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