14 December 2012 – The rapid economic growth of countries in the west African region like Nigeria,Ghana,Ivory Coast and Senegal, is triggering greater energy demand. Thelack of electricity infrastructure, however, is resulting in a situation where supply is simply not keeping pace with demand.This, in turn, is opening the way for increased investment opportunities in the independent power producing (IPP) markets.

Frost&Sullivan’s energy and power supplies research analyst Tanye ver Loren van Themaat says, “The majority of the region does not have adequate electricity infrastructure to meet escalating demand for power; governments have under-invested in electricity infrastructure, which has led to power outages and load shedding on a regular basis.”

To bridge the gap between supply and demand, most West African countries have started a process of power sector reform, paving the way for the entry of IPPs. The path to greater IPP involvement is, however, riddled with potholes. Electricity tariffs in west Africa are not cost-reflective yet, but most countries are working towards more reflective tariffs. And while reforms have been initiated in the power sector, key legislation is often inadequate to facilitate effortless deregulation.

“Reliable gas supply is another area of concern,” van Themaat adds. “The investment opportunities for IPPs are influenced by the uncertainty of gas supply, due to complications with west Africa’s gas pipelines and rampant gas flaring.”

IPPs that want to invest in west Africa will first need to ensure that there is reliable gas supply to run its power plants on. It is important that power purchase agreements (PPAs) are structured correctly for both the country and investors to realise benefits.

“An understanding with the electricity regulator must be reached as to how the electricity tariffs will be structured.This will ensure the power company has a fair chance at making a suitable profit, while keeping the tariffs affordable,” van Themaat says. “IPPs will need to conduct research about the legal and regulatory environment, as well as how well the deregulation process has been implemented in the countries they want to invest in.”