Design of Africa GreenCo, an intermediary off-taker and aggregator of renewable energy projects in SSA

Design of Africa GreenCo, an intermediary off-taker and aggregator of renewable energy projects in SSA

Overview: Africa GreenCo (AGC) was awarded a proof of concept grant in 2016 Q4. AGC will be an intermediary off-taker and aggregator of renewable energy projects across sub-Saharan Africa. AGC will focus initially on the countries within the Southern African Development Community (SADC) who are members of the Southern African Power Pool (SAPP). AGC will purchase power from multiple independent power projects (IPPs) across the SADC region through power purchase agreements, and sell that power to a diversified portfolio of purchasers through power supply agreements. AGC will mitigate the risk of purchaser default by securing alternative buyers on a bilateral basis or through short-term trading on the SAPP electricity markets. Through its participation in competitive power markets, AGC will promote cross-border power transactions and a more dynamic and liquid short-term power market. AGC will increase the bankability of IPPs by acting as a creditworthy off-taker and will also address inefficiencies caused by the “single buyer, single seller” model by operating on a portfolio basis.

AGC will use the Convergence Design Funding to complete all business plan, financial modelling, and legal work required to establish AGC as an operating entity. The entity will be African-led, and its initial capital structure is anticipated to include contributions from African governments alongside capital from development finance institutions and donors. AGC aims to start initial operations in Zambia given the sophistication of the existing power-grid, connectedness to SAPP, and strong interest from the Zambian government and state utility. AGC has received funding from the Rockefeller Foundation and, amongst others, support from the Regional Electricity Regulators Association of Southern Africa (RERA), the SAPP, the Association of Power Utilities of Africa (APUA), and Sustainable Energy for All.

Design question and learning potential for the market: How can an intermediary off-taker and aggregator mitigate the underlying credit risks associated with long term investments in IPPs and lead to a reduction in the cost of capital for IPPs, increased installed renewable capacity in-country, and lower energy tariffs for consumers?

AGC aims to act as a creditworthy counterparty between buyers and sellers of multiple IPPs in sub-Saharan Africa, attracting sustainable investment into the renewable energy sector. In a typical bilateral model, an agreement is drawn between a single IPP and an offtaker (typically a state utility) for the sale and purchase of a specified amount of electricity to be delivered at a point in time. In contrast to this model, AGC will take on credit risk by being the intermediary vehicle interposed between the IPP and off-taker, so that the IPP sells to AGC, and in turn, the off-taker contracts with AGC. The IPP therefore takes credit risk on AGC, and AGC takes credit risk on the off-taker. AGC will continue to pay the IPP in the event of off-taker default, as it will be sufficiently capitalized by its capital base, and will be able to secure alternative buyers on a bilateral basis or through short-term trading on the SAPP electricity markets. AGC will diversify risks by acting as an off-taker for multiple IPPs across the SADC region. AGC represents a potentially game-changing model that addresses fundamental challenges in the sub-Saharan Africa power markets. AGC was modelled after PTC India which became fully commercial and profitable, ultimately catalyzing the Indian power sector.