Power sector challenges and investment trends in Africa

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1 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

2 But GDP of Sub- Saharan Africa equivalent to just one small OECD country the Netherlands

3 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 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 top African cities will have a combined annual spending power of USD 1.3 trillion by % of Africans are under 15, the youngest population of any continent 60% of the world s total arable, uncultivated land is in Africa Fast facts

4 Africa is growing

5 Key power challenges Power infrastructure is underdeveloped Access to electricity is low and unequal Electricity supply is often unreliable Power costs are high

6 Africa has 15% of global population but only 3% of power Sub-Saharan Africa 80GW South Africa 44GW

7 Power imbalances within Africa

Electricity generating capacity in SSA Country MW GDP (PPP) USD billions Angola 1657 102.55 Cameroon 1007 41.72 DRC 2506 22.

59 12 counties account for 90% of capacity 30 countries have gridconnected power systems smaller than 500MW 13 smaller than 100MW Few

8 Electricity generating capacity in SSA Country MW GDP (PPP) USD billions Angola Cameroon DRC Cote d Ivoire Ethiopia Kenya Mozambique Nigeria South Africa counties account for 90% of capacity 30 countries have gridconnected power systems smaller than 500MW 13 smaller than 100MW Few economies of scale Large energy resources remain undeveloped Sudan Zambia Zimbabwe SSA Total SSA-RSA

9 Generation Capacity in Sub-Saharan Africa MW SSA (left axis) SSA-RSA (right axis)

10 Countries that have added the most MWs since 2000 Cameroon Madagascar Rest Uganda South Africa Senegal Cote d'ivoire Kenya Ghana Sudan Angola Ethiopia

11 Per capita electricity consumption is low

12 Electricity Consumption kwh/cap/yr Per capital energy consumption vs GDP South Africa 1000 Namibia Botswana Gabon 100 Zambia Mozambique Ghana Cameroon Cd'I Togo Benin Nigeria Angola Eritrea Ethiopia GDP (PPP) USD / capita

13 Very low access to power Source: Earthlights, 2000

14 Share of population without access to electricity

15 Access to energy by income quintile unequal 100% 80% 60% 40% 20% 0% 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

16 SSA South Asia East Asia SSA South Asia East Asia SSA South Asia East Asia SSA South Asia East Asia SSA a global outlier Generation capacity (MW per million population) 0 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

17 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

18 % of businesses that rely on back-up generation Source: Estache, 2005, p.31. Evidence from the Investment Climate Assessments

19 South Africa Zambia Malawi Eritrea Tanzania Kenya Uganda Cameroon Senegal Mali Burkina Faso Mauritius Cape Verde Niger Benin Average cost of power (US$/kWh) Back up generation increases average power costs 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

20 Extent of crisis revealed in prevalence of emergency short-term power leases

21 Power crisis exacerbated by drought high petroleum prices damage to infrastructure through wars rapid demand growth

22 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

23 Investment in $ Millions Investment in power in SSA (ex RSA) Excluding Government/Utility; US$m, 5 year moving average IPPs Chinese Arab ODA (OECD) DFIs

24 1200 IPP investments in SSA (ex-rsa) US$m X

25 SSA (ex RSA) countries with most IPP investment (US$m)

26 2500 Countries with the most IPP capacity in SSA (ex RSA) MW Togo Rwanda Zambia Mauritius Cameroon Senegal Tanzania Uganda Ghana Côte d'ivoire Kenya Nigeria

27 Number of IPPs per country Uganda Kenya Mauritius Senegal Nigeria Tanzania Ghana Cameroon Côte d'ivoire Angola Zambia Togo Cape Verde Madagascar Sierra Leone Gambia Rwanda

28 IPPs by technology SSA (ex RSA) Wind, Onshore, 385.5, 6% HFO +MSD/HFO, , 17% OCGT+CCGT, 4224, 61% Hydro, large, 370, 5% Coal, 196.2, 3% Waste/bagasse, 183, 3% Hydro, Small (<50MW), 182.7, 3% Other, 218, 2% Geothermal, 84, 1% Methane Gas, 100, 1% Solar, 19, 0% Biomas s, 15, 0%

29 Chinese supported power projects in SSA (MW) Wind, Onshore, 201, 2% Coal, 300, 3% HFO +MSD/HFO, 10, 0% OCGT+CCGT, 1575, 16% Hydro, large OCGT+CCGT Coal Wind, Onshore Hydro, large, , 79% HFO +MSD/HFO

30 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%

31 South African REIPPP debt funding International 14% South African 86% Life funds 5% DFIs 31% Commercial Lenders 64% 31

32 Billions no. of projects per lender South African REIPPP major debt providers ZAR 18 ZAR 16 ZAR 14 ZAR 12 ZAR 10 ZAR 8 ZAR 6 ZAR 4 ZAR 2 ZAR 0 Nedbank Standard RMB ABSA IDC DBSA EKF Investec Old Mutual IFC Rest Window1 Window2 Window3 The rest category includes OPIC, AfDB, Liberty Group, ACWA, EIB, Sanlam, FMO PROPARCO and Sumitomo

33 no. of projects per shareholder 18 South African REIPPP Prominent shareholders More than 100 different shareholder entities - 46 participated in 2 or more projects

34 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

35 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

36 Thank you for your attention Prof Anton Eberhard Graduate School of Business University of Cape

Regional outlook Sub-Saharan Africa 24/11/2015. Share commodities in good exports. Share commodities in goods imports

Regional outlook Sub-Saharan Africa 24/11/2015. Share commodities in good exports. Share commodities in goods imports Table 1: Economic structure indicators Number of Inhabitants (m.) Size of the economy (in USD bn.) Size of the economy (% of world GDP) Share commodities in good exports Share commodities in goods imports