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Power sector challenges and investment trends in Africa
______________________________
Presentation to the Board of Norfund Cape Town 23 January 2015
Prof Anton Eberhard Graduate School of Business
University of Cape Town
@AntonEberhard www.gsb.uct.a.za/mir
But GDP of Sub- Saharan
Africa equivalent to just one
small OECD country
– the Netherlands
Fast facts
• 1.1 bn people (in 2012) make Africa
the second most populated continent
after Asia. Africa is home to 15% of the
world’s population
• 7 out of 10 of the world’s fastest
growing economies for 2011-2015 are
forecast to be African - Ethiopia,
Mozambique, Tanzania, Ghana,
Zambia, DRC and Nigeria
• 40% of African’s live in cities. Africa is
expected to be 50% urbanised by 2030
• 18 top African cities will have a
combined annual spending power of
USD 1.3 trillion by 2030
• 41% of Africans are under 15, the
youngest population of any continent
• 60% of the world’s total arable,
uncultivated land is in Africa
Africa is growing
Key power challenges
Power infrastructure is underdeveloped
Access to electricity is low and unequal
Electricity supply is often unreliable
Power costs are high
Africa has 15% of global population but only 3% of power
Sub-Saharan Africa 80GW
South Africa 44GW
Power imbalances within Africa
Electricity generating capacity in SSA
• 12 counties account for 90% of capacity
• 30 countries have grid-connected power systems smaller than 500MW
• 13 smaller than 100MW
• Few economies of scale
• Large energy resources remain undeveloped
Country MW GDP (PPP) USD
billions
Angola 1657 102.55
Cameroon 1007 41.72
DRC 2506 22.31
Cote d’Ivoire 1522 31.84
Ethiopia 2127 82.97
Kenya 1816 62.81
Mozambique 2429 20.61
Nigeria 5900 363.42
South Africa 44283 489.59
Sudan 3038 91.65
Zambia 1819 19.28
Zimbabwe 1966 3.79
SSA Total 80225 1811
SSA-RSA 30364 1321
Generation Capacity in Sub-Saharan Africa MW
20.000
25.000
30.000
35.000
40.000
45.000
50.000
50.000
55.000
60.000
65.000
70.000
75.000
80.000
85.000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
SSA (left axis) SSA-RSA (right axis)
Countries that have added the most MWs since 2000
South Africa
Sudan
Ethiopia
Angola
Ghana
Kenya
Cote d'Ivoire
Senegal
Uganda
Madagascar
Cameroon
Rest
Per capita electricity consumption is low
Per capital energy consumption vs GDP
Angola
Benin
Botswana
Cameroon
Cd'I
Eritrea
Ethiopia
Gabon
Ghana
Mozambique
Namibia
Nigeria
South Africa
Togo
Zambia
10
100
1000
10000
100 1 000 10 000 100 000
Ele
ctri
city
Co
nsu
mp
tio
n k
Wh
/ca
p/
yr
GDP (PPP) USD / capita
Very low access to power
Source: Earthlights, 2000
Share of population without access to electricity
Access to energy by income quintile unequal
0%
20%
40%
60%
80%
100%
Q1 Q2 Q3 Q4 Q5
Electricity for lighting
Wood/Charcoal for cooking
Gas/LPG for Cooking
Kerosene/Paraffin for Cooking
Source: Africa Infrastructure Country Diagnostic
SSA a global outlier
0
200
400
600SSA
South
Asia
East
Asia
0
25
50
75
100
SSA
South
Asia
East
Asia
030060090012001500
SSA
South
Asia
East
Asia
00.030.060.090.120.15
SSA
South
Asia
East
Asia
Generation capacity (MW per million population)
Electrification rate (Percentage of households)
Electricity consumption (kWh per capita per year)
Power prices (US$ per kilowatt-hour)
Source: Africa Infrastructure Country Diagnostic
Supply is often unreliable
• Insufficient investment in maintenance and refurbishment
• WB Enterprise surveys reveal average of 56 days per annum with power interruptions – losses in forgone sales and damaged equipment
• More than half of large firms have back-up generators • Own-generation now a significant proportion of installed capacity
% of businesses that rely on back-up generation
Source: Estache, 2005, p.31. Evidence from the Investment Climate Assessments
Back up generation increases average power costs
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
So
uth
Afr
ica
Za
mb
ia
Ma
law
i
Eri
tre
a
Ta
nza
nia
Ke
nya
Ug
an
da
Ca
me
roo
n
Se
ne
ga
l
Ma
li
Bu
rkin
a F
aso
Ma
uri
tiu
s
Ca
pe
Ve
rde
Nig
er
Be
nin
Ave
rag
e c
ost o
f p
ow
er
(US
$/k
Wh
)
Average
total cost of
own
generated
power
Average
price of
power
purchased
from utility
Weighted
average
cost of
power used
Source: Africa Infrastructure Country Diagnostic
Extent of crisis revealed in prevalence of emergency short-term power leases
Power crisis exacerbated by
• drought
• high petroleum prices
• damage to infrastructure through wars
• rapid demand growth
Responding to Africa’s power challenges
• Power sector reform
– Standard model of unbundling, privatisation and competition not fully adopted
– Growth of hybrid markets
– Independent regulators
• Reform of state-owned utilities
• Growth of private (& Chinese) investment
Investment in power in SSA (ex RSA) Excluding Government/Utility; US$m, 5 year moving average
0
200
400
600
800
1000
1200
1400
1600
1800
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Inve
stm
en
t in
$ M
illio
ns
IPPs Chinese Arab ODA (OECD) DFIs
0
200
400
600
800
1000
1200
1994 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2014X
IPP investments in SSA (ex-RSA) US$m
SSA (ex RSA) countries with most IPP investment (US$m)
0
500
1000
1500
2000
2500
0
500
1000
1500
2000
2500
Togo Rwanda Zambia Mauritius Cameroon Senegal Tanzania Uganda Ghana Côte d'Ivoire Kenya Nigeria
Countries with the most IPP capacity in SSA (ex RSA) MW
Number of IPPs per country 0 2 4 6 8 10 12 14 16 18 20
Uganda
Kenya
Mauritius
Senegal
Nigeria
Tanzania
Ghana
Cameroon
Côte d'Ivoire
Angola
Zambia
Togo
Cape Verde
Madagascar
Sierra Leone
Gambia
Rwanda
OCGT+CCGT, 4224, 61%
HFO +MSD/HFO, 1141.5, 17%
Wind, Onshore, 385.5, 6%
Hydro, large, 370, 5%
Coal, 196.2, 3%
Waste/bagasse, 183, 3%
Hydro, Small (<50MW), 182.7, 3%
Methane Gas, 100, 1%
Geothermal, 84, 1%
Solar, 19, 0% Biomas
s, 15, 0%
Other, 218, 2%
IPPs by technology SSA (ex RSA)
Chinese supported power projects in SSA (MW)
Hydro, large, 7560.2, 79%
OCGT+CCGT, 1575, 16%
Coal, 300, 3%
Wind, Onshore, 201, 2%
HFO +MSD/HFO, 10, 0%
Hydro, large
OCGT+CCGT
Coal
Wind, Onshore
HFO +MSD/HFO
South African Renewable Energy IPP Programme
• US$14 bn
• 64 projects
• 3922MW
…..since 2011
• More than in rest of Africa in past 20 years
• Solar PV prices have fallen 68% and wind 42%
South African REIPPP debt funding
31
Life funds 5%
DFIs 31%
Commercial
Lenders 64% South
African 86%
International
14%
South African REIPPP major debt providers
The “rest” category includes OPIC, AfDB, Liberty Group, ACWA, EIB, Sanlam, FMO PROPARCO and Sumitomo
ZAR 0
ZAR 2
ZAR 4
ZAR 6
ZAR 8
ZAR 10
ZAR 12
ZAR 14
ZAR 16
ZAR 18
Nedbank Standard RMB ABSA IDC DBSA EKF Investec Old Mutual IFC Rest
Bill
ion
s
Window1 Window2 Window3
-
5
10
15
20
25
no
. of
pro
ject
s p
er le
nd
er
-
2
4
6
8
10
12
14
16
18
no
. of
pro
ject
s p
er s
har
eho
lder
- More than 100 different shareholder entities - 46 participated in 2 or more projects
South African REIPPP Prominent shareholders
Uganda GET FiT Programme
• Uganda now has more IPPs than any other African country (ex RSA)
• First two rounds: 12 projects, over 100MW
• Mostly small hydro, but also bagasse/biomass
• Current PV round in progress
• Premium Payment Mechanisms on FIT
• Robust competitive procurement process (assessed on technical/environmental/social/economic merit)
• With bankable PPAs, IAs, DAs
• And World Bank PRGs
Summary of Macro Investment Trends
• IPPs and China are now fastest growing sources of funding for power projects
• But still insufficient to meet power demand • Concessionary DFI and ODA sources remain
modest • Most IPPs have been thermal; most Chinese
projects are hydro • Grid connected renewable energy markets taking
off – Potential to learn from RSA & Uganda programmes
but with lower transaction costs – Grid-connected renewables need to be backed by
reliable dispatchable power such as gas
Prof Anton Eberhard
Graduate School of Business
University of Cape Town
@AntonEberhard www.gsb.uct.a.za/mir
Thank you for your attention