Applying for an independent power producer (IPP) licence requires extensive planning with help from various industry-specific companies, said Nigeria-based energy advisory firm Lavayo Energy CEO Lolu Adubifa, who addressed delegates at the How to Get an IPP Licence workshop at this year’s Power & Electricity World Africa trade fair, which took place at the Sandton Convention Centre from March 24 to 25.
He said the first stipulation was that applicants should know exactly what was required before applying for an IPP licence in the specific country where the power plant would be built.
The corporate structure and technology applicability of the power plant needed to be decided, based on available services or resources, such as gas pipelines, coal mines, stored water or petroleum refineries, Adubifa highlighted.
“It would not be feasible to propose building a thermal, or gas-fired, plant in a location far from the nearest gas pipeline,” he elaborated.
Adubifa added that, surprisingly, these simple aspects were often overlooked, especially when politics came to the fore and overshadowed sound business concepts.
Other important plant aspects included fuel requirements, whether water cooling was required, plant size and layout, environmental considerations and space constraints.
All these aspects depended on whether the project was a greenfield or brownfield project, which, in turn, would determine whether infrastructure already existed or still had to be built and, if so, the extent.
Adubifa further mentioned that access to transmission evacuation lines and their capacity in terms of additional power had to be determined to allow for the allocation of possible additional capital to construct new or complementary power lines.
He also highlighted “stranded power” as an area of concern, where power plants in isolated locations made it difficult to supply power to the grid. He cited Nigeria as an example, where a 400 MW power plant was built, although the nearest evacuation line could handle only an additional 200 MW. “As a result, this power plant could only operate two of its four turbines,” added Adubifa.
Business as a Marriage
Adubifa further emphasised the importance of highlighting the company or entity that would be involved in the project, such as a limited liability company, a municipality, a private ownership or a leasing.
“Setting up a business is like a marriage. Both parties enter the business agreement without envisioning it to be a failure,” he said, adding, however, that the worst-case scenario should always be planned for beforehand.
“The ramifications of a failed energy business can be deadly. With a marriage, one partner might lose half; however, with a business, everything is at stake.”
Adubifa noted that, with the correct advisory services, the specialised requirements of applying for an IPP, such as project management or financial assistance, could be handled correctly. “The project requirements need to be considered, [and they can range] from financing options, legal requirements for the structure, financing and tax implications to matters regarding paying dividends and risk allocation.” .
Financial advisers were essential for IPP licence applicants and all major banks had financial advisers available to assist in these matters, Adubifa reiterated.
Lavayo Energy conducts 88.72% of its advisory work in Nigeria and 11.28% in Ghana.