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Currency mismatch hinders renewable energy funding

Publishing Date : 18 December, 2018

Author : REARABILWE RAMAPHANE

Botswana just like many other African countries has developed interest on finding alternative sources of energy to replace or reduce dependence on the traditional non-renewable sources.


This is also fuelled by the global conversation of going green, a campaign that trickles down from the increasing concern of climate change, global warming and depletion of the earth’s desirable climatology attributes.  In this discourse, Botswana is said to be even better placed to become a leading space of renewable energy and is constantly underscored as sitting on a lucrative solar energy sector that has potential of being one of the world’s largest and booming.


This emanates from the fact that Botswana receives one of the most abundant solar resources in the world due to its high temperatures and semi-arid climate condition. However, the impeding factor to developing the country’s renewable energy sector and turning the hot and semi-desert country into a solar energy hub is lack of adequate financing.


 Though the cost of setting-up solar energy infrastructures has been significantly declining as per global commodity prices of solar panels and related equipment for a developing country, it remains a capital-intensive undertaking that requires significant private sector participation and investor appetite. Energy sector stakeholders, investors and experts reiterated at the 2nd Renewable Energy and Power Infrastructure Investors Conference held in Gaborone last week Friday that with its high number of clear days in a year, Botswana provides an excellent solar resource, adding that a logical conclusion can be reached that solar could provide a meaningful contribution to Botswana's energy demands.


The increasing cost and unreliability of power from Eskom in South Africa provided the impetus for the Botswana government to research renewable energy, with the most obvious contender being solar.   Recently the South Africa’s State-owned power producer signalled possibility of cutting its supply to foreign clients owing to challenges it is facing at its power plants thus not producing enough power for even its domestic demand. Challenges at Eskom which is the region’s largest power producer and one of Africa’s largest, has pushed its clientele countries to find alternative sources of energy.


In early 2017, the Botswana Power Corporation (BPC) decided to start a programme to procure 100MW of solar energy and exploit the plentiful natural resource. When presenting on Europe’s support to the development of renewable energy in Africa Ambassador of EU Delegation to Botswana Jan Sadek said sola power solutions have become far more affordable and commercially viable over the past few years adding that many issues that plagued solar have also been resolved.


 Sadek explained that the introduction of hybrid systems using more sophisticated battery technology and diesel generation to store energy and boost production at peak times has resolved a constraint that solar power could only be generated during the day. Tiago Almeida an energy investment expert from Rand Merchant Bank Group explained that a key stumbling block to funding solutions of renewable energy in Africa is a possible currency mismatch, which comes about when investors invest in US Dollar and the collection of tariffs is done in the local currency.


According to Almeida, solutions should be considered to originate the financing solutions in the local currency, which prevents countries from being exposed to potential harmful swings in the dollar related exchange rates. Almeida further shared   RMB‘s efforts on financing renewable energy projects “Being the largest commercial bank in Botswana and with our experience in structuring these Power Purchase Agreements (PPA), we believe we could assist to provide expertise in defining the "bankable" risk allocation for the PPA, boosting investor and banks appetite for the programme and also create solutions in underwriting the deals in Pula," noted Almeida.


Based on the pivotal role RMB played in South Africa's REIPPP, the bank says its further well positioned to assist BPC to move their renewable energy programme forward. Almeida believes that with the buy in of the Botswana government to procure some 100MW of power through solar and innovative funding solutions, the country could forge a path to a sustainable energy source for thousands of homes.

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