African renewables see successful private equity exits

From the newsletter

African Infrastructure Investment Managers (AIIM), a private equity fund, has successfully exited three renewables projects in South Africa, totalling over $41 million. AIIM had been an investor in these projects for more than 12 years, strengthening the case that for-profit investors can find long-term viability and profitability in renewables ventures.

• AIIM sold its 21% stake in the 138 MW Jeffreys Bay Wind Farm, to existing shareholders Enzani and Usizo. It also sold its 10% stake in both the 73 MW Kalkbult and 38 MW Linde Solar PV projects to Gaia Renewables 1.

• African renewables have proven profitability, with several other private equity funds such as Actis making successful exits. This is now pulling in new money, with at least $1 billion committed so far this year.

More details

• Renewable energy investments have seen significant growth in Africa over the last decade, driven largely by governments' commitment to diversifying their energy mix and reducing carbon emissions. The market grew to reach $23 billion in 2024 and is projected to more than double by 2034. This growing market has created opportunities not only for initial investors but also for secondary buyers looking to enter established projects with proven performance.

• The financial attractiveness of this sector is further underscored by indicative Internal Rates of Return (IRRs) for utility-scale renewable energy assets, which typically range from 15-21%. These returns outperform sovereign bond yields and the weighted average cost of capital, positioning African renewables as a premium opportunity for private capital seeking superior, risk-adjusted returns within an underserved market.

• Beyond AIIM, several other private equity funds have made successful exits, cementing the renewables appeal to private equity investors. Among the most prominent is Actis, a global investor in sustainable infrastructure, which has made successful exits in large-scale energy projects. Some like Swiss impact asset manager,responsAbility, transformed their investment arm, responsiblity Renewable Energy Holding, into an independent power producer now operating as Serengeti Energy. While not a typical trade sale, this "exit" illustrates the successful incubation and scaling of a renewable energy platform through private capital.

• Actis stands as one of Africa's largest private capital investors, having committed over $2 billion to energy infrastructure across the continent in the last two decades. Their investments span utility-scale renewable projects, industrial solar plants, and natural gas power generation. The company recently made two major exits. They sold the 1 GW Lekela Power to Infinity Power. The other was BTE Renewables (500 MW operating projects); its South African assets went to Engie, and Kenyan assets (including the 100 MW Kipeto wind farm) went to Meridiam in a $1 billion deal.

• Another key player is Inspired Evolution, a Pan-African private equity firm specialising in clean energy. The fund has made 19 successful exits to date and continues to attract funding raises with the recent raise of $238 million for its Evolution III Fund. Their recent investments through this fund include acquiring a 75% stake in Red Rocket Group, a renewable energy IPP with a 10 GW pipeline primarily in South Africa.

• The potential of the African renewables market is not uniform across the continent. South Africa, Egypt, Nigeria, and Morocco lead in terms of attractiveness. These countries have set ambitious renewable energy targets, have higher power demand, and have even streamlined policies that make private investments easier. They have also established initiatives to support renewable energy investments, such as South Africa's Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), Nigeria's Energy Support Programme (NESP), and the National Platform for the NWFE Program for Egypt, all of which prioritise renewables investments.

• While solar appears to attract more investment, AIIM's successful exits from wind and hydropower projects demonstrate the potential across all renewable technologies. Solar will likely remain the most attractive due to its lower complexity, modularity, and continued cost decline. Small to medium hydropower will also attract more capital as it is less lengthy to build compared to large-scale hydro projects. Despite its significant potential, wind energy remains somewhat limited because many countries have focused less on its development.

Our take

• The AIIM projects have proven that renewable investments in Africa are not merely short-term plays and are capable of delivering sustained, long-term value. Private equity investors, therefore, shouldn't worry about long-term commitments.

• The success across AIIM's broad portfolio of renewables technologies confirms that profitability is achievable across various renewable energy sub-sectors and business models. Private equity investors have the flexibility to invest in any technology depending on their risk appetite and impact goals.

• South Africa, Egypt, Morocco, and Nigeria are the investment hotspots. However, investors should not solely focus on these countries but spread their investments to nations like Kenya, Ghana, and Zambia, which show great potential for growth and have streamlined policies for private sector participation.