Investors want policy certainty about the integrated resource plan (IRP) before they put their money behind gas projects, says an independent power producer.
Linda Mabhena-Olagunju, founder and managing director of DLO Energy – a group of companies working within the energy and infrastructure sector in Africa – spoke to Fin24 about the challenges in raising funds in the gas energy sector.
This followed comments made by the Energy Minister Jeff Radebe at the Southern African Development Community’s (SADC) ministerial workshop on regional gas infrastructure and market development earlier this week. Radebe had said that raising capital was a major challenge in exploiting gas resources in the region.
Mabhena-Olagunju shared views that private sector investors require more “regularity clarity” to make strategic investment decisions into the power sector. Infrastructure is also needed to support the domestic gas market, but there is not much of this in the region which has stunted growth, she explained.
“What is required to attract investment and funding is a clear policy- both at a domestic level and a regional level,” said Mabhena-Olagunju. In South Africa this means the finalisation of the IRP is necessary. “Some investors shied away when there was a pause in the IRP for SA,” she said.
“[In South Africa] On one hand we hear there is excess power supply in the country, but at the same time the country has to plan its energy future.”
Whereas in other countries it is not clear what the policy plans are. In Mozambique and other countries there are gas reserves, but there are questions about whether there is a legal framework for power generation, she said.
“It’s important to get the legislation right and as an investor it is important knowing how much allocations will be going to be for gas.” The SADC players are competing with markets in the world where there is a clearer policy framework attractive to investors.
Investors are concerned about the surety in terms of the size and scalability of projects as well, she explained.
The finalisation of the IRP requires relevant parties to agree, but not every party will get what they want. “It does not have to take years, it can be done within the year if the right political will is there.”
Mabhena-Olagunju added that whatever policy framework is decided on should be inclusive of local players and regional players. There are a lot of foreign players which come to invest in South Africa, but they often have exit plans, whereas local or regional players have longer term plans.
Mabhena-Olagunju said apart from getting better equity representation such as female-owned IPPs, or black-owned IPPs, it is important to also develop skills to ensure sustainability of projects.
New players are also challenged by barriers such as finance, as the capital requirements are high, she explained.
Mabhena-Olagunju believes the SA government took a step in the right direction by signing the 27 remaining renewable energy IPPs earlier this year. “There’s been a lot of action following the rhetoric,” she said.