By Kelly-Ann Mealia, Co-Founder and President, Energy Capital & Power (www.EnergyCapitalPower.com).
Since January, I have been approached by investors and project leaders seeking to finance projects or close deals. At the same time, I tried to estimate using the available data the gap between infrastructure funding and energy funding. The figure we used is $250 billion a year by 2025. Given that Africa’s population is expected to double by 2050, we can expect this figure to be in the trillions unless the continent cannot find a way to develop and finance energy projects to guarantee universal access to electricity and the expansion of infrastructure.
Over the past few months, I have made a few observations, the most important of which is that not all transactions are created equal. Many investors want renewable projects, but only deals above a certain size – $2 million is too small, for example, for many large investors, although this project size timeframe is much shorter and may have an immediate impact. A project over $2 billion is more attractive in terms of return on financing, but the timeframe for project completion could be up to a decade. Overall, there is a reluctance to engage in hydrocarbon projects, even though there are a dozen markets actively touting their blocks, which in oil and gas hotspots could be easily linked to existing infrastructure.
Given the huge funding gap, I sincerely believe there is an opportunity to revolutionize the way projects are funded. My thesis is that more African energy projects should be crowdfunded either in fiat or in digital currency and non-fungible tokens (NFTs) to ensure that these projects grow, especially the smaller ones.
It could work in two ways. First, by crowdfunding debt. A project must go into debt to start. All agreements and feasibility studies have been completed and the project has a 30-year duration agreed with the government. Investors can lend the project money with a fixed percentage return over a period of two to three years. The project is funded and the investors are getting a great return on their money. Some projects could generate up to 30% return if successful.
Second, through crowdfunding. A project must raise a percentage of equity financing to attract larger institutions that will structure and lend the rest. The owners of the project have already invested all their working capital in carrying out pre-feasibility studies and there are few sovereign guarantees due to historical mismanagement of the funds. Investors can participate in crowdfunding to hold a stake in the project and make the project more attractive to institutions. Shareholders then receive annual dividends for the life of the project. With withdrawal agreements in place from the start of the project, this could make the deal even sweeter.
None of the solutions above are revolutionary, as both strategies are often used in the startup scene. However, given the investment gap and the few Africans who have a stake in their own energy future, this could prove an interesting theory.
Then, in my opinion, I started to get a little creative. I paid some attention to crypto, blockchain, web3 and NFTs. I’m by no means an expert and the NFT pump mostly left me uninterested until I started hearing about real-world usefulness. NFTs can be used to prove authenticity and ownership, which has instant utility in the world of event ticket resale and luxury fashion. A few weeks ago, I read a few articles about real estate tokenization in Miami whereby investors could “mint” a real estate token giving them part of the ownership of the building. There must be an analog link between the deed and the token, but after that point the token is on the blockchain and can be transferred to future owners. In this regard, the barrier to entry is much lower. Instead of finding a 10% down payment for an apartment, real estate NFTs could be minted for as little as the creator sets.
Could this apply to African energy projects? I think so!
Let’s look at the above scenarios with a Web3 lens such as NFT Energy Asset – Debt. In this regard, the project is raising capital through a cryptocurrency. Ethereum-based technology makes sense, especially Polygon or Solana. Investors issue NFT energy debt to raise capital for the project. NFT holders are rewarded by holding the NFT for the duration of the debt by earning additional interest on the cryptocurrency known as the distribution. The NFT can be sold at any time to a new owner on the blockchain and the sale can also trigger smart contracts guaranteeing a royalty to the project owner or the wider community where the project is taking place.
Second, let’s look at the NFT energy asset – stocks. This is where things could get interesting. If you tokenize an entire asset – like a solar farm, oil block, or biogas plant – that means anyone (with access to a smartphone, WiFi, and cryptocurrency) can own part of it. a real asset. What I like about this idea is the democratization of ownership of energy assets. It is not just energy companies, financial institutions, governments that can become owners of our infrastructure, but anyone, including ordinary Africans and those in the Diaspora. Although NFTs cannot pay a dividend as they only prove ownership, the value of NFT will naturally increase over time as a project comes online and begins to generate cash flow. Owning 1,000 tokens from a pre-production oil block will become much more valuable when the asset is producing, especially at $100 per barrel. Token owners can be rewarded in cryptocurrency or fiat when distributions are paid.
I think the key element here is transparency in ownership and transparency that sets the continent up for long-term success. If the token holders are also nearby constituents of the project, it brings an additional layer of accountability and governance. An NFT could contain voting rights and future sales would generate royalties that would be reinjected into the local community.
Distributed by APO Group on behalf of Energy Capital & Power.
If you enjoyed this article and would like to get in touch with the author, you can contact her here ([email protected]). Kelly-Ann is especially keen to speak to those who could help build the above and make it a reality.
Event organizer Energy Capital & Power (ECP) is committed to promoting investment in energy, infrastructure and mining events in Africa. Since 2016, ECP has been committed to bringing together energy players to connect, network and invest on the continent. This year, ECP is honored to host a calendar of three events on the continent, starting with MSGBC Oil, Gas and Power (https://bit.ly/3kCixC9) 2022 in Dakar (September 1-2), followed by South Sudan Oil and Power (https://bit.ly/3vZo1fx) in Juba (13-14 September) and Angolan oil and gas (https://bit.ly/3y8fKc3) in Luanda (November 29-December 1). The Cape Town-based company held a series of small-scale in-person events in 2021 in Angola, Libya, Senegal, South Sudan and the United States, despite the backdrop of the COVID-19 pandemic.
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