Infrastructure | Mainstream Raises $118 Million for African Wind and Solar Farms

LAGOS, Nigeria, Capital Markets in Africa: One of Africa’s biggest renewable-energy developers raised $118 million to expand its footprint in the continent’s fast-growing markets for solar and wind power.

Mainstream Renewable Power Ltd., a Dublin-based clean-energy developer, raised the funds to help finance the $1.9 billion Lekela Power joint venture, which plans to install more than 1.3 gigawatts of renewable electricity across Africa by 2018, Chief Executive Officer Eddie O’Connor said.

“It’s high risk, so it has to be high return,” O’Connor said in an interview with Bloomberg on Tuesday in London. “This should complete what Lekela was set up to do.”

The Lekela Power platform, a joint venture between Mainstream and Actis LLP founded in 2015, aims to tap into African solar and wind markets just beginning to take off. Bolstered by an equity investment from the International Finance Corp., the fund plans investments in South Africa, Ghana, Egypt and Senegal.

Lekela expects to complete construction of its first South African wind farm in July and is in the process of building another two. Mainstream said the infusion of funds will allow it to kick-start construction of five more projects this year.

“These projects are always profitable when you get them built, and then you sell them onto someone with the low cost of capital,” O’Connor said. “We call that yield compression, so you invest say 14 or 15 percent, and then you sell the projects between 5 and 9 percent,”

If approved by shareholders, the equity funds raised would effectively dilute Mainstream’s 40 percent stake in Lekela to about 16 percent, according to O’Connor, who estimates the platform will run on 75 percent debt and 25 percent equity.

Other investors announced include Ascension Investment Management LLC and Sanlam Ltd. First Avenue Partners LLP acted as global placement agent, Simmons & Simmons LLP was legal counsel to Mainstream, and Norton Rose Fulbright LLP counseled the investor group, according to the statement.

Lack of access to energy in African countries derails economic growth, with frequent blackouts and high prices shortening working hours for businesses and stopping clinics from being able to refrigerate vaccines. Two out of three people in sub-Saharan Africa don’t have access to power, according to the U.S. government’s Power Africa initiative, which wants to add 30 gigawatts of new cleaner power.

The introduction of auction rounds in sub-Saharan Africa helped boost investment to a record $5.4 billion in 2015 and have driven down prices to record lows, according to Bloomberg New Energy Finance. First Solar Inc. and Neoen SAS won contracts in Zambia this month to provide the continent’s cheapest solar power, at 6.02 cents a kilowatt hour, through a World Bank-organized auction program.

“We’re increasingly seeing globally that renewables can compete without subsidy, head-on, with all other forms of power” even with low fossil fuel prices, Jamie Fergusson, IFC chief investment officer for renewable energy, said in an interview in London on Wednesday. IFC is “very focused” on Africa, he said.

“Renewable energy has enormous potential as a clean, reliable and affordable power source for Africa,” Bertrand de la Borde, head of Africa infrastructure at IFC, said in a statement.

Mainstream is one of sub-Saharan Africa’s biggest renewables developers, responsible for about 15 percent of all renewables capacity in the region, according to Bloomberg New Energy Finance. It has only invested about $70 million of the $33.5 billion invested in African clean energy though, according to the London based researcher.

O’Connell said that currency risks were one of the biggest challenges facing his company in Africa. Mainstream already has at least six years of investing on the continent in places like South Africa and Ghana, according to data compiled by Bloomberg.

“This is a real risk for any project in Africa because the local currency is probably depreciating, probably subject to deflation and so it’s not easy,” O’Connor said, adding that the World Bank helps hedge the risks with guarantees.

Source: Bloomberg Business News