Fieldstone Newsletter - September 2019

Dear Clients and Friends of Fieldstone,

August, like December, stands as a month of relative relaxation in both the Northern and Southern hemisphere. For that reason, I have waited until September to correspond. I assume that you are all back at your desks, or your virtual desks or at least reachable on your smartphones. Now we can focus on what we will all make of the rest of the year - the loud and somewhat confused background noise of current events notwithstanding (which reminds me I need to take these Pound notes to a currency exchange).

First let me highlight two major transactions involving Fieldstone:   

  • In July, Fieldstone successfully advised on the sale of a 750 MW wind generation project in Northern Sweden for the German developer Svevind. This is the second asset of similar size that Fieldstone has been involved in in the region over the last two years.
Image :  Svevind development in Markbygden, Sweden
Image : Svevind development in Markbygden, Sweden
  • In August, Fieldstone was officially selected by FONSIS, Senegal’s sovereign wealth fund, to provide advisory and management services to a new green energy equity/quasi-equity fund  sponsored  by the Government of Senegal, the African Development Bank and the Global Green Growth Institute.
Fieldstone has been selected as advisor to FONSIS
Fieldstone has been selected as advisor to FONSIS

These developments are further evidence that an ever-increasing portion of Fieldstone’s energy practice is related to the “energy transition”. What is understood by this loosely defined term is a subject of discussion. So, perhaps unsurprisingly, I would like to weigh in and draw three lessons from Africa, where the transition is happening at the same time as electrification in many instances.

1.      Renewables will be key.

This might seem obvious to many but it remains a surprisingly disputed subject. What we see suggests that beyond green credentials (which may or may not save life on the planet), renewables make sense for Africa in a number of ways:

  • The flexibility of sizing renewable projects means that they can be scaled so not to overwhelm local needs or financial capacity and placed to support and strengthen less developed grids.
  • Time to market is much shorter for renewable projects which is a vital measure in places that are waiting for generation and avoids the pitfall of gigantic never quite completed projects.
  • The cost per unit continues to fall especially in solar and cost competition (actually, cost advantage in many instances) is a current reality.
  • The downside of intermittency continues to be addressed through advances in battery technology related to storage. In five years, this might be a non-topic .

The above arguments do not mean that renewables are a panacea. The fact is that renewables often do not create as many jobs (a subject of extreme interest) as thermal generation and disrupt existing employment in the sector. Programs have to be thoughtfully designed to create actual benefit for the local communities in the project areas and the economies beyond cheap power. By way of illustration, much of the particular type of sand component used to make solar panels has been mined in Africa.  But like swiss chocolate, value added manufacture ends up far from the source.

2.      Gas must be a part of the mix.

A growing view is that CO2 emission disqualifies any source of potential generation as an alternative from this point forward.  This position discounts the fact that gas generation is more efficient, readily available (and increasingly locally sourced in Africa) and clean as compared to the other major carbon based sources.  Gas generation stands above renewables as a source of compact centralized readily available power  – such as is necessary for industrialised economies (or those that aspire to industrialisation). Grids also depend on such predictable supply in order to provide stability to renewable generation. We are not yet at the point where industrial economies can forgo centralized thermal generation completely.

The fact that certain development finance institutions have moved to limit support  for gas projects as a rule might seem to the neutral observer as unfair (unless they can point to de-carbonized economies in their own sponsor nations), or less than tactical (as gas can replace coal, diesel , heavy fuel oil and burning charcoal thereby reducing carbon emissions overall).

A further consideration should be that Africa constitutes only a small percentage of  world GDP (Sub-Saharan Africa less than 2%) and a small percentage of total global emissions. Minimum changes in the way developed economies and great emitters (like the industrial sector of China) use energy could more than offset the total carbon output of Africa by simple cost-effective adjustments. In the meantime, there is not a single example of an African economy that would not benefit from reliable low-cost energy that gas can provide nor one in which further gas production could not offset greater emitting sources. This thought should be digested before any dogmatic view becomes entrenched.

3.      The energy transition of each country in Africa must be approached in a practical way given their current energy reality.

A related point to the one above is that the countries of Africa must be engaged in a way that considers their existing context. I have recently advocated a move that would allow certain multi-laterals to break an imposed hard limit on lending assistance to coal generation. Like most rules without exception, this diktat has resulted in unintended consequences. Funding to improve existing coal generation – to clean its emissions or extend life of better operating plant to end those of older less efficient, more noxious plants - is caught up in the prohibition like a dolphin in a tuna net.

Sitting here in South Africa which is dependent on coal generation (>90%), it is hard to see how this kind of thinking lends itself to any sort of sustainable energy transition. The tone set by the multi-laterals and DFIs has the knock-on effect of discouraging private sector financing. Without nuanced thinking about how to get from where we are to where we want to go, the result might be an energy cliff. Certainly weighing the circumstance is preferable to rigid rules; perfection should never be made an enemy of the good. Each situation merits a thoughtful response not a principle and the DFIs have professionals capable of assessing the best answer in each instance.

Now, I will put away my soapbox (made harder because I am standing on it) and return to Fieldstone business. 

  • In July, I attended the Corporate Council on Africa event in Maputo which drew a broad governmental and private sector crowd drawn from the US and elsewhere. Mozambique is well known territory to Fieldstone, which advised the government over ten years ago in the transfer and financial restructuring of the Cahora Bassa dam. At the time, Mozambique was by some measures the second poorest country in the world and the revenue secured through the on sale of electricity to South Africa was a sustaining resource.

Much has happened in Mozambique since that time (good, bad, sometimes scandalous) but the country now seems likely to ascend with the confirmation prior to the conference of Anadarko’s $25 Billion investment in the northern gas field. The project stands as the largest single private investment on the continent. To add to the story, a similar scale announcement from a neighbouring field is due to follow by the end of this year.

For the people of Mozambique who have borne up through a war of independence, an unremitting civil war, and a series of man-made and natural calamities, this should permit the break out moment. It will now be dependent upon the wisdom of the leaders of the country to see that the scale of this opportunity yields new infrastructure, industry and hope. With a population of around 25 million and a coastline significantly longer than the West Coast of the United States, the problems of Mozambique seem surmountable and the promise tangible. 

It was especially heartening to see the breadth of US corporate interest in Maputo. Perhaps, obvious situations like Mozambique will also draw them to see the more nuanced openings that abound elsewhere in Africa which will be key drivers of global growth in the coming decades. If they do not do so, others will (and are already more than evident).

Currently, Fieldstone’s Jonathan Berman is active in Tete province working on transactions involving  resources and transport infrastructure with various African, European and Asian investors. Fieldstone’s development subsidiary FAIR is also involved in three clean energy projects that will support Mozambique's energy modernization and transition, one of which is backed by a sizable USTDA development grant. Fieldstone will look to build on its long history in Mozambique as well as reach into Angola, the other lusophone giant on the move (this one driven  principally by a political awakening), and one can anticipate announcements in that regard.

Speaking of FAIR, Fieldstone will be going to market  this month to find an “Aligned Investor” in the development assistance subsidiary. We are very proud of what FAIR and its management team of Brian van Oerle and John Taylor have achieved in the three years of its existence. Not only has FAIR closed three projects in its mandate target range of 5 to 50 MWs of green generation, but through their reputation and symbiotic relationship with Fieldstone, FAIR has more than half a dozen projects in advanced development under contract spread around Africa. The FAIR formula of taking existing projects with great potential that need additional assistance beyond advisory and to move to close has yielded results for all involved, including sponsors and supporting financial institutions.

Image : FAIR’s Management Team
Image : FAIR’s Management Team

The selected party will invest in the expansion of FAIR and will participate in FAIR’s growth as well as receive direct co-investment rights in FAIR projects.

FAIR has had a number of private and public entities express interest, so we anticipate a lively courtship here. The most important aspect is to find a co-investor that has an understanding of what it will take for FAIR to achieve its potential. We are very excited about the prospects of this unique platform.

 At Fieldstone, we have had a series of career transitions to note:

  • Farai Sekeso has been named a Director in our London office. Farai has experience in private equity and worked on a broad range of transactions during his time at Fieldstone, working in both the London and Johannesburg offices.
  • Thembeka Mamba has been named Senior Associate in our London office. She has been a crucial player in a series of our successes in Europe from the aforementioned wind transactions to the E3/DC battery storage sale. She is now working on a number of African transactions.
  • Tshepang Marishane has successfully completed her six-month trial period with stints in Johannesburg and London and is now a full time Analyst. Tshepi previously worked at Investec.
  • Bruno Bueno has reached an agreement with PENNYNVEST in Peru to work together exclusively in that market and opportunistically elsewhere in Latin America and beyond. Our counterpart’s principal and namesake, Carlos Penny-Bidegaray was previously Managing Director and Latin American head for UBS and held senior positions at Paribas and Citibank in New York. He has deep contacts in government and the private sector in Peru and the region.
  • Christine Gibson will be joining us full time next month having completed her remaining responsibilities working for a family office on energy projects. Christine has had an impressive career with balance sheet banks and is experienced in private and sovereign debt matters. She has been working with European export agencies and their international counterparts while at Fieldstone.  
  • Senior Associate Mpho Mutloane will be leaving to join private equity fund Lereko Metier with whom we worked closely in a successful FAIR transaction in Uganda.  We wish Mpho good luck in his new job.

There should be a lot more to talk about in the coming quarter so I anticipate writing once more before the end of the year. To give a little foreshadowing, do not be surprised to learn  news regarding  a groundbreaking financing in Francophone Africa, of Fieldstone’s progress in the hospitality sector, and  presumably of other things that I know about but cannot yet say. As always, I am available to address topics raised, invite your comments and take sole responsibility for the content and any delight or umbrage caused.

Best Wishes for an effective Fall or Spring depending on which part of the globe you find yourself.

Jason Harlan 
Chief Executive Officer