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African Legal Innovations in the Renewable Energy Sector

October 19, 2016


Africa enjoys a gigantic renewable energy potential which remains vastly under-exploited and unevenly allocated throughout the continent. In furtherance of the COP21, the Renewable Energy Initiative in Africa (REIA) plans to install 300 GW of electricity from renewable energy by 2030. This initiative, like many others, stimulates the renewable energy sector and brings out innovative models that meet new needs

In Africa, administrative and legal challenges remain significant, particularly regarding the difficulties and delays to obtain permits and authorisations, the reliability of prefeasibility studies, access and land tenure security, political and foreign exchange risks, and the specific risk associated with the lack of a legal framework dedicated to renewable energies.

The renewable energy market is fundamentally structured on a concession model, including a take-or-pay mechanism and a feed-in-tariff, as the case may be. The concession model implies the construction of infrastructures which will usually revert to the public entity/final consumer at the end of the project.

In a standard take-or-pay power purchase agreement (PPA), the seller guarantees the supply of energy to the buyer in consideration for the related payment, regardless of the client's actual consumption of energy. This model is adapted to public entity/consumers when they are national operators benefitting from a monopoly. In this capacity, they are naturally eager to take over and manage these assets. For other types of client, and especially industrial clients, ownership of the assets induces significant liabilities on the balance sheet resulting from both capital and operating expenditures although such burden does not necessarily fits the client's strategies.

At the time of an ever-growing sharing economy, alternative models emerge, such as the "infrastructure pooling" to meet several clients' needs and where the assets are not dedicated to a single client. Clients only pay for their actual consumption. In this model, risks relating to mismatch between energy produced and energy consumed, or to termination, management or transfer of assets largely remain with the electricity supplier. However, one of the risks for the consumer lies in the potential lack of available energy supply due to lower wind and production, or the occasional higher need for energy. Therefore, a priority shall be made between clients.

The choice between the two models is a strategic decision resulting from the definition of clients' needs. Depending on the elected model, the PPA's structure will obliviously differ, particularly in terms of available energy, liability, penalties in case of delays, plant availability and tariffs.

The new project structuring models are a real opportunity for foreign investors, and facilitate new perspectives.


19th October 2016

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