Access Power – Betting big
Once a maverick developer, Access Power now has a pipeline of about 1,500MW across Asia and Africa. Founder and chairman Reda El Chaar talks to Colin Leopold about the challenges of that come with maturity
Listening to 33-year old former ACWA Power executive Reda El Chaar talk about cowboys and big bets, you’d be forgiven for thinking he was describing a recent trip to Vegas.
Sure, Africa can be hot and unruly, but what does developing renewable energy projects in Uganda and Nigeria have in common with casinos and the Nevada desert? Well, quite a lot it seems.
El Chaar’s five-year old Access Power attaches great importance to being a first-mover and making multiple bets in what its website calls the world’s “frontier markets”. The strategy has seen it move a development pipeline of “barely 100MW” up to around 1,500MW, currently worth over US$1bn and stretching across Africa and Asia.
Placing bets in these markets has been a high-risk gambit, he says. “We try to balance the development risk with a very cost-effective structure,” he says on the phone in early December. “In emerging markets, they can swing in a different direction at any given time. If you only follow three instead of 20 [projects], you won’t win one.”
But of course, Access is playing more than just the numbers. Progress has been slow – these are frontier markets, after all – but in the three years since it began developing renewable energy projects the Dubai-based company has closed two deals in Egypt’s feed-in tariff programme, brought Uganda’s first solar plant into operation and can count oil major Total as an indirect shareholder through a partnership with Total Eren.
While the Egypt and Uganda investments could be described as “business as usual” for your average African power developer, the Eren arrangement is more noteworthy. Under the 2015 deal, Access and Eren agreed to create a portfolio of African power assets worth more than US$500m through the Access Infra Africa vehicle. Eren took a 20% stake in Access and placed Fabienne Demol, formerly of EDF, on the Access board, to sit alongside El Chaar and two managing directors, Stephane Bontemps and Vahid Fotuhi.
Eren has brought three things to the table so far, says El Chaar: a more global view, the ability to take more development bets and a solid technical partner. Has it affected the way Access does business?
“Initially, we were cowboys, passionate cowboys,” laughs El Chaar. “We were hiring out of passion and we wanted to build a team that was passionate, that was the founding block. The culture here has not changed because of Eren, the culture has changed because of us maturing.”
One example of that maturity is a corporate leadership programme, which has already resulted in hires from India, France and the US. They’ve joined a growing team. At the time of writing Access has five vacancies on its website and a seven-strong senior management team, a mixture of French, African and Indian. A second shareholder investment is also not being ruled out. El Chaar calls this the “logical next step” but will not be drawn on timing. Such a move may help with the next challenge faced by Access – scaling up.
The problem with Africa is scale, he says. “Unfortunately, taking South Africa and a few countries in North Africa out of the equation, scale is an issue in Africa because [here] there are smaller, fragmented markets. There is not one market that can offer you scale, unless Nigeria comes in strong and is able to reinvent itself. Beyond Nigeria, maybe Ethiopia, maybe Kenya, there is not much you can build on, and this is the reality in Africa,” El Chaar says.
The way around this, he says, has been to look at Africa as a block, rather than focus on individual countries, adding: “There is no way you can say ‘I am going to look at the pipeline in Uganda’. It’s not possible. We did 10MW there. The question is where do we go from there, another 10MW? I don’t know.”
The problem of deal origination across this block has been handled quite neatly through the Access Co-Development Facility (ACF) – a competition offering technical and financial support to chosen projects, now in its third year.
A first round received 55 applications in 2015. One of the two winners, a 50MW solar PV in Nigeria, signed a power purchase agreement (PPA) last year and is set to reach financial close in early 2018 – one of the first solar plants in the country.
Round two received 96 applications with three projects selected from Madagascar, Sierra Leone and Nigeria, worth a combined 100MW. Round three was held this year with winning projects in Tanzania, Ghana and Rwanda from 82 qualifications.
A similar competition, the “Solar Shark Tank”, was launched last year in partnership with Dutch development bank FMO for projects in Asia, Africa and Latin America. The winner receives a US$100,000 grant and pre-qualifies for the next ACF competition.
Along with a recently signed developer agreement with InfraCo Africa, the initiatives have vastly increased the number of bets on the table for Access.
“We’ve managed to increase our development pipeline significantly without having to invest a lot of money in origination trips and shoot up the learning curve by bringing on the local entrepreneurs that have been working on those projects for a very long time,” says El Chaar.
A focus on Central Asia has helped to balance the risk of a “swing” in one or more of Access’ African markets. There, it has 500MW of projects under development in eight countries, worth over US$350m.
“We are dealing now with Pakistan, Bangladesh, Armenia – those are all markets of scale, not to be compared to Africa,” El Chaar says. ”Those markets can offer replicability, and scalability, and then in Africa we can always look at markets that offer a better risk/return reward.”
Does that mean Africa will become less important for Access? Not in the foreseeable future, says El Chaar. The developer’s role there might change though. Since being launched in 2012, first as a consultant then a developer, renewable energy both in Africa and globally has been revolutionised by cheaper manufacturing costs and a tide of development money coming in from Europe and the US.
In previously untouchable markets, solar power competitions and standardised documentation have piqued the interest of the world’s largest developers. Access now faces considerable bid competition at tender stage. Does El Chaar worry?
“Competition has copied a lot of the techniques we have been using, which has given us some harder times, but it’s ‘innovate or die’, he says. ”We are moving on to the next thing. We are happy to see people copying us – it forces us to think about new ways, about different ways to deal with the business.”
In Zambia, Access is bidding on the second round of the World Bank’s Scaling Solar auction. A tariff of US$0.0602 per kWh, Africa’s lowest at the time, was awarded during the first round in 2016. The project, led by Neoen and First Solar, is yet to reach financial close at the time of writing but it’s being watched closely by El Chaar and his team.
He will not comment directly on the Scaling Solar programme, which has rankled some developers opposed to the IFC’s more subsidised approach to project development, but El Chaar does offer a general view on the role of development finance institutions.
“Development banks are maybe going in the wrong direction when they start taking over the role of developers,” he says. ”But I think many of them are realising this and have readjusted.”
Access’ readjustment, if there is one, concerns a more holistic approach to power project development. El Chaar talks about working with governments on grid capacity issues.
“That’s the reality in Africa now, you really need to be on both sides of the fence for you to able to move the project forward,” he says. “The challenge is how do we get those grids to be smarter, how do we build capacity to deal with intermittent resources to allow them to be able to procure the cheaper power which is renewable energy.”
Meanwhile, other challenges have not gone away – the debt market for one. “Banks are the most conservative element or ingredient to the dish,” El Chaar says. “Their being conservative is definitely the hardest bit getting the project off the ground and of course the moment you engage lenders, development costs balloon.”
The Access solution to this is timing. “Our approach has always been ‘we know what a bankable project should look like, we know what a bankable PPA or government support agreement should look like’ – so we were always going forward and negotiating those before we bring lenders on board,” he says. “And we only bring lenders on board as soon as the project is ready to be looked at from a bankability perspective, until everything is properly cooked.”
The company’s growing reputation in the market helps of course, but when it comes to raising debt, the process is the same whether it’s a 10MW project or a 400MW project, says El Chaar. Have relationships with his lenders improved in the past three years? Debt pricing has not come down, he says, ”but there’s an increase in the number of lenders willing to give us pricing”.
Lenders take note – Access’ first-mover instincts remain firmly in place, even on its latest projects. In Zambia, where it is developing the country’s first privately financed wind farm, El Chaar says that while everyone else was looking at solar power, Access was working on a 130MW wind farm concept, now with grant funding from USTDA.
“We had been educating the Zambians and they were like: ‘There is wind in Zambia!?’” he says, laughing. “‘Yes, it’s there,’ we said. It’s that approach – we don’t wait for people to come to us to tell us what they want. We go out there and be proactive.”
Access all areas
When asked what his most challenging project has been, El Chaar doesn’t discriminate, saying: “After every IPP I thought it was the most challenging and I was always proven wrong by the next one.” When pressed, he talks of delays in Egypt where two solar PV plants worth a combined 126MW are finally being built in the Benban solar park in Aswan province.
The European Bank for Reconstruction and Development and Proparco are together providing US$111.6m of senior debt. The developer’s first project to reach financial close followed a different model, under the GET-FiT facility, a subsidised tariff support scheme managed by Germany’s KfW in partnership with the government of Uganda. The US$19m project, 300km north-east of the capital Kampala, was financed in early 2016 with US$10.7m of debt provided by FMO, with the Emerging Africa Infrastructure Fund as an FMO B lender for half the loan amount on a tenor of just over 15 years.
Next up are Nigeria and Mali. In Nigeria, OPIC and EAIF were mandated this year to finance the 50MW, US$100m Abiba solar PV being developed by Access Infra Africa and Quaint Global Energy Solutions in Kaduna state. A PPA has been signed but issues with the government support documentation have delayed financial close for well over a year to-date – challenging indeed.