Alain Ebobissé is a specialist in the financing and development of infrastructure and CEO of Africa50. Prior to joining the organization, Mr. Ebobissé served as the Global Head of the World Bank Group’s Global Infrastructure Project Development Fund (IFC InfraVentures), where he oversaw a team of infrastructure specialists and led the development of and investment in numerous infrastructure projects in Africa, Asia, Europe, and Latin America. Mr. Ebobissé led the design, structuring, and implementation of IFC InfraVentures from its inception. He also served as Chief Investment Officer in the Global Infrastructure and Natural Resources Department of the International Finance Corporation (IFC), the private-sector arm of the World Bank Group, based in Washington.
Prior to joining the IFC in 1998, he held several positions in the financial services industry in France, including Deputy Head of Project and Structured Finance at Caisse des Depots et Consignations. Ebobissé holds a Master of Business Administration from the International School for Management Development (IMD) in Lausanne, Switzerland.
Michael Liebreich: Before we start, if you're enjoying these conversations, please make sure that you like or subscribe to Cleaning Up, it really helps other people to find us. Cleaning Up is brought to you by the Liebreich Foundation and the Gilardini Foundation. Hello, I'm Michael Liebreich, and this is Cleaning Up. My guest today is Alain Ebobissé. He's the CEO of Africa50, that's a $1 billion infrastructure fund focused on Africa, supported by 28 African nations, and two African central banks. Please join me in welcoming Alain Ebobissé to Cleaning Up. So, Alain, thank you very much for joining me.
Alain Ebobissé: Well, thank you, Michael, for inviting me on your show.
ML: So where are you? Where are you actually calling in from today?
AE: I’m calling in from Casablanca in Morocco, where the headquarters of Africa50 is located. And we spend quite a bit of time at the headquarters because we travel a bit less these days because of the pandemic. So that’s where I’m actually…
ML: In fact, you and I have now met twice, in fairly recent months on Zoom, because the last time we met was at the Atlantic Council's Energy Summit, which was just going into the summer, wasn't it?
AE: Yes, absolutely. I remember that. That meeting was actually, on Zoom, of course, it was quite interesting, because at the time, we were discussing already, you know, some of the themes that I’m sure we’ll be discussing today, with our friend, David Goldwyn, of the Atlantic Council and others. So, I’m happy to reconnect actually.
ML: Very good. I seem to remember that we sort of got a little bit distracted by hydrogen, we'll have to see whether, we know it's the topic of the day. And whenever you mention hydrogen, the rest of the session tends to be just about hydrogen, but we're gonna try and avoid that mistake. So let's do something. We have a very diverse audience. There are some people who are real kind of technocrats. They certainly know more about this stuff than me, maybe even then you. But we also have a lot of generalists in the audience who are aware of a lot of the themes around climate change and the net zero transition. They know that COP 26 is coming up, but they don't know… They're not specialists, and they won't know what Africa50 is. So why don't we start there, and you explain what is Africa50? What is it that you do?
AE: Yeah, thank you, Michael. And, honestly, I suspected that not everyone in your audience will know about Africa 50. So we are essentially a pan-African organization, with the mandate given to us by African heads of states, to catalyze more private sector financing to help bridge the infrastructure gap in Africa. So, we do this by carefully preparing projects to make them bankable, attractive to investors and ready to receive financing. And we are relatively new in the market. That’s probably why a lot of people don’t know us. But the key differentiating factor here is that we are funded entirely by African shareholders in 28 countries for now, but we hope to have more African countries as shareholders. We have two central banks, African central banks and also the African Development Bank. And we have about less than $1bn of committed capital today, which we invest in projects. And we have a double bottom line of development impact, but also financial returns because you know, there’s nothing wrong with making money. And we operate like private sector fund, we are nimble. We have a private sector approach. And we target a few sectors for now. energy, transport, ICT, midstream gas, I’m sure we will be talking about it, it is also sector focused. But recently we added health infrastructure, FinTech, and education. So this is in a nutshell, what we do, I guess I can mention a lot of things which makes us slightly different from many of the investors is that because of our shareholder base, which is composed, essentially of governments, and ADB and others orders, we can act as a bridge between government and the private sector to help better manage public private relationships and actually reduce the political and regulatory risk that we believe that can help speed up implementation of project that’s something that I wanted to put on the table for your audience to know.
ML: Okay, and just in terms of legal structure, are you a multilateral, so similar to the World Bank or the IFC or African Development Bank? Or are you who owns the actual equity and how are you set up?
AE: That’s very true, we have emerged as… owned by 28 African countries so far, which are shareholders, and also founders. And we have, well, immunities. And, you know, this one, some of these mechanisms that typical MDBs, multilateral development banks, have, but we have a focus mandate. So, we don’t do a lot of activities that MDBs will typically do. We focus on infrastructure only. And at the management and the board level, we decided to focus a bit more also on equity and quasi-equity, meaning that as of today, we don’t provide not by statute, by decision that we decided we don’t provide debt financing. But mostly equity quasi-equity, also the project development support project preparation, because one of the key constraints in infrastructure development in Africa, but also globally, it’s really the limited resources to make projects bankable, the early-stage resources that you need to build up the pipeline of bankable project, we do that as a priority.
ML: Okay, now, there's a lot there that we can unpack. And I think we should in terms of how projects get through the system, and how their cap table and how their financing is put together. But just before I do that, there is of course, the African Development Bank, which you mentioned is one of your backers. So, do you now compete with them? Or are you their infrastructure fund? Or are you independent, but you've agreed not to compete? How does that interface work?
AE: Well, that's a very interesting question. I think the African Development Bank, first of all, started Africa50, when the African heads of states called for the creation of innovative instruments, to help bridge the infrastructure gap in Africa, they asked the African Development Bank to create Africa 50. So today, African Development Bank is a major shareholder, but they also sit on the board. So, the Chairman of the Board of Directors of Africa50 is the president of the African Development Bank. So, we try to operate in a coordinated way. But we have separate governance structures. Okay. So, we try to make sure that we don't compete. And indeed, you know, as of now, we haven't competed. But it may happen that there is a case where we could compete, I would hope that we will try to avoid it, because there's a lot to be done. And we don't necessarily need to compete on specific projects.
ML: Well, that’s right. And when you look at the numbers, and everybody says between now and 2050, I don’t know how many trillion is needed for infrastructure in Africa. But certainly, it’s more than the 1 billion that you’ve so far got at your disposal. Very good. Now, what is a typical project that you might work on? Give us… I don’t know, maybe you can give us an example or a few examples of how big are they? You’ve talked about some of the sectors energy, ICT, health, infrastructure, and so on. But what size and range of projects are we talking about across those sectors?
AE: I think that's a fair question. I mean, for us the sweet spot is a project which is not too small or not too big. So the sweet spot is maybe a project with a total project cost of between $300 million and half a billion dollars. Because of those projects, we believe that with our balance sheet, and investing equity, we can make them happen. Of course, we are also investing in bigger projects. For example, in Cameroon, we invested in a $1bn to $1.2 billion project called Nachtigal, where we are a minority shareholder. Also because we have some of the smaller countries in Africa, as part of our shareholding, we could also look for slightly smaller projects. But of course, you know that it's very complicated as an infrastructure investment shop, to look at small projects, because you will tend to do the same type of due diligence. And then it could cost a lot of money by looking at small projects. So, we look at those small projects exceptionally so any anything, which is between $300m to $400m, $500 million of project costs, total project costs, I mean, it's something that we'd like to take a look at.
ML: So let’s do this. Let’s unpack a typical project, then: you said $300m to $500 million. Let’s go for a $400 million project. Let’s go back in time to where it originated and follow it through until it’s secured the full $400 million required to be built. First, how long does that take?
AE: Yes. Thank you, Michael. I think it's a good question. Because, you know, let me take an example project that we did in Egypt. It's part of the 1.5 gigawatt solar park and we have at Africa50, we have 400 megawatts in six projects. So, it took us about two and a half years to three years to develop the project, raise the financing, and construct the plant. And now the project is delivering power to Egyptians, populations, and businesses now. So, it's three years, the whole cycle, that's fast. And we hope that most of the project will take, you know, only three years to get done. But that's not the case. And so, it takes a bit more time to do those projects, typically, from the early stage, the concept phase, to the time when you raise the financing, and then you build the project. Now, either projects or some of those large projects are extreme, they take a lot, a lot more time – solar, some renewables kind of go faster, which is also why it's attractive. But the point I would like to make is that this situation that I'm describing is not only the case in Africa, you see that also in other regions of the world, where this still in the developing phase of the economy, sectors are not fully stable yet, etc. But the important part is, who spends the first dollars to actually put the project together? At Africa50 we do that as well to our project development funds. I think this is one of the most important parts, in my opinion, of trying to unlock the private capital, actually, to bring the capital into infrastructure in Africa and other developing countries is the money that you spent early stage to put together the project to bring advisors, lawyers, engineers, economists, environmental and social people to do the studies, the feasibilities to negotiate the contract to provide a bankable solution to investors later stage investors that typically, if the project is well designed, they will jump on it and finance it. But how do you get from a concept to the financeable project is what we do, but we did a lot more effort in that particular space.
ML: Right, and we'll come back to the concept of bankability, because for us, that means a lot, we know what we're talking about when we say bankability, but it may be that there are some others who don't have a good idea of that. But that early stage money do you tend to develop the idea? Do you originate the ideas? Or do people come to you, the host countries and say, you know, we've got an area where we could do solar, or we need a rail connection here, or we need hospitals there? I mean, where do the ideas come from? And then you step in with this development fund, right?
AE: Well, yeah, it’s all of the above. Sometimes ideas come from co-developers, some developers who are starting to develop a project spending money, and they feel that Africa50 would be a good partner to join forces together, to <inaudible> of the project and speed up implementation to get to financial close, because the name of the game is to get to financial close as quickly as possible. That’s how developers make money. So, it could come from developers, but it can also come from governments, especially our shareholders, that would ask us to look into a project. For example, this is what we did in Senegal. This is what we do in Kenya, for example, where we are trying to develop the first transmission PPPs, major transmission PPPs in Africa. So it could come from private investors, developers, government, or sometimes us where we are proposing some ideas because we are there to actually make things happen. So those are the three areas our project actually will come to us.
ML: Okay, and a transmission PPP. This is a piece of grid infrastructure that's going to be built and run by a private organization, but to a specification from the public sector and funded out of payments for results, right?
AE: That is absolutely correct. And that has been done in other regions of the world. But in Africa, we haven't seen any major transmission project being done through a PPP or by the private sector. Typically, they are funded with government money, and we are arguing that we have to start moving the ball and try to bring the private sector to do this, and we'd like to do the first major ones soon.
ML: Okay. And now this question of bankability, which is very relevant. In that example, it's presumably easier to get to bankability because you have a contract with a government or a government owned transmission entity, but define bankability if you can?
AE: Well, bankability simply is what the lenders will finance. But of course, you will tell me “Okay, you have to give me more.”
ML: That’s a circular definition. Bankability is whatever the bankers want, right?
AE: Yeah. More or less, because some bankers will accept stuff that other bankers won’t. But to give you a more substantive answer. So, bankability has several dimensions. At the end of the day, the way I look at it is basically, a project where you allocate the risk in a way that the project participants feel comfortable that they can take the risk for the returns that they expect. So that means what, that means that in some project, which I did in some countries, which are a bit more advanced, you can have a government commitment to offtake power, and it's the power without you needing to enhance that government commitment with all kinds of political risk mitigation instrument, whereas in some other countries, you will do the government commitment, or you will say, “Okay, I take this covenant commitment, make it I don't need to backstop that government commitment”. So in other places, you don't even need the government's commitment. You go to a merchant, and say, okay, there's enough supply demand here, where I understand the supply demand dynamic. I'm gonna take the risk that there will be enough, you know, demand to sell my product, and I will do it on a merchant basis that is still bankable. But in most emerging markets, at least the least developed countries, I think you still need to have contracts by and large for some of those major infrastructure assets. So again, bankability is where you've secured the revenues. You have, you know, you know, how to, to develop, to build. But it's also very important that bankability means environmental and social and government governance matters are addressed properly, especially with respect when you engage certain types of lenders, that today, at least most of the lenders that we talked to, they need to make sure that you need to make sure the project meets certain standards. Most people today use <inaudbie> principles of commercial banks, the IFC performance standard, or the AFDB, environmental and social guidelines and policies. So yes, that becomes very, very important. And governance is actually also now quite important because at some point, environmental standards were actually quite important. They still are, but now we're also looking at governance.
ML: So bankability is all about risk identification, risk management. And the most risk averse is always going to be the debt providers, so they tend to get them when I think of bankability, I think about mainly the debt providers being happy, as you say, either, you know, one extreme, the merchant, you know, when we use this word go merchant in other words just selling on the spot market, selling, selling the product, and then letting everything else sort itself out. That’s pretty risky in most countries, certainly in developing countries. And therefore there’s a whole range of different guarantees, and so on, that can be layered on by different players, all the way up to the World Bank and potentially beyond. And that’s the clever, that’s the in a sense, that’s the clever bit and, and presumably that’s also what creates the risk for those early stage developers. If they can’t get to that hurdle of bankability, they lose all of the time and the money that they’ve spent developing the project,
AE: I think it's quite risky to be spending the money on the early stage, project development phase, because if you don't get to the bankability, you lose the money. It's just why people are reluctant to do so. But this is a crucial part of the infrastructure development process. That's why somehow we need to figure out a way to add the resources there. Because without creating the pipeline of bankable projects, there is no, there is no project available for investors to finance it, right? And so that's why we need to focus on the early stage, which Africa50 is doing. And as one of our key areas of focus.
ML: Absolutely. And, in fact, when one of these, you know, multi billionaires announced that they were going to be spending so many billions on climate action. And somebody asked me, What should they spend it on?’’ I actually said, put it into pre-financing, a pre-final investment decision, and project development. Once it’s bankable, there’s a lot of money available, but that gap that you’re talking about is one of the keys.
AE: I agree with you so much, Michael, and by the way, you can give them my number but I agree with you, I always say when I say especially on these two areas of focus, early stage, project preparation, project development, and then risk mitigation, maybe on the other end, because sometimes, you know, you can structure the contract and get good offtakes and good <inaudible> commitment, but it's sometimes worth the paper it's written on. So you also need to enhance that part of the equation. I think these are the areas that provide the maximum leverage to catalyse private investment in developing countries, especially in Africa.
ML: Now, just one quick question : you call it your development fund. Are you making grants or are you making investments so you if you’ve got one of these projects, like the Egypt solar project, and you work, before that bankability stage, the early stuff, the stuff that you might have to write off? Are you expecting huge returns on that? Because it’s so risky? Or are you doing it for free? Because you’re such a good guy?
AE: Okay, first of all, somebody said that there's no free lunch. We were not set up to give grants. Okay, we were set up to mimic the private market, because we want to catalyse private investment, we have to behave as a private investor, except that we are willing to take maybe a bit more risk. But if we take a bit more risk, we expect a bit more returns. So no, it’s risk capital that we deploy. If you need a grant or concessional funding, you go to the African Development Bank or to the World Bank. If you need an investment, you come to us.
ML: Okay, very good, very good. It couldn't couldn't be clearer. And it'll be very interesting over time to see what returns you get on that early development funding because it is riskier, but you are getting bigger percentages of the projects, dollar for dollar. So maybe it's the best investment there is, who knows, actually
AE: It’s not honestly, because if you ask most of the big infrastructure companies, first of all, it was a very juicy business, you will see lots more funds coming into this business. The reason why you don’t see a lot of people coming, it should tell you something. Yeah, yeah, our objective to is at least to preserve the capital and to have it
ML: The main role there is it creates a stream of projects that you can then deploy more capital into. I want to switch gears and talk about Africa's energy, transportation, but also industry agriculture sectors, with the lens of climate change, and of course, we know that we've got COP26 coming up. Yes. And there's a few really important debates and discussions. So there's one point of view that says, it's really not Africa's problem, we didn't cause it. Our priority is development, getting to an acceptable life, life, well, life chances, let alone lifestyle, but health and so on. And we're just going to do whatever makes sense for Africa. And if you want us to do anything different than the developed world who caused all of the emissions to date has to simply step in and pay for it. It's as simple as that we have no responsibility beyond that, that's at one end. At the other end, it's saying, we really need to be leapfrogging to clean solutions, and be prepared also to invest some proportion of African resources in that leapfrog. So I'm portraying two ends of a spectrum. Where do you sit on that?
AE: I think, Michael, as you can guess, the solution is a bit more nuanced than, you know, talking about one side of the equation or the other. Let me just mean this a number of things that, you know, people are talking about when it comes to climate policies and climate commitment in Africa. First of all, it’s true. The continent of Africa contributes only to 4% of global greenhouse emissions, and the lowest of any region. And, the trend, according to the World Bank, is down. When you look at emission per capita, it is one stat that I like, actually, I don’t like it, actually, it’s not good. But maybe it clarifies the situation that we have. That Africa has the lowest per capita consumption of electricity in the world, about 185 kilowatt hours per annum as per the World Bank. And this is if you compare it to America, household consumption it’s about six days of what an American average household consume compared to an annual consumption of an African household six days, one year and yet, and I’ll come to your question and yet, Africa’s today, our social economic development is threatened by the climate crisis. We emit or contribute the least to emission. But we suffer massively. Coming from the climate crisis today, we have droughts, we have extreme weathers, we have flooding, we have food insecurity, we have population displacement. So I think that climate change is a very serious matter for Africa. Okay. It’s a very, very, very serious matter. And this is why, you know, I think Africa should be a key focus of Glasgow’s discussion. And there are different ways I’m sure we can talk about a bit later. As to, at least from my standpoint, what could be some of the priorities. But I do believe that what we are asking for is a balanced approach, we have to be very clear that we are impacted by the crisis, so we have to contribute to addressing it. So we have to have climate targets, we have to try to meet them. But we also have to be very, equally clear that we have competing goals, which are development goals, and we have to figure out a way to do both. At the same time, no one should go first. And the other ones come, we have to, we have to do both. So this is where I start. So that’s why I’m thinking about actually what we do at Africa50, which is the balanced approach, which is to massively invest in renewables, but also looking at ways we can support natural gas to support the industrialization of Africa, and to do both at the same time. And so that’s one of the things that I’d like to expand a bit more. But just to give you in a nutshell, you know, how I’m coming into where I’m coming into this debate.
ML: And, you know, before we go any further, I have to say, first of all I, I understand and I agree, so nothing I'm going to provoke, I'm going to push you because I want to explore this, but it's not because I think that you're doing something terrible or wrong. Okay. But when you say you're doing natural gas, there are those who say you're making a historic mistake by following the in a sense, the industries that have caused all these problems. And can you not leapfrog and go beyond that? And especially it's not, you know, there is I don't know whether you have a policy on oil or on coal, but even natural gas, the fact is, we have to, we have to get to zero, we have to get to at least net zero by 2050-2060, which is within the lifetime of some of the things that you might be financing.
AE: But well, Michael, I understand the arguments on both sides. It’s about making trade offs. And I do believe that it’s getting more and more difficult to look at those natural gas projects. Certainly nobody, that is certainly not us, is doing coal anymore. We are also phasing out HFO. But we in Africa, at least the goal for Africa50, as one of the African institutions, our goal is to have a balanced energy mix, which again, addresses the development needs while limiting emission and transitioning towards renewable energy. I think natural gas can serve as a bridge fuel, okay, the bridge fuel. But of course, there’s a risk of stranded assets, we have to understand it. But I think one of the things that I like to put on the table is that, you know, maybe at COP26, if the international community, all of us agree that more flexibility should be provided to Africa and other developing countries at the same level of developing regions at the same level of development, to do this kind of project with natural gas and manage the risk of having stranded assets so that so that we don’t have as much difficulties, as we are starting to see in funding what we believe are extremely important project for us that you should know, today, everybody wants to finance renewables. And I agree, I understand that. You know, over three quarters of new generation capacity that comes to Africa are renewables. But we need fertilisers, we need to replace you know, biomass based cooking. We need to retrofit HFO and diesel power projects. You know, Michael, today in Africa currently today, there’s 46 gigawatts of HFO and diesel based generation capacity, which is running, it is here today. So we can say, you stop running those diesel engines, they won’t. People will stop, they need electricity and say, let’s retrofit most of them and use natural gas and reduce emissions by 40%. So this is the view that I’m trying to take. And I think those conversations should happen at COP. We should, we should talk about the projections today, which says that between 660 to 820 million people who rely on traditional biomass cooking stoves, by 2030, if we don’t do anything, we can say, oh, just do solar. Okay, I’d love to do that, but the capital costs. So let’s think about this type of deal. Let’s think about the financing area. So again, you can see that we are committed to contributing to solving climate, the climate challenges, because we are hit in Africa by this. So we cannot just say, oh, this now because we are faced. But we hope that a lot of people will be at COP and in order for us to say, look, what about the other part of the equation, which is the development agenda? What about massively increasing climate financing, to make sure that we can help accelerate the breach? So these are some of the thoughts that we have. And, you know, I wanted to share with you. I’m happy that you brought up the issue.
ML: So as you spoke, I had a sort of almost like a sort of flashback of the entire I'm going to say it's more than 10 or even 12 years where I was working with my great friend, Kandeh Yumkella, who was on this show on Sustainable Energy for All because we had these exact discussions. So when you talk about cookstoves, it seems that there's a lot of activists out there who would like every African family, or every developing world family to immediately have a ceramic home, connected to some marvellous electrical infrastructure. And I think we'll find that's a very nice aspiration for 2050, 2060, maybe 2070. But if you want to do that quickly, we've got, you know, LPG, it's clean, it's much healthier. There's millions of people dying from air pollution, and we've got a we've got and the impact on the climate will be so small, because these are not people with expensive lifestyles, they're not flying to New York on shopping trips, they just want some of the basics of, of a decent life. And I think it's absolutely their right to demand that. I think where there's more controversy is where you're talking about projects that are, you know, targeting exports, that seem like they have no plan, it's almost like, okay, the plan is first to build them. And then if they're, if there's a threat for them to become stranded to fight like anything to maintain them, and keep them operating for as long as possible. And there are some projects that look more like that of some of the big gas fields where it's really all about export. And, and you sort of, again, it's very difficult to sit here and say, you know, Mozambique has no right to try to earn, you know, foreign capital, foreign exchange, just like Norway does. But you sort of wonder whether there aren't better ways of doing it, making hydrogen, making maybe some e-fuels, you talk about fertiliser, it should be possible to make fertiliser either to do it to use much less by being very smart in the use of fertiliser, so precision agriculture, or to make it using renewable electricity.
AE: Well, look, Michael, what you are alluding to is actually a very important debate. And I have to say that first of all, today, only 5% of the energy mix in Africa comes from gas, and yet 40% of gas, worldwide gas discoveries have been in Africa. So we are not using not using enough of our domestic gas as we should, we should and I will come to you because what you said because I actually agree that we have to increase massively, the share of our gas that is used for productive activities on the continent, you know, fertilisers or other things, you know, so so I do agree that that’s actually one of the reasons why we decided to focus on midstream gas building those pipelines to connect the production centres to the demand centres in Africa, we’re not going to build the pipeline to send it out of Africa, at least well, Africa 50. But so this is the thinking, the thinking is, look, what we are advocating for, is actually to use natural gas to solve some of the development challenges in terms of building activities that will create jobs. Now, it’s true that you cannot say, “Look, don’t make money out of your natural gas.” I think that that part of the equation is a bit more complicated, I would I would have to, I would have to agree, although, you know, poor countries that have that as their main source of revenues, how do you tell them, you know, stop earning that
ML: For context, as we're recording this, of course, in Europe, the wind suddenly went very low. For the last month, we have President Putin playing some power games trying to get the Nord Stream done. And the single thing that we're doing a lot of right now is burning gas to keep the lights on.
AE: I saw that right in the UK it’s a big issue. I mean, the prices went up like crazy.
ML: And actually one of the very legitimate uses of gas, I think, for Africa, certainly for the next few decades is, well, if you've got all of this very cheap wind and very cheap solar, but it needs the natural gas to enable it. So you can get a very high proportion. So you're electrifying a lot of new households, new businesses, but you can only do it if there's a reliable backup for that interim period of a number of decades. That feels very legitimate to me.
AE: But Michael, we have to push for it. Because you have a number of people, very powerful people actually, that are thinking that we should phase out gas. But I need gas to increase the penetration rate of renewables in Africa, which we are doing, by the way, but if you if you stop gas, first of all our grid systems are such that the penetration rate is going to be whatever it is, by the time we get to where we need to increase it under the battery technologies get to give us base load for more than four hours or so. What do you do with the people that you have today, coming out of universities that are looking for jobs? We have a real issue that we have this sense of urgency that I think that some people who are sitting wherever they're sitting don’t feel.
ML: Well, that's a fantastic segue onto the other big challenge, or one of the other big challenges or the big debates, which is, well, they should use distributed power. We should be doing solar roofs batteries, use a four hour battery, a four hour battery actually is nearly baseload by the time you've averaged it. And the way that the numbers work, because the solar, you know, the four hours is relative to the peak. So if you have a four hour battery, it's almost a baseload. Yeah. What is the balance between the distributed solutions be they solar, be they batteries, but the stuff that you can do in the rural areas, and grid connected? So some people say, only grid connected, it’s the quality of energy that Africa deserves? We've got it, Africa needs it. Don't talk about distributed. And some people say yeah, but distributed is good enough for most uses, particularly rural. And actually probably even better than that. I, you know, it can be pretty much a baseload, maybe not for heavy industry, but for pretty much everything else. Where do you stand on that one?
AE: Well, first of all, I don’t see many of those people financing distributed energy projects, actually, anyway, no more than I mean, I think that, the other thing is that, you know, if we, if we have a financing, to help these business models actually get off the ground and actually become bankable. I think we’ll see a lot more of those, I think at Africa 50, we look at all of the above strategies as well. But each of those strategies have to make sense. And to be bankable, and to be honest, to make sure that investors that would be, in my opinion, the biggest source to drive these investments should make a decent return. But today, you don’t have many very successful large-scale distributed energy projects on the continent.
ML: But let me push you that You've been doing this for how long? The technologies work, right? The mini grids, the solar roofs, the batteries, it's all fantastic there cost reductions. You can't ask for more. We know it works. And we also know that franchise models work. Look how many McDonald's there are, I don't know how many there are in Africa, but around the world there are 1000s of Starbucks, McDonald's. So we can scale solutions that work and they can be financed but isn't the problem that your business models, your, your HR, your careers, your models that you've developed just don't work for what is frankly, you're talking about two, you're talking about three years for the Egyptian solar project, why not three months to put a mini grid into a village, perfectly good projects, you have failed to make it bankable. Why is that the villagers' problem or the technology's problem?
AE: Michael, there’s something you and I know about, but let’s talk about publicly here. If there’s a way to make money by doing this, I think that we wouldn’t be talking about this today. I think there’s a market failure somehow, and I think people are still trying business models that are working in that space, at least in the least developed countries. The moment that anybody finds a way that works, everybody will come in and try to do it. What has actually happened is that the first companies that were doing it were doing mostly solar home systems, which is not the same as mini grid, because mini grid is a bit more. It’s something that actually I like quite a bit, but it has been tested now and became after solar home systems. The fact of the matter is that there’s not enough of those companies doing this type of business. And frankly, as soon as we find some, we want to invest in them. And the prices of those companies have gone through the roof because people actually believe that there is some part of the future that will be represented by distributed energy. And one of those I am one of those, I believe that a part of our energy mix will be distributed. But I think this subsector is still a bit in its infancy. And this is why, again, the other thing that I hope we can have as a conversation at COP is climate financing. How do we make sure that we actually bring money and money with less stringent conditions than our money, not my money, but our funds money to help catalyse those kinds of new systems that would help us drive adoption of clean energy solutions faster than through, you know, typical standard market mechanisms? So yes, we can do it. But at this point, it’s still a very small proportion. So I need to focus on the big grid connected renewables because guess what, we have a huge number of people coming into the marketplace, the yeah, looking for work, actually, jobs, every year, you need to find ways on a massive scales to make sure that and I have never seen a distributed energy project, supplying power for fertiliser plants. Okay. And we need a lot of fertilisers to have the agriculture that we need. There’s a lot of industrial activities that require massive baseload power, and not only for four hours, because those industrial plants could also run in the evening, etc. So that’s the goal. So I think that we should do both, we should go distributed. And we also continue to do grid connected, grid connected, we should prioritise renewables. Whenever we can, we should prioritise renewables and use gas as a balancing technique to even increase the penetration rate. I’ve seen that in the US and other countries, maybe they started to use batteries for balancing. But these are places where capital is easier to raise, you know, when you have to raise money for an African project, there’s so many hoops you have to go through, I used to have a global heart. So I used to see what’s happening across the world. And now that I’m focusing only on Africa, I was like, This is extremely hard. I mean, you know, that’s different today.
ML: Now, that's right. Look, I think that the when you mentioned for the fertiliser plants, that would not be done by distributed I think what people are talking about now is, I call it the renewable energy superpowers where you have very cheap solar, very good solar resource, you have very good wind resource in the same place or connected, and you can then get to something like 60-70%, maybe even 75% capacity factor. You add in some batteries potentially. And of course, you could add in natural gas if you're not being too pure. If you're saying Okay, well let's just get to 100% capacity factor. And the question is, are you better off going with a 70% capacity factor, or adding more capital to do batteries or whatever? That's the debate around fertilisers, and I think it's a debate that is really only starting. It feels to me in Africa, you know, huge already in Australia, actually in North Africa, Morocco. You know, there's lots of and in the Gulf lots of talk about these fertiliser plants. But it's not distributed, the distributed would be for clinics, for villages, light engineering maybe, you know, some food processing, those sorts of things, I think would work perfectly well with distributed solutions.
AE: Yeah, no, I look, I agree, I understand what you meant. I was just trying to be <inaudible> because you’re pushing me. But you know Michael, things are happening in Africa today, in terms of the focus on renewables, because we actually have quite a bit of, we were endowed in this continent, with renewable resources, and their stuff happening on the ground. I just heard that earlier this year. South Africa, actually requested proposals for dispatchable power, over 20 years using solar, and they got bids. They got one of our companies that work before us, they bidded it for 10.6 cents per kilowatt hours. They dispatch the start dispatchable, from 5am, to 9pm. Solar base with some batteries, it’s fantastic. And it’s happening right here is 350 megawatts. So we’re starting to do it. I think the key is having good access to capital, these are capital intensive stuff. And we need to figure out a way to make sure that the capital is available, because capital is difficult, what now, it’s not only the capital, because we need to improve the regulatory environment, we need to make sure that we have enabling environment and allowing people to come and invest and have a reasonable expectation to get their money back. But that takes a huge amount of time, whereas you can mobilise climate financing. And COP should focus on helping drive this kind of adoption of new technologies quickly.
ML: But I think it's and I think it's a bit of I mean, it's not a bit of both, it's a lot of both, because when you improve the regulatory environment, it also pushes down the cost of capital. So it makes the guarantees cheaper, and so on. One thing I'd like to touch on, we've talked a lot about batteries. But to be honest, it's the same. It's a very critical issue. It doesn't matter whether you're talking solar, whether you're talking wind, whatever you're talking about. And that is the extractive industries. Anybody who thinks that renewable energies have a light footprint on the globe has not looked at what's actually in. And by the way, it's the same electric car. You know, it's because obviously, that's a big use of batteries, not just grid connected batteries. All of these are going to require an enormous amount of copper, nickel, steel, cobalt, of course, very famously, a lot of it from the DRC, rare earths. How do we make sure that it's not that we don't solve climate, but a huge cost in local pollution, and local social problems and local poor governance and bribery and so on, because of the extraction that has to take place to enable the shift to clean energy?
AE: Yeah, wait, you were talking like, you know, an African?
ML: I take that. And I take that as a very, very high compliment. Thank you.
AE: No, because sometimes, some of the people who, you know, opinion makers, they sit in places where if their issue is solved, that’s it. They are not necessarily, thinking about looking at things from a holistic standpoint, because mining doesn’t happen in New York, or Paris or London. But it happens in DRC. And indeed, it’s an important problem, we have to make sure that first of all, looking at this renewable thing in a holistic way, but also making sure that we set environmental and social standards and governance standards that will require things to be done the right way. I think we have to look at these things a bit more holistically than saying, “get solar and wind”.
ML: Now, do you finance extractive industry projects?
AE: No, it’s not, it’s not precluded from our bylaws, but we just decided that first of all, we are limited money. And we are not going to do we’re not going to do this but at IFC we used to look at it when I was there. I don’t know what is the latest, the latest policy but now we’re not doing that. We’re doing it. We’re doing a bit down the road.
ML: But when you use steel or the solar panels for the Egyptian project or any other things that you're doing, you talked about a project I'm not sure what it was in Cameroon, where you're from, do you insist that the raw materials are responsibly mined? Do you go back and say, okay, I'm going to walk the walk, as well as a big investor, a billion dollar investor in the equity of these projects.
AE: What we go by is the standard that all the stakeholders have now agreed to do, which is the Equator Principles governance standards from IFC. I would personally want to go a bit deeper, but I can’t say... I mean, my powers are fairly limited. So I can’t say, look, let’s now do this. But I think that these conversations are happening. If the Equator Principles or the performance standards, we decided that we will go a bit up in the supply chain, then we will enforce it. At this point Our standard is the IFC performance standard Equator Principles and the African Development Bank policies and guidelines on environmental, social and governance.
ML: Okay, let's finish off then on COP26. I don't know whether you are planning to attend. Will you be there?
AE: Well, I’m making plans to attend. And I think that I hope that they won’t want to get people to be quarantined for 10 days before they go there. I have my vaccines, but hopefully, it’s not the case. But I’m making plans to attend.
ML: So I don't know whether you're coming from Casablanca, whether that's going to be a red list, or amber list or green, I think amber has gone. But it may be only it's going to be at worst, I think it's going to be like a five day quarantine. I hope that's not going to deter you.
AE: Okay, we’ll see. I mean, we have work to do.
ML: Absolutely. But anyway, in any case, what would be a good outcome for Africa50, and I'm assuming for Africa overall, that it's the same thing, what would a good outcome look like from a COP26?
AE: Well, I think that’s a good question. It’s from my narrow standpoint of Africa 50. But I think it’s an issue that most Africans will stand behind. I think I see two things. First, in the policy angle, for me, I think there has to be a major shift in policy on climate financing for Africa, and really other developing regions as well. We need to see a significant increase in the climate financing commitment from developed countries, to developing countries. Hopefully, we talked about it because the commitment made in Copenhagen, $100 billion, has not been made. And today, we need to go a lot more. Bigger. I think the South African environmental minister floated a number of $750 billion a year, which is almost eight times what was committed before. Anyway, I don’t know if that’s the figure, but there has to be a significant increase. And with this something that will actually happen. Second thing that I think we should, I hope we can achieve, honestly, is what we discuss, actually, on this call on this discussion, which is to acknowledge the specific needs of Africa and circumstances of Africa, and acknowledge that we need a bit more flexibility to adopt the appropriate energy mix that would basically both help us meet our target, but also meet our urgent development needs. And natural gas should be part of the equation. I’m hoping that after COP, people could say there is a way to ensure that you can finance natural gas projects that are geared towards economic activities in Africa, without having too much of that risk of having a stranded asset, because if that risk continues to linger, we’ll see less and less financing. And then the development needs part of the equation will be less prioritised. And they will have instability. And maybe you know, everybody will have the climate, renewables, but then we have conflict. So we don’t want that. The other thing that I like to see, if possible, especially if we get there, is really to leverage the COP platform to push for some innovative financing mechanism to try to drive private investment in climate friendly assets in Africa. So I’m hoping that Africa will be a key, a central theme at the climate discussions at COP 26 because even though we are only emitting less than 4% I think the impact on us is quite severe. And I think we need to, we need to be at the table where people should discuss us. Now, in terms of, you know, promoting innovative financing. You know, one of the things that I believe I heard you say that one of your talk, which we are actually promoting, we spent the last three years promoting what we call asset recycling, trying to get, you know, governments actually, in our case, to concession out some of the assets to private investors and get cash and then reinvest this cash into new assets. And I think we would gladly do green asset recycling, I’m happy to, because right now, I’m not saying, I’m saying any assets recycling, I like to do it. But how about we use a platform, of COP, to promote green asset recycling, and then we get MDBs and get <inaudible> to recycle the assets like commercial banks?
ML: I am laughing, and I'll tell you, the reason why I'm laughing is I had this idea, this exact idea about, I'm gonna say, eight or nine years ago, and I called it the big green bucket. And what I said was, there's all of these assets, green assets, sitting on the MDB balance sheets, every investment bank in the world would recycle it, it would say, right, we built it, it was risky, but then we built it. Now it works really well. Now we put it into the big green bucket, and we refinance it, we get it off our balance sheet, we refinance it at a very attractive price, we generate a lot of capital that we can reinvest these, these are fantastic assets, because they now work, and we should sell it on and recycle the capital. And I was told, basically, I was sort of told, because I'm not an MDB Insider, I was told that it was above my paygrade, to worry about their balance sheets, and what to do, and how to recycle their capital into basically not to teach them their own business. And there was a lot of resistance to the big green bucket idea, but coming from you, that's very powerful.
AE: No but still there's still resistance, by the way. So that's why initially we were just going for government assets. COP will be a good platform to say, listen, how about, we do that, and we put it in, okay?
ML: Those four ideas, more climate finance, there was the second one where there was flexibility for gas, there was innovative green energy projects and recycling of the asset base. I'm going to say I think that COP26 might be the beginning of that discussion, but it's very unlikely to be the end. Those feel like things that will take, I'm gonna say three to five years to achieve.
AE: I agree. I look, I agree, but you because you have that platform, and then you want a big splash there. But it clearly, yes, it’s too I don’t I don’t expect to be <inaudible> during those.
ML: But I shall certainly be there because I'm organising with your very good friends, the Atlantic Council, where we met at the Atlantic Council Summit, together with Atlantic Council and National Grid, Quadrature Climate Foundation, Octopus Energy, I'm organising the Climate Action Solution Centre, just outside Glasgow in a very nice venue where we can really have these discussions. So if you do get there, I'm quite sure that will get you involved, and we can push forwards on your four COP priorities.
AE: Well, look, I would love to. And so I let you know, my colleagues, because I think it’s a good place to be now. I’m gonna try to be there. Honestly, I think I think the right people will be there to have the right conversations.
ML: Very good. Alain, thank you so much for spending some time joining me here today and sharing your thoughts. It's very refreshing. I agree with everything you've said, even though I've pushed you a little bit, but you've done a magnificent job communicating your priorities, Africa50’s priorities, and in fact, Africa's priorities during this critical time. So I really do thank you very much.
AE: Thank you, Michael. It was fun. I enjoyed it. And I always enjoyed speaking with you. And I’m glad that you also got few things out of the conversation.
ML: So that was Alain Ebobisee, CEO of Africa, 50 and one of the world's great experts on the financing of infrastructure in Africa. My guest next week is Todd Stern. He was special envoy for climate change throughout the Barack Obama administration, and he led the US’ negotiation of the Paris Agreement. Please join me at this time next week for a conversation with Todd Stern.