The advance of innovation in both technology and finance makes this an exciting – if challenging – time for the African energy and power market. This supplement takes a timely snapshot of the activity across the continent and provides pointers as to the future direction of the energy roadmap. There is much to admire in its ambition; the challenge, as ever, will be ensuring effective implementation. This overview by James Gavin and Ian Lewis (Editors).
The next four years will be crucial for Africa’s energy sector. According to African Energy Live Data, installed capacity on the continent will increase by almost 50% from 2018 to 2022. And while most of this expansion will come from traditional fossil fuels – chiefly gas and liquid fuel-fired projects – investment in renewable energy (RE) is also rising at a steady clip. By 2022, predicts Live Data, the share of renewables in the energy mix across Africa should reach as much as one quarter.
The transformation in the continent’s energy picture is underpinned by changes in the way energy is transmitted and traded. In many parts of the continent off-grid solutions have come to the fore. Renewables are gaining fresh momentum on the back of declining prices for wind and solar technologies. Renewable solutions have been made feasible with the provision of additional support from multilateral funding sources, such as the World Bank Group’s Scaling Solar programme.
Financial innovation is now a key characteristic of the region’s energy financing deals. While African power projects are still affected by issues such as the absence of cost-reflective tariffs and inadequate regulatory frameworks, independent power projects (IPPs) are now emerging as investable propositions. Through examples set by impressive schemes such as the Ghana-based Kpone IPP, Africa can look forward to more such projects.
This innovation is essential. As Oliver Andrews, Executive Director and Chief Investment Officer at the Africa Finance Corporation notes, the biggest factor preventing the development of the continent’s energy sector isn’t the lack of capital – it is the lack of bankable projects, which in turn reflects less than ideal conditions facing investors.
Yet where an investment framework is in place, African project sponsors have shown they can catalyse private investment and get power projects up and running without troubling state balance sheets.
Take South Africa. Karen Breytenbach, Head of the IPP Office at the country’s Department of Energy, highlights the signing of 27 projects under its Renewable Energy Independent Power Producer Procurement Programme. They are a testament to the government’s commitment not only to renewable energy, but also to a solid partnership with the private sector as it pursues energy transition and economic development objectives in the future. By end-2017, more than 6.4 GW of electrical energy capacity had been procured from 112 renewable IPPs under the programme across seven bid windows.
Across the continent, there is a clear need for new financing tools to reflect the shifting energy mix and the evolution of new technologies. Traditional project financing methodologies are not always suitable.
There is much going on that leads to a confident outlook for the continent’s energy prospects.
Sometimes these schemes need multiple layers of support. The Azura-Edo IPP was the first Nigerian power project to gain support via the World Bank’s Partial Risk Guarantee – devised to facilitate big-ticket projects in emerging markets – and was also covered by political risk insurance for equity and commercial debt from the World Bank Group’s Multilateral Investment Guarantee Agency.
There is much going on that leads to a confident outlook for the continent’s energy prospects. Over the last five years, says the International Energy Agency, renewable energy, off-grid and mini-grid systems have started to gain ground in Africa. Renewable energy has provided 34% of new connections since 2012, and off-grid and mini-grid systems 6%. It expects this shift to accelerate.
Even in the poorest countries, such as Burkina Faso, the authorities have made efforts to expand solar generation. Last year saw the launch of the 33 MW peak Zagtouli solar plant and the development of further photovoltaic solar units to add an extra 168 MW. And there are plans for a major new solar project with a capacity of 150 MW.
As the country’s Energy Minister, Dr Bachir Ismaël Ouedrago, explains, there is also considerable potential for extra hydro-generation there. He intends to speed up reforms that can encourage investment in renewables, with legislation that provides fiscal incentives for renewable energy equipment and measures aimed at facilitating and encouraging the establishment of independent solar power producers and the generation of solar electricity by users themselves.
Over the last five years, says the International Energy Agency, renewable energy, off-grid and mini-grid systems have started to gain ground in Africa.
Decentralisation emerges as a prominent theme. The energy access landscape is likely to change in coming years, especially in rural areas. Decentralised systems are likely to provide the most cost-effective solutions for boosting access, particularly in a continent where the average difference between urban and rural electrification rates is more than 40%.
In many African countries a significant minority of rural dwellers will for the foreseeable future get their electricity from domestic solar panels and autonomous local generation and distribution networks, rather than from a national grid. And the development of small-scale solar, hydro or wind generation may actually boost the feasibility of such local networks.
Governments are also thinking across borders in this regard. For example, in West Africa, utilities and regulators are making serious efforts to make the dream of the West Africa Power Pool a reality, with the launch in June of this year of a new integrated regional electricity market.
This 76-page supplement appears in the latest Edition of African Business Magazine – OUT NOW!