The UK and Norwegian development finance institutions say they will invest up to $300m between them in a venture with renewable energy developer Scatec to support hydropower projects across Africa
Norwegian development finance institution (DFI) Norfund has brought UK DFI British International Investment (BII) into its joint venture with renewable energy firm Scatec to develop African hydropower projects.
The DFIs say that “over the next several years”, BII will invest up to $200m of capital in the venture, while Norfund will make further capital commitments of up to $100m, in addition to its existing share.
Norfund took a 49% stake in Scatec’s African hydropower portfolio, after it sold SN Power, a hydropower company it helped to develop, to Oslo-based Scatec in January 2021. The Norwegian DFI will now hold that 49% stake jointly with BII.
Assets under development in the portfolio include the planned 205-megawatt Ruzizi III hydro plant in Rwanda, which would supply power to Burundi and the Democratic Republic of Congo as well as Rwanda, the 120MW Volobe hydro plant in Madagascar and the 350MW Mpatamanga project in Malawi.
DFIs are keen to invest in renewable energy projects to help developing countries meet Paris agreement climate change targets and support their own home countries’ net zero ambitions.
Hydropower is seen as an important part of the future energy mix, because it is virtually the only clean energy source (apart from nuclear power) that can provide large quantities of baseload power and also compliment intermittent renewable power from solar and wind energy to ensure uninterrupted power supply.
It is also a power source which is, in theory at least, abundant in Africa. On average, around 17% of Africa’s electricity generation already comes from hydropower, and in some countries, such as DRC, Ethiopia, Malawi, Mozambique, Uganda, and Zambia, hydropower accounts for more than 80% of generation, according to the International Energy Agency.
Hydropower pros and cons
But the sector is not without its problems. The impact of erratic rainfall or drought on water levels in reservoirs has curtailed generation from some African projects in recent years, disrupting electricity supply. This is a trend that could be exacerbated by changing climate patterns in the future.
A recent report led by the World Wildlife Fund found that 61% of all hydropower dams around the world will be in basins with very high or extreme risk for droughts, floods or both by 2050.
However, DFIs think that by investing in hydro projects in less drought-prone areas, they are providing an important path towards economic development in Africa, while limiting emissions growth. BII estimates that the clean energy provided by the Scatec venture’s new assets could avoid at least 270,000 tonnes of carbon dioxide equivalent (tCO2e) of GHG emissions annually, while producing power capable of meeting demand from the equivalent of 3 million people.
“Hydropower is critical for providing clean baseload and peaking power, especially in landlocked countries in Africa, as the continent countries transition away from fossil fuels towards a net zero future,” Chris Chijiutomi, head of infrastructure equity, Africa & Pakistan at BII, said on announcing the deal.
The Scatec venture expands collaboration in the African energy sector between Norfund and BII, who are already partners in the Globeleq independent power producer, in which BII has a 70% stake and the Norwegian DFI has a 30% stake. Globeleq says it has 13 power plants – both renewable and non-renewable – located in Tanzania, South Africa, Côte d’Ivoire, Cameroon and Kenya, with generating capacity of over 1.4 gigawatts between them. It also has 2GW of African projects in the development pipeline.
