Q&A: Roeland Menger, Investment Manager, EDF International

Q&A: Roeland Menger, Investment Manager, EDF International

1. Are there any particular regions you see as exciting in terms of investment opportunity going forwards?

It may sound like a boring answer, but all regions where my division is active in are presenting in their own very exciting opportunities. For example, in South East Asia you really see an uptake on renewable energy investments, and big opportunities for us in novel technologies (e.g. floating solar on a hydro dam in Laos). On the other hand, in sub-Saharan Africa we see that the offgrid sector is still growing massively, and the companies we invested in withstood the worst of the COVID-19 crisis and are back in building and scaling modus.

2. What are some of the ways in which projects in emerging economies can be made bankable?

A common answer to this is the urgent need for the de-risking of these investments. There are however lots of flavours and tools to achieve such de-risking. In the end, it’s all about a stable and robust business case, with enough financial feasibility to attract commercial investors. For me this means it’s key to have a reliable local partner, either in business or in the government. Secondly, the availability of a long-term PPA (power purchase agreement) with a creditworthy off taker is a clear signal to the market that a project is bankable. Lastly, subsidies and result-based financing (RBF) facilities form a major opportunity to unlock commercial capital.

3. You’re mentioning subsidies and RBF facilities, can you elaborate on those?

Look for example to the offgrid businesses and projects in various countries in sub-Saharan Africa: These are operating in remote rural areas and the offtakes of power are individual consumers or SMEs. It’s hard to build a stable and robust business case just on those, as e.g. seasonality affects the ability to pay immediately. Subsidies to connect these consumers or concessional financing via a RBF facility can help improve the business case by taking away a lot of these uncertainties. And in the end, this would still form the cheapest way for governments and donors to reach universal energy access in the respective countries. You know, the electricity grid in France or in any other Western-European country hasn’t been achieved without subsidies and concessional financing either.

4. What advice would you give to small to mid-size developers looking for investment?

There’s a lot of capital out there in the market, so try to tap into that. To do so, ensure you spend enough time on structuring your project financially in a sound way, because that can make a difference between a yes or no from any debt- and/or equity investors. Don’t just go to a bank and ask for a debt tranche in your project: Also look into mezzanine and other junior debt structures of impact vehicles (e.g. ElectriFI) that can enhance the senior tranche(s).

5. You focus on hydro and solar projects, how do the opportunities in these compare?

Yes, we’re talking about different worlds here. Hydro power projects are often very large and hence complex in terms of engineering and financial structuring, and therefore take many years to develop. However, they add in one go an enormous amount of generating capacity to the grid. On the other hand of the spectrum almost you have solar projects, which can be very small, even offgrid (combined with battery storage) and modular. Both require a different approach in terms of investment expectations, and follow a completely different project development trajectory. That being said, we are now looking into opportunities of combining the two, where floating solar is added to large hydro dams that can then serve as a daytime peak power producer – by which making the hydro power asset act like a virtual battery (saving water for when the sun doesn’t shine). We’re at the early stages of development there, but this is definitely an exciting technology to further look into – especially with our focus on emerging markets.

6. Offgrid and minigrid projects are becoming more common in sub-Saharan Africa, what are your thoughts on the importance of community hubs and end users in the energy transition?

I think offgrid and minigrid projects are indeed a key development that we are monitoring closely and I’m proud to have been on the forefront of investing in this sector since the beginning of it. In scarcely populated areas it simply doesn’t make sense any more to build a high-voltage grid connected to a large centralised power plant. With the ascent of renewable energy – notably solar PV and battery technology – there really is no need for a centralised infrastructure any longer. So it makes sense to start thinking of power as a decentralised good that is built in- and together with local communities. Especially in scarcely populated areas where currently no energy infrastructure is present, this “leapfrogging” directly to decentralized renewables makes total sense. However, we need to ensure that nobody is left behind: Having a solar lantern should not be counted as ‘having energy access’, and therefore it’s important to always keep in mind the end users’ needs.