HomeRegional NewsAfricaWhat’s next for Africa’s energy sector?

What’s next for Africa’s energy sector?

Over the past 20 years, we have witnessed major shifts in the energy landscape across the African continent, but what lessons can be learnt for the future?

The following extract is taken from the IFC and Graduate School of Business, University of Cape Town’s report Reflections On The Last 20 Years: How Far Have We Come? which was published to mark the anniversary of the 20th Africa Energy Forum in Mauritius last June. “After a disappointing decade in the 1990s, where very little new capacity was added, the past decade and a half has seen around 20GW of new generation capacity.

This article first appeared in ESI-Africa Edition 1, 2019. You can read the magazine’s articles here or subscribe here to receive a print copy.

While the current macroeconomic environment is turbulent for many developing countries, in the long term Africa will continue to grow. It will offer investment returns that are attractive to foreign investors compared to alternatives elsewhere. In the power sector this should be obvious – everybody is hungry for power, it has a multiplier effect on economic growth, and there have to be ways to structure the sector to allow profitable investment. Yet governments are still struggling to get people to the table.

What needs to change?

One of the stumbling blocks for deals to close is the process of procurement, and the integrity concerns that often surround it. For an increasing number of deals and countries, competitive and transparent procurement, a la REIPPPP and Scaling Solar, is the way to go. In the future, organising bidding processes for solar deals should be de rigueur. Wind would also benefit from an organised bidding process, especially given the land issues that often delay these projects.

And given the prices that these products are delivering, the availability of subsidies for and increased focus on renewables, solar, wind and storage are clearly the energy products of the future. Unit prices of storage, in particular, are falling rapidly and the fall is accelerating – some estimates put the current unit rate of decrease at 20% a year. Has Africa financed its last peaking plant? Possibly not – but the day cannot be far off when it does.

A striking verdict on the last twenty years is that the absolute number of Africans without power has not diminished – it’s still close to 600 million – despite all the developers, bankers and investors who turn out to the Africa Energy Forum every year. We obviously need to do better – but the technological revolution involving household solar and storage, and smart metering and billing will do the same for the power sector that the mobile phone did for telecommunications. Household off-grid and mini-grid is the wave of the future, and figuring out the interface with grid-based power is the Holy Grail.

Meanwhile, we, and Government clients, need to be more inventive about bringing the private sector into other parts of the business, including distribution and transmission. Private transmission is commonplace in Latin America, for example, and there is no reason why it cannot be a feature of Africa economies. Even across borders; if a railway line can be built across Malawi to Nacala in Mozambique, there is no reason for a transmission line to be publicly-funded.

Against this background it is clear that IPPs can continue to make an important and growing contribution to meeting sub-Saharan Africa’s power needs. Projects are concentrated in a few countries, but there is scope to widen private investment across the continent. Current experience with IPPs on the continent offers important lessons around the enabling environment to accelerate private investment. The key is having a dynamic, least-cost power plan that is translated into a (competitive) procurement programme in a timely manner. Using competitive bidding or auctions further ensures that this investment is affordable (i.e. that prices are low), and that the procurement process is transparent and predictable.” ESI

This article first appeared in ESI-Africa Edition 1, 2019. You can read the magazine’s articles here or subscribe here to receive a print copy.

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