“Financing costs can be at least two to three times higher than in Europe and North America. As a result, projects remain on the drawing board, and energy costs rise for Africa’s consumers," an expert said.Energy transaction costs in Africa include all the costs involved in transacting energy, such as investment, financing, and legal costs, among others.
“Financing costs can be at least two- to three- times higher than in Europe and North America. As a result, projects remain on the drawing board and energy costs rise for Africa’s consumers – including the poorest households and least developed economies,” the expert said. According to him, African countries have huge energy potential, including a spectacular range and quality of renewable energy resources. Africa is home to more than half of the world’s best solar resources, as well as great potential for hydro, wind and geothermal power, among others.
“Full participation of company lawyers in strategy development and execution of transactions has to be the way forward when you are looking to reduce legal costs. Energy firms and companies need to be intentional about growing wide and varied, across-the-board capacity for various energy projects and transactions,” he said.
“Right from the point of hiring, it is essential for energy firms to be intentional about talent acquisition into the in-house legal team and also adopt a robust capacity-building strategy to support regional and international transactions,” he added.The energy report highlighted that the cost of capital largely reflects two sets of risks: those associated with the country and those associated with the sector, project or company .
Meanwhile, local companies that are more reliant on domestic capital markets can struggle to access both early-stage financing to bring projects to bankability and sufficient affordable capital to develop projects.Among other interventions, the report highlighted that a dramatic increase in energy investment into African countries is essential.
Alongside improvements in policy and regulation, the report stated that concessional capital of around USD 28 billion per year is needed to mobilise the USD 90 billion of private sector investment by 2030 in the Sustainable Africa Scenario.