Story audio is generated using AI
Traditional government-backed electricity contracts are no longer the only route to financing power projects in Africa, as lenders increasingly assess private buyers, electricity trading platforms and more flexible commercial structures, says Standard Bank corporate and investment banking (CIB).For decades, electricity projects across much of Africa were built on a financing model anchored on a single, long-term customer.State-owned utilities would sign long-term contracts to buy electricity from independent power producers at a fixed price, often over 15 to 25 years. These agreements, known as power purchase agreements (PPAs), gave developers and lenders visibility over future revenue.In many cases, governments also provided “guarantees to backstop” the utility’s ability to pay. Practically, this meant that if the utility struggled financially or failed to meet its obligations, the government would step in to ensure the power producer was still paid.This combination of a single, credit-backed buyer and long-term pricing stability was central to project finance, allowing lenders to assess risk largely on the strength of the utility — or its sovereign backing, rather than on multiple customers or market conditions.The single guaranteed buyer model also simplified financing in markets where electricity was largely state-owned and vertically integrated, with utilities responsible for generation, transmission and distribution. They were not only the main buyers of electricity, but also central to planning, procurement and operations, with few alternative routes to sell power directly to end users.According to Standard Bank CIB, that structure remains important, but it is no longer the only pathway to investment.Executive vice-president for power and renewables client coverage Vincenzia Leitich said the definition of “bankability”, the conditions that make a project attractive enough for lenders to finance, is widening as electricity markets evolve.“Traditionally, many African power projects relied on utility offtake, long-term PPAs and sovereign guarantees. That model remains important, but it is no longer the only route to market,” she said.Standard Bank CIB executive vice-president for power & renewables client coverage Vincenzia Leitich. Picture: SUPPLIED (Supplied) Instead of relying on one customer, lenders are increasingly assessing whether projects can generate stable income from a wider mix of commercial arrangements.This includes long-term electricity supply agreements with private companies such as mines, industrial plants and data centres, as well as participation in electricity trading platforms that connect multiple power producers with multiple customers. In practice, this enables electricity from different projects to be sold to different buyers, rather than through a single utility.This shift is already visible in the market, with large electricity users such as mines increasingly contracting directly with independent power producers rather than relying solely on state utilities. It points to growing demand from industrial and commercial users for more direct and flexible access to electricity.As a result, financiers are placing greater emphasis on the resilience of a project’s revenue base — whether income can be sustained across different customers and contract types, and whether it can withstand the loss or reduced demand of a single buyer.These changes are being reinforced by developments in electricity access and trading, including wheeling — the use of the grid to transport privately generated electricity to buyers in other locations — and open access arrangements, which allow independent power producers and eligible customers to buy and sell electricity more directly using existing grid infrastructure.These developments are taking place while electricity generation, particularly renewable energy projects, is expanding faster than transmission infrastructure. In many markets, the grid was originally designed around centralised planning and utility-led procurement but is now having to adapt to a more decentralised mix of generation and multiple buyers.South Africa has already seen a rise in private power investment following these changes. Other countries, including Zambia, Zimbabwe and Namibia, have also been moving toward models that allow greater participation by private electricity buyers alongside traditional utilities.While African countries continue to attract investor interest due to strong renewable energy resources, the ability to move electricity from where it is generated to where it is needed remains uneven, with transmission now the main constraint.Without sufficient transmission capacity — the grid infrastructure that carries electricity across regions — projects can face delays, delivery limits or restrictions on how much electricity can be sold, all of which affect revenue certainty, a core factor in project finance assessments.This challenge is not unique to Africa. The International Energy Agency has noted growing global pressure on electricity grid infrastructure, including delays in the delivery of key equipment needed to expand networks, such as power transformers, which regulate voltage for long-distance transmission, and high-voltage cables that move electricity across regions.But the constraint is particularly significant in African markets, where some of the strongest solar and wind resources are located far from major cities and industrial centres where electricity demand is concentrated. This distance between where power is generated and where it is consumed increases the need for extensive transmission networks to connect supply with demand.In South Africa, energy minister Kgosientsho Ramokgopa announced in December 2025 prequalified bidders for new transmission infrastructure as part of efforts to expand grid capacity and support the integration of new generation projects. The initiative is intended to address bottlenecks in the transmission network and improve its ability to carry electricity from new projects to areas of demand.
