By, Varun Khanna, Data scientist and Consultant in Electrical Engineering, Canada.
This is the first of a multi-part series examining alternative methods for electricity utilities in debt-distressed countries to bridge the investment financing gap required to rebuild critical infrastructure to improve efficiency, modernize and continue to serve the population with cost-reflective tariffs. While renewable-based mini-grids are seen as the key to improving electricity access and feed sectionalizing and fault location and isolation as the keys to reliability and resilience, all of these infrastructure projects require funding – funding that is often directed towards debt servicing or other essential services. We are not discussing overnight solutions but rather long-term sustainable practices that are firmly grounded in the principles of sustainability and circular economy. Independence, self-reliance and strong frameworks are some of the key requirements to starting this journey.
As countries in sub-Saharan Africa continue to grapple with debt distress, renewable energy projects provide a potential solution that can help them achieve energy independence, while reducing carbon emissions and mitigating the effects of climate change. Such investments provide stimulus to reignite regional growth within the continent which has recently been affected by higher debt-to-GDP ratios, reduced export earnings, and reduced foreign investment. Renewable energy is an essential element in Africa’s development, providing a sustainable, affordable, and environmentally friendly source of energy. However, funding for these projects can be a challenge for governments facing limited resources and high levels of debt. Public-private partnerships (PPPs) can help countries in sub-Saharan Africa fund renewable energy projects and offer a viable solution for financing these projects and achieving energy independence. To be most effective, PPPs require legislative, economic and governance frameworks in addition to a sincere willingness from all stakeholders to achieve prescribed outcomes.
Public-private partnerships (PPPs) are collaborative efforts between the public and private sectors to achieve a common goal. PPPs are an innovative way of financing renewable energy projects in Sub-Saharan Africa, where limited public funding and private-sector participation have been significant challenges. These partnerships are often used for large-scale projects that require significant investment, such as infrastructure projects including the development of renewable energy. Through PPPs, governments can leverage the expertise and resources of the private sector to finance and implement renewable energy projects, while sharing the risks and rewards. In PPPs, both the public and private sectors contribute resources, knowledge, and expertise towards renewable energy investment and project deployment. PPPs offer several benefits, including:
- Sharing of risks and responsibilities – PPPs allow the sharing of risks and responsibilities between the public and private sectors, making it easier to mobilize resources and attract private-sector investment. Often the private sector takes on a portion of the risk and the responsibilities in return for a portion of the rewards.
- Access to innovative technologies and expertise – PPPs provide access to innovative technologies and expertise from the private sector that is often beyond the reach of the public sector.
- Improved efficiency and accountability – PPPs promote accountability and efficiency in the use of public resources by providing private-sector discipline and expertise.
- Improved service delivery – PPPs improve the quality and quantity of services delivered to citizens by providing private-sector efficiency and innovation.
Risks Associated with PPPs
Risks Associated with PPPs
PPPs are not without risks. One of the main risks associated with PPPs is the risk of default. If the project fails to generate sufficient revenue to repay the debt, the private sector partner may be forced to take on the debt or lose its investment. This can be particularly challenging in sub-Saharan Africa, where regulatory and legal frameworks may be weak or non-existent, making it difficult to enforce contracts.
Another risk associated with PPPs is the risk of political instability. Sub-Saharan Africa has a history of political instability, which can disrupt project development and operations. This can result in delays and cost overruns, which can be detrimental to the financial viability of a project.
To mitigate these risks, economic and legislative frameworks need to be implemented to provide a stable and predictable environment for PPPs. These frameworks should include clear regulations and policies for PPPs, as well as mechanisms for enforcing contracts and resolving disputes.
Varun is a data scientist and consultant with an electrical engineering background. With over 20 years of experience in the power generation industry, he has travelled the world and has extensively designed and implemented power generation facilities and utility capital and asset management programs including the implementation of a number of renewable-based microgrids and automation in the energy sector for Solar, Wind, Hydro, wastewater and energy from waste. He likes to explore the relationships between numbers while uncovering and revealing the stories contained within the data. In the age of big data, these stories become realistic and valuable solutions and strategies for businesses. His data science knowledge has contributed to enhanced utilities and smart grid efforts through system modelling, outage detection and prediction and fraud detection. Varun has been involved with the development of machine learning-based solutions and believes that this holds the key to the optimization required for the energy transition. He sees a future that contains bidirectional power grids operating on a transactive platform. Varun has written a number of articles on transactive energy, decentralization of the grid and data-driven decision-making.
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African Development Bank & African Development Bank Group. (2020, September 16). Supporting Public Private Partnerships in Africa: African Development. African Development Bank – Building Today, a Better Africa Tomorrow. (Available here.)
Mohieldin, M. (2023, March 31). SDGs and PPPs: What’s the connection? World Bank Blogs. (Available here.)