Gridworks, which invests in Africa’s electricity networks, said on 20 December it will invest up to $50m in Virunga Power, which develops and operates hydro-power projects and grid distribution networks in east Africa.
The investment, which sees Gridworks acquire majority ownership of Virunga, will be used to fund hydro projects in Burundi, Malawi, Zambia and Kenya. The World Bank says that Zambia, Malawi and Burundi have among the world’s lowest rural electrification rates at 15%, 6% and 2%.
Virunga’s rural utility projects are mainly run-of-river small hydro generation projects with capacity of between 1 MW and 20 MW. The key to increasing scale, Kelly says, is to broaden the base of funders beyond development finance institutions and attract pension funds. Experience in Asia has shown that pension funds can drive electrification through hydro power, with larger-scale projects able to generate predictable revenue streams, he says.
Kelly is a former energy analyst at Lehman Brothers and Merrill Lynch who is now based in Nairobi. He aims to use the Gridworks funding to prove the investment viability of hydro power in east Africa. “The demonstration of the model doesn’t exist in many places,” says Kelly. “That’s what’s missing from the conversation.”
Virunga’s existing projects include Zengamina Power, Zambia’s first private mini-grid, which has been serving Ikelenge district in North Western Province since 2007. It also backs the Mulanje Electricity Generating Agency, which has been operating in Malawi since 2014.
Delivering projects to internationally accredited standards, Kelly says, will pull in new investors. The $50m investment, he says, is “nowhere near the size of the need, or the potential of the market. We should be talking about billions.”
He points to Umeme, Uganda’s main electricity distribution company which trades on the country’s stock exchange, as an example of what can be achieved. As of June, local institutional and retail investors held 34.6% of Umeme, with investors in the east Africa region holding a further 6.9%. Umeme’s success in attracting local institutions is “a model which can be followed elsewhere,” Kelly says.
Hydro versus solar
The International Energy Agency (IEA) in Paris has said that hydro power generation in east Africa has the potential to increase fourfold between 2020 and 2030. Still, the IEA says, the full potential of hydro in the region may not be realised due to climate change impacts on water availability. Regional integration, the IEA says, can mitigate these risks.
There is no perfect renewable-energy solution for east Africa. The high cost of storing solar power means it’s currently unable to rival hydro as a way to drive rural electrification, says Josiah Brand, Virunga’s chief operating officer. There’s no point trying to sell rural users solar power at a cost of around $1 per kilowatt hour (kwh), he says. Hydro power can be supplied at around $0.25 per kwh, Brand adds.
The scale that can be achieved by hydro is currently unavailable in solar, meaning that it can’t be used to power rural industry, Kelly says. Solar power has a role, and cheaper storage options in future could prompt Virunga to consider adding solar to its supply mix, he says.
For now, hydro is clearly the more efficient option for ensuring baseload generation. “Let’s not fight the laws of economics. The river flows at night. We have the ability to generate 24 hours a day.”
Hydro power reliance brings its own risks, but East Africa can’t wait for solar power storage prices to fall.
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