Private equity investor Mediterrania Capital Partners (MCP) is considering investments in supermarkets, health and education as the impact of COVID-19 whittles down the list of financially strong candidates, CEO Albert Alsina tells The Africa Report.
Globeleq plays the long game in Africa
The independent power producer, financed by the British institution CDC Group, claims to be the leading producer of electricity on the continent and is aiming for 5,000 MW by 2025. But it is facing ever tougher competition.
Five years ago, Mike Scholey joined Globeleq. Today, he heads the British power plant operator, an independent power producer (IPP) exclusively active in Africa.
Scholey, appointed in October 2019 to replace Paul Hanrahan, he was previously Chief Financial Officer and Chief Operating Officer, and officially took over the helm of Globeleq in January.
His mission: to maintain his group’s leading position by reaching 5,000 MW of installed capacity on the continent by 2025.
The ambitious goal does not faze the British boss, who was trained at the London Business School and has 20 years of experience in managing energy projects in developing countries. “We still have a long way to go, but we have a lot to go, starting with our long-term strategy,” said Scholey, who runs a company with 500 employees, only 50 of whom work at the company’s headquarters in London’s Financial District.
Globeleq relies on “patient capital”, which commits to projects over 15 to 20 years, compared with seven to eight years for investment funds. The group is 70% owned by the British development financial institution CDC Group, and 30% by the Norwegian development fund Norfund. In 2015, Norfund replaced the Actis investment fund by buying back its stake for $227 million, thereby increasing the value of Globeleq to more than $750 million.
Flexibility and experience
Launched in 2002, Globeleq was active for a time in Latin America and Asia, before focusing on Africa. Over the years, it has built up a solid portfolio: it is the operator of 13 power plants in five countries — Côte d’Ivoire, Cameroon, Tanzania, Kenya, and South Africa — with an installed capacity of 1,413 MW.
It is the operator of the 460 MW Azito gas-fired power plant in Côte d’Ivoire, which provides 25% of the country’s electricity. It also operates the Kribi gas-fired power plant and the Dibamba oil-fired plant in Cameroon, with a total capacity of 304 MW.
In addition to the Songas gas-fired plant in Tanzania (190 MW) and the Tsavo oil-fired plant in Kenya (75 MW), Globeleq has eight renewable energy units (solar and wind) in South Africa. More than 300 MW are under construction, including the 253 MW extension of Azito, Côte d’Ivoire (conducted with IPS West Africa) and a future 52 MW solar power plant in Malindi, Kenya.
The group has developed a continental presence, unlike its main competitors, Eranove, which has 1,250 MW of installed capacity. Eranove, held by the ECP fund, is present in five countries, but remains focused on West Africa (Côte d’Ivoire, Mali, Togo, but also Gabon and Madagascar).
To stay ahead, Globeleq is expanding its footprint. This year, it hopes to start construction in Mozambique of a 15 MW solar power plant in Cuamba. It is also working on a 420 MW gas power plant project in Temane as part of a project estimated at $1.4 billion, including a 400-kV transmission line to the capital, Maputo, and on a wind farm in Namaacha (120 MW).
The operator is also active in Tunisia, Ethiopia, Egypt, Zambia, Madagascar, Swaziland, and Benin, and plans to strengthen its presence in Tanzania, Kenya, and South Africa. Globeleq’s success is due to several factors.
“We’re flexible from country to country and technology to technology, and we’re not limited by the size of the project,” said Scholey. “We can develop smaller projects, make acquisitions and use a range of financing options, including local currency financing.”
This flexibility, combined with its experience, gives the group a credibility reinforced by the identity of its majority shareholder. “Although CDC Group is an institution financed by the British government, its management method, and by extension that of Globeleq, is aligned with the private sector, a guarantee of efficiency,” noted an expert on the energy world.
“This ‘bogus private sector’ status allows it to be competitive,” said a competitor. “Thanks to its easy access to capital, it offers a lower cost per kWh than the real private players.”
All is not won
In recent years, Globeleq has seen the arrival of strong competitors, particularly power plant operators financed by sovereign wealth funds, such as Saudi Arabia’s Acwa Power, dominant in Morocco, present in Egypt and South Africa, and Norway’s Scatec Solar (Egypt, South Africa, Mozambique and Rwanda). Able to go into massive debt and at very low cost, these competitors offer rates per kWh below those of Globeleq.
This explains why the British operator is not seeking to establish itself in Morocco and why it did not shine in a series of tenders for five photovoltaic projects representing 500 MW. Scatec submitted the lowest bid for four of the five projects, with the Engie-Nareva Holding alliance coming out on top in the fifth.
Globeleq, in partnership with the French company Akuo, came second on one of the projects, a 200 MW power plant in Tataouine. In the end, the Tunisian government awarded three power plants to Scatec Solar, one to the Emirati operator Amea Power, allied to the Chinese TBEA Xinjiang New Energy, and the last one to Engie-Nareva Holding.
Globeleq may have come out of this first phase empty-handed but it is now in the running for a series of tenders for 300 MW wind projects, the winners of which are due to be announced in mid-2020.
Meeting the growing demand for renewable technologies
Increased competition and the downward trend in the cost of renewable energy, means the profitability of projects has declined “by 5% to 10% over the last few years”, said Scholey. Not to mention the recurring difficulties in getting some customers to pay, which is “a problem in one country and a concern in another,” he added, refusing to be more specific.
“We spread the risk through a combination of early and late-stage projects, which gives us better cash flow visibility,” he said, adding that while “there’s no problem financing projects between $500 million and $700 million, beyond that, it’s more complicated.”
Globeleq, like all the other players, is facing another challenge: meeting the growing demand for renewable technologies, knowing that the problem of storing these intermittent energies has not yet been resolved. Currently, 61% of the electricity produced by Globeleq comes from gas-fired power plants, 15% from solar-power plants and as much (12%) from wind farms as from oil-fired plants. To rebalance its energy mix, Globeleq needs to increase its expertise.
“We are not like some large groups that benefit from a learning effect linked to their projects developed elsewhere in the world,” emphasized Scholey, who worked for wind energy specialist Continental Wind Partners. “We have to invest to increase our know-how, which is why we decided to go to South Africa for wind and solar energy.”
In Mozambique, as part of the Cuamba solar project, the group is working on a battery storage project, as another way to prepare for the future.
Gridworks positions itself in distribution
The continent needs to produce more energy. But it also needs to invest in distribution networks.
With this in mind, in June 2019 CDC Group launched Gridworks, a company specialising in electricity transmission and off-grid energy solutions. Headed by Simon Hodson, Gridworks has $300 million in capital.
At the end of 2019, Gridworks made its first investment, injecting $7.2 million into South Africa’s Mettle Solar, a provider of solar solutions (80 kW to 10 MW) for businesses, to accelerate its growth in South Africa, Namibia and Kenya.