The two factors set to transform Africa’s energy challenge



Africa’s power generation capability is increasing slowly but steadily. The continent’s energy shortages are a long way from being resolved, but in country after country, they are being addressed.

New power stations are being built in many parts of the continent, with a strong focus on renewable wind and solar power. Transmission and distribution lines are being upgraded, and regional interconnections are giving countries more energy security.

In its Africa Energy Outlook last year, the International Energy Agency (IEA) estimated that in sub-Saharan Africa as a whole, only 290 million out of 915 million people had access to electricity and that the total number without access was rising. While efforts to promote electrification are gaining momentum, they are outpaced by rapid population growth.

However, the same report shows what can be achieved. In its main scenario for 2040, the IEA says that power generation in Africa can quadruple over the next 25 years from the current 90GW, bringing electricity to an additional 950 million people as reform programmes improve efficiency and bring in new capital, including from private investors.

A number of factors are behind the drive to increase electricity generation. Rapid economic growth – sub-Saharan Africa has been one of the fastest growing regions of the world – and rising population numbers have increased the demand for energy. On the supply side, huge oil and gas finds, as well as the declining costs of renewable energy, are leading to an increased focus on power generation from wind, solar and natural gas.

While governments are also looking at new power from coal, hydroelectricity and nuclear, there are two significant factors that are set to transform Africa’s power supply prospects. The first is renewable energy, which has been the big development in Africa recently. The second is natural gas, which may become the game changer that provides the electricity for economic growth and job creation in decades to come. These two forces, in combination, could go a long way to relieving Africa’s energy woes.

South Africa’s drive to increase power from renewable energy has been a remarkable success, and the lessons being learned are helping other African countries that are looking at or implementing similar programmes.

The first contracts in the South African Renewable Energy Independent Power Producer (REIPP) programme were awarded in 2012, and there have so far been four bidding rounds as developers vie for contracts. At least two more rounds are anticipated in 2016 and 2017. More than 90 projects have been approved, and many of the early ones are already completed and feeding power into the South African grid.

The programme initially aimed to procure 3,725MW of power from renewable energy but this has grown because of the success of the programme and the interest shown by local and foreign investors. The programme has attracted huge amounts of foreign investment from private sector developers and, more recently, electricity utilities in France and Italy.

In May 2016, the South African energy minister said the country remained on track to procure 17,800MW of renewable energy by 2030. By December 2015, 6,377 MW of renewable energy had been procured. This is expected to grow to more than 7,000 MW with some 90 renewable energy independent power producers fully operational by the end of 2016. Private investment in the programme already exceeds R194bn and will increase to R255bn by the fourth bid window.

The fifth bid window will be initiated later this year. Other new developments include a 1,500MW solar park to stimulate investment in new and expanding industrial and manufacturing facilities, and plans for a 600MW additional gas-to-power programme in partnership with state-owned entities.

The tariffs at which developers were offering to sell electricity dropped substantially after the first bidding round, with wind generation tariffs now about half of what they were at the start of the programme, and solar PV tariffs about three times lower. The reasons included rising investor confidence in the process, increased competition for project contracts, and the falling price of generation equipment such as wind turbines and solar panels.

As a result, it is cheaper now to procure power from wind and solar in South Africa than from a new coal-fired power plant, and that is without any of the built-in subsidies that are common in Europe or elsewhere.

Another outcome, seen in South Africa and hopefully in other African countries in future, is increasing interest in renewable energy investments from pension funds and the insurance industry. Renewable energy has become a whole new asset class for the investor community with a successful track record. Barclays has been involved in funding nearly 45% of the projects approved in South Africa, and we have not seen one failed project. All those completed have been on time and within budget.

Renewable energy is becoming an African success story, and the IEA estimates that renewables will account for almost half of Africa’s new power generation between now and 2040.

Natural gas is the other new frontier for power generation in Africa. It will be years, and probably decades, before gas-to-power projects are developed at scale, but gas projects planned in Nigeria, and in countries down the east coast of Africa following massive offshore gas discoveries, can produce enough power to transform national and regional economies.

Among the other countries planning gas infrastructure projects are Ghana, seeking to exploit its own offshore gas fields; Tanzania, which plans to convert power stations to gas; and Mozambique, which is looking at a huge liquefied natural gas (LNG) export industry. South Africa is about to launch a gas IPP programme with natural gas available from Mozambique, and its own offshore and possibly onshore deposits.

The other sources for new power generation in Africa are hydro, coal and nuclear. Hydro power has been a success in several African countries, though drought is now affecting the efficiency of some hydro-electric plants. Long transmission lines can also affect the financial viability of remote hydro power stations.

South Africa has the only nuclear power station in Africa and is planning to expand its nuclear fleet.

Coal is going remain an important, though diminishing, part of Africa’s power equation. In many parts of the continent, coal is plentiful and cheap. Kenya, Mozambique, South Africa and Botswana are among those planning new coal-fired power stations. However, environmental concerns are resulting in an increased focus on cleaner options like renewable energy and natural gas.

Together with increased power generation comes the need to strengthen national and regional grids. Africa’s five regional power pools – in east, west, central, northern and southern Africa – aim to increase regional interconnectivity and thus energy security.

Where all countries in a region are interconnected, a shortage in just one of those countries can quickly be managed by importing power from a neighbour. Governments throughout the continent are spending significant amounts on new and upgraded transmission lines to achieve this objective.

Africa is addressing its power shortages, slowly but surely, with success stories from current initiatives and massive potential for future projects to light up the continent.