In Africa, more than two-thirds of the population lives without electricity. Current estimates suggest that Africa needs $40 billion of new energy investment each year to begin to meet that demand. That is why in 2013, President Obama launched the Power Africa Initiative to catalyze investment in Africa's power sector.
One way to encourage that investment is by reducing the amount of time it takes to develop a project from the current 5-10 years, down to 3-5 years. A key part of that process is the negotiation of a power purchase agreement (PPA) which governs the production and sale of electricity, as well as the allocation of risks and responsibilities.
The more governments understand about what is required to have a "bankable" power purchase agreement, the less time it will take to negotiate those agreements. In an effort to provide that information in a very practical and usable form, the "Understanding Power Purchasing Agreements" handbook was recently published as part of the Power Africa initiative.
The handbook captures critical insights from American, African, and European power experts on best practices in the negotiation of fair and balanced power purchase agreements. The goal was to translate their expertise and technical knowledge into an accessible document.
It is crafted for the reader to gain a clear, concrete understanding of a PPA and includes information on the obligations, risks, and remedies that are found in PPAs.
As U.S. Secretary of Commerce Penny Pritzker noted in her opening note in the handbook, "Understanding Power Purchase Agreements established a common understanding of what is required for a functional and financeable PPA. Its publication is a significant step toward achieving President Obama's goal of increasing investment in power projects in Africa."
Since the PPA handbook project began in March 2014, the Initiative for Global Development (IGD) has been a leader in the development of this important resource, alongside the Overseas Private Investment Corporation (OPIC), United States Agency for International Development (USAID), the World Bank, the African Development Bank, and leading international and African lawyers and bankers. The project was funded by USAID coordinated by the U.S. Department of Commerce's Commercial Law Development Program and the African Legal Support Fund.
IGD's support for the PPA handbook drafting project is part of its broader effort begun in June 2012 to bring more structure and standardization to power purchase agreements across the continent. "Our power working group, including leading companies such as Contour Global, Symbion Power, Africa Finance Corporation, General Electric Company, Standard Chartered Bank, Press Corporation Limited, Baker Botts LLP, Black Rhino Group, and SkyPower - all played an integral part in the discussion that led to the launch of the publication," said Robert Mosbacher, Jr., IGD's Chairman and former President & CEO of OPIC.
"Using this handbook as a guide for the development of specific power projects will help ensure that those projects meet international best practice standards and are much easier to finance by lenders.
IGD will work with a number of African countries on the adoption and implementation of this approach, which will help reduce transaction costs and speed up project development time. The hope is to provide more energy investments and contracts that will address Africa's energy challenges," stated Mima Nedelcovych, President & CEO of IGD.
The handbook can be accessed at: http://go.usa.gov/FBzH
To learn more about IGD's work on power, visit: http://www.igdleaders.org/programs/electric-power/