Burundi’s two hydro projects reach financial close

From the newsletter

TDB Group, an African investment platform, and Anzana Electric Group, an energy company, have announced the financial close of two hydropower projects in Burundi. The 10.65 MW projects cost approximately $35 million and are expected to boost the country's electricity generation capacity by over 10%.

• The funding will support the construction of the 1.65 MW Upper Ruvyironza project and the 9 MW Upper Mulembwe project. They will start supplying electricity to the national grid in 2025 and 2027 respectively.

• The projects will be developed by Songa Energy, a portfolio company of Anzana Electric Group and one of the first Independent Power Producers in Burundi. Once completed, it is expected to connect over 100,000 Burundian households and create up to 500 jobs during construction.

More details

• Burundi is amongst the least electrified countries in the world, with an electrification rate of 10.3%, just above South Sudan at 8.4%. This figure is significantly lower than the average electrification rate in Africa, which stands at just over 40%. Access is particularly limited in rural areas, where a mere 1.8% of the population is connected to the grid.

• Burundi's energy mix is heavily reliant on hydropower, which constitutes 95% of its total electricity production. But the country still has significant untapped hydropower potential, estimated at 1,700 MW.

• Historically, most renewable energy investments in Sub-Saharan Africa have come from the public sector. However, there is growing recognition of the need for diversifying investments and attracting private sector participation to achieve sustainable energy development. 

• Private sector investment in Burundi's energy sector has been limited due to factors such as low electricity demand, foreign exchange constraints, and a lack of available market information. One of the key challenges is addressing foreign exchange constraints, which have been a major obstacle to private-sector investment.

• The two hydropower projects will benefit from leveraging the African Trade & Investment Development Insurance's (ATIDI) political risk insurance and payment guarantee, via the Regional Liquidity Support Facility (RLSF), to mitigate risk and ensure a stable investment environment.

• There are many African-based investment platforms now targeting funding for renewable energy projects. The TDB Group has 25 African member states and institutional investors from Africa as well, and currently has an asset base of $10 billion. It was formed with the mandate to finance and foster trade, regional economic integration, and sustainable development in Africa. Another example is Africa50, formed in 2012 by African heads of state to bring innovative solutions to accelerate infrastructure development in line with the African Union's Agenda 2063. It mobilises public and private sector finance and invests in medium- to large-scale projects.

• Many African countries are also allowing private sector participation in the energy space. Burundi's electricity law changes allowed independent power producers to enter the generation market in 2015. Kenya, South Africa, Nigeria, and Egypt are some other countries that also allow private sector participation in electricity generation.

Our take

• Public-private partnerships (PPPs) play a very important role in the energy sector. With most African governments struggling with debt, the private sector can help in providing much-needed capital. PPPs have played a big role in solving South Africa's energy crisis. More has also been done by the private sector in financing renewable energy projects for commercial and industrial customers. Burundi could likewise use the same approach to solve its energy challenges.

• Burundi has one of the lowest electricity consumption rates per capita in Africa, almost half the average of African per capita consumption. Building energy plants would need increased consumption to make the projects viable. More support is needed to finance the uptake of appliances to increase consumption. The country can consider incentivising the adoption of electric vehicles to boost consumption.

• Despite being the most mature and efficient technology, hydropower generation is currently affected by changing climatic conditions. Zambia and Kenya are the most recent countries hit hard by low hydropower generation during droughts. To ensure balance, a mix of renewables is needed. Solar, in particular, can help complement hydropower to ensure stable electricity generation throughout the year, especially given that Burundi averages around 6 hours of sunshine per day.