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Corporate renewable power purchases in Africa, Middle East modest but rising: IHS Markit

03 February 2021 Kevin Adler

Corporate commitments to reduce their carbon footprint have driven growth of renewable power installations many parts of the world, but so far, such projects have achieved only modest inroads in Africa and the Middle East.

Out of an estimated 22 gigawatts (GW) of solar and wind capacity in the regions, a report by IHS Markit estimates that only 600 megawatts (MW) is consumed by private offtakers, rather than owned and operated by power companies for their general customer base.

However, according to IHS Markit, the problem isn't a lack of corporate interest. Instead, a lack of government regulation and transparent guidelines for direct power sales, limited access to local financing for projects, and resistance by state-owned utilities to losing potentially high paying customers are key barriers holding back the nascent sector.

Five countries—Morocco, Oman, South Africa, Jordan, and the UAE—account for almost 80% of corporate renewable power sourcing activity to date in the Africa and the Middle East, wrote Silvia Macri, principal researcher, and Anna Shpitsberg, director, in the report, "Corporate renewable power sourcing activity in Africa and the Middle East," published on 1 February.

Utility-scale PV projects account for about 200 MW, or one-third, of the corporate capacity operating today, and half of that is the 105-MW Amin project in Oman. In Morocco, the largest operator of corporate renewable power, onshore wind is the market leader, with 157 MW of installed capacity.

Growth is accelerating

On the positive side, the report said the pipeline of announced projects has grown considerably since 2017, driven particularly by utility-scale solar photovoltaic (PV). As of December 2020, the combined capacity of announced corporate renewables projects is six times the capacity contracted to date.

Companies involved in two major sectors—materials (primarily cement manufacturing) and upstream oil and gas—are responsible for about 72% of installed capacity to date. However, the new project pipeline shows that the minerals extraction industry has the most ambitious plans, as it accounts for 45% (approximately 1 GW) of new commitments.

Leasing of renewable generation rather than outright ownership has been the preferred option for many buyers to date, Macri and Shpitsberg wrote, because it enables the corporation to "avoid the up-front capital cost and balance sheet impact."

But leasing became more difficult after 1 January 2019, when International Financial Reporting Standards 16 guidelines became effective, requiring leases in which the lessee controls and "substantially" benefits from an identified asset to sit on the lessee's balance sheet. "The accounting change may require more creative contracting solutions," they note.

Posted 03 February 2021 by Kevin Adler, Editor, Climate & Sustainability Group, IHS Markit

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