Tlou Energy making significant progress towards becoming Botswana’s first gas-to-power supplier

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Tlou Energy PLC (LON:TLOU, ASX:TOU, BSE:TLOU) chief financial officer Colm Cloonan agrees when I describe the company’s Lesedi power project, in Botswana, as “oven-ready”.


The team has secured a mining licence for the area, flowed coal bed methane for the planned gas-to-power operation and received environmental approval.


Added to that, Lesedi also has sign-off from the Energy Regulatory Authority and an initial power purchase agreement from the country’s Power Corporation.


Last month it raised US$3.6mln (GBP2.6mln) that will allow it to commence building a 100km, 66kV line to connect the Lesedi project to the main grid with the appointment of the main contractor said to be imminent. Contracts for the work were awarded Wednesday (click here for details).


Decisive step


This is a decisive step towards developing a 2-megawatt (MW) plant, before expanding the capacity to 10MW.


Tlou requires two vital components to fit into place before it can drive forward with development.


The first is funding – US$10mln for the first development or up to 2MW and a further US$20mln for expansion to 10MW. The second component is a formal power purchase deal for the first 10MW of output.


The company is confident of securing both in the coming months, Cloonan says.


Botswana, while one of the most developed and stable countries in southern Africa, still suffers the same growing pains as its developing neighbours – an energy deficit.



Pictured above is the coal-bed methane extraction system being deployed at Lesedi


Its imported electricity mainly comes from South Africa’s Eskom, the dysfunctional state utility responsible for the periodic black-outs and ‘brown-outs’ in its home country.


“They will actually switch off the power in South Africa and sell it to Botswana because they know they’ll get paid,” says Cloonan, recognising the irony of the situation.


Bridging the energy supply gap


Even if Eskom is proving a (reasonably) reliable supplier, Botswana is focused on becoming self-sufficient by bridging the operating capacity of 459MW and average demand of 610MW.


It wants to do this in a clean and efficient way, which means eschewing coal and diesel-fired plants in favour of the type being developed at Lesedi.


In fact, Tlou is aiming to be carbon neutral eventually and has plans for a hybrid gas and solar power solution.


It is also working with a company called Engas on potential hydrogen production and fuel cell opportunities.


Looking ahead, Cloonan ‘ideally’ expects negotiations for the first US$10mln tranche of the financing to be concluded this quarter.


Botswana-based interest


The would-be lenders haven’t been named, but the Tlou CFO confirms he and the team are talking to a Botswana-based group.


“It’s a relatively straightforward process, and we don’t expect any red flags on that,” says Cloonan of the initial funding round.


The group is then expected to move quickly to lock down a further US$20mln commitment to take Lesedi’s output from 2MW to 10MW.


Life in this regard will be made easier once the group has a definitive 10MW power purchase agreement (PPA) in place with the Botswana government.


The company has spoken to other potential providers of project finance outside Botswana as well as the local group.


Talks are well advanced


Talks with two, in particular, are “well advanced”, says Cloonan. “I personally would prefer to go with the Botswana group as they are more socially invested as well as financially involved,” he adds.


Tlou has started small and is building cautiously, but there is significant ‘upside potential’.


It can build out to 25MW with the planned power line infrastructure, Cloonan says.


At the same time, the method of extracting the coal bed methane has been trialled and proven; the costs of drilling and extraction will come down as the company acquires its own rigs.


While Lesedi is host to current production, the nearby Mamba and Boomslang projects provide significant expansion opportunities.


And remember, the 9,400 square-kilometres land holding the company has under licence provides the optionality to supplement gas with solar energy.


Plenty of news flow expected


The news flow is likely to come thick and fast. Indeed, it started with the appointment of a contractor to build the power transmission line. Also expected are the phase-one financing agreement and the PPA.


Once construction is underway, we’ll see the modular power generation units shipped, installed and commissioned ahead of the sale of the first power from Lesedi.


“I think the market is missing that once we appoint [transmission line and substation] contractors, the clock starts ticking to Lesedi becoming a reality,” says Cloonan.


So, after some delays, these are exciting times for Tlou.

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