Banking on Renewables: A Conversation with GreenCo
While climate change presents itself as a global commons problem, Africa’s case is particularly concerning. Between 1850 and 2020 Africa’s contribution to global emissions remained below 3%, yet the continent has increasingly borne the brunt of damages associated with climate change.
The shift towards renewable energy stands at the core of Africa's energy future. Projections indicate that renewables, encompassing solar, wind, hydropower, and geothermal sources, will comprise over 80% of the new power generation capacity added to the continent by 2030. This transition aligns with global sustainability objectives, addressing Africa's growing energy demands while mitigating its carbon footprint.
As Africa grapples with the need for cleaner energy sources and reduced environmental impact, innovative organizations like GreenCo are stepping up to play a pivotal role in reshaping the continent’s energy landscape. GreenCo's mission is clear: to address creditworthiness and drive the growth of renewable energy markets in Africa through groundbreaking solutions and strategic partnerships. This company serves as a creditworthy buyer of renewable energy, bridging the financial trust gap among lenders, energy developers, and consumers.
To shed light on Africa’s changing energy landscape, Invest Africa spoke to Ana Hajduka, Founder & CEO, at Africa GreenCo. The following interview explores how GreenCo is ensuring the bankability of renewable energy projects, fostering private investment in the African energy sector, and expanding its regional footprint.
1. Can you provide an overview of GreenCo’s mission and its unique role in facilitating Africa’s energy transition? How do you envision the organisation’s role in reshaping the continent’s energy landscape towards sustainability and reduced environmental impact?
At GreenCo our mission is: addressing creditworthiness to increase the generation and growth of renewable energy markets through partnerships and innovative solutions. By acting as a creditworthy buyer and trader of renewable energy, we bridge the financial trust deficit between lenders, energy developers and consumers. Our head office is in Lusaka, Zambia with focused operations in South Africa, Namibia and Zimbabwe as well.
The electricity markets in Southern Africa today display a clear shift towards a more competitive and innovative electricity sector away from monopolistic electricity supply industry models. GreenCo has been at the forefront of advocating for this shift by highlighting the benefits of a multi-market structure including physical, competitive, and regulated transactions and the role of traders in linking the markets, customers and buyers.
GreenCo acts as a renewable energy buyer and trader purchasing power from renewable energy generators and selling that electricity to utilities/municipalities and private sector off-takers (i.e. commercial and industrial users), national power trading markets and markets of the Southern African Power Pool (SAPP). GreenCo will mitigate the risk of purchaser default through an ability to secure alternative buyers or through short-term trading on the SAPP and national electricity markets.
Through its role, GreenCo acts as a catalyst in reshaping the continent's energy landscape. By facilitating bankable Power Purchase Agreements (PPAs) with renewable energy developers, we bolster investor confidence and encourage the deployment of diverse renewable technologies. This, in turn, leads to a more resilient and sustainable energy mix, reducing Africa's reliance on fossil fuels and contributing to a significantly reduced carbon footprint.
2. How does GreenCo ensure the bankability of renewable energy projects and foster private investment in the African energy sector?
Without systemic electricity market reforms, countries in Africa will have to commit billions to underwrite power purchase agreements with private sector developers. GreenCo’s business model presents an alternative to the traditional, sovereign guarantee-reliant contract structure. For grid-scale renewable energy technologies, PPAs with sovereign guarantees have been a cornerstone of both the deal structure and the investment promotion effort. The GreenCo contract structure represents a pathway beyond the investment ceiling created by sovereign guarantees and the attendant risks of contingent liabilities.
In the GreenCo business model, the project contract structure is devised to re-allocate the off-taker risk within a mechanism of over-the-counter bilateral contracts and market trades. In the case of a given SAPP member government, the state utility is no longer the PPA counterparty and thus the treasury is no longer required to underwrite PPA obligations using sovereign guarantees and act as the insurer of last resort. With GreenCo as the PPA counterparty, PPA default and termination risks are not covered by the government and no contingent liabilities accrue to the exchequer.
GreenCo’s approach is the first of its kind in sub-Saharan Africa and takes a systemic view of market risk that reflects the real challenges to successful independent power producer (IPP) procurement, where guarantees and fiscal interventions have fallen short. To ensure GreenCo’s credibility, and that it can meet its commitments to the generator and their lenders, GreenCo will allocate a collateralised liquidity buffer to the IPP to fund any difference between the net revenue achieved from power sales and the applicable PPA payments. The liquidity buffer is instrumental in demonstrating counterparty creditworthiness and is sized to cover up to 15 months of full payments under the PPA.
This approach enhances the bankability of projects by offering security through our well-collateralised long-term PPAs in addition to our ability to trade out of defaults. We are delighted that leading financial institutions such as Standard Bank in South Africa is set to finance the construction of AMEA Power’s 85MW solar PV power plant in South Africa on the back of a PPA with GreenCo signed in April 2023, and FMO is the mandated lender to the 25 MW Ilute Solar PV project in Zambia whose PPA we are in the process of agreeing.
3. GreenCo’s operational success in its current countries is evident. Could you elaborate on the organisation’s strategic plans for expanding its regional presence, and how these initiatives align with your mission and overarching objectives?
Regional expansion is a pivotal element of GreenCo’s strategic vision. Our mission of sustainably transforming renewable energy markets is intricately tied to expanding our footprint across the continent. The immediate plan is to extend our presence to additional countries within the Southern African Development Community (SADC) region. This expansion reflects our commitment to enhancing the accessibility of clean energy across diverse geographies.
To ensure successful expansion, we begin by assessing the renewable energy potential, regulatory environment, and market dynamics of each target country. We identify strategic partners and align our operations with national development and climate change agendas. The overarching goal is to become a significant buyer and supplier of clean energy within the SADC region. By establishing a presence in new countries, we aim to replicate the success we’ve achieved in Zambia, Zimbabwe, Namibia, and South Africa. This not only contributes to our vision of leading innovation in renewable energy but also reinforces our core values by driving positive impact.
Additionally, our membership in the SAPP under the Market Participant category further solidifies our commitment to regional energy collaboration and exchange. Through collaboration, innovation, and strategic partnerships, we’re actively shaping a future where renewable energy is a catalyst for progress, benefiting both communities and the environment.
We envision a future in which all power grids on the continent are interconnected, fostering trade opportunities.
4. One of the challenges in energy transition is the integration of renewable sources into the existing energy infrastructure. Could you discuss GreenCo’s strategies for effectively integrating renewable projects into the African energy grid? How does Africa GreenCo plan to address issues related to intermittency and grid sustainability?
At GreenCo, our approach to effectively integrating renewable projects into the SADC regional grid is underpinned by innovative solutions and collaborative partnerships. A cornerstone of our strategy is the development of our Procurement Portal launched in 2022 and the implementation of our internal energy trading and risk management system (ETRM).
Africa is at the cusp of numerous energy innovations. Therefore, swift execution and operational excellence in energy management and trading are indispensable ingredients. GreenCo’s regionally pioneering trading desk speaks to this need and is equipped with a bespoke ETRM system built by globally leading consultants for end-to-end execution of energy trades, including the aggregation of energy across portfolios – a key benefit for intermittent technology energy management.
By collaborating closely with governments, we assess existing grid capacity and work to initiate necessary upgrades that can accommodate the increasing share of renewable energy generation. For example, in Zambia, we have proactively participated as a stakeholder, contributing to the technical committee responsible for developing the Integrated Resource Plan (IRP). By aligning our efforts with national development agendas, we ensure a seamless and harmonised transition that not only advances energy transition goals but also brings direct benefits to local communities.
The intermittent nature of renewable energy is a challenge we address through a multifaceted approach. By strategically partnering with developers across various renewable technologies such as solar, wind, and hydro, we curate diversified portfolios. This diversification helps mitigate the impact of intermittent energy supply. We recently incorporated GreenCo Power Storage Limited through which we are developing a regional BESS portfolio to help us tackle intermittency. Analysis of price levels and trends on SAPP indicates a SAPP-integrated BESS can be more economically viable to serve the needs of GreenCo and is flexibly used for other applications to meet the needs of GreenCo’s consumers and the host grid operator. GreenCo is conducting a feasibility study on a BESS Pilot of 40Mh based in Zambia and a regional BESS Portfolio of 400MWh to be implemented from Q1 2024. Battery storage systems are critical to connecting variable renewables into the grid and to enable the effective utilisation of renewable energy and improve grid stability.
Lastly, GreenCo’s primary initiative with regard to energy infrastructure is collaborating with various stakeholders to align and address transmission investments across the region. By working closely with governments, transmission authorities and private companies, we ensure that upcoming renewable energy projects are in harmony with grid expansion plans. We also provide valuable input to different stakeholders on regional transmission policy and pricing. Our objective is to attract more investment
into the transmission infrastructure by linking it to our extensive IPP portfolio across the region, thus enabling a more seamless integration of renewable energy sources.
5. Africa’s green revolution involves not only transforming the energy sector but also promoting sustainable development across various industries. How does GreenCo collaborate with governments and local communities to create an integrated approach that addresses both energy transition and broader sustainable development goals?
GreenCo's dedication to broader sustainable development involves creating an integrated approach that addresses both energy transition and sustainable development.
We recognise that each community/country has its unique needs, aspirations, and challenges. Through consultations, we gain insights into these aspects, allowing us to align our initiatives with local development strategies. Ensuring that our efforts contribute holistically to sustainable development, fostering positive impacts that extend beyond the energy sector.
One of our software tools, iMetric, plays a pivotal role in enhancing our impact measurement and communication efforts. iMetric is an impact data visualisation platform that allows us to calculate and communicate sustainable development impact with ease and sophistication. This platform provides uniform and transparent impact calculations, enabling straightforward updating, editing, and publishing of portfolio data allowing us to make comprehensive ex ante and ex poste impacts comparisons.
In determining our core Sustainable Development Goals (SDGs), we've intersected our impact framework with the United Nations' 17 SDGs. Our core SDGs include 7, 8, 9, 13, and 17, which encapsulate our focus on clean energy, economic growth, industry innovation, climate action, and partnerships for sustainable development. Additionally, while not at the core, SDGs 1, 5, 11, and 12 are also relevant to our operations as they address poverty alleviation, gender equality, sustainable cities, and responsible consumption and production.
Through this integrated approach, which includes both direct initiatives and tools like iMetric, GreenCo not only contributes to the adoption of renewable energy but also plays an active role in advancing the socio-economic well-being of the countries we operate in. Innovative solutions like iMetric solidify our commitment to a sustainable and inclusive energy transition.
6. Effective policy frameworks and regulatory environments often play a pivotal role in shaping the success of energy transition efforts. From your perspective, what are the essential policy and regulatory factors that African governments should prioritise to create an enabling environment for the growth of renewable energy and the advancement of the continent’s green energy transition?
To facilitate the growth of renewable energy, African governments must focus on key priorities within their policy frameworks. Transparency and consistency in policymaking are crucial as they establish a stable foundation for investors and developers. Countries like South Africa, with its upcoming Electricity Regulation Act Amendment Bill (the Amendment Bill), showcase the need for clear regulations during market opening and transformation. The Amendment Bill which was recently (August 2023) passed to the South African Parliament for approval is clear on its objective to introduce a competitive market in the South African electricity sector through a proposed migration from a monopolistic electricity supply industry model to a competitive model. The Amendment Bill further desires to make South Africa’s electricity market more competitive. The multi-market structure it proposes will comprise market transactions, physical bilateral transactions, and regulated transactions.
In addition, the competitive market model will see the creation of a Transmission System Operator (TSO) under Eskom Holdings which will foster a competitive market and encourage the use of a diversified market. The transmission entity was registered by Eskom as the National Transmission Company South Africa SOC Ltd in August 2023. These are major new developments in the right direction.
Additionally, setting long-term renewable energy targets aligned with global sustainability goals is essential. Such targets guide investments and signal the government's commitment to the energy transition. Streamlining permitting processes and standardising grid connections are also essential to fast-track project development.
Another good example of a positive regulatory environment is Namibia which recently introduced the Modified Single Buyer (MSB) Market Model whose purpose is to allow competition in the market resulting in lower tariffs, increased local generation capacity, encouragement of private sector investment in generation, and reduction in the financial liabilities on the government.
The introduction of licenses for various electricity activities under Zambia's Energy Regulation Act of 2019 exemplifies the importance of regulatory clarity. Zambia introduced a new category of a trading licence – first obtained by GreenCo which allows trading on competitive markets and supplying customers within the country– a major new development introduced by the new market opening legislation in 2019 which kick started the operationalisation of the GreenCo business model in Zambia and the region.
7. Will Africa GreenCo be attending COP28 this December? What are your hopes for the upcoming conference?
GreenCo looks forward to the Africa Climate Summit taking place this week in preparation for COP 28 this December. We will be participating at COP 28 this December to showcase progress in the delivery of our capital mobilisation and bankability of our offtake. We are collaborating with our stakeholders, namely the Government of Zambia and other governments in Southern Africa to present our work in their pavilions.
GreenCo is an example of how delivering on climate action requires the active involvement of various stakeholders whilst embracing ambitious new business models that can help drive systemic change on the ground and we are proud to be showcasing that at COP 28.