Lack of access to electricity hobbles continent
AKEY DRIVER of sub-Saharan Africa’s economic growth is access to electricity. But most of the countries on the subcontinent still have power shortages – two out of three households, close to 600 million people, have no electricity.
At a World Economic Forum meeting in Davos earlier this year, African heads of state and various development finance institutions were unanimous in their call for investment into power infrastructure in particular.
Faced with the crippling power shortages over the last few years, South Africa has been moving to complement fossil fuels and highlighting the use of renewable energy sources such as solar, wind and biomass. The country has seen the opening of several concentrated solar plants and wind farms to add to the energy mix.
Energy Minister Tina JoematPettersson said in May that the energy contribution of independent power producers was expected to grow to 7 000 megawatts (MW), with the first 47 renewable energy independent power producers (IPPs) expected to be fully operational by mid-2016.
In this context, President Jacob Zuma’s Union Buildings meeting with business and labour earlier this year, which was focused on reviving the economy, was necessary. Initiatives announced after the meeting include scaling up investment by using lessons learnt from the IPPs programme for renewable energy – with this model being extended to gas and coal, as well as co-investment by the private sector in infrastructure.
The underlying reasons preventing Africans achieving wider access to reliable and affordable electricity often include competing priorities, such as the spending necessary on housing, health care and education. Key issues Stability, or a lack thereof, is also a factor. For example, the Grand Inga hydropower project in the Democratic Republic of Congo would generate 40 000MW of electricity, over twice the power generation of Three Gorges Dam in China, and more than a third of the total electricity currently produced in Africa.
But, there are serious practical considerations – for example, how to get that electricity to the many countries who need it and the considerable transmission losses en-route. Investments flow to where the rewards outweigh the risks.
Looking at South Africa’s power sector specifically, it is clear that a few key issues affect power supply. These include the delay in building new generating capacity, as well as the drastic loss of critical skills across the board during the years when no new power stations were being built. This skills deficit has contributed to the delays in building Eskom’s new Medupi coal-fired power station, for example.
However, the lessons learned and skills acquired on Medupi have ensured that progress on Eskom’s second new coal-fired power station, Kusile, has been quicker.
Another factor to consider is that the financing requirements of the power sector often far exceed most countries’ already stretched public finances. Therefore, more private investment is essential to scale up generating capacity and to expand access to and improve electricity supply.
South Africa can be considered a relative latecomer to introducing private investment and IPPs to its electricity sector. But today South Africa’s success has be- come central in the global debate about which are the most effective policy instruments to accelerate and sustain private investments in renewable energy.
The South African government’s current programme, the renewable energy IPP procurement programme (REIPPPP), has very successfully channelled substantial private sector expertise and investment into grid-connected renewable energy at competitive prices. According to a recent Word Bank report, independent power projects in sub-Saharan Africa – over a period of only four years between 2011 and 2015, the prices of renewable energy dropped during the four REIPPPP bidding phases. Average solar photovoltaic tariffs decreased by 71 percent and wind tariffs dropped by 48 percent.
The rapid growth in South Africa’s renewable energy sector has shown that much greater competition is possible among renewable energy providers than thermal power plants. This is due to the smaller project sizes, the diversified and distributed renewable energy resources, the highly competitive international market of project developers and equipment suppliers, as well as multiple sources of project finance. Renewables have become the new darlings of investment finance.
It is also interesting to note that in terms of public versus private projects, particularly in the case of renewable energy, private sector developers have produced better price outcomes and shorter construction times than the national utility – this is largely a function of the competitive tendering involved in these projects.
Renewable energy sources present enormous opportunities in South Africa, and as an operator in the construction of wind and solar projects, as well as coalfired stations, we are excited by the country’s future prospects in the energy sector.
While independent power projects are important in meeting Africa’s power needs, the price and reliability of the electricity produced is equally vital. Together we need to create the right environment to attract more and better IPPs to address Africa’s power deficit.