Africa Energy yearbook 2017 preview by EnergyNet

2017

OPINION PIECES

From Ministers & Government Officials

INDUSTRY LEADER ARTICLES from AFC, Aggreko, Fieldstone Africa & more

A special chapter dedicated to DANISH ENERGY INSIGHTS

RECIPIENT OF THE ENERGYNET LIFETIME ACHIEVEMENT AWARD:

Featured power projects & directories of power technology providers and developers In association with 19TH ANNUAL

H.E. Honourable Madame Nkosazana Dlamini-Zuma, Former Chairperson of the African Union Commission

DIRECTORY

180 FRED MUTEBI 180 Ocom Adonias 180 Collin Sekajugo

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2017 Africa Energy Yearbook

DANISH

ENERGY INSIGHTS

DANISH ENERGY INSIGHTS

Why we need partnerships across the energy space As a region, Africa has two unfortunate “records”: the lowest per capita electricity consumption in the world, and an average cost of electricity in most of its countries that is at least twice that of other developing countries across the globe. These are significant challenges for any electricity market, especially as the electricity demand is expected to triple by 2030. The region needs its electricity generation to grow exponentially, while ensuring that electricity is affordable and demand curtailment is minimised.

Today, we are already seeing how both large-scale gridconnected wind farms –Vestas’ core business –and offgrid wind hybrid solutions can bring clean, affordable and reliable energy to all parts of the world.

o Vestas, the increasing electricity demand in Africa and the challenges of affordability and curtailment are great examples of how wind energy can help Africa meet its energy needs while promoting inclusive and sustainable growth.

Today, we are already seeing how both large-scale grid-connected wind farms –Vestas’ core business –and off-grid wind hybrid solutions can bring clean, affordable and reliable energy to all parts of the world. On top of that, wind energy is also scalable and substantially faster to deploy than competing sources like oil and coal. To exemplify, Vestas has already installed wind parks in a number of African countries, including Cape Verde, Egypt, Kenya, Morocco and South Africa, for a total of 400 MW. Additionally, we have recently built Africa’s largest wind park to date, the 310 MW Lake Turkana Wind Power project in Kenya, which will make up to 15 per cent of Kenya’s total energy consumption when fully operational. All in all, we are in 2017 moving beyond 1 GW of wind power installed by Vestas in Africa. It doesn’t end there, though, and we are therefore exploring new opportunities to harness the power of wind at utility scale in Ghana, Senegal, Ivory Coast, Algeria, Tunisia, Ethiopia, Tanzania and Namibia, among many other African countries where wind can provide clean, cheap, and reliable energy to meet Africa’s growing needs. Having pioneered wind projects in 35 countries, Vestas has been the first company to install a commercial wind turbine in more than half of the 76 countries where we operate. This mean we have unique experience when it comes to developing, 2017 Africa Energy Yearbook

Anders Runevad, Group President & CEO,Vestas Anders Runevad is Group President and CEO of Vestas. He was born in 1960 in Lud, Sweden. Current position: Group president and CEO, Vestas Wind Systems A/S since 2013. As CEO of Vestas, Runevad has completed the wind energy company’s turnaround and been keyto Vestas’ period of profitable growth since 2014, including improving return on invested capital from 7.7 percent in 2013 to 117.2 percent by end of 2015. Previous positions: Spent more than 20 years with Ericsson, holding leadership roles across the Americas, Asia and Europe. Current key positions of trust: Deputy chairman of the board of MHI Vestas Off shore A/S. Board member of NKT Holding A/S. Serves in the General Council of the Confederation of Danish Industries and the Industrial Policy Committee of the Confederation of Danish Industries. Education: Holds a Master of Science in Electrical Engineering and has completed MBA studies, both at Lund University, Sweden.

constructing and managing wind projects in new markets, because doing the first project is always the most challenging, but also the one that provides the most learning. Many capabilities are needed across the value chain when introducing wind energy to new markets: from market development and technical assessment to providing the right wind solution and being able to successfully execute the project, ensuring that maximum value is achieved throughout the project’s lifetime. Africa is no different but sometimes the continent’s great geographical lengths and the harsh climatic conditions at times make the challenge even greater. For instance, at Lake Turkana Wind Park average wind speeds are around 11 m/s and the nearest port is located 1,200 kilometres away, which is an extreme environment for both logistics and construction. WIND’S BENEFITS AND THE CHALLENGES AHEAD

For Africa, wind energy makes all the sense: it is abundant and readily available, fast to install, scalable to meet needs, and without fuel costs or the risks associated with importing energy. 2017 Africa Energy Yearbook

It is also a water-free, CO2-free and drought-proof power technology that reduces demand of fresh water from the power sector and contributes to the fight against climate change –two of the Sustainable Development Goals which most matter to the African continent. When completed, Lake Turkana Wind Park will not only provide Kenya with much-needed green energy, but also save the country more that EUR100 million a year in imported fuel costs and sixteen million tons of CO 2 emissions compared to a fossil fuel fired power plant, while driving down overall electricity prices for Kenyan consumers and businesses. However, developing wind power projects in Africa is not straightforward for a number of reasons. First, grid access and instability are of the major bottlenecks, and governments increasingly need to invest in transmission capacity if they want to increase the uptake of renewable energy. Moreover, national grid companies typically do not have enough knowledge of wind energy and how it will affect the grid. With more than 35 years of experience, Vestas has a unique knowledge of how to integrate wind energy into the grid. We provide training, grid impact studies

and grid modelling assistance for local transmission system operators to learn how to meet these new challenges. Second, international electricity trade plays a significant role. Providing the institutional structure for international electricity trade, the power markets in Africa –according to a recent study from the Proceedings of the National Academy of Services1 -can lay the groundwork for power plant siting that minimises regional system costs. When strategic siting for solar and wind projects and international interconnections are considered, the need for conventional power plants will be reduced while less competitive renewable energy sites will become more economically feasible. Third, political and regulatory risk can also be challenging, especially in countries where the government often changes. Political risk insurance (such as those offered by the Multilateral Investment Guarantee Agency and OPIC) and in-depth country and offtaker due to diligence are key to mitigating these types of risks. Fourth, the enabling legislative or regulatory environments as support schemes for renewable energy –such as Feed-in-Tariff or quotas/green certificates –are often not yet developed. Policy 11

DANISH ENERGY INSIGHTS

guidance provided by international financial institutions (IFIs) or think tanks such as IRENA and IEA can be valuable to jump-start wind power development in some countries. Fifth, transportation and the lack of adequate ports, roads and other infrastructure are a challenge. As an example, we had to construct more than 200 kilometres of road for the transport of the 365 turbines from the harbour in Mombasa to site, located 8 km East of Lake Turkana in northern Kenya, which will also benefit the local communities for other means. FINANCING OF ENERGY PROJECTS, OR THE LACK THEREOF

EXCHANGE BUREAUX COLLIN SEKAJUGO Recycled Plastics 34cm x 17cm

Images submitted by Afriart gallery, Uganda

The increase in energy across Africa has offered its artists the opportunity to recreate themselves by creating artworks that give back to society. Government investment in energy has offered artists avenues for recycling materials.”

Furthermore, in mature markets in Europe and North America, wind power investments are largely becoming a mainstream asset class suitable for securitisation. The attractiveness of wind power investments reflects the stable cash flow generated from a portfolio of wind power plants. This in turn allows for inexpensive access to financing of new investments (i.e. yield cost).

COLLIN SEKAJUGO ENERGISED COLLIN SEKAJUGO Recycled Plastics 40cm x 120cm 12

Unfortunately, such a solution to the financing of wind power investments is not replicable in Africa, at least not outside South Africa. The key reason for this is the off-taker risk. In African countries there is usually one single buyer of the energy generated by a wind power plant, a state-owned

Images submitted by Afriart gallery, Uganda

2017 Africa Energy Yearbook

The financial challenges to developing large-scale, grid-connected projects are quite different than those facing smaller, off-grid projects. In some cases, African banks and other local financial institutions lack the experience or information to assess the large infrastructure projects that utility-scale wind parks are. utility, which is usually cash strapped. Hence, the counterparty of the power purchase agreement (PPA) is an entity which typically has no credit rating and needs to rely on sovereign guarantees provided by the government. But governments in Africa cannot always provide sovereign guarantees to infrastructure projects. Even though one of the main arguments for the rise of Independent Power Produce (IPP) projects in Africa is their ability to decrease the financial strains on the public finance of a country, it is also true that sovereign guarantees may impose undue hardship by affecting the country’s creditworthiness (the consequences of a government’s overall public debt levels and restricting its access to capital markets. One prescription to this challenge is power sector reform providing a stable framework for IPPs and addressing the insolvency of off-takers. Some countries in Sub-Saharan Africa, notably Kenya and Uganda, have followed this route with some success. Nonetheless, it is fair to say that recent IPP investments in these countries would have materialised without the implicit and explicit guarantees provided by IFIs. Hence, a potential solution is to increase the use of international development aid to provide guaranteed

fund/s for renewable energy projects and their underlying PPAs, in effect becoming a first loss taker in the event of default. As an example, the European Commission is already working on a guarantee scheme targeted for Africa which, hopefully, will see the light at the end of the year. All these challenges reveal the rue power of partnerships and why partnerships across the energy space are the key to meeting Africa’s future energy demand. Take Lake Turkana Wind Power Project, the largest single private sector investment in Kenya’s history, as an example of where key players in the energy space worked together to make it happen: from technology providers and wind turbine manufacturers (OEMs) to project developers, civil contractors, law firms, institutional investors, equity investors, Multilateral Financial Institutions, Export Credit Agencies, NGOs, local communities and governments. As the old African proverb reads: “if you want to go fast, go alone, if you want to go far, go together”

http://www.pnas.org/content/ early/2017/03/21/1611845114.full

DANISH ENERGY INSIGHTS

YEARBOOK PROFILE PIECE ULLA TØRNÆS, MINISTER FOR DEVELOPMENT COOPERATION, DENMARK Ulla Tørnæs was born on 4 September 1962 in Esbjerg and is the daughter of fishing-vessel master and former Minister Laurits Tørnæs, and director Katty Tørnæs. She is a member of the Liberal Party and, from 1994 to 2014, was a member of the Danish parliament (Folketing). She currently serves as the Minister of the Development Cooperation, Denmark.

Can you please provide the readers of the Africa Energy Yearbook with an overview of Denmark’s Energy Model? What were the key decisions which led to this mix of resources being recognised as one of the cleanest and most advanced on earth? The Danish Energy Model has shown that it is possible to sustain significant economic growth and achieve a high standard of living. This is made possible by having a long-term focused energy policy with ambitious renewable energy goals, enhanced energy efficiency and support for technical innovation and industrial development. Additionally, renewable energy has become a Danish core competence and a source of competitiveness. Denmark has been a pioneer in developing renewable energy. Denmark has managed to become a global leader in renewable energy generation since the 1980s despite having no hydropower resources, thanks mostly to advancements in wind energy. Renewable energy’s share of final energy consumption in Denmark has steadily been increasing ever since. Today, more than 30 per cent of

Denmark has been a pioneer in developing renewable energy 14

Denmark’s final energy consumption is supplied by renewable energy. The political goal is that more than half the energy consumption will be supplied by renewable energy by 2030. In the power sector alone, 42 per cent of the final electricity consumption is covered by wind energy; this is the highest share of wind energy used globally. The long-term vision supported by a broad majority in the Danish national Parliament is to be independent of fossil fuels by 2050.

Over the last ten years Denmark has made considerable investments across Africa and is probably more involved in energy projects across the continent than many investors realise – this is of course just one of the many reasons why we are bringing the Africa Energy Forum to Copenhagen. What is the Danish vision of their role on the continent? In January, the Danish government presented Denmark’s new strategy for development cooperation and humanitarian action. The strategy stresses four areas, and one of them is “inclusive, sustainable growth and development”. The strategy builds on the UN’s Sustainable Development Goals and Goal 7, promoting “affordable and clean energy”, is a special priority for Denmark. It is a Danish priority not only because lack of electricity is a barrier for growth across Africa, but

also because Denmark, with core green competences, has substantial knowledge to offer. Finally, we believe that when we invest in green energy, the climate – and by that I mean everyone – wins. This is why I see Denmark’s priority of green energy in our development cooperation as a win-win-win strategy. A strong Danish priority is promoting public-private partnerships as a tool to mobilise increased capital for climate investments. This we have done with success through the Danish Climate Investment Fund, which has mobilised finance from institutional investors, including Danish pension funds. Denmark is also among the founders of the Sustainable Energy Fund for Africa, a multi-donor trust fund for preparing, financing and facilitating green energy investments in Africa. This is done in collaboration with the private sector. Lately, the Danish company Vestas has played a key role in the development of Africa’s biggest windmill park, Lake Turkana, in Kenya.

Today, more than 30 per cent of Denmark’s final energy consumption is supplied by renewable energy. The political goal is that more than half the energy consumption will be supplied by renewable energy by 2030.

Why is sustainable energy a priority for you as the Danish Minister for Development Cooperation? Sustainable energy is important for many reasons. Transformation to green sustainable sources of energy is crucial if we are to stop climate change which threatens the livelihood of both present and future generations. At the same time, access to sustainable energy is also essential for both human and economic development. Growth and access to energy goes hand in hand. It is estimated that the lack of 2017 Africa Energy Yearbook

2017 Africa Energy Yearbook

DANISH ENERGY INSIGHTS

It is important to represent modern advancements in artwork because it is the responsibility of the artists to engage as role models in documenting changing lifestyles and developments.” COLLIN SEKAJUGO

These works are part of my study on how consumerism is quickly inspiring and influencing innovation and creativity in today’s world. I have adopted the Jerrycan which, over the years, has played a big role in the development process of African communities; a significant symbol of our society today. Given the intensity of today’s consumer world and the functionality of this seemingly iconic commodity, I am inclined to dub our lives as ‘Jerrycanned’.” COLLIN SEKAJUGO

GAS PUMPS COLLIN SEKAJUGO Recycled Plastics 40cm x 120cm 16

Images submitted by Afriart gallery, Uganda

2017 Africa Energy Yearbook

access to energy costs African countries 2–4 per cent of their GDP per year. It is critical to turn these figures around. Denmark has a lot to offer in terms of technology and concrete solutions when it comes to renewable energy and energy efficiency. Danish companies are leaders in these fields and this is a winwin situation from my point of view.

Denmark is a leader in technology and innovation – what do you make of the current opportunity for new technology in Africa’s electricity sector, and can the continent leap frog traditional grid-connected electrification via the distribution of off-grid and micro-grid technologies? What is the key to the successful roll out of off-grid and micro-grid solutions? Low carbon mini grids are expected to play a critical role in achieving the Sustainable Development Goal 7 and the Sustainable Energy for All (SE4All) goal of universal access to clean and affordable modern energy by 2030. Mini‐grids have a long history and have been an integral part of the power sector development of many of the current high‐income countries. These mini-grids are only now emerging as a scalable option for meeting the energy demand in Sub‐Saharan Africa. In this region, mini‐grids are a cheap and timely option for many villages and towns. A key element to ensure the successful roll-out of off-grid and micro-grid solutions is to deal with some of the barriers which have constrained the roll-out of mini-grids so far. These barriers are: (i) Limited proven business models that are viable for replication; 2017 Africa Energy Yearbook

Denmark has a lot to offer in terms of technology and concrete solutions when it comes to renewable energy and energy efficiency. Danish companies are leaders in these fields and this is a win-win situation from my point of view. (ii) Gaps in policies and regulations; (iii) The absence of long‐term financing. In rural areas, green mini‐grids have the potential to provide high quality and low carbon energy for communities that otherwise might have to wait for years to be connected to the main power grid. As decentralised energy generation, electrical storage systems, smart meters, and efficient appliances continue to come down in price, independent power producers will find innovative ways to bring electricity services to new customers at affordable prices. This can be seen in Tanzania where small power producers are now able to sell to customers without going through a lengthy licensing process.

The Nordic States are a beacon of excellence for regional cooperation. How has this multilateral partnership been able to flourish and how important do you think it is that Africa functions more cohesively? The Nordic countries have given priority to renewable energy, energy efficiency and clean energy technologies for a long time. To be able to provide renewable energy space in the electricity grid, it is necessary to have integrated electricity markets and stable connections between countries. We have succeeded in establishing that in the Nordic region. The Nordic electricity market is the most coordinated in Europe and is a

model for the European integration process. I believe there is no size that fits all, but I hope that African countries can learn and find inspiration in the Nordic region.

What are your expectations for the Africa Energy Forum in Copenhagen? I expect and hope that the conference will provide a platform for encouraging green investment in the energy sector across Africa. This will be a good venue for Danish companies and stakeholders to showcase their solutions and strengths. Furthermore, I hope that it will provide a platform for good and constructive dialogue among all relevant stakeholders on the role of energy in creating sustainable development for all. I am very pleased that the conference puts focus on the role of Development, Finance Institutions, which I believe, have an important role to play in terms of encouraging investments. The Danish focus a lot on working in partnerships with the private sector and other stakeholders and on how to use our Official Development Aid in a catalytic way that leverages private investments. One thing is certain – if we are to reach the ambitious SDGs, everybody must contribute. We must share governmental knowledge, private investments and competence and the sustainable choices made by energy users in their everyday lives. I look forward to sharing these and other experiences at the conference. 17

I believe energy access is now a fundamental human rightwithout it life is miserable. Communication, education and healthcare are impossible without enough energy access in one country. The absence of these features is often what causes people’s migration from the continent.” ERMIAS EKUBE

EXAMINING AN EGG Image submitted by the Artist ERMIAS EKUBE Charcoal on Paper 155cm x 135cm 18

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DANISH ENERGY INSIGHTS

Finn Mortensen, Executive Director, State of Green Before joining State of Green, Finn was the business editor of Berlingske Tidende (2002-2008), news editor of Borsen (1995-2002) and an economic political specialist at the U.S. Embassy in Copenhagen (1985-1995). Finn holds a masterâ&#x20AC;&#x2122;s degree in Modern Languages, and attended executive leadership programmes at Columbia University and Wharton Business School as well as media management programmes in the U.S. and Sweden. He is the co-author of the bestselling biography on Danish shipping magnate, Maersk Mc-Kinney Moller of A.P. Moller â&#x20AC;&#x201C; Maersk, which was published in 2008. The book has since appeared in English and Chinese translations.

Although Denmark is smaller, with just 5.6 million people, and its climate conditions might be different than most African countries, it is a powerful base for knowledge as well as technical and financial solutions.

a green inspiration

and partner

Denmark has decided to lead the transition to a green growth economy and to be the first country in the world to become independent of fossil fuels by 2050.

t is an extremely ambitious goal, but in Denmark, we think it is realistic. The Danish policy, passed through Parliament in 2012, has turned out to be an inspiration for the rest of the world. Political and business decision makers from all around the world come 20

to Denmark to learn for themselves what the Danes are doing, and how. Although Denmark is smaller, with just 5.6 million people, and its climate conditions might be different than most African countries, it is a powerful base for knowledge as well as

technical and financial solutions. This can be beneficial to African countries in their pursuit of the implementation of renewable energy. Denmark has been involved in projects for developing infrastructure in Africa for decades. The on-going development 2017 Africa Energy Yearbook

of the Lake Turkana wind farm, which will be a major step forward for the power supply in Kenya, is a very good example of how Danish manufacturers, Danish government and Danish financing institutions step in to make huge projects a reality.

2017 Africa Energy Yearbook

Danish pension funds have seen the potential in projects for developing renewable infrastructure. Their willingness to invest considerable sums in Denmark as well as internationally has set new standards and has been extremely good for projects and for their thousands of customers. Projects

Danish pension funds have seen the potential in projects for developing renewable infrastructure. 21

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in Africa are also financially supported by the Danish Climate Investment Fund (KIF) and Denmark’s Export Credit Agency (EKF). KIF offers risk capital and advice for climate investments or climate-related projects in developing countries as well as emerging markets and is interested in co-investing with companies and developers of climatefriendly projects. EKF helps foreign buyers raise capital for their purchase of Danish solutions. For a country of our size, we have unique experience and knowledge in managing the transition to renewable energy. We want to share this knowledge with countries around the world. Through State of Green, the organisation behind the national green brand of Denmark, decision makers from both the public and private sectors worldwide visit Denmark to learn from our experience and set up valuable connections to Danish professionals.

DANISH ENERGY INSIGHTS

How has Denmark managed to reach this very special position in the global transition to green energy? The short answers are: political vision, willpower and parliamentary consensus, long-term planning (and sticking to it) and sound cooperation between virtually all parts of society. Cooperation between the public, private sectors and research institutions resulted in world-class technological solutions. Cooperation between state and investors, especially pension funds, is important for financial viability. Cooperation between the state and local government is very important because the municipalities are the essential drivers for green growth. Copenhagen is an example for cities around the world for its ambition of becoming the first CO2 neutral capital in the world by 2025. Last but not least is the involvement of the citizens. Danes expect their children to drink clean water, breathe clean air, eat healthy food and be able to travel safely to school. This is indeed deep-rooted and

For a country of our size, we have unique experience and knowledge in managing the transition to renewable energy. We want to share this knowledge with countries around the world.

is an important factor for the political agenda both locally and nationally. The Danish green energy revolution took off as a consequence of the first oil crisis in 1973. At that time, Denmark imported 99 per cent of our energy and was hit very hard by booming oil prices and the shortage of oil. The political solution was to change direction and make the country less dependent on imported energy. One important focus was to reduce energy consumption wherever possible; another was to seek new energy sources. The implementation of the energy policy and the increase in technological research set a course that has been immensely beneficial for the country almost half a century later. A similar focus on the environment and water is essential to obtain similar results. Results have indeed been remarkable. Since 1980, the Danish economy has grown by more than 70 per cent without increasing its gross energy consumption, showing that it is possible to transform a traditional energy sector to a modern system, built on sustainability and renewable energy, and still become a richer society. The focus on resource efficiency has also resulted in a drop of 40 per cent in water consumption.

Today, we see energy-efficient production in both industry and agriculture with a strong focus on saving water in their respective processes. New technological solutions have been invented by the industry, often because more ambitious solutions have been necessary to live up to demands from an ambitious public framework. A large number of Danish companies have grown by developing world-class energy-efficient solutions and similar stories can be seen in other sectors as well. A new global industry was born in Denmark with the development of the modern wind turbine, from virtually level zero, in the 1970s. Now, 40 years later, wind power is one of the most advanced technologies, both onshore and offshore. Two of the biggest manufacturers in the world, Vestas and Siemens, are still mainly based in Denmark. With a wide range of research and test centres and hundreds of smaller sub-suppliers to the industry, Denmark is still the dynamic leader in pushing the wind industry forward. A big focus right now is bringing down cost in production and making wind energy a feasible business case. Denmark’s decision to lead is backed by an ambitious policy framework as well as a multiple-solution approach. Our ambitious goal will be reached by increasing energy efficiency and resource optimisation. This can be achieved by expanding the share of renewable energy from sources such as wind and biomass, and by driving the development of an intelligent energy system capable of managing the fluctuations of renewable energy. The transformation of the energy sector is remarkable. In 2015, 42 per cent of the power consumption in Denmark came from wind. In 2020, it will be 50 per cent. The Danish Government and the Danish Parliament firmly believe that economic growth is possible without an increase in use of resources. Time has shown that economic and environmental policies can indeed go hand in hand. No single technology can do the trick by itself – no matter how innovative and effective it is. Danish companies

2017 Africa Energy Yearbook

know this. Instead, they successfully complement each other. As a result, Denmark has become a global leader in developing and producing integrated end-to-end solutions to match the international growing need for sustainable green energy.

Denmark wants to show the world that the green sector is not just green; it is also good business and the potential is immense. Danish solutions are world leaders of a number of technological sectors – apart from onshore and offshore wind power, we can mention energy-efficiency, solar power, district heating and cooling, intelligent energy systems, water energy, environmental conservation and bioenergy. Denmark wants to show the world that the green sector is not just green; it is also good business and the potential is immense. This is the task of State of Green. Behind the State of Green brand is a public-private consortium, formed by the Danish state and four major business organisations, with the purpose of promoting green Danish solutions worldwide. We do that on our webportal www.stateofgreen.com where more than 1,400 Danish solutions are on show. About 600 companies, municipalities and organisations present their specific skills and solutions; many of them are minor companies and use this very practical portal to be visible to a larger international audience. To help professional international visitors forward to the right solutions and business partners, the portal has defined ten sectors: • Bioenergy • Climate adaption • Energy efficiency • Environment & resources • Heating & cooling • Intelligent energy • Solar & other renewables

• Sustainable transportation • Water • Wind energy Through State of Green Tours, public and private decision makers visit Denmark to experience green solutions at the sites where they are implemented and to meet Danish counterparts in companies, organisations, in cities, in state administration or government. Last year more than 2,000 professional, international visitors came to our country via State of Green Tours. Denmark regards Africa, both the public and private sectors, as natural business partners. Our experience can be valuable for future cooperation and as inspiration for nations and companies worldwide to invest in African green growth. 23

As an artist and teacher, I believe that itâ&#x20AC;&#x2122;s paramount that art should be used to inform people about global challenges. It is extremely important to reach as many people as possible with art that relates with their issues, especially the youth of Uganda.â&#x20AC;? FRED MUTEBI

WOMEN ACTIVISTS FRED MUTEBI Woodblock Print on paper 46cm x 36cm 24

Images submitted by Afriart gallery, Uganda

2017 Africa Energy Yearbook

DANISH ENERGY INSIGHTS

Sustainable investments: Combining good returns with a positive change Danish pension fund PKA eyes opportunities of investing in renewable energy in Africa, but the challenges are many.

Peter Damgaard Jensen, Chief Executive Officer, PKA Since 2001, Peter Damgaard Jensen has been the CEO of PKA. After graduating in 1981 from The University of Aarhus as a master of Political Science, he joined the Association of County Councils in Denmark. In 1985, he moved to the Danish Nurses Organi-zation. He left the Danish Nurses Organization in 2001 to join PKA. Peter is a member of the board of The Danish Insurance Association, of which, he was previously the chairman and vice chairman. He is the vice chairman of Forca Ltd (pension fund and life in-surance industry). Peter is a member of the advisory board of The Danish Climate Investment Fund for climate investments in emerging markets and a member of the advisory board in Axcel Ltd (leading Danish private equity Company). Peter was a member of the board of Concito in 2008-2010. He has been a member of the board of the climate organization, IIGCC, since 2013; in 2017, he became chairman of IIGCC. PKA PKA Ltd is one of the largest occupational pension funds in Denmark. The PKA Group is owned by three occupational pension funds with nearly 300,000 members, who are mainly employees in the public social and health sectors. At the end of 2016, the market value of the assets managed by PKA Ltd. was approximately DKK 250 billion (€35 bn.).

KA has two clear goals when it comes to investments. The first is to ensure the best possible returns for our 300,000 members’ pensions – we are obliged to do so by Danish law. Second, we have a clear mandate from our members to pursue investments that combine good returns with a positive impact.

uity and fixed income to diversify the portfolio. This strategy has expanded over the years and investments in alternatives now account for one fourth of all PKA’s investments.

As a result, PKA has invested US$2.5bn in CO2-friendly projects, ranging from offshore wind farms to solar energy and hydro power.

Jensen says that over the years PKA has invested resources to establish a team that has the competence and experience in finding the right type of alternative investments that can ensure them the necessary long-term returns for their members’ pensions. He also says that they will continue to focus on these kinds of investments.

“Our members want us to explore opportunities to do good and making money at the same time, but it must never be at the expense of good returns. Luckily, we see many opportunities to combine the two,” says Peter Damgaard Jensen, CEO at PKA.

PKA made the first major green energy investment in 2011 when they invested US$300m in the Anholt offshore wind farm. Since then, PKA has invested additionally in four other offshore wind farms, though one of them was sold in the latter part of 2016.

PKA was established in 1954 and is one of the largest pension service providers for la-bour market pension funds in Denmark. PKA manages the US$36bn worth of assets on behalf of three pension funds with 300,000 members employed within the social healthcare.

Investing in renewables fulfils many areas of PKA’s strategy: - High return relative to risk - Diversification - Long investment horizon - Cost-efficient - Socially responsible investments

In the wake of the financial crisis of 2008–2009, PKA changed its investment strategy to investing in alternatives in an effort to minimise the risk of investing heavily in listed eq-

Over the years, PKA has made investments on the African continent through various funds targeting infrastructure and agriculture. The investments are commonly made in collaboration with 2017 Africa Energy Yearbook

local NGOs to oversee that they comply with PKA’s guidelines for re-sponsible investment cover, for example human rights and labour rights. “The African continent is a very different region to invest in compared with other markets and therefore we need all the assistance we can get to overcome the cultural and political challenges that might occur,” says Jensen. This is one of the reasons why PKA collaborates with the Danish Investment Fund for Developing Countries (IFU) when investing in Africa. Most recently, PKA, in collaboration with IFU, the Danish government and other Danish pension funds, established the Danish Climate Investment Fund to secure funding for climate-related projects in developing countries and emerging markets as well as to promote the sale of Danish climate-related technology. The fund has, for instance, invested in the Lake Turkana wind farm in Kenya. Due to the business opportunities in Africa, PKA would increasingly like to be a part of the societal changes many African countries are undergoing: high growth, young population, increasingly stable political systems – all leading to business opportunities being de-veloped by Africans for Africa. On the other hand, many African nations are still facing challenges such as weak capital markets and financial infrastructure, investment cases being too small, political instability and corruption. If PKA were to increasingly invest in Africa, certain parameters will have be considered: - Political conciliations should be broad and stable; - Large-scale projects such as PublicPrivate-Partnerships (PPP) should be launched; - Long-term investment schemes should be supported; and - Investment should be made attractive for private capital to invest in smallscale projects. PKA has an ambition to invest 10 per cent of our capital in climate-related projects by the year 2020. Africa could and should play a bigger role in fulfilling this goal. .

PKA has an ambition to invest 10 per cent of our capital in climaterelated projects by the year 2020. 27

DANISH ENERGY INSIGHTS

Blended finance

can make risky investments bankable Investing in renewable energy in emerging and frontier markets is possible through public-private financial models such as blended finance. Torben Möger, Director, PensionDanmark Torben Möger Pedersen (b. 1955) is the CEO of PensionDanmark – one of the largest pension funds in Denmark, established in 1993. The fund manages defined contribution pension plans, health care plans and life-long training programs on the basis of collective agreements, covering more than 695,000 blue-collar workers employed in 26,000 companies within the private and public sector. Torben Möger Pedersen holds a number of board and investment committee memberships including Arbejdernes Landsbank, Copenhagen Infrastructure Fund I & II, the Danish Climate Investment Fund, the Danish Agribusiness Fund, Symbionfonden, Danish Society for Education and Business (DSEB), Board Leadership Society in Denmark and Center for Pension Research (PerCent) at CBS. in February 2014, Mr. Möger Pedersen became a member of the Private Sector Advisory Group of the UN’s Green Climate Fund, he is also a member of the World Economic Forum’s Global Agenda Council on Future of Investments and the Forum’s Investor Governors Steering Committee. Previously, he was also a member of the Danish Government’s Climate and Energy Growth Team, and member of the group of experts on the Review of the Danish Foreign and Security Policy. He was named “Environmental Finance Personality of 2013” by Environmental Finance. Torben Möger Pedersen holds a M.Sc. Economics from University of Copenhagen and has attended executive education at Insead Fontainebleau, Insead Singapore, Babson College and Wharton Business School.

Investing in solar power in the Maldives and wind power in Kenya is only made possible for a Danish institutional investor as PensionDanmark through blended finance models. 28

2017 Africa Energy Yearbook

COULD INVESTING IN SOLAR POWER IN THE MALDIVES AND WIND POWER IN KENYA SEEM TOO AMBITIOUS FOR A PENSION FUND LIKE PENSIONDANMARK?

Blended finance models make it possible for PensionDanmark to provide drinking water to 150,000 people in the Maldives based on solar power and investing in 365 wind turbines in Kenya. These models also make it possible to reduce Kenya’s dependence on the import of fossil fuel. As pure private investments they would be totally unfeasible for a Danish institutional investor such as PensionDanmark. However, blended finance models have made these investments possible through the Danish Climate Investment Fund (KIF) and the Danish Agribusiness Fund (DAF). In the Maldives, producing clean drinking water from seawater is energy intensive and uses diesel plants, which are both costly and pollutive. KIF has invested in Nordic Power Partners, a development company which will build and manage the solar plants using photovoltaic (PV) solar cells. These solar cells create electricity in a material exposed to light. The return on investment is based on a long-term power purchase agreement and the solar plants will reduce energy cost and reduce the CO2 emission considerably. Similarly, KIF has made its first big investment (DKK 87 million, EUR 11.6 million) in a wind farm next to Lake Turkana in Kenya. The wind power project will be the largest wind park in Sub-Saharan Africa. The 310 MW wind farm will produce around 20 per cent of Kenya’s currently installed electrical generating capacity at a very cost-efficient price and will replace fuel imports of approximately DKK 900 million (EUR 120 million) annually. The commitments to KIF are split between the Danish government, Denmark’s Investment Fund for Developing Countries (IFU), and the institutional investors PKA, PBU and PensionDanmark. PensionDanmark has committed DKK 200 million (EUR 2017 Africa Energy Yearbook

Blended Finance: OECD defines blended finance as the strategic use of development finance and philanthropic funds to mobilise private capital flows to emerging and frontier markets. Blended finance deliberately channels private investment to sectors of high-development impact, while delivering attractive risk-adjusted returns. The Danish Climate Investment Fund is one such example. Others include The IFCCanada Climate Change Program, Global Environment Facility and The Danish Agribusiness Fund.

Blended Finance can make risky investments bankable. 27 million) to investments through KIF. EKF, Denmark’s Export Credit Agency, has simultaneously provided approximately DKK 1 billion (EUR 135 million) in loan guarantees for the project. EKF’s guarantee relieves the funding providers of risk, thus enabling the institutional investor’s participation. The fund is managed by IFU, which since its inception 50 years ago has participated in 1,200 investments in more than 100 countries. This was done in cooperation with Danish trade and industry. Therefore, KIF and IFU can offer financial experience, substantial knowledge about local business conditions and a broad international network. Alongside the investments in KIF, PensionDanmark has also committed DKK 200 million (EUR 27 million) to the Danish Agribusiness Fund (DAF), investing in improved production, distribution and food sales in developing countries. PensionDanmark is investing in the two funds along with the Danish government, IFU, and the pension fund PKA, which has also committed DKK 200 million. The initial investments of DKK 796 million (EUR 107 million) and DKK 775 million (EUR 103 million) to the funds, KIF and DAF, are expected to ensure induced investments of approximately DKK 7–9 billion (EUR 1–1.2 billion) each. This return

can be contributed to the fact that the fund is investing in the projects with local investors. AS AN INTERNATIONAL INVESTOR, WHAT IS THE PERSPECTIVE OF BLENDED FINANCE?

Formulated briefly, blended finance can make this type of risky investments in emerging and frontier economies bankable. The concept has three key characteristics: • Leverage: Use of development finance and philanthropic funds to attract private capital. • Impact: Investing in projects that drive social, environmental and economic progress. • Returns: Financial returns for private investors in line with the market rate, based on real and perceived risks. Blended finance can foster private financing for projects that are environmentally friendly, enabling the diffusion of climate-friendly technology throughout the economy. At the same time, blended finance initiates bankable and financially stable projects that under normal circumstance would involve too high a degree of risk for private investors. The ability to reduce political and regulatory risks through the use of blended finance models is central to what makes the model relevant. 29