Connecting a Continent and Lighting Up Africa

The largest restraint to economic growth and regional development in Africa is undoubtedly reliable access to affordable power. Strong economic growth, urban migration, and increased consumption – all amid a severe drought – have overburdened regional generation capacity and hampered growth across the power sector. While the challenges are diverse and formidable, a number of key institutions, including public and private players from across the region, are fomenting a drive to face up to the challenges and connect the continent.

Currently of the 1.3 billion people that lack access to electricity around the world, 600 million are found in sub-Saharan Africa. The International Energy Agency (IEA) currently estimates that the demand for electricity is expected to increase by more than two-thirds over the next 20 years.

While the drought has compounded the current lack of power, previous difficulties encountered in building the infrastructure needed to meet demand have included high levels of political uncertainty, lack of skills, and a shortage of bankable projects. The challenges are monumental, and yet the tide is beginning to turn. An increased growth in energy infrastructure was witnessed in 2015, and with increased participation and interest from private sector players, growth in the sector will further accelerate to meet demands in 2016.

“I feel that energy will be a massive driver of projects in the future,” says Andries Rossouw, Director of PwC. He continues, “The 600 million Africans who still need access to electricity on a daily basis cannot be ignored. It remains to be seen whether this will be funded from outside, or from governments, or whether it is done through public private partnerships.”

It will be imperative to find the right mix and balance, between financing institutions, to not only build new capacity, but refurbish existing power assets, as well as increasing the use of natural gas and renewable. Financing is expected to come from a diverse set of stakeholdersplayers, with the IEA estimating $450 billion (R6.9 trillion) will be needed to build new power generation capacity on the continent over the next 25 years. A substantial amount, but where will it be found?

Private investors and African governments for a start. Then there are Development Financing Institutions (DFIs) like the Development Bank of Southern Africa. In addition , there are also foreign groups and hedge funds looking to invest.

The US government has pledged a major financing operation through a programme supported by the US Export Import Bank called Power Africa. The programme has a target of supplying 30,000MW of energy to the African continent. Wanda Felton, Vice Chair and Vice President of the Export Import Bank of the US claims that, “We are committed to providing $5 billion USD of the projected $7 billion USD US capital commitment needed to finance Power Africa.” While the purpose of the Power Africa initiative is to address energy poverty in Africa, Felton elaborates that, “This will be achieved through providing technical advice as well as the capital to create solutions; and renewable energy is an important part of this as well as conventional power.”

Other major investors include the Black Rhino Group. Group Chairman Lamido Sanusi confided to Access Africa that, “Right now we have $5 billion USD and a commitment from the Dangote group to match every billion dollars with another billion. This gives us access to funds of $10 Billion USD for energy projects in Africa.” Sanusi claims that there will be more money available once projects show positive signs of implementation and present solid impacts on regional development. The Blackstone Group finances the group. According to Sanusi, “The Blackstone group has over 330 billion USD in funds. They are the biggest private equity fund for infrastructure in the world and they are willing to invest in Africa and have said that if we invest well, we will get more. Finance is not a problem.”

If finance is not a problem, then it stands to reason that the real challenge is getting the right pipeline of well-structured projects into place, while getting commitment from governments and private institutions to streamline projects and get them online.

However, coming to agreements, especially in Public Private Partnerships (PPPs) where such substantial amounts of capital expenditure are concerned, takes time. JP Labuschagne, Associate Director of Deloitte explains that their findings suggest that most government departments generally only tend to do one big PPP energy project at a time. He explains that, “While advisors can present the best feasibility, getting people to understand the cost implications and make a huge billion-dollar decision, often makes people nervous in government and this creates a decision paralysis and slows down the PPP process.”

The answer? According to Labuschagne, it could lie in employing lessons learned from the successes of South Africa’s Renewable Energy Independent Power Producers (IPP) Programme across other major energy infrastructure programmes on the continent. “One of the biggest challenges with a lot of stand-alone projects is that the project documentation is quite bespoke,” says Labuschagne. He continues, “One of the biggest successes in the renewable programme through the IPP office is that they spent a lot of money up front in getting it right.” Having a standardized legal entity through coherent and precise documentation allows all involved parties to clearly understand all the risks encapsulated in a project, and allows for quicker decisions to be made that could bring energy infrastructure online far more rapidly.

The IPP office is a partnership between the Department of Energy, the Treasury and the Development Bank of South Africa.

When Pravin Gordhan, Minister of Finance for South Africa, addressed the country in 2016 during his budget speech, he claimed that South Africa’s ambitions to expand its nuclear programme by 9600 MW would follow the same IPP approach as renewables. The nuclear programme was subsequently moved from the Department of Energy to the IPP office.

Should South Africa pursue its nuclear expansion ambitions, despite growing opposition from both Parliament and a number of domestic and international groups, a number of locally based companies will participate in the infrastructure build under the IPP set up. Coenie Vermaak from Fluor remarked to Access Africa that, “When Government decides on the model and how it will be engaged, Fluor will eventually be part of the nuclear nexus in South Africa.”

Indeed Fluor has an extensive experience in nuclear in North America where they are currently working with Westinghouse on a major nuclear expansion programme. Vermaak explained that, “If you look at the models in North America, you have private companies that run nuclear power plants, and the IPP works very well. It is probably one of the most successful industries in North America. I believe that an IPP programme can work, and government and institutions like Westinghouse can actually engage quite constructively with government.”

Outside of South Africa, while projected plans for investment in energy infrastructure gains momentum and while PPPs are being discussed, many countries are severely struggling to meet their energy needs at present. Poor foresight to accommodate the energy needs of growing economies can to an extent be blamed, but the current drought in Southern Africa is also responsible. Perhaps the country most affected by this is Zambia.

Access Africa met with Christopher Yaluma, the Zambian Minister of Mines, Energy, and Water Development, to discuss the issue.

He claimed that, “Our meteorological departments forecasted rainfall as normal for 2014/15, but owing to global warming and the el Niño effect, it never rained as anticipated. This affected outputs at hydropower stations in Lake Kariba and Kafue Gorge. We came to find that we had three months of water available. As a result the decision was made to ration water for power production and we have had massive load shedding throughout the country.”

The deficit in Zambia in 2015 was 500MW and by February 2016 had climbed to 750MW. While this affected the livelihoods of millions of Zambians, local industry and mining houses were also hit very hard. Over the medium to long term, Zambia is relying heavily on the completion of the Maamba power plant, which was constructed by Zambia Consolidated Copper Mines (ZCCM) with the help of Chinese investors. The coal-fired power plant is set to generate 150MW by the end of April and three months later a further 150MW. According to Dr. Pius C. Kasolo, CEO of ZCCM, “In the next 18 months we are going to increase the power output at Maamba from 300MW to 600MW by installing another turbine.”

While a move in the right direction, this still indicates that Zambia will be in a severe energy deficit for at least the next two years. When asked about this, the Minister affirmed that costly energy is currently being purchased from Mozambique with the cost gap being financed by the government. He also indicated that, “We are currently in the process of getting another 100MW of power from the Karpowership, which will dock in Mozambique any day now.”

Powerships are marine vessels with a power generating plant built on board with the specific purpose of supplying energy at any port of call. These are becoming increasingly popular as short-term solutions to bridge an energy deficit until long-term energy infrastructure can be installed. In an interview with Access Africa, Moe Shaik, GE: International Finance from the DBSA, confirmed that the group has just completed the “financing of a Ghana power ship, called the Osman Khan built by the Karadeniz Group, from Turkey, and it will provide a substantial amount of power to Ghana, under a 10-year contract.”

Mr Shaik continued, “We are very excited about this initiative because we believe that the powership will be a very innovative way of distributing power to any country with a coastline in Africa. It is immediate and effective, and it changes the paradigm of power on the continent.”

Another way countries have been closing the energy gap in the short term is through regional integration and power pooling. This is perhaps most evident through the collaboration taking place between South Africa, Zambia, Botswana, Zimbabwe and the DRC on the Grand Inga hydropower project at Inga III. This is currently the world’s largest proposed hydropower scheme, and if bankrolled, it would provide Southern Africa with an initial 4500 MW of electricity, before further expansion plans are made. With participation from the New Partnership for Africa’s Development (NEPAD) as well as the Southern Africa Development Community (SADC), the project is currently in its feasibility phase and under environmental impact assessment.

Beyond hydropower, solar and wind will also play increasingly important roles in the provision of energy in Africa. Ultimately the diversification of energy production in Africa will reduce overreliance on any single energy source and provide stability for the future, especially in order to avoid natural disasters such as drought.

As Africa continues to emerge, diversify, and grow, governments and private companies are going to need to collaborate ever more closely in order to make the best of all opportunities. Lamido Sanusi makes it clear when he says, “What we forget to ask is what is the price of darkness? People are poor precisely because they do not have access to energy.” Without a doubt, energy is transformative in terms of peoples’ lives, in terms of broadening the tax base, and in terms of poverty alleviation, and there is a growing awareness of addressing the energy issue through new projects and policies across Africa.