The management of Soma Bay, a holiday Resort on the Red Sea in Egypt, has inked a set of agreements with TAQA Power to install solar photovoltaic (PV) facility on the resort.
The first part is a PPA (Power Purchase Agreement); stipulating TAQA Power to invest in building and operating a PV station with the capacity of 3.8 MW, over the course of a 9-month period, and on the land owned by Somabay.
Subsequently, TAQA Power is entitled to a concession management agreement of the solar power station for 30 years. The second part of the agreement is an EPC Contract “Engineering, procurement, and construction”; where in TAQAPower is to design, deliver and install another PV station, with a 1.2 MW capacity, and then transfer its management to Abu Soma Touristic Development (ASDC). The total contracted capacity of both stations is up to 5 MW.”
“TAQA Power’s agreement with Abu Soma Touristic Development counts as a model for utilizing renewable energy and capitalizing on its economic value,” says Samy Abdelqader, TAQA Power’s Cheief Executive officer.
Somabay is one of Red Sea’s most prominent coastal destinationand one of Africa’s most sought-after tourist sites. The 10 million square metre peninsula south of Hurghada, which harbors an exquisite recreational sandy beach along its 11KM coastline, says a statement on the website of Abu Soma Touristic Development, which manages the bay. “Our primary objective is to generate the power required using solar energy to reduce electricity and water desalination cost, thereby closing the gap between our consumption and distribution demands.”
Helge Lund, BP’s Chairman of the Board, is perhaps ideally suited to take BP to its next challenge: the first super-major to become an investment vehicle which is both green and can guarantee shareholders a handsome return on investment.
Lund is a veteran of oil and gas politics, having served as Equinor’s CEO for 10 years, and CEO of British Gas before it was taken over by Shell. As Board Chairman of BP, he is chartering BP’s green future. Not only has he overseen the company’s transformation to becoming greener, he is in the process building an investment structure, which now requires only a few skilled accountants. The company has either sacked employees or will be delegating BP’s headcount to its joint ventures. The goal is becoming lean and mean, reducing costs and hopefully increasing margins. What to
date has happened?
What BP Promised
In 2020, BP painted a glowing portrait for its shareholders of how it would reach the promised green land:• An underlying EBIDA (Earnings before interest, depreciation and amortization) of between 5% – 6% per year through to 2025 with returns in the range of 12% – 14% in 2025 – up from around 9% today.• After allowing for the impact of divestments, and reflecting the expected share buyback commitment, EBIDA per share is expected to grow by 7%- 9% per year through to 2025.• From 2025 onwards, when its low carbon projects start to kick in, expect growth of between 12%- 14% to be maintained.• BP has announced it wants to reduce its oil production by 2030 by 40%. • According to BP, its $25Billion divestment will provide the basis for up-scaling its low-carbon business. A pipeline of 25 oil and gas projects, and additional 18 projects in the pipeline are also key
factors.• BP also announced that it would be spending $5Billion per year to green itself and
by 2030 will have 50GW of net regenerating capacity. To date the company has a planned pipeline of 20GW of green generating capacity.
To date, BP has taken the following green steps:
BP and Ørsted announced that they will jointly develop a full-scale green hydrogen project at BP’s Lingen refinery in Germany. The two firms intend to build an initial 50MW electrolyser and associated infrastructure, which will be powered by renewable energy generated by an Ørsted offshore wind farm in the North Sea and the hydrogen produced will be used in the refinery.
BP and Equinor revealed that BP would become a 50% partner, of the non-operated assets Empire Wind(Offshore New York State) and Beacon Wind (Offshore Massachusetts). BP and Equinor will jointly develop four assets in two existing offshore wind leases located offshore New York and Massachusetts that together have the potential to generate power for more than two million homes. BP is to pay Equinor $1.1 billion for interests in the existing US offshore developments and to form astrategic partnership to pursue other offshore opportunities together in the fast-growing US market.
Most recently, BP joined Statkraft and Aker Offshore Wind in a consortium bidding to develop offshore wind energy in Norway. The partnership – in which BP, Statkraft and Aker Offshore Wind will each hold a 33.3% share – will pursue a bid to develop offshore wind power in the Sørlige Nordsjø II (SN2) licence area. According to the consortium SN2’s favourable location provides power export access to local and adjacent markets. The consortium also intends to explore opportunities to provide clean power to electrify offshore oil and gas facilities.
BP is to purchase 9GW of solar development projects in the US from independent US solar developer 7X Energy. The acquisition represents a significant step towards developing its net renewable generating capacity to 20GW by 2025 and to 50GW by 2030.
Finally, BP and ENI have stated that they will be merging their assets in Angola into a joint venture, possibly with a view to also bringing in other African assets. This could include:
Algeria, where BP has helped to deliver two major gas developments at Salah Gas and In Amenas, both of which are joint ventures with Sonatrach and Equinor.
BP currently produces, with its partners, close to 60% of Egypt’s gas production through the joint ventures the Pharaonic Petroleum Company (PhPC) and Petrobel (IEOC JV) in the East Nile Delta as well as through BP’s operated West Nile Delta fields.
In Mauritania and Senegal, BP and its partners are developing the Greater Tortue Ahmeyim gas field with a 30-year production potential. The field has an estimated 15Trillion cubic feet of gas and is forecast to be a significant source of domestic energy and revenue.
What will happen to BP’s 20% share in Russia’s Rosneft which comprises three oil and gas joint ventures? Maintaining a presence in Russia could be very strategic, given the country’s oil and gas assets and the fact that a green strategy is still waiting to be discovered.
The New Energy Players
The speed with which BP has unveiled its strategy indicates that it wants a seat at the green table,occupied by the new energy elite-Engie, Enel, E-on,Iberdrola, Ørsted, RWE, and Vattenfall- who have pole positions in determining the direction of the global renewables market. Is BP’s $5Billion per year investment to green itself and its goal of 50GW net regenerating capacity by 2030 enough to warrant it a place at the green poker table? Perhaps a starting position, but hardly enough to be classified a heavy-weight, green poker player! Consider the competition:• Engie: in 2021 will spend €11-12Billion on investments across a broad swath of sectors including solar, wind (on and offshore), hydro plants, biogas, and developing gas and power lines, and will have 33GW of global renewable installed capacity by 2021.• Enel:strategic plan outlines total investments of €190Billion by 2030 and tripling renewable capacity to 145GW. • Ørsted: by 2030 will have installed capacity of 50 GW. • Iberdrola: in the period 2020-2025, will be spending €75Billion on renewable energy and has a pending target of 95GW of installed wind capacity.• RWE: by 2022 RWE will have 28.7 GW of installed wind and solar capacity.• Vattenfall: In the Nordic countries Vattenfall has low emissions with practically 100% of the electricity produced based on renewable hydro-power and low-emitting nuclear energy.
Then there is the paradigm that BP and the other majors have to face: an oil company becoming an energy company. The oil company strategy: high risk = high returns being replaced by high risk= low/no returns.
New energy companies by contrast- Engie, Enel, Iberdrola, Ørsted, RWE and Vattenfall- all are low risk: their dividends are competitive with the oil majors. Iberdrola has a 5% dividend planned for 2021, and Enel paid 5.15% in 2020, and Engie 4.77% in 2019. Their stock prices are steady and positive. Their green strategy has been delivered, in place and accepted by the investor community.
It should not be surprising that the investor community is wondering how a transformed BP can become an energy company promising to deliver results that other energy companies can only dream about: an EBIDA per share of between 7%- 9% per year through to 2025 and from 2025 onwards when low carbon projects start to kick in growth of between 12%- 14%.
Answers may start to appear more quickly than we realize.
Charles Donovan, Director of the Centre for Climate Finance and Investment at Imperial Collegeand lead author of a recent study released by Imperial College and the IEA (International Energy Agency) found that renewable energy investments are delivering massively better returns than fossil fuels. The study(May 2020) analyzed stock market data to determine the rate of return on energy investments over a five-and 10-year period.
Renewables investments in Germany and France yielded returns of 178.2% over a five year period, compared with -20.7% for fossil fuel investments. In the UK, also over five years, investments in green energy generated returns of 75.4% compared to just 8.8% for fossil fuels. In the US renewables yielded 200.3% returns versus 97.2% for fossil fuels.
Green energy stocks were also less volatile across the board than fossil fuels, with such portfolios holding up well during the turmoil caused by the pandemic, while oil and gas collapsed. Yet in the US which provided the largest data set, the average market cap in the green energy portfolio analyzed came to less than a quarter of the average market cap for the fossil fuel portfolio—$9.89Billion for the hydrocarbons versus $2.42Billion for renewables.
Speaking to Forbes.com, Donovan said “The conventional wisdom says that investing in fossil fuels is more profitable than investing in renewable power. The conventional wisdom is wrong.”
Conclusions
That BP has taken the step of becoming an investment vehicle is a bold and radical step and could create a number of exciting investments. BP’s strategy is in place. Now the implementation.
The various joint ventures could provide new possible investment options, given the decentralized decision-making and shorter lines of communication.
BP’s strategy is one being developed and watched by the other majors. How long can the other majors including ENI, Equinor, Shell, and TOTALEnergies continue to balance the various investment balls in the air, hoping to fund both their exploration and development assets and their renewables? This can continue for a short time but ultimately more strategic decisions have to be made. More crossovers between the oil majors and the new energy players. Also, more mergers downstream. In short, a total revamp of the energy value chain.
The oil majors have helped propagate their own myth that fossil fuels yields are indeed better than renewables. With BP proclaiming it is now an energy company the company may have a lot of explaining to do to convince its shareholders that their return on investment and their golden dividend can be guaranteed.
Is not BP’s strategy to become a partner with Equinor in its US offshore wind projects, and their decision to partner with Ørsted at BP’s Lingen refinery in Germany to produce hydrogen the most visible evidence that the energy value chain is starting to produce new alliances?
In Africa, the BP-ENI joint venture could set off a series of mergers and acquisitions among the other majors and national oil companies. Perhaps with a new strategy in place renewable energy in Africa headed by the majors may become a serious part of the mix.
Finally, do not be surprised that the BP’s Net Zero Scenario of reducing fossil fuels to 20% of today’s share of primary energy by 2050 becomes a reality. The urgency of the task ahead is virtually a guarantee that this BP scenario will happen sooner rather than later. 2030 and not 2050 could become BP’s new deadline to become CO2 neutral.
Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise. He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia, and throughout Europe. Kreeft has Dutch and Canadian citizenship and resides in the Netherlands. He writes on a regular basis for Africa Oil + Gas Report.
The International Finance Corporation (IFC), is providing $20Million in financing for Daystar Power’s expansion project in Nigeria. The company installs solar hybrid systems for commercial and industrial customers.
Half of the money is a loan from the IFC-Canada Renewable Energy for Africa Programme. The other $10Million of the funding is being provided as a local currency (naira) loan directly by the IFC.
Lagos-based Daystar Power installs hybrid solar systems for commercial and industrial customers. These installations allow companies to have electricity, despite load shedding. These small hybrid solar power plants also allow its beneficiaries to reduce their dependence on generators, which are often the only alternative to the instability of Nigeria’s national power grid.
With this particular funding, Daystar says of the $20Million, “we are gaining more than just capital. IFC brings a deep understanding of renewable energy projects and project financing in emerging markets,” says Jasper Graf von Hardenberg, CEO and co-founder of Daystar Power.
In January 2021, Daystar Power raised $38Million from the French fund STOA Infra & Energy, Proparco, the subsidiary of the French Development Agency (AFD) group, and the American bank Morgan Stanley. The solar hybrid system provider also received $4Million from the German Investment Corporation (DEG) for its Ghanaian subsidiary. In all, Daystar Power has raised $62 million since the beginning of the year for its expansion in sub-Saharan Africa.
Italian explorer ENI has signed an agreement with the Egyptian Electricity Holding Company (EEHC) and the Egyptian Natural Gas Holding Company (EGAS) to assess the technical and commercial feasibility of projects for the production of hydrogen in the country.
The parties will conduct a study into joint projects to produce green hydrogen, using electricity generated from renewables, and blue hydrogen, through the storage of CO2 in depleted natural gas fields.
The study will also analyze the potential local market consumption of hydrogen and export opportunities. In addition, possible development and business schemes will be evaluated to implement the selected projects.
The agreement is “part of the path that ENI has undertaken to reach the target of eliminating Scopes 1, 2 and 3 net emissions (Net GHG Lifecycle Emissions) and cancelling out the relative emission intensity (Net Carbon Intensity) by 2050, referring to the entire life cycle of the energy products sold”, the company says in a release. “It comes in the framework of Egypt’s strategy for energy transition, diversifying energy mix and developing hydrogen projects in cooperation with major international companies.
ENI is the largest hydrocarbon producer n Egypt. It has been present in the country since 1954 and operates through the subsidiary IEOC Production.
The biggest developers of renewable energy projects in Africa are names that were rank unknowns 15 years ago.
But since 2011, companies like ACWA, Scatec, Lekela Power, ENEL, Biotherm, ib vogt, ENGIE, and Siemens Gamesa have become associated with the continent’s largest wind farms, solar photovoltaic plants and concentrated solar power projects.
Africa is host to hundreds of off-grid renewable energy facility under construction, but this article will highlight only those companies involved in relatively large on-grid projects, in particular, those who have been involved in solar or wind projects in excess of 75MW capacity.
Scatec, a Norwegian company claims to have the largest solar energy capacity in Africa (400 MW in Egypt, over 300 MW in South Africa, 40 MW in Mozambique, 300 MW under construction in Tunisia).
But you have to consider the impressive resume of ACWA, the Saudi owned developer which came to international prominence in 2012, when it was announced in both Morocco and South Africa as preferred bidder in a key solar project in each country.
In Morocco, ACWA was granted the Build, Operate and Own (BOO) contract for the 160 MW NOORo I Concentrated Solar Power Plant, the first of several Independent Power Plants (IPP) projects planned by the Moroccan Agency for Solar Energy (MASEN) at the Ouarzazate Solar Complex. It was commissioned in 2016 and 73.1% owned by the company. In South Africa, ACWA won the bid to construct the 50MW Bokpoort CSP Independent Power Project, located in the Northern Cape Province. In 2014, ACWA acquired a controlling stake in the Khalladi 120 MW Wind Farm in Morocco, an Independent Power Project IPP that had been developed by UPC Renewables. In 2018, ACWA completed the installation of the 200 MW NOORo II CSP Project, developed as the second project for MASEN in the series of planned developments at the Ouarzazate Solar Complex, a 500 MW solar park incorporating several utility-scale solar power plants using various solar technologies. ACWA has since completed NOORo III CSP , the 150 MW capacity third solar facility on the Quarzite complex.
Lekela Power, created by the British owned investor Actis, developed the 250MW West Bakr Wind Farm, a BOO project located in the Gulf of Suez in Egypt. The company also developed the 158MW Wind Farm, Taiba N’Diaye, Senegal’s first utility-scale wind farm. Commissioned on the last day of July 2020, the initial phase of the project is pumping 55 megawatts (MW) of renewable energy into the national grid. When fully completed this year, the Wind Farm will provide 158 MW of electricity to Senegal’s grid, or 15% of the country’s generation capacity. As an added bonus, Lekela plans to invest up to $20Million in community development efforts over the wind farm’s projected 20-year lifespan, which will be a big boost for those living near the project site. Lekela had earlier delivered the 140MW Loeriesfontein 2 in the Hantam Municipality in South Africa’s Northern Cape in 2015; commissioned the 80MW Noupoort Wind Farm in the same country in 2016 and completed the Khobab Wind Farm in December 2017, also in South Africa. These projects were contracted under the Renewable Energy Independent Power Producer Procurement Programme (REIPP). In the last three years, Lekela has also completed the 110 MW Perdekraal East Wind Farm in South Africa’s Western Cape and the 140MW Kangnas Wind Farm in the Nama Khoi Local Municipality in the country’s Northern Cape.
South Africa has proven to be both the breeding ground of startup renewable energy firms and the playground of large, multinational developers. The ENEL group, an outgrowth of the Italian energy utility, operates in the renewable energy space as ENELGREEN POWER (EGP). The company says that the commencement, online, of the Nxuba Wind Farm, in December 2020, brought its total operational projects in South Africa to eight, with an overall installed capacity of more than 650 MW.
ENEL is developing the Karusa and Soetwater Wind Farms, each with an installed capacity of 140MW, in the Karoo Hoogland District, Northern Cape province, to be completed by the end of 2021. The company’s other completed projects include the 88 MW Nojoli Wind Power plant in the Eastern Cape province (2016) and the 111 MW Gibson Bay Wind Farm also in the Eastern Cape. ENEL has constructed the 82.5 MW Pulida solar power plant in the Free State, the 66 MW Tom Burke Solar Power plant in Limpopo, and the 82.5 MW Paleishuewel Solar Plant in the Western Cape. EGP has announced a joint-venture partnership with the Qatar Investment Authority (QIA) aimed at financing, building and operating renewable energy projects in sub-Saharan Africa. In a first phase, QIA will acquire 50% of EGP’s stake in 800MW of projects in operation and under construction in South Africa and Zambia. ENEL said the JV would combine its industrial expertise with QIA’s long-term investment strategy, in line with the two companies’ sustainability and decarbonisation targets.
ENGIE, formed 13 years ago through the merger of Gaz de France and Suez, is credited with construction and operation of Africa’s largest wind farm to date: the 300MW Tarfaya Wind Farm in Morocco. ENGIE commissioned the 100MW Kathu Concentrated Solar Power (CSP) project, in South Africa’s Northern Cape Province on January 30, 2019. The ENGIE /Toyota Tusho/Orascom partnership developed the 262.5 MW Ras Ghareb Wind Farm project near the Gulf of Suez in Egypt, in December 2019. It is the country’s first project in wind energy to operationalize the Build-Own-Operate (BOO) model.
In Tunisia in 2020, ENGIE and (local operator) Nareva were jointly awarded a 120MW solar independent power producer (IPP) project. The Gafsa plant, a solar PV facility, will supply power to more than 100,000 homes in that North African country. In Senegal, ENGIE is starting construction of two 30 MW solar PV projects. The company has also signed an agreement with the government of Djibouti to build a 30 MW solar PV project there in partnership with Électricité de Djibouti.
BioTherm Energy developed the 117.2 MW Golden Valley Wind Farm, commissioned in June 2019, in the Amathole Municipality in South Africa’s Eastern Cape province. In January 2021, the company finished constructing 100MW Kipeto Wind Farm in Kenya. Biotherm Energy was established in 2003 and in 2008, was supported with $150Million by the private equity firm Denham Capital. At the time it was the largest renewable energy investment ever made in Africa. BioTherm has its sights on projects in 10 countries in Africa.
ib vogt and Infinity Solar inaugurated the first part of the 1,500MW Benban solar complex in Aswan Governorate, Egypt, on 13 March 2018. With an output of 64.1MWp, it is also the country’s first large-scale photovoltaic power plant. At the end of January 2019, ib vogt commenced construction of a portfolio of three additional solar power plants with a total capacity of 166.5MW. The 37 square kilometre Benban Solar Park in Egypt’s Western Desert, was completed in 2019 and composed of 32 individual plants, each producing 20-50 MW, with financing provided by the European Bank for Reconstruction and Development (EBRD), the International Finance Corporation (IFC), and other international financial institutions.
African Infrastructure Investment Managers (AIIM) developed the 139MW Cookhouse Wind Farm in South Africa’s Eastern Cape Province. Commissioned in December 2014, it was the first project in the first round of the South Africa”s REIPP. AIIM thereafter acquired, in 2018, majority stakes in nine renewable energy projects that were proposed to contribute 800 MW to the national grid. Through its IDEAS Managed Fund, AIIM acquired a 50.1 percent stake in each of the following solar and wind projects: Bokamoso – 67.9MW, Waterloo – 75MW, Droogfontein II – 75MW, Zeerust – 75MW, Greefspan II – 55MW, De Wiltd – 50 MW, Roggeveld – 147MW, Perdekraal – 110MW, Kangas – 140MW
Siemens Gamesa, currently constructing a 100MW Wind Farm in Ethiopia, is intent on expanding its leadership across Africa, and in turn help a growing transition to green energy across the continent, the company says. The German firm says it is extremely pleased to work in Ethiopia, collaborating with the Ethiopian Electric Power, the country’s power utility and “to promote their drive to install more renewables and meet transformational energy targets.” Siemens Gamesa did not construct the 110MW Perdekraal East and 140 MW Kangnas wind farms in South Africa, but it will run and maintain them.
Abengoa Solar International, a Spanish energy developer has, between 2015 and 2019, commissioned three 100MW solar power plants each on three locations in South Africa. The 100MW Kaxu Solar One (concentrated solar power (CSP)) Plant was commissioned in February 2015; the 100MW Khi Solar One was commissioned in March 2016 and the Xina Solar One was commissioned in August 2017. Although they are each jointly owned with other partners, they were all developed and constructed and now operated and maintained by Abengoa Solar International.
Mainstream Renewable doesn’t own any renewable plant in Africa. But it has constructed sizeable plants for “owners” like Lekela. The 110MW Perdekraal East and 140 MW Kangnas wind farms in South Africa were constructed for the Lekela consortium by Mainstream Renewable. Siemens Gamesa supplied the technology and it is running and maintaining the plants.
Solar Reserve commissioned a 75MW Jasper Solar Plant in South Africa’s Northern Cape province in 2014. Rainmaker Energy commissioned the 100MW Dorper Wind Farm in 2014. Acciona Energia commissioned the 138MW Gouda Wind Farm in the Western Cape Province of South Africa in 2015. The company operates and maintains the plant. Cennergi commissioned the 134MW Amakhala Emoyeni Wind Farm project in June 2016. The plant is 95% owned by Cennergi. Mulilo commissioned a 75MW Solar pl Plant in Copperton, South Africa’s Northern Cape Province in 2016. The Longyuan Mulilo consortium commissioned the 96.48 MW De Aar and the 138.96 MW De Aar 2 North wind projects in November 2017. Emvelo co-developed, with IDCSA the 100MW Karoshoek power plant, 30 km east of Upington. In the Northern Cape Province, commissioned in November 2018.
There you have it, the lead developers of renewable energy projects on the continent.
United Kingdom-based Globeleq has commenced construction on the 19MWp/15MWac Cuamba Solar PV plant with 2MW/7MWh battery storage in the Tetereane district of Cuamba, Niassa province, Mozambique.
Source Capital, the private equity firm is involved in the $32Million project. So is the Electricidade de Moçambique (EdM). The project is aimed at bolstering the country’s northern grid, including upgrading the existing Cuamba substation.
Cuamba will be the first independent power producer in Mozambique to use energy storage.
Power will be sold through a 25-year power purchase agreement signed with EdM in September 2020.
The project is being strongly backed by the Private Infrastructure Development Group (PIDG)’s Emerging Africa Infrastructure Fund, which is looking to provide $19Million debt and the project will also receive a $7Million viability gap funding grant from PIDG and a $1Million grant from CDC Plus to reduce the tariff and finance the storage system.
Spain’s TSK is the engineering, procurement and construction contractor. Globeleq will oversee construction and operations of the plant.
Centamin has awarded juwi and Giza Systems the contract to construct the world’s largest solar hybrid project at an off-grid mine for the Sukari Gold Mine in Egypt.
The 36 MW solar farm and a 7.5 MW battery-energy storage system will tangibly reduce CO2 emissions of existing diesel power station. It will also reduce the cost of power, juwi says in a release.
The total project Capital Expense is $37Million but it will lead to between $9-13Million annual savings in diesel cost, Centamin says in a briefing.
juwi is a German renewables energy developer. Giza systems is an Egyptian civil works contractor.
The solar system designed by juwi will maximise generation with bifacial solar PV modules and a single axis tracking system, taking advantage of the high irradiance at site, the developer explains. Juwi Hybrid IQ micro-grid technology will enable the integration of the solar and battery system into the existing off-grid network and support the operation of the existing power station.
The benefits of the hybrid power solution at Sukari include:
• Reducing diesel consumption by an estimated 22Millionlitres-e per year;
• Lowering carbon emissions by an estimated 60,000 tCO2-e per every year;
• Reduction of all in sustaining costs;
• Reduced exposure to fuel price volatility;
• Increased reliability of the power system.
“The mining industry accounts for 10% of the global energy consumption and many minerals play a vital role for the energy transition. We are glad to support the resource industry on their de-carbonisation pathway with our dependable solar, wind and battery solutions”, juwi adds,
Lekela Power, the independent power producer (IPP), has selected DNV to carry out the feasibility study for its electricity storage project at the Taiba N’Diaye wind farm in Senegal.
DNV has six months to deliver on the study, as Lekela plans to start construction of the electricity storage system in 2022. The Taiba N’Diaye wind farm, which was also developed by Lekela, started feeding electricity into the Senelec grid in 2020. The facility consists of 46 wind turbines capable of delivering 158.7 MW of power. The wind farm contributes 15% of the electricity produced in Senegal.
Lekela is a joint venture between UK investment fund Actis and Mainstream Renewable Power. DNV, a Norwegian firm, will also provide risk management and insurance expertise, supported by a grant from the US Trade and Development Agency (USTDA). DNV will “help develop the technical specifications of the battery storage system to ensure a successful technical solution that will provide services to the grid during its operational life of up to 20 years”, Lekela says in a statement. DNV will also be involved in negotiating the power purchase agreement (PPA) for the storage system between the Senegalese national electricity company (Senelec) and Lekela. This will be the first PPA for storage in Senegal, and potentially in West Africa.
Pending the results of the study, Lekela plans to build a system capable of storing 40 MW of power. The batteries will be housed in 45 40-foot (21 m) shipping containers. These containers will be stored next to the wind farm. The storage system will provide 175 MWh of electricity, enough to stabilisethe national grid.
The oil industry’s major companies are playing a key role in new energy investment around the world.
Anglo Dutch Shell, United States’ Exxon Mobil and Chevron, the UK’s BP, France’s TOTALEnergies,
Italy’s ENI and Norway’s Equinor are all prioritizing their investments in various technologies in the energy mix, even as they reel from the results of hydrocarbon demand destruction wrought by the COVID-19 pandemic.
The majors will construct huge wind farms offshore Europe, install thousands of solar powered turbines in Asia and the Middle east and establish more Biofuel refineries in the Americas, but they won’t do more than a little of these in Africa.
The neglect of investments in renewables in Africa has as much to do with the unwillingness of these large, transnational corporations to get into non-extractive projects whose deliverables are purchased in local currency at the retail-level, as it is to do with the low expectations, minuscule ambitions and little mindedness of the ruling elite on the continent.
The notion that a company like TOTAL, now renamed TOTALEnergies, which is leading in new investments in fossil fuels development in Africa, will also turbocharge its investment in Africa’s Energy Transition, is way over extended.
True, TOTALEnergies is the only oil major which has competed, albeit in an indirect way, in a bid round for renewable energy projects anywhere in Africa. In 2013, its affiliate, the NASDAQ listed SunPower, was selected as the preferred bidder for an 75Megawatt-peak (MWp) ground-mounted solar power project by South Africa’s Department of Energy (DoE). TOTALEnergies owns 27% of the project, along with five partners, while SunPower waschosen to provide Engineering, Procurement, Construction (EPC) services and long-term Operation and Maintenance for the plant, located in Prieska, in the province of Northern Cape. SunPower has also installed two photovoltaic power plants, totaling 33MW, near Douglas, also in the Northern Cape. TOTALEnergies itself is a partner in decentralized rural electrification programmes through Kukhanya Energy Services (KES) in the KwaZulu Natal province. Impressive as they sound, these projects are far shy of 150MW in total capacity and TOTAL’s equity in them is even far less. Plus: SunPower is not exactly a subsidiary of TOTALEnergies. However, SunPower’s contribution in South Africa is significant: it runs a solar manufacturing plant in the country, producing up to 160 megawatts solar panels per year.
As European majors go, ENI compares with TOTALEnergies as a keen explorer and producer of hydrocarbon in Africa’s frontier, but it is hardly excited about investing in future energy in this region.
In January 2021, ENI launched, with fanfare, the installation of a 14 KW solar system in some medical facility in Angola, with the company saying that it “aims to promote renewable energies”. Two months later it inaugurated construction work on a 50 MW photovoltaic plant in the South of Kazakhstan. ENI produces around 100,000BOPD (net) in Angola and its output is trending upwards, as it makes new discoveries; in Kazakhstan, it delivers 111,000BOPD.
ENI’s Egyptian production trounces its Kazakhstan output, but the Italian player has not featured in Egypt’s relatively aggressive Renewable Energy plan.
Meanwhile, the 50MW Solar plant in Kazakhstan is an add-on to a 48MW windfarm the company has constructed elsewhere in that country.
BP IS WRAPPING UP FROM SUB-SAHARAN AFRICA: it is looking to divest from Angola, from which it has extracted over a Billion barrels of oil in the last 20 years. BP operates around 140,000Barrels of Oil Per Day production on Blocks 18 and 31, where it holds 50% and 26.6% equity respectively. It also has stakes in the TOTALEnergies operated Block 17, and ExxonMobil operated Block 15, the two largest crude oil producers in Angola. The company is leaving Angola because it does not fit into its immediate fossil fuel future, which is focused on natural gas. The British major, however, expects to build its home country’s largest Clean Hydrogen Facility: a 1,000MW ‘blue’ hydrogen project. Its investment in low-carbon projects will jump to $3Billion by 2025 and $5Billion by 2030, with major investments planned in bioenergy, hydrogen and carbon capture and storage. BP excludes Africa from all its renewable energy plans, including the proposal to start ‘advising cities on ‘power packages’ with renewables, back-up batteries and financing’ and increase electric vehicle recharging stations by almost tenfold at its retail gas stations from current level of 7,500 to 70,000.
Equinor extracts 120,000Barrels of oil equivalent every day from the Atlantic Ocean on the edge of Angola, down from a peak of over 240,000BOEPD ten years ago. When asked if the country would be part of the company’s renewables portfolio, Nina Koch, Equinor’s CEO in Angola, recently said it all depends on the available concessions. “Whether there is a market for wind, solar and so on we have yet to see. If the government is putting forward concessions for offshore wind farms, for instance, we would definitely be interested in looking into that”. And then the clarity, she allowed: “For the time being, we don’t have any concrete plans for renewables in Angola”.
We have to cut Equinor some slack here. It holds 15% of the total shares of Scatec, a leading Renewable Energy provider in Africa.
Chevron’s focus is not so much about investing in stand alone renewable energy projects, but in increasing renewable power in support of its business to lower its carbon intensity.
The Norwegian energy research company Rystad, told the investment community, in September 2020, that oil and gas majors are actively pruning their oil and gas assets, stating: “The world’s largest oil and gas firms could sell or swap oil and gas assets of more than $100Billion in order to adjust and transform to cleaner sources of energy”.
I can vouch that over 10% of that $100Billion will be cashed out of African portfolios. Shell, for one, will likely take over $7.5Billion out of Nigeria between 2021 and 2025. Shell has funded some offgrid projects through solar power developers in Nigeria, a country that almost represents the sum of all of Shell’s presence in Africa. But the scale of these renewable power interventions is minuscule. To put it in context, Nigeria itself does not have up to 50MW of solar and wind power capacity.
Oil majors are funding clean energy from the balance sheet of dirty fuel. As I was concluding this article, TOTALEnergies tweeted on April 9, 2021: “We’re using oil production to help finance the #energytransition and achieve our ambition to reach carbon neutrality by 2050, a point stressed by our Chairman & CEO @PPouyanne”. Around 30% of TOTAL Energies’ production is in Africa, but less than 0.5% of its new energy investment will directly benefit the continent. And yet, from all analysis, TOTALEnergies is the best African renewable energy investor out of the six oil majors.
How David the small shepherd boy killed the giant Goliath is an apt metaphor to explain how Africa can muster its position in the global energy transition. The giants of the energy transition-China, Europe, USA-are ready, willing and eager to explain how Africa must act and what Africa should do. Africa is more timid.
In our narrative, the symbolic David is best represented by Carlos Amaral, General Manager of ACREP, a small independent Angolan oil producer. Amaral, no stranger to controversy, has been at ACREP’s helm for 17 years, steering it through the various boom and bust periods.
ACREP has to date carried out 17 exploration wells, costing $150Million, and discovered 7 fields but has only put one in production. By 2024 the company will produce around 7 000 Barrels of Oil Per Day (BOPD).
Recently he talked at length to The Energy Year about how the industry in Angola and possibly how Africa can evolve. In the next 5-6 years Amaral predicts oil production in Angola will plateau at around 1.2 -1.3MMBOPD. Given that a field’s production will decline about 10-12% per year, you would require an additional production of 120 000BOPD to maintain the current status.
Because of low oil prices, the economy and a low level of international oil consumption, no one is going to do any exploration and new production is not expected before 2025. Amaral is in favour of maintaining a lower level of production- 900, 000BOPD -1MMBOPD- to try and take advantage of the oil price and not emptying the reservoir.
According to Amaral “There is no better deal than coming into Angola, investing in a small player like ACREP and making good money. It is good, clean money based on low risk and solid management.”
The voice of Amaral’s ACREP is not an exception and many Davids are present throughout Africa. Many are active in the oil and gas sector. Yet will their voices be heard in the energy transition? Will their voices be seen as a prelude to proclaiming their oil and gas resources as stranded assets? Which help if any can they anticipate?
Oil and Gas in Terminal Decline
The terminal decline of the oil and gas sector was officially recently announced on 18 May 2021 by the International Energy Agency (IEA). Its net zero emissions goal for 2050 means no new oil and gas fields beyond 2050. Simply put, more fossil fuels are entirely inconsistent with reduced emissions. It can be argued that the IEA’s mandate is to monitor and report on energy transition issues, not to initiate and be the lead on such issues. But the die has been cast and the verdict has been declared.
The IEA may have been voicing publicly what was being discussed in the corporate boardrooms of Asia, Europe and the USA and the international agencies such as the International Energy Agency(IEA), World Bank, IMF, and the regional development banks. Yet was the voice of Africa listened to? After all emission levels in Sub-Sahara’s two major petro-economies- Nigeria with .73% and Angola with.25% – are negligible when compared to China’s 28% and the USA’s 15%.
Of course Africa is not indifferent or unaware of the Paris Agreement and its consequences. How well is Africa prepared to be CO2 free by
2050? What contribution can be anticipated from Africa’s oil and gas sector? Should Africa be given dispensation and consequently more time to rid itself of CO2 emissions beyond 2050? Would awarding CO2 dispensation to Africa- in short delegating this to Sub-Sahara Africa’s two major national oil companies- Nigerian National Petroleum Corporation(NNPC) and Sonangol, Angola- be an award for legitimizing incompetence?
NNPC’s operating subsidiary, NPDC(Nigerian Petroleum Development Corporation) has in Africa Oil + Gas Report been referred to as “a massive, incompetent wrecking ball”. NPDC is seen as a bright star within the NNPC’s portfolio. Why? Only because the degree of its performance is in direct proportion with the help it gets from its partnership with private entities.
Sonangol Angola’s state oil company is now only a shadow of what it once was. It has now been stripped of its two key roles: as concessionaire which was a highly judicious key role giving it monopoly power and legitimacy it had achieved and as state oil company with its monopoly responsibilities for exploration and development of oil and gas resources.
In the Angola of today power has become diffused: Sonangol has been stripped of its concessionaire role and is loaded with a mountain of debt; and the IOCs have the freedom to explore and market their natural gas. Developing green energy is certainly beyond the core competence of Sonangol.
If NNPC and Sonangol are perceived of not having their own house(s) in order how can they be expected to be leaders in the Energy Transition? Does it make any sense to give the same driver, who drove the initial bus off the cliff, keys to drive the new bus?
Juggling and Counterbalancing the Assets
In the current low carbon environment, the IOCs (international oil companies) are constantly juggling their portfolios in order to maintain profitability and low carbon emissions. They have no hesitation in abandoning assets which do not meet investor grade. Leaving their national oil company partners scrambling.
Back in September 2020 Rystad, the Norwegian energy research company reminded the investment community that the oil and gas majors are actively pruning their oil and gas assets stating: “The world’s largest oil and gas firms could sell or swap oil and gas assets of more than $100 billion in order to adjust and transform to cleaner sources of energy”.
The Rystad Energy Study, covers a wide geographical spread and includes ExxonMobil, BP, Shell, TOTAL, ENI, Chevron, ConocoPhillips, and Equinor. The eight companies may need to divest combined resources of up to 68 billion boe, with an estimated value of $111 billion and spending commitments in 2021 totalling $20 billion.
The key criteria for determining whether a major oil company would benefit from staying in a country are the company’s cash flow over the next five years, the potential growth in its current portfolio, and its presence in key E&P growth countries towards 2030. Based on this, Rystad claims that majors may seek to exit about 203 varied country positions and, as a result, reduce their number of country positions from 293 to 90.
The latest sign of things to come is a possible merger of activities between BP and ENI in Angola and possibly other regions. A precedent for the BP and Eni merger talks in Angola finds its roots in Norway. In 2018 Vår Energi was created through a merger between HitecVision’s Point Resources and ENI Norge.
With a hurried exit and downsizing of the oil majors in Africa, private and state African oil and gas companies should look to investment vehicles such as HitecVision which can help fill the impending vaccum.
The need for more outside players is very apparent. With the vacated space left by the majors there is room for innovative and indigenous players who can put together deals. Much like what has happened in the North Sea. The majors- including BP and Shell- selling key assets that were bought up by smaller companies who saw new investment opportunities.
Do not expect only oil and gas deals. More likely oil and gas deals with green strings attached which international investors are demanding. And why not? If the international community expects Africa to become green, Africa should leverage its economic muscle: act as an economic bloc and put together an energy roadmap demanding appropriate financial packages.
An energy roadmap must Involve both the private and public sectors. In particular helping the Davids of Africa to expand their businesses and create new opportunities. Certainly this is an avenue that would be welcomed by the IOCs. Private sector financing could prove to help the Davids of the private sectorand be a positive counterbalance to the national oil companies.
Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise. He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe. Kreeft has Dutch and Canadian citizenship and resides in the Netherlands. He writes on a regular basis for Africa Oil + Gas Report.
