HomeMagazine ArticleGet the scoop on often-overlooked African energy sector opportunities

Get the scoop on often-overlooked African energy sector opportunities

Africa is becoming an increasingly attractive place for foreign investors due to various economic, political and social reforms that are taking place on the continent, resulting in an enabling business environment conducive to foreign investment. However, with negative international media coverage on the African continent keeping some investors at bay, US president Barack Obama aptly advised: “See the Africa that so often is overlooked in the media – the Africa that is innovative and growing and dynamic.”

African economies often rank among the most resilient in the world. In May 2011, the Harvard Business Review wrote that in the middle of the 2009 global economic recession, Africa was the only region apart from Asia that grew positively, at about 2%. Moreover, the continent’s growth has been on an upward trajectory ever since then, reaching 4.5% in 2010 and 5.0% in 2011.

As the African continent continues on this developmental upward pace, it is still facing significant headwinds. While economies have been growing, the lack of access to electricity – approximately 600 million people in sub-Saharan Africa do not have grid access – has had severe impacts on GDP growth, with the concomitant inability of governments to provide crucial services to their people.

Nigeria country focus: Impact of tariff increases

Robert Dickerman, MD and CEO of Enugu Electricity Distribution Company, recently stated that Nigeria generates 156 units of electricity per person, while India generates 774 units of electricity per person, stressing that the country records the lowest electricity generation per person in the world. Although Nigeria’s generation rose in 2015, holding around 4,500MW due to higher gas supplies, it still requires US$40 billion to move its electricity generation from the current 4,500MW of electricity to 20,000MW by 2020. Furthermore, the country is crippled by customers only paying for approximately 50% of the energy they receive; thus the entire value chain is virtually insolvent and investment is severely constrained.

In Nigeria’s case, the introduction of a cost-reflective tariff introduced in February 2016 is a starting point to achieve a sound economic basis for energy prices and encourage financiers to invest more in the power sector. It is through cost-reflective tariffs that the necessary positive signals are sent to investors who depend on steady revenue streams to manage stable energy supply and modernise the sector. For Nigeria, pricing has broad implications for the health of the six power generation companies (Gencos), a transmission company and 11 distribution companies (Discos) all managed as separate commercial entities under a transit public company, the Power Holding Company of Nigeria (PHCN). As stated, the Nigerian Electricity Regulatory Commission (NERC) implemented the tariff hike and integrated the fixed charge component in the adjusted Multi Year Tariff Order (MYTO). Dolapo Kukoyi, a partner at Detail Solicitors in Nigeria, emphasised that achieving cost-reflective tariffs has been paramount in the Nigerian power sector this year, particularly because the Transition Electricity Market was supposed to take off to ensure an operational market with contracts becoming effective: Nigerian Bulk Electricity Trading (NBET) becoming operational and market participants taking financial and contractual responsibility for their obligations in 2015.

With an enabling economic and regulatory environment, there are interesting opportunities and best practices being implemented in the West Africa region. For example, the West African Power Pool (WAPP) is driving a project to develop a 1,300km (807 miles) interconnection line across Ivory Coast, Guinea, Liberia and Sierra Leone. A consortium of development agencies including the World Bank, African Development Bank, European Investment Bank and German Export Bank have agreed to provide €329 million (US$374.43 million) over 25 years for the project, thus enhancing power trading on a regional level.

Galvanising clean power in East Africa

An often-raised question about the East African region, is around its potential and dedication to renewable energy. It is predicted that renewable sources will continue to grow and be an important source in the future, with some of the power potential coming from: Kenya (geothermal, hydropower, wind, coal and natural gas), Tanzania (hydropower and natural gas), Uganda (hydropower and thermal), Rwanda (small hydropower), Burundi (small hydropower), Ethiopia (hydropower), and Sudan (hydropower and thermal).

Prof Izael Pereira Da Silva, director of Strathmore University’s Energy Research Centre in Kenya, commented that there are four barriers to the development of the renewable energy sector in East Africa, namely: cost of funds to invest; lack of awareness amongst the majority of population; unclear supporting policy; and lack of capacity at all levels of the sector. According to Pereira Da Silva, the last point on capacity is probably the one least considered when dealing with the lack of penetration of renewable energy technologies. He stated: “While the banking industry is having more access to affordable funds to avail to investors in developing countries and Government starts working positively to increase awareness of renewable energy technologies and drafts better policies, the area of education in this field is mostly neglected.”

Future predications: energy storage

Amongst the many burgeoning sectors bringing much-needed infrastructure and industrial growth to Africa, analysts and energy professionals have predicted a golden opportunity for energy storage on the continent. Utility-scale energy storage is a hot topic and a rapidly growing energy sub-sector, with significant adoption in the United States, European Union and East Asia. However, no region in the world offers a better fit and stands to gain more value from energy storage than Africa. Mikhail Nikomarov, director and co-founder of Bushveld Energy, South Africa highlights five reasons to support this prediction:

  1. Excellent solar irradiation in many regions across the continent makes Africa ideal for solar PV and storage.
  2. Of the 600 million people without energy access, most reside in rural areas (note Africa is vast and population density is very low in some regions) and through storage can receive 24-hour electricity supply before the grid gets there.
  3. Storage (with PV or wind) allows for smaller, decentralised plants and projects, which are easier to deliver. This is a significant value for Africa, where large projects are more complicated and overrun on time and budget, more than in other developing regions.
  4. African electricity consumers are more savvy in managing their own energy consumption (e.g. own diesel generation in residential to industrial locations), which is what is needed to understand and correctly utilise storage.
  5. Storage is still expensive, compared to grid electricity, but it is cheaper than the diesel or HFO that communities are currently using, so the cost barrier for adoption is lower in Africa.

On a final note, the saying that doubters do not overcome challenges, but innovators and entrepreneurs find lucrative opportunities and solutions, is manifesting itself in Africa. Consequently, there is a high demand in the African power and energy sector for companies, organisations and individuals to work on a range of areas, from amending financial frameworks, building IPPs, finding offgrid solutions to training engineers to bridge the skills gaps. ESI