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01 Mar 2018

GENERATION INTERVIEW: “There is no corruption in Rwanda’s regulatory framework. It is a very, very transparent system”

Mr Klinck was an advisory board member for the 2018 generation conference programme at African Utility Week.

Dan Klinck

Let’s start with some background on East African Power and its activities in Rwanda.
East African Power (EAP) is a boutique Canadian renewable energy investment, development and holdings company. Our initial aim was to develop 100MW across sub-Saharan Africa by 2025 and our focus is to ensure that all our projects generate clean and sustainable electricity in the rural areas of Rwanda.

In 2015, we entered into a joint venture with our Canadian counterpart, Afritech Energy, to set up four hydropower plants in Bihongora, Karambo II, Gatare-Sebeye and Muregeya. Afritech Energy (AE) and East African Power have signed a US$ 40m agreement that will see the construction of four hydropower plants in Rwanda.

The biggest solar power factory, or plant, in East Africa recently opened in Rwanda. Solar power is produced from sun light. The plant is in Agahozo Shalom village in eastern Rwanda. The plant is the first of its kind in the area. The 21-hectare field, or solar park, is covered with special devices called panels. They store energy from the sun. The Agahozo solar park has more than 28,000 solar panels and was built at a cost of $23.7 million.

The Agahozo solar plant produces up to 8.5 megawatts of electricity. That is nearly seven percent of the total power supply in the country. The government has signed a power purchase agreement, or PPA, to pay for that electricity over the next 25 years.

You own the business that has a civil works contract on the project, please explains why Rwanda is leading the way for solar power in East Africa.
Our management and engineering headquarters are based in Kigali, Rwanda and we are actively seeking development opportunities in utility-scaled renewables and industrial power. Environmental impact assessments are completed to World Bank standards on all our projects and extensive effort is made to minimise and mitigate any negative impact that our projects could have on the surrounding community.

We have already met 100MW and have a lot of projects in the pipeline. Some of our projects are leading to fruition and others have been cut-off. We are busy with some big projects as we move into Uganda.

What are the major challenges for the industry right now? What keeps you up at night?
1) Understanding of the utilities: A more conducive framework that covers all the elements of regular trade for Power Purchase Agreements (PPAs) and concession agreements is needed; and a clear understanding of the contract would be very beneficial.
2) The reality is that there is an abundance of available capital, but there are very few bankable projects. Early stage assistance is sorely missing and very much needed at the beginning of a project. I believe that export credit agencies could do more.

Tell me about the development of the power sector in Rwanda over the past year.
The government’s 7-year universal access programme target date has been extended by seven years. [The Rwandan government aims to fast-track inclusive development under the seven-year programme from 2017 – 2024. The government plans to connect all its citizens to water and electricity, among other targets.]

As a result, the off-grid and mini-grid sectors are experiencing major growth – even with the scarce supply of ready-made mini-grids.  I believe that the target will be met.

Your passion of building capacity in the East African power region is well-known. How is local capacity built in this sector?
The big part is to have a real communication platform. Universities will fill the skills gap. I have been mapping the gap in Rwandan infrastructure for many years. There is a lot of work being done by companies and the situation has improved drastically over the past five years. Technology is making a drastic change to all stakeholders of the supply chain.

Although our company deals with energy, it assists people in the rural areas to engage in activities that will boost development in their communities. We are already supporting different cooperatives and women groups. We believe that connecting villages with energy brings development.

How do you feel about sub-Saharan Africa’s energy security challenges?
Security can be improved when a country is more public about their time frames – especially in the Eastern and Western African pools. There is a lack of understanding about the developing stage and there is often a gap when determining what it is and what it should be – especially by utilities.

Off-grid is a cost benefit to grid extension. There is currently a push to mini-grid, but the positioning of these needs to be where they can be easily accessed. It is tragic for developers who have built projects and now face a risk with competition from mini-grids.

How is your company responding to the changing structural make-up of players and stakeholders in the market due to the refocused energy generation mix in Africa?
The main factor of this is the developer and the developer’s business model. The model needs to be sufficiently diversified. At the moment, the market in sub-Saharan fluctuates in pace – sometimes it is fast and at other times very slow. The inconsistency is due to the constant switches in administration.

It makes sense to have a presence that is diversified. Diversity requires creative hybrids, especially in early-stage development, which affect all aspects of project development: finance, technology, etc. The typical project finance process doesn’t work anyway. The scope of development needs to change.

Without sufficient funding, African utilities cannot match South Africa. Global pricing is on the decrease. The lack of funding is not working on the platform. As a company, we need to be flexible and nimble.

Smarter energy systems and evolving market structures are changing the relationship between producers and consumers. What implication does this have for your company?
This does not have a massive impact in the utility sector. Industrial power generation requires hybrid power purchase agreements (PPAs). We, as a company, are seeking key clients who have excess energy for the grid. This is a new model.

Hybrid solutions are needed for the population, as the Rwandan government does not have a budget for distribution. Large funding is needed from institutional banks, such as the World Bank. Their mandate it is to support government. If they were to work directly with the developers, more would get done.

What, in your opinion, is the one thing standing in the way of reaching power generation potential in Rwanda?
Regulatory frameworks and standardised power purchase agreements. The Rwandan government has an excellent regulatory framework that develops with the industry. Rwanda’s doing a number of things right. I mean one, security. It is a place where people can thrust their PPAs for 25 years – geo-political stability. There is no corruption in Rwanda’s regulatory framework. It is a very, very transparent system.

However, even the best regulatory frameworks have no value, without a standardised document that keeps record of policy modifications. There is a serious lack of reliability in the system as the documents are not updated every five years.

A new set of requirements should be introduced for PPAs, as these are currently very rigid. Flexibility would work well for bigger projects, and the current structure does not work nor is feasible for the smaller projects.

Dan Klinck, the chairman and founder of Afritech Energy, is driven by his goal of expanding access to clean energy in Africa. Mr Klinck’s passion for renewable energy is evident in every aspect of life: his involvement in projects across Rwanda, Uganda and the Democratic Republic of Congo as well as the many esteemed positions that he holds. Aside from his role at Afritech, Mr Klinck serves as the CEO of East Africa Power; Chair of the Hydropower Committee; Executive Secretary of Rwanda's Energy Private Developers Association as well as Vice-Chairman of Rwanda's Energy Skills Council.

Afritech Energy (AE) is a development and service provider for electric power generation, construction, operations and maintenance, supply and installation. AE is a licensed supplier and general contractor specialising in renewable energy technologies, prioritising solar and hydropower solutions. AE provides a comprehensive range of products and services to meet the energy sector developer needs in East Africa.

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