The missing links in regional electricity supply
While Southern Africa’s electricity deficit has grown beyond 10 gigawatts, some countries are reporting excess generation. The challenge is interconnectivity and financing these massive links. Regional technocrats think they’ve found the solution, writes
Establishing regional electricity connections was not always as slow as it has been in recent years. Those who track regional interconnectivity remember the golden years when electricity utilities and their governments steamed ahead with linkages of increasingly higher capacity, lighting up large swathes of the region and laying the ground for socio-economic development.
According to records made available by the Southern African Power Pool (SAPP), as early as the 1950s, the Democratic Republic of Congo and Zambia connected and then Zambia and Zimbabwe linked up after the Kariba Dam’s construction in the 1960s. From the 1970s and 80s through the early 2000s, interconnection was achieved between Mozambique and South Africa, Botswana and South Africa, SA, Botswana and Zimbabwe, Mozambique and Zimbabwe; Mozambique, Eswatini and SA as well as Namibia and Zambia. This network represents the core of the SAPP, the regional power pool, which is the continent’s oldest. Interconnectivity is the SAPP’s raison d’etre, forming the basis for the trading market where the different utilities offer their excess generation for sale and those in need find supplies, on a real-time basis.
That yesteryear flurry of activity was driven by the desperate need for primary infrastructure, post-colonial cooperation and unity of purpose amongst member states as well as the enthusiasm associated with the newness of the utilities.
Things have slowed significantly since those halcyon days and whilst many interconnections are planned on SAPP’s books, precious few have moved to the feasibility stage, actually secured funding and seen shovels hitting soils.
The result is that whilst countries such as Angola, Mozambique and Zambia enjoy frequent surplus electricity generation, other countries in the SAPP region often go dark for hours at a time because of insufficient supply. The deficit in the deficit is estimated to have risen from six gigawatts (6,000MW) at peak last year, to the latest estimate of 10 gigawatts. At least three of SAPP’s 12 member states – Angola, Tanzania and Malawi – are not connected to other member states.
The challenge, besides the failure of different utilities to discharge or take up generation into and from the regional market, is also worsened by the fact that the SAPP region has a unique geography. Northern states in the SAPP generate their electricity mainly from hydropower, while those in the South are powered mainly by thermal sources. Hydropower is cheaper, allowing those in the South to tap into the North, but in times of drought, the North depends on the South. The lack of developments in terms of interconnectivity has thus disrupted the symbiosis built up in previous years.
Frustrations are rising, as hinted at recently by veteran energy sector technocrats, Nchena Mothebe. The deputy permanent secretary in the Minerals and Energy ministry has more than 30 years in the energy sector and has participated in many of government’s policy efforts around electricity over that time.
“I was officiating at a SAPP meeting seven years ago and I’m disappointed that nothing has moved,” he told a meeting of the regional power pool in Gaborone. “I hope that you will be able to deal with the challenge of generation capacity, transmission capacity and the market.
“The famous ZIZABONA – I don’t want to see all the utility executives here retiring before this is done.” ZIZABONA is a long-planned interconnector involving Zimbabwe, Zambia, Botswana and Namibia that over the years has become emblematic of the slow development of regional electricity linkages.
SAPP executive director, Stephen Dihwa told Mmegi the challenge with developing the various interconnection initiatives in recent years, has been around presenting bankable projects for investor funding. The difficulty has primarily been how the economics of the projects are presented to potential financiers.
“I think one of the main challenges has been an attempt to develop the interconnectors based on the traditional way of developing interconnectors which has been that these should be underpinned by some Power Purchase Agreement {PPAs} between countries that will allow them to look at the energy that flows,” he explained.
“Over the years we have not had PPAs that have been signed to underpin the projects. “Today we believe the competitive market has grown and it is potentially possible to drive interconnectors based on trading on the SAPP.
“In other words, we just need to relook at how we are defining the bankability of these projects and as we do that we should be able to get over the challenges that these projects have been facing before.”
The SAPP is banking on two initiatives to revive investor interest in the suite of interconnection projects it has developed. One involves SAPP’s new project advisory unit, set up with the assistance of the World Bank to prepare projects for bankability.
“We listened when financial institutions indicated that what we were presenting to them were not bankable projects,” Dihwa said.
“Now you can see how many projects we have actually developed and moved to bankable, like the Mozambique/Malawi inter-connection, which is a sign that we are beginning to see these regional projects developing from the preparatory stage to implementation.
“It’s critical that we do that.”
Another initiative is the Regional Transmission Infrastructure Financing Facility (RTIFF), a fund set up by SAPP to pool financing from public resources, development partners, and the private sector for transmission and interconnections.
The region has prioritised several projects for funding from the RTIFF, explained Dihwa.
“We have front-end movers and ahead on that plan is the connection of Angola and Namibia,” the executive director said.
“After Namibia and Angola get interconnected, then we just want to make sure that the western corridor is strengthened, then move towards the eastern corridor which is SA, Mozambique all the way to Tanzania and Malawi where we have identified projects within those corridors.
“Those front-end movers, the first lot, might cost around $500 million and we already have a list of the trailing ones after that, which is five other projects.
“We are just finalising feasibility studies for these and as they get completed, they will then join the rest.”
He said the RTIFF would not wait for all projects to be ready, but as funders seed the facility, projects would take off and the revenues they generate would pay back the investors. Those countries whose legislation does not allow private sector ownership of transmission can still participate in the RTIFF as special purpose vehicles will be formed focussing on the right of use of the assets.
“It’s those rights that then attract funding and the repayment structure. That’s the model,” Dihwa told Mmegi. Essentially, by bundling projects under the RTIFF, the SAPP puts its seal of approval to financiers, using the market and its economics to underpin funding of projects, rather than the traditional PPAs. Dihwa stressed that the regional electricity deficit meant that developers of new generation and financiers of transmission were guaranteed payback in the region, as opposed to pinning their project economics on in-country PPAs.
In fact, according to the SAPP, many utilities in the region are counting the costs of the traditional PPA model. While baseload is required to power most countries in the region, particularly mining-heavy economies such as Botswana, the entry of renewables and their declining tariffs has meant that even where utilities would want to procure more of this new power, they are encumbered by long-term commitments to the more expensive PPAs they signed.
“We want to see a move to a point where we don’t get encumbered by signing PPAs,” said Dihwa.
“The beauty is that we don’t talk about offtakers, but we talk about the market.
“We have a 10GW deficit. Now show me the projects that have a capacity of 10GW to fill that.
“If yours goes over 10GW, then you don’t have a market. “In the US and EU, they have ended up with white elephants in the power sector, but we are still very far away from that, where a transmission project can be developed and ends up with no electricity flowing. “Neither are we yet at a stage where you can develop a power project and find no takers.”
Going forward, the SAPP expects that the growing numbers of Independent Power Producers in the region, particularly those in renewables, will provide further impetus for the development of interconnectors. Regional technocrats are hoping that with global capital increasingly supporting renewables, moving from funding generation to distribution should be a small and logical step.