Renewable-energy project developers, especially those looking at wind power, face a common constraint throughout the world: the ability to secure development capital. In East Africa, that limitation is amplified by factors including the cost and difficulty of taking ownership of the land, performing wind-data analysis specific to the site, and co-ordinating what is required to make a project feasible and viable for additional investment in an area that is perceived as risky.
Investors need a sense of security. Once the technical and economic viability of a project is proven, the next step is for them to feel they have ownership of the project and can move it into the profit-making stage of commercialisation.
There are many developers interested in commercialising renewable-energy projects in East Africa. In Kenya alone, there are countless firms pursuing wind-power projects with a capacity of 50MW or more. While some are working with credible organisations, many are stuck at the stage of locating a partner to help them find the capital needed to analyse a site and determine its true potential. Even if the capital for this analysis is available, the conversation often veers into a developer's willingness to give up ownership and shareholding in a project in return for moving on to the next phase.
It is difficult to identify where exactly the solution lies. When financiers have an appetite for investment in wind-power feasibility studies, the question still remains: how do you best analyse the return on investment that you are looking for? And how much risk will the financier have to take on?
Numerous wind studies have shown that Kenya alone can produce a significant amount of wind energy. Moreover, a strong support system has been put in place by the energy ministry to encourage investment into the sector. Developments such as the Lake Turkana wind project are showing that there is promise and potential.
But given the amount of hurdles Lake Turkana has had to overcome, how many developers have the stomach — let alone the financial capability — to see a project through?
The solution to entering this market lies in establishing strategic relationships and partnerships with locally based firms that can help developers secure the capital needed for the developmental phase of projects and are able to work directly with them to produce an investment-grade feasibility study.
With a tremendous need for financial expertise among most of the current project proponents, financial partners have a terrific opportunity to be involved at an early stage in a project's development. Instead of having to rely on late-stage investment analysis, the financier can be involved from the beginning to ensure the project is moulded to match its investment appetite.
A similar opportunity exists for the technical providers, which have an opportunity to be involved in the development of the next suitable market for their products by committing early on to investment-grade site analysis.
The Kenyan market offers viable opportunities for investment in wind power. The whole renewable-energy sector is on the verge of tremendous growth throughout East Africa. The only question that remains is: who will the players be, and what is the right time for them to enter that market? Potential players will want to make sure they do not leave it too late.
Kyle Denning is managing director of renewable-energy project consultancy Viability Africa. He can be contacted on Kyle.Denning@SEF-LLC.com. For more information see www.viabilityafrica.com.
