Independent Power Generation in Africa: Part of the Solution?

By David Baxter

Even though I live in the USA, I am regularly drawn into conversations about the challenges regarding access to electrical power in Africa and its impacts on the lives of colleagues, friends and clients. Most are convinced that Africa can solve this challenge if only governments could find a way to encourage collaboration between the public and private sectors, deregulate power generation, and enable and persuade independent power producers (IPPs) to be active partners in the quest of universal access to electricity.

In the past week I read a sobering African Development Bank report on how Africa’s chronic power problems and how mismanaged power infrastructure has escalated into a crisis affecting 30 countries. This is of particular concern when one considers how many initiatives are underway to increase power generation and access to electricity for the power starved and to mitigate the toll that this has on economic growth and productivity.

Sobering facts were listed on the website and by other sources included the following:

  • The installed generation capacity of Africa’s 48 Sub-Saharan countries is approximately that of Spain’s or South Korea’s generation capacity
  • Six hundred million people in Sub-Saharan Africa have no access to reliable and affordable electricity and are power starved
  • Up to 25% of the total generation capacity is unavailable because of aging plants and poor maintenance.  
  • Currently only 20% of Africans have access to reliable electricity
  • If new plants are not built soon and old plants are not maintained, less than 40 % of African countries will an acceptable level of access to electricity by 2050
  • Per capita consumption of electricity in Sub-Saharan Africa (excluding South Africa) averages only 124 kilowatt-hours a year and continues to decline
  • The rate of electricity consumption is barely 1% of that in high-income countries
  • More than 30 African countries are now experiencing power shortages and regular interruptions in service, leading many to rely on other costly sources – even South Africa a former ‘Powerhouse” of Electricity production has experienced rolling power outages that have seriously impacted economic activity
  • Power outages have impacted GDP by more than 2% and has shaved off as much as one-quarter of a percentage point off annual per capita GDP growth rates
  • Apart from low investment and high population growth, other causes for electricity shortfalls include natural causes such as droughts that have impacted hydroelectric power generation; oil price fluctuations, and the impact of conflict on power infrastructure
  • The lack of government capacity to deliver still remains a concern need addressing immediately

Many of those that I am in regular contact with feel that governments and donors have spent an extraordinary amount of time strategizing and talking about increasing power generation and that it is now time to implement ideas through tangible actions. A person who I respect once said to me – “I just wish they would get on with the job.”

Governments who have limited financial resources and their international donors are increasingly focused on attracting alternative forms of investment in the power generation sector that will bridge funding gaps by creating opportunities for partnerships between the public and private sectors. Public-Private Partnerships (PPPs) that innovatively and collaboratively address institutional and investment shortcomings are increasingly being explored by governments and Independent Power Producers (IPPs) as an alternative strategy to address power generation goals.

For any initiatives to be successful international supporters of any power initiatives need to be principally focused on supporting initiatives that encourage the development of homegrown domestic strategies that address structural, political, and economic constraints in a way that encourages African governments to be the primary drivers of their own fates. Excessive outside intervention can easily be interpreted as interference and doom well-intentioned ideas.

AfricaPower-blog-graphHomegrown initiatives are difficult to implement because power is very expensive to produce in Africa, there are unnecessary barriers to cross border power distribution, and many state power monopolies have restricted access to their markets for IPPs. Unfortunately as long as competitive power generation is inhibited, many Sub-Saharan countries will continue to experience atrophied power generation, as their governments do not have the capacity to fix their problems with the limited resources at hand. The fact is that the power sector investment shortfall of over $40 billion per annum will remain insurmountable unless governments attract investment. According to the African Development Bank, innovation from the private sector that was just focused on improving the operating efficiency of power utilities would save Sub-Saharan Africa $2.7 billion a year, which could be used to finance new power infrastructure.

Noteworthy initiatives exist which are focused on leveraging investment opportunities, power generation capacity, and access for the private sector to energy generation markets that were previously restricted. This includes the US AID Power Africa initiative where the US Government has committed USD 7 billion and secured an additional USD 43 billion from the public and private sectors. The focus of the program is to create ways for Africa to eventually improve local capacity to deliver its own power generation needs. The international power community is following the Power Africa initiative closely to see how it will balance the need for long-term large-scale national and regional infrastructure with the short term power needs of millions of African’s in remote rural communities and underserved urban and peri-urban areas.

Any delays in access to electricity have wide societal and economic impacts and this is why the calls for immediate action are growing louder. Delays in transmitting planning into actions have ongoing impacts on the production of goods and services, and political stability. Africa does not have the luxury of procrastinating anymore.

To mitigate delays and invigorate, a renewed focus on innovative approaches that will fast-track access to electricity is encouraged, especially one that would allow IPPs to identify viable and bankable projects that could be launched. The private sector has the knowhow to promote and fast track large-scale projects. Unfortunately there is still far too much bureaucracy that is frustrating the efforts of independent power sector utilities.

So what is needed from African governments that will fast track efforts to create an environment that will allow them to develop the capacity to meet the needs of their energy hungry citizens?

The World Bank Report on “Independent Power Projects in Sub-Saharan Africa: Lessons from Five Key Countries,” highlights factors – many of which I have commented on in previous LinkedIn posts - that would contribute to formation of an enabling environment conducive to investment by IPPs. They include the following:

  • Stable country contexts
  • Clear policy frameworks
  • Transparent, consistent, and fair regulation
  • Coherent power sector planning
  • Competitive bidding practices
  • Favorable equity partners
  • Favorable debt arrangements
  • Credit worthy off-takers
  • Secure and adequate revenue streams
  • Credit enhancements and other risk management and mitigation measures
  • Positive technical performance
  • Strategic management and relationship building

I firmly believe that Sub-Saharan governments that embrace strategic management and relationship building and which leads to immediate actions to harness the capacity of IPPs through PPPs will lead to tangible actions that will avoid the 2050 scenario previously mentioned. It is never a good idea when the public and private sector compete against each other in ways that that exhausts each party’s resolves and good intentions.

 

Sources:

African Development Bank Group:

http://www.infrastructureafrica.org/key-msg/sector/africa’s-chronic-power-problems-have-escalated-crisis-affecting-30-countries-crisis--1

Financial Times:

http://www.ft.com/cms/s/0/96dac28a-49c9-11e6-8d68-72e9211e86ab.html#axzz4HDjYUA00

World Bank:

https://openknowledge.worldbank.org/bitstream/handle/10986/23970/9781464808005.pdf?sequence=2&isAllowed=y