Africa Finance Corporation targets combining renewable infrastructure projects to attract more funding

Lagos-based Africa Finance Corporation (AFC) will shift its energy portfolio towards greener projects to attract greater investment from institutional partners, its new chief investment officer Sameh Shenouda announced.

Shenouda joined the pan-African infrastructure bank from Blackstone-owned energy group Zarou on Monday, and he said the AFC board had agreed to a plan to bundle new and existing solar, hydro and wind projects in a dozen African countries into a new unit with combined generating capacity of 1-2 gigawatts of renewable energy.

He added that the unit could eventually be separated out and floated on the London Stock Exchange. “This is an area a lot of European investors and oil companies are going into, but they haven’t cracked Africa yet,” Shenouda said.

According to Shenouda, investors have expressed interest in green energy projects on the continent but were unable to spend time scouting relatively small 50-60 megawatt projects. “So we will deliver an opportunity that gives them higher returns and access to a market they haven’t cracked yet.”

AFC, an infrastructure-focused development bank established in 2007, has expanded rapidly in recent years, investing $8.7bn in projects in 35 African countries across power, telecoms, heavy industry, logistics and transport.

An investment-grade rated bank, it has sought to attract funding from a wider pool of investors, raising money in several Asian markets including China, Singapore and Malaysia.

In December, the US International Development Finance Corporation provided $250 million of funding to strengthen the bank’s capital base. Nigeria’s central bank holds a 42% stake.

AFC has already invested more than $60m in a wind power project in Djibouti in the Horn of Africa. The bank is looking at renewable energy opportunities in Nigeria, Ivory Coast, Madagascar and Mozambique.

Aubrey Hruby, co-founder of the Africa Expert Network and an investor in African start-ups, described the AFC’s tilt towards a green strategy as “good news”. However, she cautioned that many funds were looking for similar opportunities.

“The new climate focus across the financial world will probably mean a surplus of capital chasing limited bankable deals in green energy on the continent,” she said.

In the past, the AFC has expressed caution about embracing the shift towards green energy because much of Africa has a woeful infrastructure deficit. In the AFC’s own home base of Nigeria, only about half of homes have access to electricity.

Moreover congestion at Lagos port is so bad that it costs as much to get a truck through the commercial capital as it did to ship the same goods from China.

“We have to be a little careful of not trying to accelerate this carbon issue so fast, so hard, that you start stifling Africa’s development,” Sanjeev Gupta, executive director for financial services at AFC, told Investors Chronicle recently.

Morocco is home to Africa’s biggest solar project Noor whereas South Africa hosts eight of the ten largest solar plants in Africa. Most African countries rely on fossil fuels to meet their energy needs.

“Projects that meet all the criteria around which green financing can happen, there are still not that many, it’s not that easy, and not that cheap to develop them.” Shenouda said the bank had done many power projects, but not enough in renewable energy.

“We will always find fossil fuels in the mix, but now the challenge is how to get to 20% of your capacity from renewables,” he said.

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