“Sometimes you have to be willing to weigh into difficult markets, in order to produce those higher returns”, Dana Younger, chief renewable energy specialist at World Bank’s private sector lending arm International Finance Corporation, told attendees at our Financing Wind Europe conference in London this month.
It’s no secret why wind investors look at emerging markets. Riskier, higher growth markets provide them with higher returns compare with those in more established markets.
Over the past few years accelerated economic and population growth; growing energy demand; insufficient supply of energy; and an increased commitment by local governments to support renewable energy have made African countries an attractive target for wind investors.
Younger has named the most attractive markets for wind investments in Africa for 2019 and beyond.
A country which is set to experience a thriving wind market in the next five years is Ethiopia. Younger said one reason is that the IFC is set to expand its ‘Scaling Solar’ framework to wind projects from next year and Ethiopia would be the first country to benefit from it. IFC’s ‘Scaling Solar’ is a programme set to help African governments – excluding South Africa - support privately funded solar projects. The IFC has so far used it to help the governments of Ethiopia, Madagascar, Senegal and Zambia to support the developments of 1GW of solar power plants.
Lack of scale, lack of competition, high perceived risk and limited institutional capacity to manage, structure and negotiate private power concessions represent some of the major barriers to the growth of the wind and solar sector in Africa. The IFC would help governments mitigate those risks in order to attract private investments to the wind sector.
And the choice of Ethiopia is not casual. As we will show in our Emerging Markets report due to be published tomorrow, Ethiopia has one of the most ambitious wind energy targets in Africa, with a goal of 5.2GW of wind capacity by 2020 from the only 324MW currently installed. Achieving this impressive target would require private investments of up to $6bn and the IFC is set to help with that.
Morocco, Egypt and Turkey have been also named by Younger as attractive markets for wind investments in the next four- to- five years.
Despite new wind installations have stalled in Morocco over the past four years, the interest shown by investors in the last 12 months is set to give a new kick-start to the wind market.
Blockchain firm Soluna’s plans to build a 900MW wind farm in the western Sahara region; the €230m financial close on the 180MW Midelt wind farm that Enel Green Power and Nareva were awarded in an auction in 2016; and completion of the 120MW Khalladi project from a consortium led by ACWA Power are all encouraging signs that the market is finally awakening. In addition, the Moroccan government announced last month that foreign investments of MAD8bn (€739m) are set to flow to Morocco from Qatari and Middle East companies starting from next year to sustain the growth of the country’s wind and solar market. This would help the country to install 2GW of wind by 2020, from the current 787MW.
Likewise, Younger has identified Egypt and Turkey as attractive markets for wind in the near future, despite high political uncertainty. In fact, recent wind developments in both countries have showed that investors are willing to bet on those markets.
These include the financial close on a 250MW wind farm by an Engie-led consortium in the Gulf of Suez as well as plans by foreign companies including ACWA Power, Marubeni and Masdar to build 1.2GW of wind capacity in Egypt. Also, following the launch of a competitive tender to build 1.2GW of offshore wind farms in Turkey, turbine manufacturers including Siemens Gamesa, Vestas, and General Electric are looking into the possibility of domestic production and supply of offshore turbines.
As profit margins in established market get squeezed, the competition among emerging markets in Africa, Asia, Latin America and eastern Europe to attract foreign investments will get fiercer. Interest from foreign investors and support from local government is set to put African countries in a privileged position.
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