The last 12 months have been a roller coaster for all of us involved in the development and financing of major energy transition assets. Over the past year, inflation and rate turmoil caused many major infrastructure project financings to be put on hold or fail to reach FID altogether.

GP Mega Deals

But whilst rampant inflation squeezed the delta between senior debt and cost of equity in the capital structure, removing liquidity from generalist private equity funds — asset managers with positive correlation to inflation, as most infrastructure and renewable assets traditionally are — saw an increase in attention from some of the biggest capital managers in the world.

Mega deals in the sector saw a number of our infrastructure general partner clients being acquired, including GIP by Blackrock, DIF by CVC Capital Partners and the African focused GP, Actis by General Atlantic.

Trends Emerging in the African Markets

Whilst the global mega trends of the energy transition have been splashed across the front pages of the financial press with their focus on the developed markets, no less significant are the shifts in the sources of capital coming through at the coal face of project development in Africa (though of course coal itself is now a taboo source of energy not to be discussed in polite conversation).

Changing of the Guard

On the African continent, western headquartered funds and developers, including the likes of Actis, have been quietly retreating from Africa to be replaced by either home-grown African champions or increasingly, Middle Eastern developers.

A pertinent example of this trend is the acquisition earlier this year by a consortium led by North African headquartered Infinity Energy and Masdar of the $1.6 billion onshore wind platform Lekela Power from Actis and the international renewables developer, Mainstream Renewable Power, in one of the largest M&A transactions in the energy & infrastructure space on the African continent in decades.

Sophistication of Financing Structures

Lekela also represented a step change in the sophistication of the financing structures being employed in the African energy and infrastructure space. By using a holdco acquisition financing structure, more common in developed infrastructure markets, new pools of liquidity opened up to finance the continuing transition.

This can be seen with several other portfolio financing mandates now being structured by our clients to tap into this liquidity, including the likes of Cross Boundary Energy and Actis’s remaining African platform Azura power.

Fleeing Fiat Money and the Rise of Private Sector Solutions

The other interesting development in the African infrastructure space is the increasing success of banking private sector revenue solutions for projects. With the strain on government balance sheets and their associated finance ministries and state utilities, developers have been utilizing the relaxation of generation licensing regimes to develop projects based on private sector commercial and industrial offtakers.

The increasing willingness of financiers to bank these projects sees a further correlation in sophistication of financing markets between Africa and the developed markets. Indeed, whilst African developers are increasingly finding revenue structures not reliant on government guarantees, the United Kingdom and the United States are awash with government funded projects.

Interconnectivity

What all of these trends have in common is that Bracewell is especially well positioned to connect the dots across our US, UK and Dubai offices.