Raphael Khalifa

FOUNDER, TEMBO POWER

January 21, 2020

Could you expand on Tembo Power’s hydropower focus and the current scope of your projects?

Tembo Power was incorporated in 2015, but the underlying groundwork for our first projects dates back to 2013. We are concentrating on run of river hydropower, with a focus on bringing clean, stable and reliable energy to the market. Solar or wind power are technologies providing intermittent power, and do not answer the needs of clients – our goal is therefore to implement a technology that is economical for everyone and well-proven. When dealing with private off-takers like mining companies, it is even more important as the utility does not top-up with additional power to get to baseload levels. Our portfolio currently consists of nine projects – three near Lubudi, DRC, four in Western Kenya and two in Burundi, for a total installed capacity of 157 MW.

What has your strategy been in developing your diverse portfolio of projects?

Hydropower projects take a longer time to develop than other renewable energy projects and, instead of the standard approach of completing one project before moving to the next one, we chose to develop a portfolio of projects in parallel. This may appear riskier, since in absolute terms more capital is required before returns are realized, but we believe that this approach reduces the risk of a potential unsuccessful project, having several others ongoing, and offers significant economies of scale during the development, financing, construction and operation phases. We are convinced that our approach is the right one for small hydropower, and investors now understand it.

Many companies look at hybrid power projects for their supply; is this something that Tembo Power is also pursuing?

We are planning on coupling solar power with hydropower to compensate for dry seasons, for instance in the DRC, where it works well as we can deploy economical solar infrastructures around our sites easily, next to substations.

Tembo Power is restructuring as an impact asset manager for Sub-Saharan Africa together with reputable partners in the fields of project finance, construction and asset management. The first investment strategy to be implemented shall consist in the equity financing of the portfolio of small hydropower projects currently in development, with a first close in Q3 2020. – what are the motivations behind this transition?

We began developing projects as a development platform, being a more convenient structure to develop projects from scratch, but it later proved challenging to raise more funding for development and construction equity, as typical investors for such projects in emerging countries are development finance institutions (“DFIs”) and multilateral donors, and they are more familiar with fund management structures. As a fund manager, we will now come with a strong edge compared to other products available in the market as (i). we can offer a small hydropower focus, which is a highly sought after technology for those investors, and (ii). the fund will invest on an existing portfolio, allowing to deploy capital much quicker, as opposed to fund managers that would start looking at projects only once funding is being committed by investors.   

The DRC has phenomenal hydropower potential, which is far from being realized. What are some of the major roadblocks and where can mining companies come into the equation?

Firstly, investors’ perception of DRC as a place to invest is yet to improve, partly due to the country’s history. Secondly, investing in hydropower means locating suitable and economical sites. Such mapping is an expensive exercise, even more in a country as wide as DRC. Independent Power Producers (“IPPs”) like us would look for project financing structures (where lenders would have the project as the only guarantee against the loan they would supply), which is challenging  given the creditworthiness of the jurisdiction and the national utility, and although credit enhancement instruments exist, they come at a cost which needs to be reflected in the tariff.  The largest mining companies can be seen as credible off-takers, but will in general not support power developers until projects are fully permitted, and would also not invest in power generation as this is outside of their business model. Other possible ways to finance new power generation units are via corporate financing, like Ivanhoe Mining is doing for instance by financing the rehabilitation of some of SNEL’s generators in their existing power plants, something that IPPs would not be able to do, or vendor financing which is, understandably, the model used by Chinese EPC contractors, this being made possible also given China’s capacity to fund infrastructure abroad, especially when this is to support Chinese’s interests present in most mining companies.

What is your vision for the DRC and how can you support the development of power infrastructure across the country?

The DRC is nowhere near where it should be in terms of development considering the its huge resources and the quality and education of its people. Things are now moving in the right directions and  we believe DRC has now what it takes to rise; we will certainly want to play a significant role by fueling the country’s growth by adding power generation and transmission infrastructures. DFIs and International Donors now also show increased appetite for DRC.

What are your expectations and strategy for your next funds?

Rather than developing new hydropower sites, which takes a while, our next fund will focus on the rehabilitation of hydropower plants in the DRC of course, but also in other countries like Cameroon, Gabon, Equatorial Guinea, Zimbabwe, Zambia and Angola. We see a massive opportunity in rehabilitation, as this is quicker to reach commissioning (revenue yielding) stage, and environmental and social impacts are minimal since most of the civil infrastructures are existing already, which will also mean cheaper tariffs. Challenge rather resides in the legal structuring of such projects (as the existing power plants shall remain the property of the national utility and lenders will need a security on the projects), but we are highly innovative in our thinking and work closely with the top legal advisors for the African continent. We are confident we will find the way to offer more power generation through rehabilitation that shall benefit all stakeholders.

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