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Analysis - Obama's renewables pledge to Africa

AFRICA: The US government has pledged more than $7 billion over the next five years to double access to electricity in sub-Saharan Africa, including tapping the region's wind potential and other renewable energies.

The Power Africa initiative will also benefit from private sector investment, starting with over $9 billion already committed to support the development of more than 8GW from all sources, including Kenya’s 300MW Lake Turkana wind project and Tanzania’s 100MW Singida wind development.

The US funds will be channeled through a number of government agencies; the Export-Import Bank has up to $5 billion to support American exports and the Overseas Private Investment Corporation will commit up to $1.5 billion in finance and insurance. The agencies will also support investment in various ways, from helping to formulate policy and capacity building to long-term financing and technical assistance.

Initially, Power Africa will work with six partner countries — Ethiopia, Ghana, Kenya, Liberia, Nigeria and Tanzania — which "have set ambitious goals in electric power generation and are making the utility and energy sector reforms to pave the way for investment and growth", according to a US government spokesman.

"The Power Africa initiative is really a public declaration of the US’s commitment to support the private sector in developing power in these countries," said Tony O Elumelu, chairman of the pan-African investment company Heirs Holdings, which has pledged to invest $2.5 billion, mainly in oil and gas, but is also looking at renewables.

The initiative will catalyse the combined resources of the US government, the six partner governments and the private sector "in a coordinated regional effort to help governments and investors bring transactions to closure and spur new investments, and together build the regulatory, economic and policy foundation to meet Africa’s increasing demand for electricity", said Pule Molebeledi, investor relations and communications executive of fund managers Harith General Partners, which has committed $70 million to the Turkana project.

Kyle Denning, managing director of renewable-energy project consultancy Viability Africa, believes the main advantage will be opening up additional avenues to cost-effective financing. "The low-cost leverage could be very beneficial in getting these deals over the hurdle and providing investors with proper equity returns," he said.

This would then give more traditional private finance the confidence to invest.

The timing looks right. "With various renewable energy projects hitting financial close, most countries now have a template to start with for future projects, so the amount of funding available really supports the ability to scale," said Denning.

While hopes are high, everyone is now waiting for further details, such as who can access funding and how quickly it will be deployed. Five years is not long in the field of energy sector reforms and capacity building. "The problem is not going to be private sector financing. The problem is going to be getting the rules right, creating the framework whereby we can build to scale rapidly," said Obama.

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