Africa has always been a land of opportunity, promise and risk for investors; however, many of its economic dreams have been handicapped by the shortage of reliable and affordable energy supplies in many areas, whilst in its rural areas over 600 million people have no access to power supplies.
In addition, research by the African Development Bank suggests that the capacity to supply electricity to cities across the continent will have to increase from 90 GW in 2012 to 380 GW by 2040. This is due to the forecast the at least half of the total global population growth is expected to occur in Africa over the next two decades.
Nor does it help that according to the World Bank estimates electricity outages on average cost African countries around 2.1 percent of GDP with current output only meeting half of the demand and 70 percent of the continent’s population living without power.
However, due to advances in innovations which have substantially cut in the cost of the technologies in many new power projects can take advantage of the often plentiful supplies of solar, wind, geothermal, hydro and natural gas resources that exist in many African states. For instance, the Northern Cape in South Africa, receives up to 6.5 kilowatts per metre squared per hour every day. That is 2 ½ times what Germany receives every day. Whilst, in the past decade energy companies have discovered a series of important offshore gas fields in the waters off West Africa, Egypt and Mozambique.
Here we look at some key trends affecting Africa’s power sector today in this changing economic environment.
It is becoming harder to find finance for coal power projects
Today, the promoters behind new coal power plants and related coal-mining projects are finding it difficult to access the capital needed to make sure construction of such projects is completed. This is due to an increasing trend by investors, such as the African Development Bank, Norwegian Sovereign Wealth Fund, and DZ BANK, are moving away from such schemes. This is due in part to many countries and businesses deciding to invest in low-carbon power projects as part of their commitment to meeting the 2015 Paris accords on climate change.
There is a growing market renewable power in Africa
There is a growing interest by many African countries in renewable power projects including geothermal in Kenya, wind in Morocco, solar in South Africa and hydro in Ethiopia. For instance, French-owned power utility Engie is involved in two such projects in South Africa, that will be fully operational sometime this year. The 94 MW West Coast One wind park 130 kilometres north of Cape Town and the 100 MW concentrated solar power (CSP) at Kathu solar park in the Northern Cape Province. With South Africa, it has helped that there has been a favourable environment for such investments, aided by an auction tariff system that has resulted in falling prices.
There is a growing market for gas power projects
There is a growing interest by investors and operators in gas power, as a result of new offshore finds made over the past decade, in many countries such as Ghana and Mozambique.But, also due to the glut in world liquid natural gas supplies, which has made natural gas a very affordable fuel source for power projects being at various stages of development in such countries as South Africa, Kenya and Ghana. For instance, Ghana is involved in the construction of a 400-MegaWatt Bridge power project, which once complete will be the world’s largest liquefied petroleum gas-fired power plant.
For other countries, investment in gas peaking plants is seen as a good solution for maintaining electricity supplies when there is a lack of wind or sun. For such countries without viable gas resources, there are ongoing proposals to import gas by pipeline from their neighbours, such as South Africa has ongoing plans to access by pipeline the Coral Sea offshore gas field in Mozambique and buy gas from the US or Australia using LNG tankers.
Also, the flexibility of gas power plants, which enables them to switch on and off quickly, to deliver power when renewable projects cant due to the lack of sun or wind. As a result, in such countries as South Africa and Morocco, there are proposals to import natural gas by pipeline or LNG to supply new gas power plants. With South Africa, such imported gas could arrive by pipeline from new offshore in northern Mozambique, or be delivered by LNG tanker from the US.
An increasing interest in battery storage
In many African countries suffer from unreliable power supplies and as a result, we are seeing an increasing number of customers big and small in best in independent power resources. Also, there are many parts of Africa are not accessible to the grid. As a result, we are seeing an increasing interest by leading technology including Aggreko, Samsung and Tesla, plus energy companies like Total and ENGIE Africa to provide energy storage capacity for its customers whether in urban areas or at remote off-grid mining locations.
There are several reasons there is a growing interest in this form of energy storage, these include:
- The unreliable nature of much of Africa’s power supplies.
- The synergy with renewable energy projects, in being able to store and there is spare surplus energy generated when needed.
- The economic benefits it can achieve that working as part of hybrid power projects where renewable projects work with gas power generation and batteries.
- The ability to improve the viability and usage of off-grid power projects.
- The dramatic fall in the technologies costs in the last five years, which is likely to continue.
Adoption of distributed generation and smaller power grids
Traditionally, the solution for meeting growing power needs has been to build centralised facilities, which are often distant from customers. Such an example is South Africa’s 4800 MW Mendupi coal power station, which is distant from its customers in Johannesburg and Pretoria. But, adopting distributed generation and smaller power grids, enables smaller power plants to be built close to customers. For operators, such smaller plants bring several benefits including lower capital and operating costs and improved energy security.
For investors, the huge gap between supply and demand means that it is likely to take at least two decades before this is resolved. As a result, Africa offers better opportunities in terms of returns than in more established markets in North America or Europe.