Denham Fills Africa’s Energy Gap

Project risks and viability should be researched before African countries part with their money.
Published: Thu 07 Aug 2014

Africa’s energy projects are receiving investment but project development can be slow due to a number of factors like technology, lack of skills, finance from inception to operation, as well as environmental and social aspects. This is according to Scott Mackin, Co president, Denham Capital, who spoke to Engerati at the Africa Energy Forum.

Mackin points out that some energy sources are easier to roll-out than others. For instance, solar projects are carried out a lot quicker than wind and hydroelectric projects. Hydroelectric projects require a great deal of research and geotechnical work. There is also the social and environmental factors to consider before a hydroelectric project can go ahead. Mackin points out, “People go over budget all the time with hydro as you can’t know what is expected.”

Denham aims to fill the gap

There also seems to be a lack of finance from a project’s inception through to operation. Mackin explains, “There is not much knowledgeable capital that can take multiple projects from inception through to operation. Investors are generally more interested at the stage when finance is wrapped around a project. Even more interest will be shown when you get commercial operations off the ground. This is the gap that Denham wants to fill.”

Often, African countries are left without sufficient power whilst waiting for projects to be completed. This can sometimes be up to eight years (and more) for hydroelectric power projects.

Ghana, for instance, is in the process of increasing its gas supply. However, their credit rating is an issue for fuel supply. Billions of dollars have to be spent in order to obtain off-shore gas generation. Denham has asked the US to assist the country with finance. While the project is placed on hold, the country is still short of energy. To solve this issue, Denham brought in a floating storage recovery unit which is located close to shore. “LNG is a good temporary solution while they wait for off-shore gas supplies since it is cheaper than heavy fuel oil and diesel.”

The floating LNG storage unit solution now also provides a commercial framework for the built-in appetite for gas, explains Mackin. “This will help incentivize people to spend money to drill offshore. They now have a local off-taker therefore supply is assured. This solution provides the sector with a better framework of what the area’s economics are all about.”

Blocking Tackling Business

Mackin recommends that project developers and utilities should pace their dollars and spend as wisely as they can.

Bigger dollars should be spent on smaller risk projects and smaller dollars against bigger risks. He says, “Just because lenders loan you money, doesn’t mean you should carry out the project. It is a blocking tackling business and you therefore have to ensure each project’s viability.”