HOLGER ROTHENBUSCH, BRITISH INTERNATIONAL INVESTMENT (BII), ON KEEPING PEOPLE CONNECTED AND WHY ENERGY TRANSITION IS A PROCESS, NOT A STEP CHANGE

With over 25 years of experience in development finance in emerging markets including Africa, Holger Rothenbusch leads BII's infrastructure and climate finance program. He spoke to EnergyNet about supporting economic growth in a new era where infrastructure investments are more challenging and private capital is ever more needed, the importance of collaboration, and what governments should focus on addressing.

 

What is BII’s strategy for energy investment in Africa?

Africa is an important market for BII - about 60 per cent of our energy investments are in the continent.

The overarching reasons why we, as a development finance institution, are investing in energy in Africa are twofold.

The first is to support economic growth in the countries we invest in. More than 600 million people in Africa do not have access to energy. Many African countries are on a path of growth and development, and increasing access to energy is essential for their economies to grow.

We are very focused on this in a number of countries, partly through our platforms such as Globeleq which is addressing specific energy needs in Africa and doing it at scale. For example, we provide a significant proportion of the power in Cote d'Ivoire, around 30%.

However, this is not just about building more power. It’s also about making sure that people are connected. We can do this through transmission and distribution investments or decentralized energy solutions – for example, providing local currency to solar home system (SHS) companies or to mini grids.

The second reason is climate change. We want to help economies in Africa to decarbonize and to deliver against the commitments and aspirations outlined in the Paris Agreement. We are therefore specifically looking for investments that will help to accelerate clean, inclusive growth.

 

How is this strategy being implemented?

We are a patient and flexible investor. We invest across the capital structure with different types of financing solutions. This can range from project finance and direct equity to funds.

We have investments in larger power production companies or platforms, some of which, like Globeleq, we have the majority control over.  BII is a 70% shareholder in Globeleq, alongside Norfund (30%).

In 2019, we set up Gridworks, spearheading the first PPP projects on the transmission and distribution side. The company has already invested in decentralized power, including a C&I company in South Africa, and has some exciting projects in Burundi.  

We also have partnerships with other more prominent players like IPS and the Aga Khan Foundation, focusing on East and West Africa on the hydro side. Elsewhere in Africa, we collaborate with partners and developers such as Scatec, ACWA and EDF.  

This partnership approach is critical. We can create businesses that others can partner with, or we ourselves can partner with the bigger players and operators.  

Finally, we are investing in infrastructure and energy funds with partners such as Meridiam, AIIM, and Frontier Energy.  Funds investing is central to our investment strategy as it enables BII to provide capital to a broader range of companies beyond what we can invest in directly. It also provides co-investment opportunities for us to invest into an array of companies that can deliver disproportionate impact and transform the economic prospects for countless people.

We are also going into the smaller countries, the more difficult places where commercial capital isn't readily available. And this is very much the role as a DFI that we are delivering against.

Altogether, we are investing around $200 to $250 million annually in energy in Africa across the different areas I’ve mentioned and to achieve our objectives. We are looking to increase this over the coming year.

 

What would you say are the most important factors when it comes to making green financing more efficient?

Collaboration is essential. You need to collaborate with the right financing partners including DFIs and financial institutions amongst others. You also have to partner with governments and regulatory authorities to ensure that you are supporting the right projects, and you need to work with other relevant players in the market in the broader energy sector.

We want to expand the capital we can deploy. To do this, we are very focused on mobilisation – bringing in commercial investors to our investments in Africa.    

This can be quite tough for commercial investors against the backdrop of challenges we are seeing across the continent. Debt levels are high, interest rates have increased, and currencies are weak.

As a DFI, we have a role to play to support developers by providing concessionary financing to help make projects more bankable.

For example, we have a unique line of funding with some concessionary terms that go beyond the regular DFI money, which is already concessionary. This funding can help in low-income countries where projects tend to be smaller, but contextual challenges tend to be bigger and the cost of projects more expensive than it would be, say, in South Africa or Egypt.

We are also supporting newer technologies, such as battery storage, which, in conjunction with solar, for example, significantly improves the usability of the power generated. However, it also makes the project more expensive. Again, this is where we can provide some concessionary finance.

We are seeing people who have been active in the energy space who are now really stretched and running out of capital or struggling to exit their investments and raise follow-on funds. Some bigger players are considering leaving the continent altogether because it’s just too difficult. This is a scenario that I, together with colleagues in other organizations, am worried about.

We must consider how we, as DFIs, can stop that drain and stabilize investment activities without wasting taxpayers' money.

It's about keeping people in the game, which is increasingly something that we are very much focused on.

We are in a new era where infrastructure investments are more challenging, and private capital is ever more needed. 

DFI’s have a very important role to play in getting people back into the market, keeping them in and making sure that project development continues.

If we stop developing projects and the pipeline dries up, this will have an impact for years. 

There are no easy solutions.  Everybody in this space is very aware of this, and we are collectively looking for solutions.

 

Share some successful aspects of BII’s infrastructure practice in Africa.

Globeleq is very successful, and possibly the biggest independent power developer in sub-Saharan Africa. It’s grown significantly, with a portfolio of around 1.8 GW in operation and 485 MW in construction. It covers seven countries across the continent, and that's a really good story.

Gridworks has a lot of promise. It focuses on a critical niche in the market – which shouldn't be a niche, but it is – which is transmission and distribution, and we are looking forward to closing the first PPP project on the transmission side soon.

And infrastructure goes beyond that. It goes beyond energy.

A couple of years ago, we entered into a $1.7 billion joint venture with DP World to modernise and expand ports and logistics across Africa. We have now invested in three ports – in Egypt, in Senegal and in Somaliland.

On the telecoms side, BII is part of an international consortium  that has set up Safaricom Ethiopia to bring better and more affordable access to digital services in the country.

One notable recent highlight is the Kenhardt project in South Africa, which I believe is the biggest solar plus battery storage project on the continent today. This was developed by Scatec and reached completion just a few months ago.

On the smaller side, we have provided crucial support to innovative financing of solar home companies like Sun King, and we recently funded a solar PV project in Sierra Leone in collaboration with Frontier Energy. 

There is a long list of individual projects that I would consider successes – on the structure side, where we see our platforms and companies as well as on the project side, and through to equity.

 

Are there new areas you are looking to invest in? (geographically or technically, eg hydrogen)

We’re looking to support projects in smaller countries; for example hydro projects in Burundi.

We also want to support more new technologies such as battery storage which is still not as cheap a technology as it needs to be. However, the cost is coming down and support from investors like BII, will help to bring it down further. 

Green hydrogen is a big topic. We are looking at a project in Egypt where hydrogen will be converted to green ammonia for export to Europe. This looks promising and might be something we will see more of in other countries.  

We will continue to focus on improvements in transmission and distribution, but there also is more work to be done on decentralized models. Gridworks is developing three mini-grids in DRC with the Moyi Power project, which will provide solar-powered electricity to cities with no grid connection struggling to access reliable, affordable, and clean power.

The C&I sector in Africa is evolving and there has been an increase of projects in this area.  However, regulatory constraints, lack of clarity, plus uncertainties around wheeling and metering are slowing things down. But I believe there's significant promise in this area if more certainty can be provided to operators.

This is an area that deserves serious examination, and I strongly urge governments and regulators to take a proactive stance in addressing these issues.

 

What are you most looking forward to at aef24?

AEF is a key event for myself and my senior team and we’re very much looking forward to it. It is extremely valuable to have so many relevant and dedicated people who are focussed on energy in Africa together in one place. It gives BII the opportunity to renew existing contacts, make new ones, discuss challenges and perhaps generate ideas that we can collectively work on. It’s a very efficient way to connect with key people across the industry in a very short period of time.

 

BII is a lead sponsor of the Africa Energy Forum 2024, where Holger will be speaking in two Boardroom sessions.