “You do rely a lot on a strong regulatory framework and a degree of government support in Africa.”
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