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Speaker 1: Hi everyone. So tanguweeze. It means ginger in Swahili. It

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Speaker 1: is the name of a really great ginger beer made

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Speaker 1: by Coca Cola that's super popular across subs are in Africa.

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Speaker 1: In January fourteen, I was in Dara Salaam in Tanzania.

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Speaker 1: I was there doing research on the Tanzanian energy sector

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Speaker 1: for a report benf does on emerging markets called Climate Scope.

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Speaker 1: I think over the course of the week I had

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Speaker 1: at least a dozen tangoeezies. One I had, or maybe

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Speaker 1: two or three or four was one evening over the

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Speaker 1: course of a long meeting at the pool deck of

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Speaker 1: my hotel overlooking the Indian Ocean. The meeting was with

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Speaker 1: the representative one of the major development banks, who was

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Speaker 1: more than happy to chat for some reason, and since

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Speaker 1: I was there to find out as much as I

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Speaker 1: possibly could, I was perfectly content to sit there and

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Speaker 1: sip the tangoeezi and listen. One thing he said has

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Speaker 1: stuck with me all these years later. He said he's

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Speaker 1: not interested in funding or building power generation assets in

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Speaker 1: Tanzania are subsuri in Africa anymore. He said, there's enough

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Speaker 1: of that, there's enough generation, there's enough power plants. He said,

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Speaker 1: the only thing that matters, the only thing the region

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Speaker 1: needs and the only thing he's going to work on

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Speaker 1: this transmission or power lines to get the electrons from

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Speaker 1: A to B. Today we've got Antoine, Vania Jones and

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Speaker 1: energy analysts from BANFS Europe, Middle East and Africa team

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Speaker 1: in to tell us if that's right or not. He'll

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Speaker 1: walk us through some of the challenges and some of

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Speaker 1: the opportunities across Sub Saharan Africa. Our discussion will be

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Speaker 1: based on a report he recently published titled Sub Saharan

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Speaker 1: Africa Market Outlook. I will say in our discussion with Antoine,

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Speaker 1: we really just scratched the surface. There's a lot going

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Speaker 1: on in this reason and a lot to consider for

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Speaker 1: those looking at this market. I would encourage Benough clients

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Speaker 1: to have a look at this report on BNF dot com,

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Speaker 1: the BENF mobile app, or the Bloomberg terminal to get

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Speaker 1: further details and for topics we don't cover in this

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Speaker 1: short conversation. As always be if does not provide investment

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Speaker 1: or strategy advice, and you can hear a full disclaimer

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Speaker 1: at the end of the show. If you like the show,

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Speaker 1: please go ahead and rate and review us on Apple

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Speaker 1: podcast or wherever you listen. I'm Mark Taylor here with

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Speaker 1: Dana Perkins and you're listening to Switched on the BENF podcast. Antoine,

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Speaker 1: thank you for joining us today. Thank you very much. Dana,

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Speaker 1: great to be here. We are going to talk about

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Speaker 1: sub Saharan Africa, and I would love for us to

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Speaker 1: just kind of set the ground a little bit as

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Speaker 1: we get started. How are we defining this region because

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Speaker 1: actually it doesn't have a straightforward definition, does it. No,

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Speaker 1: it doesn't. And you see a lot of different definitions

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Speaker 1: for sub Saha in Africa at being if we take

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Speaker 1: a pretty expansive definitions, so everything sort of south of Morocco,

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Speaker 1: south of Egypt we count as sub Saha in Africa.

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Speaker 1: What does energy look like in this region of the

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Speaker 1: world right now? So energy looks very different to how

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Speaker 1: it looks in a lot of other regions. I mean, basically,

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Speaker 1: we have a wide range of countries with different geographies,

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Speaker 1: which are very different energy systems, and the technologies they

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Speaker 1: use to electrify their populations varies enormously. But one thing

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Speaker 1: that really is common across the board is the fact

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Speaker 1: that many large segments of the population don't have access

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Speaker 1: to actricity, So only about seven countries have more than

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Speaker 1: half of their population having access to actricity, which is

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Speaker 1: pretty shocking, but otherwise it really very You have countries

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Speaker 1: that depend on the hydro countries that really burn a

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Speaker 1: lot of coal, and countries that are relying on importing

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Speaker 1: costly fuel so oil usually heavy fuel oil diesel, which

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Speaker 1: is very expensive. So as we get into this report,

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Speaker 1: can you tell us kind of the big questions you

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Speaker 1: were hoping to answer in doing the research. So the

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Speaker 1: report was commissioned by the Department for International Development of

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Speaker 1: the British government and the big question we were given

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Speaker 1: to begin with was look into the state of play

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Speaker 1: for renewables, so what investments have amazing and where we're

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Speaker 1: going just across the board, which is pretty wide question,

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Speaker 1: and it got even wider because realized that as we

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Speaker 1: went into the subject, we actually had to understand what's

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Speaker 1: going on in other sectors and with other technologies because

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Speaker 1: obviously everything is linked. So we ended up just trying

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Speaker 1: to understand the big trends affecting the power sector across

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Speaker 1: the board, looking at everything from electrification to coal and

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Speaker 1: to renewables and clean energy investment, and this clearly doesn't

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Speaker 1: seem like a report you can do just by you know,

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Speaker 1: downloading some data from some site I don't know, in

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Speaker 1: doing some modeling on at your desktop. It seems to

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Speaker 1: get to get out there and do it. So we're

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Speaker 1: very lucky at BENF, especially with our emerging market coverage.

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Speaker 1: So we have a yearly project called Climate Scope where

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Speaker 1: we send our analysts across the world to collect exactly

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Speaker 1: the kind of data that we rede on for this

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Speaker 1: kind of report, and that's often hard to get, so

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Speaker 1: it involves going to countries and trying to convince people

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Speaker 1: basically to give you data and information, do interviews with

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Speaker 1: them and see what they can get in return. So,

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Speaker 1: for example, I went to Senegal and caught Devoir last

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Speaker 1: year and ended up sitting down with as many stakeholders

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Speaker 1: as I could, whether it was development agencies or government,

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Speaker 1: the ministries, regulators, education agencies and just having conversations about

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Speaker 1: what's going on and seeing what kind of data they

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Speaker 1: could share. What was the feel was that was it

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Speaker 1: that Africa is open for business or subsity in Africa

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Speaker 1: is open for business, or is that there's just so

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Speaker 1: many challenges, you know, they're hard to over come. So

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Speaker 1: it really varies from country to country. So with this project,

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Speaker 1: explicitly we look at renewables and renewables investment, and the

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Speaker 1: picture really differs from depending on where you look. There's

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Speaker 1: some countries like Garder for example, where governments have come

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Speaker 1: out and said that they actually think that so it's

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Speaker 1: a bit too expensive for their needs, whereas others like

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Speaker 1: Senegal is an example, really see the benefits of the

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Speaker 1: cost of decreases we've seen in recent years, and I

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Speaker 1: really want to use that to help wean themselves off

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Speaker 1: more expensive options such as relying on heavy fuelil and

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Speaker 1: diesel to power their populations. So as we're looking at

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Speaker 1: this as a region, I know it's difficult to take

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Speaker 1: a series of independent countries and kind of tease out

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Speaker 1: some themes. We're going to do our best here today

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Speaker 1: to see, you know, a little bit about what the

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Speaker 1: future holds. As you were doing this research and kind

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Speaker 1: of looking towards the future, kind of what was the

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Speaker 1: bright spot that you saw in here. Let's start with

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Speaker 1: up tunity is rather than challenges. Sure, so subside Africa

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Speaker 1: is starting from quite a low base in terms of

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Speaker 1: renewables investment. And for example, when you look at emerging

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Speaker 1: countries across the globe, a hundred and seven gigawatts of

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Speaker 1: clean energy was installed over eighteen and when you look

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Speaker 1: at South side Africa, that accounted for less than one

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Speaker 1: percent of that total figure, which is really not that much.

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Speaker 1: So we're starting from a very low base. But what

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Speaker 1: we are seeing is is pretty rapid growth, which really

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Speaker 1: rivals what we're seeing in the fastest growing regions in

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Speaker 1: the world in terms of the rate at which renewable

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Speaker 1: energy investments are accelerating. So, for example, we track and

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Speaker 1: we have forecasts for solar for as a technology that

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Speaker 1: we look at in particular, and we're seeing double the

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Speaker 1: amounts of the capacity of solar installed in one compared

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Speaker 1: to twenty eighteen, which is a pretty big leap. So

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Speaker 1: if you're seeing this rapid growth, where is it coming from?

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Speaker 1: Who are doing these projects? So it's interesting because SUBSIG

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Speaker 1: in Africa is quite unique in how important donors are

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Speaker 1: and that can be development finance institution multilaterals like the

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Speaker 1: World Bank, and they often work in partnership with countries

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Speaker 1: to set up procurement programs. So these are schemes which

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Speaker 1: provide subsidies and support for developers who want to develop

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Speaker 1: renewables projects. So when we look at different countries, we

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Speaker 1: we raid and see and look at what kind of

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Speaker 1: environment they offer for investors. But it's also good idea

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Speaker 1: to see where the donors are looking. And one of

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Speaker 1: the big things we've seen are some headlines being made

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Speaker 1: with record low prices across much of the region through

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Speaker 1: procurement programs like renewable energy auctions under skating Soda, for example,

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Speaker 1: which was backed by the World Bank. So I think

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Speaker 1: I'm gonna have to take us down and nurch. When

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Speaker 1: I read this report, it seemed pretty bleak to me

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Speaker 1: that there are actually some substantial challenges that face developers

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Speaker 1: or countries and trying to procure renewable power. One of

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Speaker 1: them makes me wonder, like what is driving the growth

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Speaker 1: of renewals because in the report you said that a

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Speaker 1: lot of these markets are oversupplied for energy, but there's

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Speaker 1: a lot of energy that's unavailable, So actually, could you

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Speaker 1: just explain that for us? What does it mean that

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Speaker 1: there's an oversupply of energy? And yeah, definitely when you're

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Speaker 1: talking about some in some cases half of the country

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Speaker 1: not having access to energy, how is that and oversupply,

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Speaker 1: So that's a really good question. So there's two levels

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Speaker 1: to this. One of them is when you look at

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Speaker 1: certain countries, we look at their demands, so the overall

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Speaker 1: power that's consumed by the population, and in a lot

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Speaker 1: of cases you actually see that there is enough in

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Speaker 1: terms of what's called nameplate capacity, so the amount of

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Speaker 1: capacity that is represented by power plants that are built

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Speaker 1: and are running in the country to to cover that demand,

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Speaker 1: which is a bit of surprise to many people. But

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Speaker 1: there are two things to bear in mind. The first

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Speaker 1: is that the amount of time that those power plants

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Speaker 1: are available, it really can vary dramatically, so you can

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Speaker 1: have years where, for example, there are droughts and big

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Speaker 1: high dragic dams that supply half the country's population just

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Speaker 1: aren't able to provide as much accredity as you'd want.

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Speaker 1: That's worsened by the fact that a lot of these

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Speaker 1: power plants are aging and lacking in investment, which means

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Speaker 1: that they really struggle to perform to their full capacity.

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Speaker 1: And the other side of this is that demand is

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Speaker 1: often constrained by transmission so there and distribution, so there's

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Speaker 1: a lot of investment that's required in power grids in particular,

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Speaker 1: and this is one of the massive challenges is that

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Speaker 1: demand is what we call constrained by the fact that

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Speaker 1: not enough transmission is being built, and that's because it's

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Speaker 1: a risky business and there really isn't that much private

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Speaker 1: investment at the moment. That's something that we're seeing to change,

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Speaker 1: but it's seeing changing, but it's taking time and really

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Speaker 1: only just taking off. How are you seeing it change? Um?

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Speaker 1: For example, countries like kenya Um have a handful of

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Speaker 1: projects maybe five sort of power lines that are privately

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Speaker 1: back there in the works, but that's again they're all

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Speaker 1: under development at the moment. And the British government has

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Speaker 1: also created a company called grid Works, which was launched

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Speaker 1: last year and serves to invest specifically in power grids.

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Speaker 1: So there's this recognition that we really need to focus

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Speaker 1: on investment in transmission as well as building power plants

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Speaker 1: and renewable energy capacity to flow over those transmission and

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Speaker 1: distribution power lines. So you're talking about how there's oversupply,

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Speaker 1: but maybe that has to do with the fact that

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Speaker 1: all of these things are ultimately by these things by

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Speaker 1: the way, I mean energy supply, Our individual little islands

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Speaker 1: and to themselves, and this could be an opportunity for

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Speaker 1: countries to lean on each other and lean on each

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Speaker 1: other's energy systems. But what's really standing in the way

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Speaker 1: of a more expansive grid connection. So that's completely right,

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Speaker 1: and there are a lot of countries that are trying

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Speaker 1: to interconnect, so they're trying to build power cables that

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Speaker 1: are cross border and so they can draw from each

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Speaker 1: other's um well, they can benefit from each other's relative

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Speaker 1: you can say strengths in terms of energy production. So

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Speaker 1: you might have one country where, for example, in Europe,

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Speaker 1: you have countries that proved sort of solo at one

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Speaker 1: point that might benefit another country where the wind isn't

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Speaker 1: blowing as much and they aren't able to produce. So

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Speaker 1: that can be great in terms of maximizing how economical

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Speaker 1: your power fleet is. And that's something that we're seeing

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Speaker 1: being recognized in Subside in Africa through what's called power pools.

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Speaker 1: So there are a number of different power pools that

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Speaker 1: are being created and they're basically sort of organizations that

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Speaker 1: are being set up to encourage the trade of electricity

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Speaker 1: across borders. And one of the most successful and early

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Speaker 1: examples of this is a Southern African power pool which

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Speaker 1: has been up and running for what for the last

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Speaker 1: two decades, and we've seen some ups and downs, And

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Speaker 1: basically one of the big issues is the fact that

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Speaker 1: a lot of generation fleets remain quite small. There aren't

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Speaker 1: that many private actors involved in generation, and there's again

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Speaker 1: this lack of investment in transmission assets, which really slows

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Speaker 1: down progress in other regions. In your opinion, would you

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Speaker 1: say that these power poles and this investment into the

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Speaker 1: grid is being treated as a matter of priority above

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Speaker 1: or behind building additional capacity, so the issues that politically

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Speaker 1: there isn't as much impetus behind a lot of these

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Speaker 1: projects because of the fact that very often trading with

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Speaker 1: other countries isn't seen as that attractive for administrations that

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Speaker 1: want to be seen as providing power to their constituents.

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Speaker 1: So very often high levels of high profile power projects

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Speaker 1: will get more in the way of political support than

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Speaker 1: a transmission line that could help to sell electricity to

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Speaker 1: another country to recap there's kind of the issue of

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Speaker 1: the power pulls that could be more expansive. There's the

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Speaker 1: one of high capacity but low availability or lesson availability.

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Speaker 1: There's also the issue of legacy power purchase agreements for

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Speaker 1: older plants. But let's talk also about the challenge of

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Speaker 1: off taker. So you're in ependive power producer an IPP.

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Speaker 1: You want to go build a power plant in some country,

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Speaker 1: but you might struggle to get paid. Is that right?

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Speaker 1: That is right, And we perform a yearly update of

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Speaker 1: how we see off taker risk, which is basically the

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Speaker 1: risk that you don't get paid in time or in

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Speaker 1: full when you sign a power purse agreement with an

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Speaker 1: off taker. And when you look at Africa, the picture is,

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Speaker 1: like you said, pretty bleak. It's not great. There are

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Speaker 1: a lot of countries where it is very risky to

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Speaker 1: enter into these agreements and it means that you have

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Speaker 1: to invest in various forms of guarantees and insurance which

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Speaker 1: make projects more expensive and also excuse the playing field

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Speaker 1: towards bigger projects. And that's basically down to the fact

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Speaker 1: that effectively most of the region's utilities are bankrupt. And

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Speaker 1: that's for various reasons. But there's only really the World

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Speaker 1: Bank has done a comprehensive report on the subject that

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Speaker 1: you found that it's only really in Uganda that UM

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Speaker 1: utilities are able to cover their operating expenses, which is

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Speaker 1: really one of the big hurdles facing the sector. But

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Speaker 1: it means that donors and very multi lasteral institutions have

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Speaker 1: a role to play in terms of supporting these projects

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Speaker 1: and creating the frameworks, and that's something that we are

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Speaker 1: seeing over the last few years. Or what is different

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Speaker 1: in Uganda that the utility is able to coverage cast.

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Speaker 1: So the young power sector was reformed towards the back

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Speaker 1: end of the ninety nineties and what we call sort

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Speaker 1: of liberalized unbundled, which means that the historic monopoly on

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Speaker 1: the operations of the power sector, so you had one

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Speaker 1: company that was doing everything from producing power to selling

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Speaker 1: it to customers, and those various businesses got broken up

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Speaker 1: and we're actually, after a few hiccups and a lot

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Speaker 1: of political pushback, like it hadn't been a smooth ride,

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Speaker 1: managed to find a way of operating efficiently. And that's

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Speaker 1: something that that really is an exception and is down

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Speaker 1: to a lot of factors that are particular to Uganda,

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Speaker 1: um but liberalization and breaking up monopolies isn't always the

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Speaker 1: way forwards. We saw in Nigeria also had a very

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Speaker 1: comprehen and breakup of its historic utility and creating many

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Speaker 1: local distribution companies called discoes, but actually we see that

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Speaker 1: most of them are also bankrupt, and it shows that

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Speaker 1: this idea that liberalization is the way forward does have

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Speaker 1: a lot going for it, but it's not a panacea

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Speaker 1: to the region's problems. When we talk about Africa and

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Speaker 1: Sub Saharan Africa specifically and providing access to people who

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Speaker 1: don't currently have access to energy. There has been some

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Speaker 1: discussion around this view that maybe the grid could look

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Speaker 1: very different and maybe the way these central utilities that

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Speaker 1: we're used to seeing where we're sitting right now in

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Speaker 1: Western Europe or where Mark and I are from in

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Speaker 1: the United States, that that's not the way that things

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Speaker 1: need to be done, and that maybe we could have

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Speaker 1: a very fragmented, just locally handled grid from here to there,

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Speaker 1: which doesn't support the ability to trade power across lines

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Speaker 1: unless you've got great connection, really really organized. How would

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Speaker 1: you say those two scenarios compare with one other, because

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Speaker 1: they are at arts. You either have to go big

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Speaker 1: and organize or you have to go really fragmented, do

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Speaker 1: you not, So it's non either or Some countries treat

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Speaker 1: it as an either rule and in countries like got

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Speaker 1: de Voir, for example, the build out of the grid

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Speaker 1: has been quite successful of the main transmission grid, and

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Speaker 1: that means that there's less um sort of political interest

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Speaker 1: in creating a framework that be favorable for more distributed options.

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Speaker 1: When we talk about distributed options, that can be anything

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Speaker 1: from a small solo home kit which would power a

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Speaker 1: household and really not any big appliances in a lot

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Speaker 1: of cases, to a mini grid, which could power whole community.

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Speaker 1: And they're very different in terms of business cases and

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Speaker 1: in terms of the level of subsidies or financing that

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Speaker 1: they need. In Uganda, for example, the government has been

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Speaker 1: creating concessions, so sort of staking out areas that are

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Speaker 1: to be electrified, specifically by mini grids, and provide a

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Speaker 1: subsidy as well for that to happen and cover connection

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Speaker 1: costs and expenses that really make it make projects viable

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Speaker 1: because a lot of these projects, like most historical electrification

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Speaker 1: experiences throughout the world, I really rely on government funding.

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Speaker 1: So let's say I'm looking at the subsecurrent African market

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Speaker 1: to potentially build a product there. What do we need

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Speaker 1: to know? We've outlined the challenges, but we've also outlined

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Speaker 1: that there's demand, so what do I need to know

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Speaker 1: before I jump in? So you need to be tracking, UM,

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Speaker 1: what tenders are being put out, what auctions are being held,

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Speaker 1: what kind of criteria UM those auctions are being held under.

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Speaker 1: It's also a good idea of understanding the sort of

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Speaker 1: longer term trends that are happening in these markets. So

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Speaker 1: if you're looking at rural electrication distributed options, it's really

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Speaker 1: useful to look at a lot of these countries have

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Speaker 1: established of roadmaps for utrification which can really help investors

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Speaker 1: understand what they're expecting in terms of many goods being

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Speaker 1: built or in terms of the role for for grid extensions.

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Speaker 1: Other than that, targets are often missed and progress towards

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Speaker 1: them is off and lacking, but they do provide a

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Speaker 1: good idea of what's going on. But one of the

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Speaker 1: biggest indicators of where opportunities lie are is where investment

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Speaker 1: is happening today. So that's something that we try and

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Speaker 1: help our clients with and is something that is worth tracking.

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Speaker 1: So we see a lot of progress in the most

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Speaker 1: promising markets recently happening in markets like Kenya and Senegal,

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Speaker 1: which have been watched for a long time, but are

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Speaker 1: really starting to bear their fruits today. And that's that's

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Speaker 1: really one of the big challenges is understanding that things

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Speaker 1: can change quickly and that markets that were dormant for

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Speaker 1: a long time can also really light up. So remind

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Speaker 1: me again, what were the two countries that you went to.

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Speaker 1: I went to Senegal and just over the last year

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Speaker 1: for this specific project. So I want to know a

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Speaker 1: little bit about your personal experience. What was it like

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Speaker 1: going and trying to get this information given that it

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Speaker 1: wasn't a massive data download from a computer. So it

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Speaker 1: really varies on how excited the government is in terms

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Speaker 1: of attracting investment in renewables um and understanding that really

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Speaker 1: getting there, getting this information out to investors, which is

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Speaker 1: ultimately what we do, is is worth their while. And

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Speaker 1: Incote de Voi, there's a lack of enthusiasm. They really

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Speaker 1: they they've got quite a substantial power fleet already, it's

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Speaker 1: running quite well compared to their neighbors, and there's something

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Speaker 1: of a regional powered giant, whereas in Senegal it's a

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Speaker 1: market that's changing very fast, that really does need renewables,

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Speaker 1: and alongside investments with renewals and future interest in gases,

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Speaker 1: understanding the value of having investors have information at their

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Speaker 1: fingertips and drawing them in. So from my personal experience,

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Speaker 1: it was very different sort of trying to talk to

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Speaker 1: maybe less enthusiastic Iborians and then going to Senegal where

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Speaker 1: there was more of a recognition that there was a

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Speaker 1: lot to be done, and one from explicitly talking about

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Speaker 1: offering up data and and being willing to answer some

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Speaker 1: quite difficult questions sometimes and then going into this you

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Speaker 1: probably had assumptions. So what we're the thing that was

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Speaker 1: kind of most interesting or changed your mind the most

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Speaker 1: in the process of the research. So something that's really

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Speaker 1: interesting is over the last year we've seen headlines being

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Speaker 1: made with these renewable energy auctions that have been held

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Speaker 1: in substit in Africa and countries like Zambia and Senegal

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Speaker 1: and hit really low prices for solo So we're talking

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Speaker 1: four dollar cents per killer what hour or less, which

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Speaker 1: is pretty competitive at an international level and really surprising

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Speaker 1: when you look at the risk profile some of these projects.

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Speaker 1: And what surprised me was actually that a lot of

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Speaker 1: developers were quite wary about these numbers and a bit

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Speaker 1: frustrated because they saw that when they went to governments

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Speaker 1: and tried to suggest power projects and tried to take

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Speaker 1: part in local tenders, they were being asked for those

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Speaker 1: same prices as we're being hit in these big international

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Speaker 1: auction schemes. And that was something that was very difficult

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Speaker 1: because it isn't reasonable when you don't have the same

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Speaker 1: sort of de risking frameworks that the World Bank Skating

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Speaker 1: Solo Framework has and m is ultimately something that needs

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Speaker 1: to be really understood as we go forward. So there's

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Speaker 1: a lot of momentum in the sector and in the region,

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Speaker 1: but that also needs to be put into context and

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Speaker 1: that's what we try and do. Antoine, thank you very

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Speaker 1: much for joining us today. Thank you very much, Diana,

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Speaker 1: thank you. Mark. Bloomberg an e F is a service

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Speaker 1: investment or other strategy. Bloomberginn e F should not be

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