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Transmission pylon seen from the ground Dedisa substation in South Africa

How can Sub-Saharan Africa’s power gap be closed? Prem Mahi

Despite being an enormous region with a population of almost 900M, Sub-Saharan Africa’s total installed generation capacity is smaller than South Korea’s, at only 68GW.

If South Africa is discounted, installed capacity shrinks to a meagre 28GW, and problems including lack of maintenance mean that as little as 75% of that figure is thought to be currently available for generation.

This is dismal, given the International Renewable Energy Agency’s estimate that Africa as a whole could potentially generate 19,672TWh annually from renewable technologies alone – more than 54 times the annual consumption of the UK – with a great deal more generation potential available in coal, oil and gas. A profound chasm exists between Sub-Saharan Africa’s installed capacity and its potential.

Wary investors

Poor investor confidence is largely to blame. For many financiers, Sub-Saharan African projects carry unacceptable risk. Investors are unconvinced of African utilities’ commercial viability, and sustained cooperation on infrastructure projects is threatened by political instability and discord between countries. Creating investor confidence by reducing risk is fundamental to attracting private finance on the scale necessary to close the region’s power gap.

Plenty can be done to achieve this, and a good starting point is the creation of robust regulatory regimes. Although many countries have established regulatory bodies for power they vary in capacity, transparency and autonomy. Forming and empowering appropriately mandated regulators requires a great deal of time, funding, expertise and political will. Maintaining regulators’ integrity for future years is perhaps an even bigger challenge, and poorly handled regulatory reform could put both utilities and the public in a worse position than the current one.

Signs of progress

The challenges are great – but there are signs of positive progress and intercontinental assistance. Institutions such as the African Development Bank are delivering funding, training and twinning schemes to bring Sub-Saharan African regulatory bodies up to standard. The Ugandan government and the World Bank managed to create sufficient confidence for Uganda’s Bujagali Hydroelectric Project – one of the only major private sector hydropower projects to be successfully completed in Africa in the past 20 years – to reach financial close with a syndicate of development banks.

In June 2013 the US Government launched its Power Africa initiative to create an enabling environment for investment. The USA aims to double access to power in sub-Saharan Africa and has committed $7 billion to support the initiative over five years. It has also leveraged more than $9 billion from private sector partners.

South Africa’s Renewable Energy Independent Power Producer Procurement (REIPP) programme is an example of an African government helping things along by proving its commitment to procuring renewables. Under REIPP, developers bid against each other in Rounds for contracts to develop a total 6925MW of renewable generation capacity by 2020.

Growing green shoots

Meanwhile, a steady influx of investment– particularly in large hydropower – is coming from Chinese financiers, using ‘Angola mode’ deals in which infrastructure loans are repaid with natural resources such as oil, and the project uses the financing country’s supply chain.

Questions remain over the efficacy and quality of some of these initiatives. However, every positive investment experience in Africa will augment investor confidence a little more, helping green shoots of development to grow toward minimising the power gap.

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