There are big pushes for Africa to be electrified, but the continent is far from plugged in. Projects have been slow to develop even as new money has been looking for ventures.
On very few subjects is consensus so global and the problem so stark as the need for sub-Saharan Africa (SSA) – the world's least-electrified region along with rural India – to gain access to clean, sustainable energy.
Whether by developing fit-for-purpose electricity supply industries (ESIs) or off-grid solutions that bypass problems that have left much of SSA in the dark, improved access is essential for economic growth and development.
The World Bank estimates that 24% of SSA's population now has access to electricity. Electricity shortages are blighting economic growth from Accra to the Cape. Dependence on diesel generators is hugely costly and polluting, and the lack of clean energy is deadly – according to the World Health Organisation, nearly 4 million people die each year from inhaling lethal smoke from kitchen stoves and fires.
- Kingdom in the sun
Plans to install at least 2GW of solar and 2GW of wind by 2020 have made considerable progress in a policy driven from the top and supported by a growing commercial base. Work is under way by Saudi Arabian developer Acwa Power and Spain's Sener Grupo de Ingeniería on three of the four phases of Africa's single largest solar project, Moroccan Agency for Solar Energy's (MASEN) plan to generate 510MW at Ouarzazate. Meanwhile, local companies including Lafarge Maroc and Italcementi's local affiliate Ciments du Maroc are installing wind power. These moves will overhaul the oil-import-dependent kingdom's energy mix: total installed generation capacity stands at 7.9GW, of which 68% is thermal – nearly half of it from coal.
- IPP promise, generation shortfalls
After months of politicking, a long-awaited ruling by the new federal attorney general should allow the Azura-Edo independent power project (IPP) to finally reach financial close; this will be seen as a breakthrough for privately financed development in Nigeria, providing a template for future projects. The 1,074MW Alaoji, 561MW Calabar and 750MW Olorunsogo II National Integrated Power Projects were commissioned in early 2015, when installed on-grid capacity rose to around 12.8GW. However, actual generation performance remains poor, with output fluctuating between 1.3GW in May and 4.7GW in August. Vice-president Yemi Osinbajo hopes to increase this to 6GW in the first quarter of 2016. Key reforms have suffered chronic delay, including the declaration of the Transitional Electricity Market – hampering efforts to overhaul privately owned distribution companies.
- Renewables benchmark
After years of being a laggard in promoting renewables programmes, South Africa has set a benchmark with its Renewable Energy Independent Power Producer Procurement (REIPPP) programme to develop solar and wind projects to feed the national grid since 2011. The prices of renewables projects have plunged to levels that are now competitive with thermal power – which in South Africa means cheap coal. The result is a major upturn in capacity in a thermal power-dominated grid that has been suffering near-daily blackouts. As of mid-2015, total generation capacity allocated through REIPPP since 2011 had reached 6.33GW, involving an investment of around R193bn ($15.5bn). While a financial crisis at national utility Eskom delayed a fourth round of REIPPP bidding in 2014 – as much else – this is going ahead, with the government adding another 2.8GW of capacity for developers to bid for.
- Giant in the Horn
Ethiopia has bucked the trend of stalled megaprojects (see main article), developing hydroelectric power (HEP) dams even though it was deprived
of major loans from the World Bank and other conventional donors in the last decade as many funders pulled back, influenced by non-governmental organisations and other critics. China, financing work by Chinese companies, made up some of that shortfall. But for many big projects, led by the 6GW Grand Ethiopian Renaissance Dam (GERD), a government dedicated to promoting the 'developmental state' has mobilised its own funds, some coming after appeals to the diaspora. Renewables output has risen from 360MW to 4.2GW in the past 20 years and will reach 12GW as GERD and other projects come on stream in the next few years from HEP, solar, wind and geothermal sources. HEP and electricity interconnections play a critical role in Ethiopia's efforts to pull its population out of poverty and in promoting regional relations, says Tedros Adhanom Ghebreyesus, foreign affairs minister. Ethiopia is already supplying electricity to Djibouti and Sudan, and "will supply 2GW to Kenya after GERD is complete", which Tedros says "will contribute to integrating Africa".
- Tapping the Rift Valley
The East African Rift Valley has undoubted potential to develop gigawatts of geothermal resources. A major problem has been early-stage exploration for steam, the cost of which many power developers are loath to take on. The Kenyan government created the Geothermal Development Company (GDC) to help tackle these problems; it has several projects under way, following on from the 280MW expansion of the Olkaria development – where, separately, international investor Ormat has developed several projects. GDC's larger project is the 400MW Menengai Geothermal Development Phase 1 Project in Nakuru, where initial support for exploratory drilling and testing came from the African Development Bank. A respected and important source of financial support driving schemes across the region has been the Geothermal Risk Mitigation Facility, developed by the African Union Commission and funder KfW Entwicklungsbank, a German development bank. Kenya hopes to boost capacity to 1,600MW on the Menengai site. However, GDC has, in recent months, become mired over claims of corruption linked to procurement, with projects delayed by judicial review.
See map below
Acronyms have piled up as the 'international community' responds. The United Nations launched its global Sustainable Energy for All (SE4All) initiative in 2012 to pull one billion people out of energy poverty, 500 million of them in Africa. Kandeh Yumkella, a distinguished and inspiring Sierra Leonean, is its first chief executive.
US president Barack Obama in 2013 moved to burnish his legacy by unveiling Power Africa, committed to "adding 60m new electricity connections and generating 30,000MW of new and cleaner power" in a programme driven by US federal agencies and private sector partners.
Following in the slipstream, but with a Gallic flavour, French politician and former environment minister Jean-Louis Borloo won headlines by establishing Energies pour l'Afrique this year.
Many of these programmes, which also include the Africa-European Union Energy Partnership, have placed the promotion of renewable energy (RE) at the top of their agenda. Unprecedented commitments to RE and energy efficiency – which is still largely ignored by many African ESIs – are expected to emerge out of the global climate talks in Paris in December 2015.
There are signs of progress in lighting up SSA. Nigeria privatised its inefficient generation and distribution in a new system in 2013 back-stopped by the World Bank and driven by some of the nation's leading reformists. Some of the successor companies are showing signs of life, although triumphant declarations that the Nigerian ESI has definitively entered a new phase seem wildly overstated.
A long-awaited ruling by the new federal attorney-general allowing the Azura independent power project (IPP) to reach financial close failed to make many headlines outside the industry, but potential developers welcomed it as a break-through for privately financed development in Nigeria.
Their appetites have been whetted by the potential for investing in Nigeria and in the bankable projects emerging from South Africa's Renewable Energy Independent Power Producer Procurement (REIPPP) programme. There is a genuine buzz among private-equity players. Some investors have donor government shareholders, like Britain-based Actis and CDC Group. Others – like US giants Blackstone and Carlyle Group, and powerful players such as South Africa-based Harith – have put in place funds and are looking for projects to invest in.
Between $1trn and $2trn would be needed annually to supply affordable and reliable energy to all
Backed by bilateral and international financial institutions, Paris-based Meridiam Infrastructure Finance is launching its first African equity fund, which partner Julia Prescot says will position it as a developer as well as an investor in long-term projects in SSA.
There is much excitement about new classes of investor that could make a major impact by funding projects. These include pension funds, sovereign wealth funds and the family offices that are a feature of contemporary fundraising.
South African pension funds and respected bodies elsewhere like the Botswana Public Officers Pension Fund have billions of dollars that could go into power and other infrastructure – if, as many expect will happen in the next decade, energy projects become a recognised asset class.
The continued success of the REIPPP in delivering solar and wind generation projects at lower and lower prices suggests large- scale investment can be mobilised if the conditions are right.
South Africa's giant state utility, Eskom, remains in crisis over its failure to deliver coal-fired power stations and upgraded transmission projects on time, and is mired in governance problems. But South Africa has made a success of renewables since the government finally allowed enlightened managers – notably redoubtable Treasury official Karen Breytenbach, who now heads the Department of Energy's independent power project office – to work with international developers to make commitments to RE a reality through the REIPPP structure.
But in many countries, financing flows and project delivery remain spotty at best. Across SSA, public sector utilities, mandated by governments to charge tariffs that are below their break-even points for their electricity, are all but insolvent. Electricity is seen by populations as a public good that should not be paid for at commercial rates, even if a lack of cost-reflective tariffs means bankrupt utilities fail to deliver sufficient supply.
The second SE4All forum, in May, heard that even with the recent upsurge in efforts to improve supply, rapid global population growth threatens to outstrip increases in energy access, putting the 2030 target in jeopardy. Anything between $1trn and $2trn is needed annually to achieve global goals, World Bank global practice on energy and extractive industries senior director Anita Marangoly George told the New York gathering. The need had previously been estimated at $400bn per year.
The overall trend of commitments to energy is increasing, but not as quickly as the hype generated by Obama's Power Africa and other initiatives would suggest. The Infrastructure Consortium for Africa (ICA), whose members include leading national and multilateral donors, reports that energy again received the greatest attention of the four infrastructure sectors it promotes in 2014, with its members' commitments at $9.2bn.
Multilateral development banks led the way, with the World Bank Group committing $2.3bn to energy projects, led by the Noor Ouarzazate concentrated solar power project in Morocco. Another notable 2014 commitment was the African Development Bank's $1bn allocation to Angola's power sector reform support programme.
Power Africa committed to put $7bn into the sector in 2013. But the programme appears to have less potential because the US government explained that it would play a role in mobilising funds and would not be providing huge sums of its own. Meanwhile, the ICA Secretariat and other observers have noted a withdrawal of Chinese funding from projects, reflecting Beijing's concern to regear its spending to meet a harsher economic climate.
A critical problem raised by many developers, lawyers and other specialists is the problem of working with weak SSA government departments and utilities. The Abidjan-based ICA Secretariat's annual poll of private sector operators in African infrastructure sees them citing "constraints such as bureaucratic delays, policy uncertainty, lack of transparency and insufficient institutional capacity".
But private sector respondents and ICA members were preoccupied with "the shortage of adequately prepared or bankable projects [which] was a much bigger challenge than finding project finance".
Political, bureaucratic and other blockages have taken an especially heavy toll on the big-ticket projects promoted by pan-African initiatives that remain central to leaders' political discourse, whose flagships are the New Partnership for Africa's Development and the Programme for Infrastructure Development in Africa (PIDA). While swathes of press releases and news coverage focus on PIDA's "transformational" list of major infrastructure projects, few of these schemes have made significant progress over the past year.
"The political discourse that Africa's generation deficits can be met by projects like Inga – and that other more mundane issues do not require such effort – has been deeply damaging," comments a leading project developer. He is referring to the potentially huge Inga hydroelectric power (HEP) dam in the Democratic Republic of Congo. In its latest iteration, the minimum 3.5GW Inga III scheme was expected to be developed with Eskom as an anchor customer. But that seems unlikely, with South Africa once again pulling back from a major commitment.
One emerging player has bucked the trend of stalled mega-projects: Ethiopia has developed a number of major dams without recourse to loans from the World Bank and other traditional donors.
While PIDA's mega-schemes drag on elsewhere, the real breakthrough may come at the other end of the scale, where communities, local authorities, non- governmental organisations and other stakeholders are exploring off-grid options that can serve isolated communities and bypass often poorly performing state utilities. SE4All is among those won over by mini-grids, providing the zippy slogan of "converting commitments to kilowatt hours".
Grassroots businesses are developing new services that could emerge as the elusive 'game-changers' SSA craves – just as information and communications technology (ICT) entrepreneurs, not old-style state monopolies, drove the mobile telecoms revolution.
Pay-as-you-go distributor M-Kopa Solar is supplying more than 250,000 homes in Kenya, Uganda and Tanzania using consumer-friendly sales plans linked to payments via mobile phones. M-Kopa and its growing number of peers argue that harnessing new, ever-cheaper technologies makes market-based solutions relevant to even the poorest communities.
Professor Izael Da Silva of Nairobi-based Strathmore University, one of the continent's deeper thinkers on ESI issues, observes that decentralised generator-distributors can provide electricity to rural consumers at commercial rates as they leverage technology and lessons gained from ICT. In the process, they are effectively relegating government to the role of regulator, as business is freed from the constraints of traditional state monopolies.
Taking heart from the ICT experience – more private investment and less government interference, not to be confused with reduced standards of governance – should give hope that electricity is coming to the estimated 585 million SSA citizens who lack access, even if it is not necessarily transmitted from a glitzy mega-project opened by a smiling big man. ●