first_img Finance and Policy According toMike Webb, Baker McKenzie’s seniorassociate, this challenge does not refer to the availability of debt orequity funding from large institutions that commonly invest in this sector, butrather to two types of funding that are currently not readily available withrespect to African projects. In conclusion, Webb emphasised that price signals have clearly been working for many investors in respect of the off-grid energy market in South Africa, where investment is beginning to appear. “In this market, without there being much policy development, the initial surge of investment in the sector was due to strong demand for energy in rural areas,” he said. Blended finance Generation Blended finance initiatives are starting to help bridge the funding gap, particularly in relation to the need for early stage development funding. This lack of a secondary market, Webb says, restricts an investor’s ability to exit from their investments and deters investors, particularly those that are needed during the early stages of the project. While thisis a welcome development, he pointed out that projects ultimately need morecomprehensive government policies in support of energy and infrastructureinvestment to attract the scale of investments needed. Need for credible regulatory environment Firstly,there is a lack of early stage development capital that is required to get aproject from the concept and feasibility assessment stage to the pointwhere it has crystallised a revenue stream and is able to attract realinvestment.  Secondly,and much further down the development line, there is a lack of a secondarymarket for infrastructure and energy projects in the continent generally. The goodnews is that investment in the energy and infrastructure sector is beginning toimprove with the emergence of serious interest from private equity players, aswell as the establishment of infrastructure funds mandated to invest in Africanprojects.  “In many countries, such as Germany for example, secondary markets have been pivotal in creating demand for projects, with projects being refinanced or sold in the capital markets either through equity or bond issuances. This exit path is key in creating a sustainable initial financing platform for energy and infrastructure projects,” he noted. AFD and Eskom commit to a competitive electricity sector Alternatively,and when faced with a lack of policy signals, energy and infrastructureprojects might be able to identify sufficient price signals to attractsubstantial investment. Webb further underlined that a credible and predictable regulatory environment has always been a necessary catalyst for these types of investments. “Investors must feel comfortable that clear and unambiguous regulation and policy will protect them and reduce the risk of deploying capital into new projects on the continent.” TAGSblended financefinance & investmentinfrastructure finance Previous articleEEP Africa: Enormous interest in project supportNext articleKibo Energy progresses with coal-fired power plant Babalwa BunganeBabalwa Bungane is the content producer for ESI Africa – Clarion Events Africa. Babalwa has been writing for the publication for over five years. She also contributes to sister publications; Smart Energy International and Power Engineering International. Babalwa is a social media enthusiast. Webb highlights the following types of funding: BRICS One of the key challenges in getting energy andinfrastructure projects off the ground in Africa is the lack of availablefunding. The mainreason for both of these funding gaps in Africa is the lack of policy andregulatory certainty in Africa, which is needed to establish a relativelyreliable revenue stream that will attract investors at these points in theinvestment cycle. Featured image: Stock In order toattract big investors in this sector, there is an urgent need for morecertainty from Africa regulators. Webb notedthat public sourced funding, such as climate finance funds and dedicatedinvestment vehicles, are starting to deploy much needed capital to developerswith the hope that their projects will advance to a feasibility point whereprivate capital can invest. “This demand meant investors were willing to take the risk. They were comfortable that there was sufficient demand, which was enough to stimulate the much needed initial investment. If this demand can be identified and quantified, investors might be willing to deploy capital at the beginning of the project and further down the line when assets are recycled in the secondary markets.” RELATED ARTICLESMORE FROM AUTHOR UNDP China, CCIEE launch report to facilitate low-carbon development Low carbon, solar future could increase jobs in the future – SAPVIA “Governmentsin Africa should prioritise implementing legislation and resolving anyregulatory and other policy challenges in the energy and infrastructure sectorin their countries. Many countries in Africa don’t yet have the regulations andpolicies in place to enable these markets to really grow,” he said. “But thiscapital still doesn’t fill all the funding gaps. Private equity capital, whilemore flexible from a risk standpoint, is expensive and private equity investorsare usually not willing to invest in projects unless there is a clear line ofsight to market. This is often not possible during the stages where theseprojects are most in need of funding,” he pointed out.last_img