Invest in energy to power Africa

Africa continues to be in the news as it continues to engage with the challenge of electricity supply and access.

Africa continues to be in the news as it continues to engage with the challenge of electricity supply and access.

- Africa demand for electricity is expected to increase by more than two-thirds between now and 2040.

- Fossil fuels, especially coal, are expected to remain a significant part of Africa’s power generation assets.

- Renewables other than hydro are set to play an increasing role in the energy mix.

Of the 1.3 billion people that lack access to electricity globally, an estimated 600 million are in sub-Saharan Africa.

With Africa’s demand for electricity expected to increase by more than two-thirds between 2016 and 2040, significant investment is required to not only build new capacity, but to refurbish, rehabilitate, and strengthen existing power assets, as well as to re-balance the generation mix, including increasing the use of natural gas and renewables.

Africa’s largely rural population presents further opportunities for microgrids installation in decentralised market models.

Globally, the demand for electricity is expected to increase at 2.1 percent compound annual growth rate (CAGR) until 2040, with most of the growth coming from emerging markets. The most growth in demand will come from Africa, at 4 percent CAGR.

The highest growth in electricity demand will be in west and east Africa, at 7.7 percent and 7.6 percent, respectively. However, South Africa is still the largest electricity consumer in sub-Saharan Africa while demand in central Africa remains the lowest across the region.

Growth in electricity

It is estimated that $450 billion (R6.9 trillion) will be needed to build new power generation capacity on the continent over the next 25 years.

In the meantime, however, the region can optimise existing electricity delivery models through a number of measures, including data analytics, smart grids and meters, to improve operational efficiencies and enhance customer experiences.

Furthermore, cost-effective revenue streams are key to unlock the aforementioned investments in the power sector as Africa works towards accessing the power of electricity in an acceptable, affordable and accountable manner.

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Therefore, commitment by the public and private sectors to identify and adapt to the region’s unique electricity challenges and opportunities is necessary, if Africa is to realise its long-term electricity objectives.

Opportunities

Over the past ten years, the power sector in Africa has been transforming to attract private sector investment.

Among others, the restructuring of the sector in Uganda, Kenya and Nigeria, has opened up opportunities for private sector participation in the generation and distribution sector. Meanwhile in South Africa, the Renewable Energy Independent Power Producer Procurement Programme (REIPP) has resulted in approximately $4bn of private investment in renewable energy.

A combination of monetary and non-monetary incentive schemes have also allowed the sector to encourage return seeking investments. For example, the automatic tariff adjustments applied in Kenya have allowed private generation companies to manage risk against foreign exchange, inflation and the global energy prices, while the self-dispatching model in South Africa’s REIPP allows renewable energy companies to be first on the grid.

The drive for the interconnected energy market espoused by regional power pools, such as the Southern African Power Pool, also mean that a new generation project has a larger market that it can service.

The co-operation between South Africa, the Democratic Republic of Congo, Zambia, Botswana and Zimbabwe on the Grand Inga hydropower project, for example, illustrates the benefits of an interconnected network. Similarly, the 6 gigawatts great renaissance hydro power project in Ethiopia, is targeted at regional energy export.

Furthermore, governments in east Africa are open to public-private partnership to construct new plants, particularly those powered by renewables. There are significant opportunities, with Rwanda aiming to reach an electrification goal of 60 percent by 2020, from the current 17 percent.

Renewable energy

Renewable energy presents a great opportunity for Africa to, at least, mitigate against the challenge of energy scarcity. EY’s renewable energy country attractiveness index 2016 ranks four African countries – Morocco, Egypt, Kenya and South Africa – in the top 40.

According to EY’s index, emerging countries, through a focus on developing energy mix initiatives, can roll out programmes to minimise wasted energy in power, gas and other fossil fuels, and thus increase the amount of energy they can use to power their economic processes.

While fossil fuels, especially coal, are expected to remain a significant part of Africa’s generation mix, clean fuels are expected to almost double by 2040. Mature markets and emerging markets are undergoing transformation in different ways and at different rates, with traditional utility business models being challenged.

Moreover, the reduction in manufacturing costs of wind and solar components is making options for extending power supply across all regions viable. The benefits of a diverse energy mix to reduce overreliance on any one type of power generation are huge, and should be encouraged.

Ultimately, as Africa continues on its growth trajectory, it is those organisations that understand the nature of the power challenges the continent faces, as well as the opportunities to address them, that will succeed in their African expansion plans.

For the African power utilities, these disruptive threats can be translated into opportunities, by engaging with new players entering the sector for collaboration towards implementing new ways of generating power.

Critical to unlocking the investment in the power sector in Africa is the attainment of cost-effective revenue streams. This is transversal across the entire power sector value chain, and remains the key policy enabler to the long-term sustainability of the sector.

Norman B Ndaba, EY Africa Power & Utilities sector leader. His views do not necessarily represent those of INL.

BUSINESS REPORT