Africa Energy Outlook Special Report: Powering Africa’s Future
This issue of Focus looks at the message of the International Energy Agency’s (IEA) Africa Energy Outlook Special Report. The report is written as part of the IEA’s strategy to promote energy security through encouraging cross border cooperation and producing authoritative research and analysis. It was prepared by the Directorate of Global Energy Economics of the IEA in co-operation with other directorates and offices of the Agency. We summarise the report’s findings here.
The IEA’s report, while nominally covering the whole of the African continent, focusses primarily on the problems and opportunities of the energy situation of Sub-Saharan Africa. North Africa’s people and businesses do not suffer from the same problems in respect of access to electricity, with 99% of people having use of electrical power in North Africa.
Africa has more than enough natural resources to provide electricity to every home in the continent. It has fossil fuels in the form of oil, gas, coal and uranium and enormous potential for solar, wind, hydro and other renewables. Sub-Saharan Africa accounted for nearly 30% of global oil and gas discoveries made in the last five years. Exploration and production is underway across the Niger Delta Basin, the East African Rift Valley, the East African Coast, the West African Transform Margin and the West Coast Pre-Salt. Oil production in sub-Saharan Africa has doubled since 1990, with Nigeria and Angola accounting for three quarters of total production. Chad, Cameroon and Ghana are also significant producers.
Proven gas reserves in sub-Saharan Africa have increased by 80% since 2000. Nigeria has enormous resources of natural gas though gas development has only recently become a priority. Mozambique and Tanzania have recently established themselves as gas producing countries.
Renewable Energy plays a major role in Africa and is a rapidly growing sector. We look at the main growth areas below.
Hydropower has the potential to produce three times Africa’s current electricity demand but only 10% of this potential has been tapped. Barriers to development include high up-front costs, low levels of interconnections, a lack of technical expertise and enormous seasonal variations. Environmental concerns, social considerations and competition for water resources also require very careful consideration.
Potential wind energy across Africa stands at 1300 GW, several times the current level of total electricity consumed in the whole continent. Most of the best sites are in North rather than Sub-Saharan Africa, but there are good sites in the Horn of Africa, east Kenya, the borders of the Sahara and in Southern Africa. South Africa and parts of East Africa are leading the way in increasing their wind capacity. Recently, Trinity International LLP advised the Lenders to the Lake Turkana Wind Project in Northern Kenya. When fully operational, this 310 MW project will be Africa’s largest wind farm. The remote locations and often undeveloped local civil and power infrastructure continue to make wind farms a challenge in Africa, but governments can help bring projects to fruition.
Africa is particularly rich in solar energy potential, with most of the continent enjoying an average of more than 320 days per year of bright sunlight and experiencing irradiance levels of almost 2,000 kWh per square metre annually twice that of Germany. Solar power is gaining traction across the continent, with projects currently under construction in Ghana, Mozambique, Sudan, Nigeria and Ethiopia. In February 2014 the first solar project in East Africa, which was located in Rwanda, achieved financial close. In Morocco, the Moroccan Agency for Solar Energy continues its development of a combined CSP and PV complex at Ouarzazate which, when completed in 2020, is projected to meet 18% of the country’s energy needs.
Other renewables opportunities include Geothermal from the East African Rift Valley.
Despite all these opportunities, more than 620 million people in Africa (two thirds of the continent’s people) have no access to electricity – nearly half of the global total. In sub-Sarahan Africa, 80% of those without access to electricity are in rural areas. This poses its own set of challenges, with the need to provide electricity to people spread out over wider areas. Access to electricity across the region varies significantly, from as low as 4% in Chad to 70% in Ghana, where the National Electrification Scheme was first launched in 1989. Other countries have shown marked improvement over a short period of time: from 6% in 2008, 17% of Rwandans now enjoy access to electricity, and Rwanda has ambitions to become a net exporter of electricity through the innovative lake bed methane extraction project at Lake Kivu being developed by ContourGlobal.
The Sub-Saharan economy
The sub-Saharan economy has more than doubled in size since 2000 to reach $2.7 trillion in 2013. Over the same period, sub-Saharan Africa’s population increased by 270 million to 940 million, and will top a billion before 2020. GDP per capita has increased by 45% between 2000 and 2013, the lower rate reflecting the increasing population. Nigeria and South Africa are by far the regions’ largest economies, with a combined population of 226.5 million. That annual year on year economic growth of 6% has been achieved against the challenging background in respect of constrained energy supply is impressive, but also makes it clear what could be achieved with reliable energy.
Much of the answer to Africa’s current problems in unlocking its energy and economic potential lies in the political sphere. Most Sub-Saharan African countries score poorly in transparency and ease of doing business, with some notable exceptions: Botswana ranks above South Korea, Spain, Israel, Italy and Poland in Transparency International’s Corruption Perception Index 2014, with Mauritius, South Africa and Namibia also scoring comparatively well. Sub-Saharan African economies continue to score poorly in ease of doing business surveys, with only 7 countries in the global top 100 (Mauritius coming out 28th).
Corruption, a difficult business climate, political instability and uncertain legal systems (in particular the enforcement of contracts and protection of property rights) present significant barriers to investment in the Energy industry. This is not only because of the capital-intensive nature of developing energy projects, but also because of the need to develop strong relationships with the relevant national political and regulatory authorities. Studies have shown a strong relationship between weak governance and low levels of investment, though this trend has been bucked somewhat by countries with significant oil and gas reserves, such as Nigeria and Angola, which have and continue to experience significant geopolitical difficulties.
Botswana provides a useful example of the effects of good governance: from being one of the poorest countries on earth at the time of independence with a GDP per capita of US$ 70, Botswana’s use of its ample natural resources, stable democratic political environment and lack of military unrest has led to Botswana now occupying a middling global position for GDP per capita.
According to the Africa Energy Outlook Special Report successfully reforming the sector must start with a sustained effort to train and recruit people able to formulate and implement energy policies, to strategically plan energy infrastructure and to manage and operate the power system efficiently.
In terms of policies, there are a number of broad themes that work across the diverse jurisdictions in Africa: integrated and realistic strategic planning is needed including cross-border cooperation – particularly in respect of electrifying rural populations.
Potential investors need to have confidence that projects will get off the ground and that they will be paid for their work. South Africa’s Renewable Energy Independent Power Producer Procurement Programme provides a good illustration of a transparent and well-run process. In respect of pricing, it is necessary to have a tariff structure that provides confidence to investors.
Encouraging private investment involves creating the economic conditions to facilitate projects that will, in the first instance, be relatively small in scale. Funding sources for such projects normally involve foreign direct investment and multilateral and bilateral development assistance rather than local finance. The Cenpower project which has largely been financed by African banks a deal Trinity International LLP advised on is a notable exception to this.
The ‘bottlenecks’ to such financial investment are usually caused by an inadequate policy regime. The growth of renewable energy in South Africa since 2011 is a good example of how policy barriers can be overcome.
Africa’s future lies in the hands of its policymakers. The solutions are not the same in every jurisdiction but national government intervention is essential in many places. Governments are tackling the barriers that have held back investment, both domestic and foreign, from meeting African consumers’ needs: if these issues are effectively tackled then there is hope that the people of Africa can prosper from their abundant natural resources.