CrossBoundary Energy receives $40m in funding

From the newsletter
Norwegian Investment Fund (Norfund) has invested $40 million in CrossBoundary Energy, an investment platform focused on renewable energy in Africa. This doubles Norfund's investment in the company to $80m and comes a month after CrossBoundary secured  $140 million in debt funding from the Standard Bank of South Africa.

• CrossBoundary Energy operates in 18 African countries and has a portfolio of around $680 million. Its projects include 500 MW of solar, wind and thermal assets and over 600 MWh of battery energy storage solutions.

• The company has recently financed Rio Tinto mines in Madagascar to provide clean energy for mining. Phase one, with 8 MW of power, is already completed. Phase two will add 22 MW of solar and wind energy. Last year, it partnered with EV company Ampersand to provide solar energy for their EV charging.

More details

• Crossboundary has focused on providing renewable energy to large-scale commercial and industrial (C&I) customers. This segment of customers are heavy consumers of energy and have been suffering from increased electricity prices, making operations expensive. To make matters worse, most African grids, despite being expensive, suffer from frequent blackouts and load shedding, pushing many to rely on fuel generators. However, fuel is heavily taxed in Africa. In South Africa, it accounts for about 20% of the price, and in Kenya, about 40%, and is becoming increasingly expensive, creating a real dilemma for businesses.

• This reliance on unreliable grids and expensive fuel has spurred interest in alternative energy sources. Many companies are interested in switching to self-generation, but the cost of setting up the energy infrastructure is high. Undertaking such an investment would often mean foregoing other business priorities, like expansion into new markets.  Financing options are also limited, and those available from banks are expensive and lack the technical support needed for these complex projects.

• However, this challenging situation presents a significant market opportunity. South Africa has the largest number of potential customers, with over 133,000 large commercial and industrial businesses that will be interested in reducing their energy costs. Nigeria follows with over 81,000, then Kenya with over 4,000, and Ghana with over 2,000.  In addition, these four countries alone have over 1.2 million small commercial and industrial customers. Each is interested in reducing energy costs, but setting a budget to finance an energy project at once can be daunting, even for those with a potentially large capital base.

• Many C&I customers are adopting solar energy. Last year, there was about 700 MW of solar energy installed in the C&I segment in Africa. Kenya installed about 17 MW, South Africa 490 MW, Ghana 26 MW, and Nigeria 62 MW. This growth came as countries like Kenya, Ghana, and Nigeria continued to experience national-level blackouts. Though South Africa showed improved grid performance with less than 150 days of load shedding, the high cost of grid electricity remained a challenge.

• This recent growth is just a small representation of the larger market potential. Projections show the market will keep growing as many African countries continue to increase electricity prices while solar panel and wind technology pricing decreases. Customers are eager to switch, and providing accessible financing for their energy projects will only hasten the process.  In Kenya, for example, the market is projected to reach 1 GW and $1 billion in market value by 2030.  Similar energy woes in Ghana and Nigeria suggest even more customers are likely to transition to self-generation with renewable energy sources.

Our take

• Africa's ageing electricity grids face frequent blackouts and are becoming increasingly expensive and unreliable. As a result, C&I customers are seeking alternative energy sources, such as self-generation, to ensure business sustainability.

• This situation presents a valuable opportunity for energy companies. They can build and sell electricity to these companies, build and lease power plants, or simply finance the projects and allow customers to manage them. The C&I customer segment is particularly attractive due to its strong cash flow, which guarantees easier loan repayment and presents a lower risk compared to residential customers.

• Investors should also be aware of the potential for profit in providing financing to energy companies or directly to C&I customers.