July 2020

Roeland Menger debated against the motion, ‘Greening’ existing infrastructure should be prioritised over investment into new clean energy projects. This was the first debate in the Energy Council's Live Debate Series. Here he responds to some of the questions posed to the panel in the Q&A. 

Q: How important is international cooperation in ensuring new clean energy projects are supported?

As discussed in the panel, it is of the utmost importance. With the typical intermittent character of clean energy, a well-connected pan-European grid is key to manage this. Research has shown that a pan-European connected HVDC (high voltage direct current) grid can decrease the need for electricity storage solutions significantly. To get to such a state, international cooperation is key.

Q: I am curious to get a view on storage and evolution of storage solutions for offgrid particularly for Africa?

For off-grid sub-Saharan Africa the main storage solution is batteries, notably lithium batteries. Lead-acid used to be the go-to technology, but the short lifespan, environmental issues (leakage) and high recycling costs made the industry shift to lithium. Moreover, the decrease in costs of lithium batteries has been a game-changer. Currently, most advanced technology (and often used in off-grid projects) is lithium-iron-phosphate, as these have a long lifespan, are low maintenance, and can deal with high temperatures encountered in most off-grid regions.

Q: Is it viable that hydrogen will be a real part of the energy mix by 2030? Or 50?

Yes, there are still major parts of our energy system that currently cannot be replaced by electricity (airplanes, heavy industries etc.). Hydrogen could prove to be a long-term solution for this. However, please not forget that hydrogen is merely an energy carrier, so you’ll always need to convert it from electricity (green) or natural gas (blue) into hydrogen, and then for use back into useful energy (e.g. via a fuel cell to electricity, or via burning it for heat).

Q: How do ESG/Green bond investors/financer view greening existing infrastructure vs new build?

As always, ‘it depends’. Each ‘ESG fund’ or (corporate) Green Bond raised has its’ own characteristics. But interesting enough, greening existing infrastructure often does fit the green bond scope in my experience. It is key that communication with regards to this is transparently shared, so investors know what type of bond they buy into.

Q: Should investors prioritise investing in existing clean energy technologies or in new clean energy technologies? And if the latter, how can investors be convinced to invest into new clean technologies that don’t have a proven track record?

Both should be done. Current clean energy technologies are (often) bankable and even competitive nowadays compared to grey technologies. This means investors should invest in these projects, which you see is happening right now. Investing in unproven technologies and R&D is more difficult indeed. In my opinion, there would be an excellent role for the government in this. For example, we can think of a carbon tax of which the proceedings are spent on R&D for new technologies.

Q: Roeland – Please share your business model in the off-grid solar projects. Who is providing the de-risking instrument and who ultimately pays?

I understand the question and the maybe difficulty to believe it, but long story short, the end-user (business or consumer) pays the bill. What we see happening in this sector is (generalizing) 2 different business models: i.) Solar Home Systems ; ii.) Minigrids.

1. i) Solar Home Systems are small-scale direct current (DC) systems, comprising of a solar panel, lithium battery, light bulbs and some appliances (e.g. TV, Fan etc.). The total package is bought by the customer on a ‘lease-to-own’ scheme. This means the customers pays-off the system in weekly or monthly instalments, over a period of 1 to 3 years. Payment is done via mobile money, and if not paid the system is locked from distance (so useless for the customer). After the lease-period ends, the system is unlocked forever, and the customer has free electricity. This is the most accessible form of offering energy access, as it is tailored to the customer’s needs as well as the ability to pay. On a company level, this means there is a large accounts receivable position (waiting for customers to pay over time). Therefore a debt facility is attracted (mostly venture debt / impact debt funds, but as of today also large commercial banks like Société Générale are involved), which pre-finances (part) of the systems. De-risking is amongst others done by ring-fencing the receivables in an SPV to which the debt is attracted. 
2. ii) Minigrids or micro-grids are relatively small, closed-grid systems, i.e. centrally located a power plant (technologies: solar, biomass, diesel, or hybrid of the aforementioned), with optional battery storage. The plant is connected to businesses and households via alternating current (AC) transmission lines, often at low voltage. Consumers pre-pay for electricity via smart meters or a community based scheme. As this is AC (meaning, sockets in your house / high power tools can be used), the uses of a minigrid can be much larger than what is the case with solar home systems, where the output is limited to the appliances delivered with the package. However, a minigrid is often not bankable, as there are high upfront costs (CAPEX) and no certainty on the off taking of electricity. Therefore, currently the most successful ones are based on a so-called ABC model, which stands for Anchor, Business, Consumer. The Anchor is a client, e.g. Telco tower, with whom you can put in place a power purchase agreement (PPA) for part of the generated electricity, which de-risks the structure. From a banking point of view, you often see development finance institutions (DFIs) and multi-laterals provide either debt or a (partial) guarantee for the construction of minigrids, in order to bring commercial capital to the table. Additionally, we witness an uptake of Result-Based Financing (RBF) facilities, which offer grants or subsidies based on e.g. the number of connections made.

If you would like to watch the full, unedited debate, please do so here