There is a very strong and growing market demand for electricity in Sub-Saharan Africa.
The recent Africa Energy Forum (AEF) and Growing Economies Energy Forum (GEEF) events in London featured a number of energy ministers from growing economies around the world, plus approximately 250 speakers and 2,000 delegates from 82 countries. They discussed current dynamics and new opportunities for investment into the energy sectors of emerging markets.
Most African energy issues were well represented at the AEF. There is a strong and growing market demand for electricity in Sub-Saharan Africa (SSA). SSA energy use is up by 45% since 2000. The majority of SSA countries are experiencing power outages, and two-thirds of households (ie. around 600m people) have no electricity. Encouragingly in terms of resources, since 2009, 30% of the world's oil and gas discoveries were made in SSA.
African countries are increasingly looking to private investors as they grow their ability to produce electricity, liberalising their energy sectors to support investor participation. Public sector and utilities handled and financed the bulk of energy projects historically, but now independent power producers (IPP) are growing rapidly. There are currently 126 IPPs in 18 SSA countries - of the 23 that closed in 2015, 16 were in South Africa.
World Bank Group commissioned report "Independent Power Projects in Sub-Saharan Africa: Lessons from Five Key Countries"
This "must read" report launched at the AEF draws valuable experiences from five African countries, namely Kenya, Nigeria, South Africa, Uganda and Tanzania.
The report explains why IPPs are crucial to help deliver electricity to the 600m people without it in SSA. Enabling factors include:
- more competitive procurement efforts
- clear and conducive policies, structures and regulatory environment
- systematic power sector planning and
- financial viability of public utilities.
Kenya is among the countries in SSA with the most experience in IPPs. Nigeria represents an interesting case of accelerating investment in new power capacity in an electricity sector undergoing radical reform. South Africa was a latecomer to introducing private investment and IPPs into its electricity sector. However, this situation has now changed dramatically in the area of renewables, with potential gas-to-power IPPs also on the horizon.
Uganda occupies a unique space in the history of power sector reform and investment in Africa. It was the first country to unbundle generation, transmission, and distribution into separate utilities and to offer separate, private concessions for power generation and distribution. Tanzania has vast conventional and renewable energy resources, including recently-discovered significant offshore gas reserves. And yet the country struggles to generate sufficient power to fuel growth and development. Network failures further undermine what little power is produced. As a result, approximately 46% of this nation's total power consumption is from off-grid self-generation.
Are off-grid solutions the answer to filling Africa's power gap?
This was a hotly-asked question at the event. Almost 80% of the Africans living without electricity are based in rural areas where connecting to the grid is most probably nothing more than a dream. To counter this, off-grid solutions have been gaining momentum, with cheaper and more affordable products, increasing global investment interests and more innovative ideas entering the market.
The Off the Grid Club was launched at this year's AEF - a new membership program developed to bring together credible off-grid technology providers, financiers and regional leaders to invest in and develop reliable and scalable power solutions for Africa.
Country Focus: Tanzania
I moderated this panel discussion, and what's clear is that Tanzania has a lot a potential that is unfortunately yet to be fulfilled. Notwithstanding ambitious reforms envisioned for the electricity sector, Tanzania's present structure continues to be characterised by non-transparent deals and by a poor-performing, vertically integrated, state-owned utility - the Tanzania Electric Supply Company (TANESCO). Some donor funding from the United States of America's "Power Africa" initiative was suspended after the October 2015 Zanzibar elections (won by the opposition), was annulled on grounds of alleged fraud. The re-run election was boycotted by the main opposition. Bureaucracy-related delays and lack of clarity also seem to be scuppering other viable, smaller projects.
Panellists concurred with the above report that "when power is not planned, procured, and contracted transparently and consistently, the implications are potentially grave, far-reaching, and ongoing." A hope was expressed for more secure gas supply to be established in due course, to put an end to inter alia Tanzania's costly dependence on imported fuel. Tanzania deserves new private and public project successes, however, most panellists were rather sceptical about whether they would be achieved.
Very recently, news reports mooted that Tanzania has secured significant foreign direct investment for major projects in various industries. Relevant officials indicated that more details will be made available in due course.
Of high interest was the South African panel, which featured debate ranging from creating a green manufacturing industry around the country's successful renewables IPP programme, to a potential gas-to-power IPP program. It was mooted that the latter could play a vital role in the South African Department of Energy's plan to address the country's power needs. One of the main unresolved considerations were on how the foreign currency risk relating to gas imports would be incorporated in the tariffs.
Coal-fired power plants currently account for approximately 85% of South Africa's power generation. This is a delicate situation, with increasing competition for coal resources, and a growing global adoption of carbon emissions restrictions resulting in higher costs. Local resistance to, and benefits of, the introduction of a nuclear base load programme in the medium-to-long term was also discussed. It was mentioned that a number of experts, from especially the United Kingdom, were assisting with the latter.
Hot in the news at the time of publishing - Eskom has written to the South African Energy Minister that it will not without engagement over the matter, be signing any new power purchase agreements with IPPs after the current round of renewable energy producers concludes. Could Eskom be thinking that it may have more than the required capacity when all the current projects are completed? Per a local analyst it "leaves one important question regarding the future of the government nuclear build programme?" Whatever the answer, its cost will increasingly be watched if indeed Eskom stops signing new IPP agreements.
Statistics shared at the AEF show there is a clear opportunity to power Africa, but the opportunity is not without its challenges.
Competing consumer and developer interests are finding middle ground in some countries and striking out in others. Low energy prices for relatively poor consumers are the preferred political outcome. But there is a certain price level below which investment either slows or is cancelled altogether.
In the short term, coal will remain a vital part of power generation. Given the region's envisaged growth and increasing consumer demand, the potential for investing in Africa's sizable renewable energy market is high. Securing suitable land in rural areas for renewable energy projects and addressing related rural community needs, are key to ensuring longer-term project stability and viability.
Low transmission fees are an obvious bottleneck in the power supply grid. Fees rarely reflect the market and, when combined with the high maintenance costs for existing lines, are inadequate to facilitate investment in new transmission line builds. Fees will have to increase. Another challenge for the transmission infrastructure and distribution, is that most renewable energy projects are being developed in outlying rural areas which have the greatest exposure to sun and wind. Grid extensions will be required in the long term to support future power generation, whether they're built as part of larger power projects or on standalone basis.
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