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Incentives for change
Gridworks hopes to change that. With Africa’s nations having signed up to the sustainable development goals (SDGs) – SDG 7 calls for access to affordable, reliable sustainable and modern energy for all – there is a renewed impetus to overhaul transmission and distribution. If utilities fail to put in place appropriate cost-reflective tariffs, worthy ambition could lead to financial ruin.
“If most of the countries across the continent are loss-making in some shape or form, when you start to connect the entire customer base it will lead to an ever-increasing financial burden. Many countries are waking up to the fact that they will need to rationalise and make sustainable their utilities to meet these objectives, otherwise the financial burden of connecting the whole country will be colossal.”
Given Gridworks’ ambition to work closely with utilities, its first deal, a $7.5m equity investment in Mettle Solar, a solar company which provides energy to businesses, is perhaps surprising.
“While the sweet spot is trying to turn around and make profitable state utilities, these are medium- to long-term aims, and the here and now is that a lot of businesses are not well served by utilities. You can’t ignore the needs of businesses across the continent,” explains Hodson.
That means a parallel interest in localised energy solutions including mini grids, smaller scale solar projects and private concessions that do not link with the national grid. Nevertheless, Hodson acknowledges that the investment represents something of an exception to Gridworks’ wider strategy. Indeed, the ticket size of that deal is likely be dwarfed if talks with unnamed governments on “much bigger” projects in the $50-$100m range bear fruit.
“The size of our ticket will be a function of how much time is required to do the transactions. Doing a concession or PPP will take a lot of time and effort and operationally will take a lot of effort after. So we’re unlikely to do something like that for a small equity ticket – it will need to be a significant number to justify the effort.”
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Adapted from the African Business Magazine
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