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Energy in Africa: a brighter future

During a session at the recent World Economic Forum on Africa, held in Cape Town, experts discussed the latest developments in addressing the continent’s energy infrastructure constraints. Here are the highlights from the session.

Kola Karim says governments need to create the right conditions for the private sector to invest in energy.

Kola Karim says governments need to create the right conditions for the private sector to invest in energy.

Energy provision and regulation is critical and should be considered on a regional basis to most efficiently unlock growth and trade. Regionalisation benefits will be felt through providing: harmonisation of regulation regimes; access to adequate supply of energy; and power pools that encourage regional cooperation. “There should be no place in Africa where a country has generated power, but has nowhere to sell it,” said Zola Tsoti, chairman, Eskom Holdings, South Africa.

The private sector needs to view energy and infrastructure as not just a government responsibility. Kola Karim, group managing director and chief executive officer, Shoreline Energy International, Nigeria, believes there are vast opportunities for government to create an enabling environment for the private sector through regulatory frameworks that encourage private investment in smart ways to increase efficiency, drive down costs and encourage investment.

Deregulation of the power industry, such as in Nigeria, allows international capital to flow to the niche areas where investors feel most comfortable. Government also plays a critical role in giving comfort to private investors that the rule of law is recognised.

The recent interest of the global capital market in Africa’s energy sector provides a possible new capital inflow, but it also means that investment opportunities need to be created through partnerships with government. To determine the level of support required, governments can consider the opportunity cost of increased energy capacity. In South Africa, brown-outs allowed the government to quantify the effect of not investing capital in energy infrastructure through decreased GDP and other measures.

Governments can use tools such as risk insurance, guarantees schemes and packages to accelerate infrastructure. “Trillions of dollars are there ready to find the right investment opportunity in the energy sector – it is not an issue of capital, it is about creating the right opportunity,” said Brian Herlihy, chief executive officer and founder, Black Rhino Group, USA. However, “sometimes the risk is so high that private capital doesn’t want to play. Political risk insurance before financial close can get money into that risky phase of capital,” he added.

Smart supply-side measures will also bring environmental and consumer benefits. There will never be enough supply in Africa nor in the whole world and, in addition, 600 million people in Africa are living “off-grid”. The off-grid market is nascent and characterised by many new small-scale services and products such as LED solar lighting for homes; and will be critical to alleviate pressure on demand and allow activity into the evenings, such as study, which is a productivity booster.

“We are looking at new business models where we sell lighting as a service and then it pays itself back through its energy savings. As a big company, you can do this through large operators. Doing this with a consumer is a bit more difficult. This is where we can partner with local entrepreneurs who can deliver this,” said Frans van Houten, chief executive officer and chairman, Royal Philips Electronics, Netherlands.

“Demand side challenges will contribute to the creation of new industries. We are going to be sitting in this situation for a long time so there is scope for parallel industries,” said Kola Karim.

In addition the adoption of more efficient – although currently more expensive – technologies in grid-connected environments, such as LED and smart metering, is being accelerated through the private sector and government working together.

The conversation needs to move to energy and not purely electricity. In doing so, the focus of government will be to optimise energy sources for the long-term benefit of a country and the region. “The focus of leadership should be on energy as a whole. If this is the focal point then governments will look across the value chain of various fuel systems and optimise their choices,” said Frans van Houten.

“Leadership of the continental countries in Africa are not thinking enough about what will satisfy the future generation. Without leadership determining where we want to be, we won’t get there”, said Karim.

Corporate leadership must share its learning on what it means to be more responsible, such as using by-products most efficiently to reduce waste and to find more sustainable uses of energy, rather than just paying a fine.

“We need to understand the dynamics of the energy industry in Africa to understand how consumers, business and government can work together. I hope that the World Economic Forum on Africa can take initiative like it did with Grow Africa, but on the energy side,” said Herlihy.

Energy production is also a critical activity on the continent as it leads to industry development and job creation. To reduce poverty, Africa needs economic growth, and energy is a catalyst for it.

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