Out-Law News 3 min. read
27 Mar 2015, 5:00 pm
The report, ‘Brighter Africa: The growth potential of the sub-Saharan electricity sector’ (64-page/4.65 MB PDF), said SSA’s power sector offers “a unique combination of transformative potential and attractive investment opportunity”.
According to the report only seven countries in the region (Cameroon, Cote d’Ivoire, Gabon, Ghana, Namibia, Senegal and South Africa) have electricity access rates exceeding 50%. “The rest of the region has an average grid access rate of just 20%. Moreover, even when there is access to electricity, there may not be enough to go around,” the report said.
“We project that SSA will consume nearly 1,600 terawatt hours (TWh) by 2040, four times what was used in 2010,” the report said. “We based that forecast on a number of important factors, including a fivefold increase in gross domestic product, a doubling of population, electricity-access levels reaching more than 70% by 2040, and increased urbanisation. By 2040, SSA will consume as much electricity as India and Latin America combined did in 2010.”
However, the report forecasts that levels of electrification “will only reach 70% to 80% by 2040 given the challenges associated with getting the power to where it needs to go”. The report said research by McKinsey & Company found that it takes on average 25 years “to progress from a 20% electrification rate to 80% electrification rate”.
The report said the total projected capital spending required of $835bn between now and 2040 represents generation ($490bn), transmission ($80bn) and distribution ($265bn), which would “constitute a dauntingly huge investment requirement in any region, but in Africa the enormity is compounded by a lack of experience in delivering mega projects and a history of cost and schedule overruns”.
“Another major challenge is the coordination of such a massive investment programme,” the report said. “A very real danger exists that too much focus will be on generation requirements, resulting in under-investment in transmission and distribution (where it is tougher to attract interest from private investors). It has happened before in Africa that generation assets could not be fully used because of delays in grid connections or insufficient transmission capacity to evacuate the power.”
For more investors to enter the market, the report urges the region’s governments to establish long-term plans to develop the power sector and said “the final price that all end users pay needs to cover the sector’s costs”. According to the report, this need not mean every user paying a ‘cost-reflective’ price. “In fact, it may make sense to differentiate prices based on the size of the consumer and the time of day the electricity is consumed,” the report said. “The key is that the end revenue reflects the full costs to the sector.”
In attracting private-sector financing to the power sector, governments must provide “clear, consistent, and transparent regulations”, the report said. Nigeria’s privatisation programme is praised in the report for the way in which that country’s government, through the national Bureau of Public Enterprises, “spent time and effort clarifying how the off-take agreements would work, how the tariff was structured, and what would be the overall mechanisms for privatisation”.
“One important mechanism for governments to strengthen their position and increase their credibility is to obtain a partial risk guarantee from multilateral institutions such as the African Development Bank or the Multilateral Investment Guarantee Agency, and, in some cases, through private-sector institutions,” the report said.
Gas is expected to dominate SSA’s energy mix and provide between 40% and 50% of the energy from 2020 through to 2040, according to the report. “By 2040, gas-fired capacity will be responsible for more than 700 TWh in SSA.”
Coal is expected to “experience a large decline” from 51% of all energy produced in 2010, to only 23% in 2040. “This does not suggest an absolute drop in power generated from coal, but rather a change in the relative role that it will play,” the report said.
Hydro and solar is projected to “loom larger in absolute terms”, with output almost tripling from 92 TWh to 256 TWh by 2040. “Where in 2010, there was effectively no solar capacity on the continent, if each country builds for domestic demand only, we expect solar to produce about half as much as hydro by 2040,” the report said.
According to figures published in December 2014 by the Infrastructure Consortium for Africa, total infrastructure funding commitments in Africa increased for the second year running in 2013, with the energy, transport, water and information and communications technology sectors the key beneficiaries.
A new private equity fund, launched earlier this month, is dedicated to financing projects by small firms that boost access to energy in SSA. The Energy Access Ventures Fund has secured commitments of €54.5 million to invest in five-year instruments for about 20 African small and medium-sized enterprises, with the aim of expanding infrastructure to provide electricity for the first time to up to one million people in the region by 2020.
