Power Shift: An Innovative Solution For Africa’s Energy Marketby [email protected]
When one thinks of innovation in the power utilities space, it usually involves replacing one mode of generation with another. Cynthia Wandia, managing director of Düsseldorf, Germany-based Astra Innovations, found a different approach — relocate the physical assets. Astra is a worldwide enabler of transactions dealing with the relocation of power plants, bridging all the gaps between a potential buyer and the seller to guarantee the success of the relocation. “There was an abundance of assets not useful anymore in Europe and a great demand for power in Africa,” says Wandia in this interview with [email protected] That was the inspiration for the venture.
An edited version of the conversation appears below.
[email protected]: You founded Astra Innovations in 2014. What inspired you to do that?
Cynthia Wandia: I was working for a large German utility at the time and I noticed it was switching off a lot of its power plants due to market conditions. Very-efficient, nearly-new gas engines and turbines were being switched off. I’m originally from Kenya, where there was a power deficit. So my inspiration was effectively identifying a gap between supply and demand. There was an abundance of assets not useful anymore in Europe and a great demand for power in Africa. That’s more or less where my inspiration came from.
[email protected]: Could you explain the set of situations and circumstances that led to this surplus capacity in the energy space in Europe and how that came about?
Wandia: Basically, it’s a series of events that has taken place over the past five years. We’re all aware of some of the major factors: with the financial crisis, manufacturing in Europe slowed down and with that the demand for power. Power is traded as a stock, so its price fell. Investments in power plants are quite large; they are very expensive assets and more so the fuel required to run them. In Europe, it’s a full mix of fuels, but gas, for example, is sourced through long-term contracts at fixed prices. That’s another reason for the disconnect; gas prices stayed fixed, but power prices fell. All of a sudden, power plants that run on gas became uneconomic.
That is one example. Another major factor was falling coal prices on the back of slow demand in China, and the U.S. discovering shale gas. This sent coal towards Europe and that dropped the price, which actually allowed coal plants to displace gas plants in the merit order. When you add other factors, European utilities found their billion dollar investments in power plants stranded. Very efficient power plants didn’t make money anymore.
“There was an abundance of assets not useful anymore in Europe and a great demand for power in Africa.”
[email protected]: How much capacity came on the market because of that?
Wandia: There are different estimates, but it’s anywhere between 20,000 megawatts and 50,000 megawatts of generation capacity that is stranded, and “stranded” in this case means either dormant, mothballed, permanently decommissioned or even running, but at unfavorable contracts or unfavorable prices. The energy sector in Europe is a great case study on how you end up with a white elephant.
That’s where Astra comes in. What we do is try to utilize some of these plants, re-use them in power projects in Africa, Southeast Asia and Latin America. Of course, we are able to access these plants at a fraction of the cost. That makes it much more affordable for countries to invest in power projects.
That’s one advantage. The second advantage is from a time perspective. Developing a new power project takes time. There is also a lead time that needs to be taken into account when you order new equipment from the OEMs [original equipment manufacturers]. Here, because we are relocating an existing plant, there’s no lead time.
So that’s the value proposition we’re able to offer: you can get power much cheaper, a power plant much cheaper and in a much shorter time than you would with a new power project.
[email protected]: If you switch to the demand side of the equation, where’s the demand coming from? In which parts of Africa have you seen most activity?
Wandia: Demand is across Africa. One in four people don’t have access to power. We target the institutional type of investor, because the plants that are available are large. They need to go on a grid. The smallest ones might be 30 megawatts, but we’re looking at a 100 megawatt to 200 megawatt range. On the demand side, we talk to state utilities, we talk to independent power producers. In some cases, we look at large industrial clients who are interested in generating their own power to have a little more control over that.
And so, that’s where we focus. But there is a trickle-down effect, of course. Even though we transact with large bodies or institutional bodies, the end effect is that more power comes on the grid; it makes it more affordable, more reliable. That attracts manufacturers or factories to come to our countries. That creates jobs and is a way to boost the economy. So while we do not directly sell to a consumer, we try to strengthen the institutional capability of countries to have access to cheap power.
[email protected]: You have existed as a startup for two years? How many such power deals have you been able to do so far? And what’s your pipeline in the works?
Wandia: We have been online for a year; we started at the end of 2014. We have developed a pipeline of about 40 projects — about 3,000 megawatts. At the moment, we’re in the final stage of negotiating our pilot. It’s a 35 megawatt plant, which we hope to start this year. To give you an indication of some comparable projects, it can take up to three years to develop a power project, a new one, and we’re able to do that in about nine months.
Of course, the main reason here was the counterparty we had; they were very motivated and moved very fast. But, as I said, what works to our advantage is that we don’t have to redesign anything. There’s an asset. We try to keep it exactly the same way as it operates. You minimize on cost, you minimize on design time, there’s not a lot of back and forth discussion on which fuel should it use or how big it should be because we’re targeting an existing asset. We take it as it is and we move it. So that cuts down a lot of the conversations that exist with new plants.
“The energy sector in Europe is a great case study on how you end up with a white elephant.”
[email protected]: How much is the cost difference between buying an off-the-shelf power plant compared to building something from scratch?
Wandia: For gas-fired plants, it can be up to half the cost. That offers a savings [which could go up to] hundreds of millions of dollars. Because, as I said, the capital expenditure on the actual asset is nearly negligible, so to speak, because some of these assets have already been written off and it’s only the cost of relocating them that you have to keep in mind. For gas plants, it