Golden age for Africa’s national and regional energy transition

  • Jul 30, 2020
  • ESI Africa

This article, which first appeared in the Africa Energy Yearbook 2020 – the official publication of the Africa Energy Forum – explores the North, East, and Southern Africa regions, provides case studies on South Africa’s Eskom and Senegal’s Senelec, while not overlooking the impact of the global COVID-19 crisis on the energy landscape.

This article first appeared in ESI Africa Issue 3-2020.

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Africa’s power sector is in the process of radical transition. New capacity from diverse sources is being added to meet forecasts of rising demand, while the falling cost of renewable power offers the chance of bringing electricity access to those without and reduce costly fuel imports.

NORTH AFRICA

Renewables build on existing thermal capacity

Egypt and Morocco are championing renewable energy as a pillar of future expansion of power generation, while Tunisia is attracting investment to its much smaller renewables market. In Algeria, bureaucracy seems to be impeding what enthusiasm there is from the government to diversify the generation mix. Libya’s ongoing conflict makes it an unlikely destination for power sector investment in the near-term, despite its hydrocarbons resources and massive solar potential.

The completion of three giant Siemens 4.8GW gas-fired plants in late 2018 has greatly improved Egypt’s power supply situation, while the discovery of large gas reserves in its Mediterranean waters has improved the country’s energy security. With this foundation in place, the government is focusing on achieving its target of deriving 20% of all power production from renewables and large hydro by 2022, comprising 12% from wind, 6% from hydro and 2% from solar.

While Egypt’s first wind projects were financed by bilateral and multilateral institutions, the focus is now on the private sector to develop wind farms around the Red Sea and solar parks in the desert. Cairo has introduced feed-in tariffs for renewable energy projects, with financial backing from the World Bank’s Multilateral Investment Guarantee Agency.

Benban solar park’s completion increased national solar power production to 2.4bn kWh last year, virtually ensuring that the country’s short-term solar target will be exceeded. The government’s longer-term renewables-plus-hydro target is 42% of total power production by 2035. Cairo hopes to achieve this at the same time as it phases out electricity subsidies in line with its IMF-backed economic reform programme.

After several false starts, Algeria is again trying to secure solar power investment.

Morocco is continuing its policy of focusing on renewables to improve energy security and the government would also like to boost large-scale power exports to Europe. Rabat has pledged to generate 52% of all the country’s electricity from renewables by 2030, up from 35% at present, in an effort to strengthen its long-running strategy of reducing its dependence on hydrocarbons imports. This would be a huge turnaround from the situation in 2009, when it relied on hydrocarbons for 90% of power production.

Algeria continues to rely on thermal power production and awarded a contract to build a new 1.3GW gas-fired plant to a Hyundailed consortium in January. After several false starts, it is again trying to secure solar power investment. The Algerian Electricity and Gas Regulation Commission held a tender for 150MW of solar capacity last year but ultimately only a single contract for 50MW was signed, despite the fact that 93 bidders had pre-qualified and five made it to the shortlist.

The successful bidder was the Power Generation consortium, led by Algerian firm Condor, which is developing the project in the Biskra region, with all output sold under a PPA at $0.069/kWh. It was reported that the bid ceiling prices were only announced on the day the tender was due to close. Foreign investors may also have been deterred by requirements on working with local partners and sourcing local components. At present, the country is far from achieving its ambitious goals of securing 13.6GW of solar capacity and 8.4GW of other renewables by 2030.

WEST AFRICA

Too little power in Nigeria, too much in Ghana

Nigerian power sector strategy over the past decade has focused on breaking up the national power company and developing gas-to-power projects. The unbundling process seems to have had little impact, while much of the new gasfired capacity is unused because of gas supply problems.

Idris Mohammad, special adviser to the Federal Minister of Power, concedes that government efforts to implement various gas supply strategies have had limited success. “The major reason why it has failed is the government hasn’t been able to provide irrevocable funding guarantees for gas supplies regarding all gas supply agreements”, he says.

Mohammad says three things were needed to resolve the situation: adequate funding from government to fulfil its side of various contracts; timely payment for gas supplied; and the provision of secure guarantee mechanisms by the government for local and international institutional investors.

The Ghanaian government embarked on rapid expansion of power generation to overcome regular power shortages, triggered in part by unreliable supply from the Akosombo Dam, on whose drought affected hydropower the country was over-reliant. The funding for this expansion was underpinned by a then-booming economy and the income – and feedstock supply – from the country’s offshore oil and gas production.

Installed capacity now stands at 5.08GW, but the country has not been able to absorb it all, partly due to grid failings and high tariffs. Finance Minister Ken Ofori-Atta is concerned that the debt taken on to finance the new projects, coupled with take-or-pay contracts for gas and power, are destabilising government finances. Some sources suggest that the government is paying $500m a year for unneeded capacity. Electricity exports could provide a solution, but progress on developing the West African Power Pool has been slow.

In Senegal, Senelec upgraded T&D infrastructure and access to electricity rose to more than 60% of the population by 2018.

Côte d’Ivoire would be the most obvious market for surplus Ghanaian power production, particularly as the country has one of the world’s fastest-growing economies. However, although Côte d’Ivoire has a fairly comprehensive transmission grid, the cost of connecting individual homes is expensive, holding the electrification rate down to 62%. Installed capacity stands at 2.18GW, with 60% provided by thermal plants and most of the remainder by hydro.

Rather than relying entirely on new gasfired capacity, the government is now trying to attract small, mainly renewable energy IPPs to spread generation capacity around the country. It is also promoting energy efficiency measures, a policy that should be more popular in hard-pressed African power sectors.

Senegal was an unlikely case study of energy transition in Africa a decade ago. Power cuts, insufficient generating capacity and an all too familiar reliance on inefficient and costly diesel power plants gave cause for concern. But the ambition of President Macky Sall’s government to achieve 100% electrification and overhaul the generation mix as part of plans to turn Senegal into a middle-income country are bearing fruit.

Some of the groundwork had already been laid, with power generation opened up to competition in 2004, forcing state power utility Société nationale d’électricité du Sénégal (Senelec) to compete with IPPs. The government’s Plan for an Emerging Senegal (PES) called for renewables to provide 20% of all power production by 2017, a target that has now been achieved.

Crucially, Senelec set about upgrading national T&D infrastructure and access to electricity had risen to more than 60% of the population by 2018, compared with less than 40% in 2004, according to World Bank data. National generating capacity has exceeded 1GW for the first time. In 2018, Senegal experienced just 24 hours of power cuts, 40 times lower than in 2011.

It is hoped that the strategy will achieve both universal access to electricity by 2025 and the government’s target of providing some of the lowest power tariffs in the region, with a target of $0.09-0.12/kWh. Universal access will be difficult to achieve because rural access to electricity has not yet reached 50% and many of those unserved are among the hardest-to-reach communities.

Funding for this new infrastructure is expected to be underpinned by export revenues income from oil and gas production, which is expected to start coming on stream in the next couple of years, the COVID-19 crisis permitting. Hydrocarbon projects, including the BP-led Greater Tortue/Ahmeyim LNG project, will both generate the revenue to invest in new infrastructural projects and, potentially, provide the gas feedstock for new domestic power plants.

Modern diesel and gas-fired plants are being built to replace ageing diesel facilities. MAN Diesel and Turbo finished the second of two diesel-fired facilities in 2016 and, most recently, Lebanese firm Matelec began work on building the 130MW Malicounda power plant 85km south of Dakar in February 2020. It is to be supplied with generation sets by Wärtsilä that will run on heavy fuel oil, but which can be converted to run on gas when it becomes available. All power will be sold to Senelec under a 20-year PPA.

But the government’s strategy is not just focused on thermal energy. The long-term economic plan was drawn up before much of the oil and gas was discovered and renewables are regarded as a major part of the energy mix. Senegal is not headed for a Nigerian-style over-reliance on hydrocarbon revenues. There is already 200MW of solar generating capacity in the country and more is in the pipeline. This is provided by some of the biggest solar PV projects in West Africa: Senergy I (30MW), Senergy II (30MW), Ten Merina (30MW), Malicounda (22MW) and two 20MW plants developed by a consortium of Engie, Meridiam and Fonsis.

The government has also encouraged the uptake of off-grid solar power by removing all taxes from solar panels and water pumps under its One Roof, One Panel programme. However, the headline-grabber is the 158.7MW Taiba N’Diaye wind farm, which is West Africa’s first large wind power project. Developed by Lekela, it is located about 85km from Dakar, with all 46 turbines supplied by Danish firm Vestas.

Some of the turbines are already in operation and the rest are scheduled to come on stream by the end of this year, pushing the proportion of renewables in the generation mix up to 30%.

Uganda seeks to build on its earlier hydro projects by encouraging geothermal and solar power development.

East Africa, as a whole, feels as if it is on the cusp of substantial progress in terms of power provision, not least because national strategies should promote regional integration in the sector. Kenya, like Egypt, just wants more generation capacity from whichever technology makes most sense to support its goal of achieving universal access to electricity by 2030.NThat partly explains why Kenya backed the development of a 1.05GW coal-fired plant at the port city of Lamu, despite President Uhuru Kenyatta pledging to achieve 100% renewable energy.

With an official electrification rate of 75% last year, the 2030 goal is possible, but still ambitious. Given its geothermal, wind, solar and large-scale hydro resources, Kenya is well placed to create a well balanced, low-carbon generation mix, so the loss of the Lamu coal plant would not be insurmountable.

Geothermal energy alone accounts for 823MW out of the installed capacity of 2.7GW, giving Kenya the world’s seventh highest national geothermal generating capacity. How fast local wind and solar power construction and operating costs fall may dictate national policy, as the government’s rolling 20-year masterplan is based on least-cost development.

By contrast, Ethiopia’s rapid electrification and industrialisation strategy is overwhelmingly based on the development of a single form of power generation – and on a massive scale. The government hopes that huge hydropower projects can continue to drive rapid economic growth, while bringing electricity to parts of the country that currently have very limited access.

Botswana is taking its first steps towards coalbed methane-fired power generation.

At the centre of this strategy is the 6GW Grand Ethiopian Renaissance Dam (GERD) project. But this and other similar projects bring their own environmental and financial risks. Ethiopia’s hydropower ambitions have also generated tensions with Egypt and Sudan, the states further downstream on the Nile. Access to the Nile waters provides a huge part of Egypt’s identity and, more practically, its water supply. The Blue Nile, which rises in the Ethiopian Highlands, accounts for 90% of the Nile’s volume as it enters Egypt.

Ministers from Ethiopia, Sudan and Egypt have held talks in an effort to resolve the dispute, including in Washington in March, with the US Treasury Secretary and President of the World Bank in attendance. An agreement has not yet been reached but there is hope a plan for gradually filling the reservoir in order to avoid a sudden drop in water flow could be adopted. Negotiators are also seeking the use of mechanisms to mitigate the impact of drought on water levels in the river’s lower reaches.

Elsewhere in the region, the Tanzanian government’s goal of increasing national generation capacity from 1.6GW to 10GW by 2025 looks overly ambitious. A big step would be the completion on time of the 2.1GW Rufiji hydro scheme. However, renewable energy development has been slow and little progress has been made on tapping huge offshore gas fields in the south.

The government is interested in exploiting the gas reserves to generate income from LNG exports, as well as, potentially, to provide feedstock for power stations. But failure to reach agreement on terms for the development with international oil companies and an uncertain outlook for international demand have delayed it.

Uganda is seeking to build on its earlier hydro projects by encouraging the development of geothermal and solar power projects. The UK’s Bantu RG Energy hopes to build the country’s first geothermal plant, a 10MW facility in Nebbi District.

SOUTHERN AFRICA

South African woes trigger rethink among neighbours

The power strategies of many Southern African states are heavily influenced by the trials and tribulations of South Africa’s state-owned power utility, Eskom, because of its role in supplying electricity to the Southern African Power Pool (SAPP) region. Some member states, including Botswana and Zimbabwe, either rely on Eskom to supply a large proportion of their baseload power requirements or bank on the parastatal being able to supply electricity when other sources of supply fall short.

Eskom’s operations are currently straining under the weight of massive debt. New generation projects have not been developed as planned and it is becoming a less reliable anchor for the SAPP as a whole. This has encouraged the region’s countries to step up efforts to bring their own generation projects to fruition.

The falling cost of renewables has made solar PV a more realistic option, including in Zimbabwe, where the government unveiled a plan in April to secure a further 2.1GW of capacity through renewable energy projects by 2030. Current installed capacity totals 1.9GW, assuming all five thermal and hydro plants are fully operational, which is well below the level of demand.

The Zimbabwe Electricity Supply Authority (ZESA) has been unable to develop new plants because of the country’s long-running economic problems, but Harare has now decided to open up the market to IPPs. This is principally for solar, but also includes small hydro and other renewable technologies.

The situation in Angola is different to that in most other states in the region, as it is not yet connected to the SAPP and so must rely on its own generating resources. Luanda’s strategy foresees the development of a string of large hydro schemes, as well as the conversion of all diesel plants to gas over the next three years. However, more progress is needed on extending the reach of T&D infrastructure. Financing these ambitions could prove challenging, given the enormous impact of the COVID-19 crisis on the oil prices, which govern Angolan export revenues.

Elsewhere in the region, there has been progress on several coal and gas projects in Mozambique. Two coal-fired projects have been cancelled in Botswana, but the country is taking its first steps towards coalbed methane-fired power generation.

Sector analysts say it is surprising that the country has not focused more fully on solar energy, given that it boasts some of the world’s best solar resources. With solar construction costs plummeting, that situation may soon change.

CASE STUDY

Eskom’s troubles hold back South Africa

South Africa has long been something of an anomaly in the African power sector. Its huge coal reserves, developed under Eskom, have enabled the country to develop generating capacity of 52GW. But they also left the country overwhelmingly dependent on coal-fired plants, augmented mainly by the nuclear reactors at Koeberg.

In an effort to diversify, several gas-fired facilities have been built along the coast and now solar and wind are being added to the energy mix. But sector reform has been slow until recently. Eskom’s parlous financial state has forced the government’s hand. Pretoria provided some temporary financial support earlier this year, while a consortium of banks agreed on a R15bn ($1.4bn) loan to fund capital projects. However, the government is reluctant to pay down the utility’s existing debt, which stood at R450bn ($43bn) at the end of 2019.

This is partly because doing so would affect the state’s own credit rating, but also because there is no guarantee that the debt would not shoot up again, without wholesale reform. The debts of Africa’s biggest power company account for 15% of South Africa’s total sovereign debt. In February 2020, the Department of Public Enterprises described Eskom as “technically insolvent”, given its revenues were insufficient to cover its operating costs, and warned that Eskom’s existence was at risk.

It is looking increasingly likely that the company will be restructured. President Cyril Ramaphosa has decided to unbundle Eskom into its generation, transmission and distribution components, but, at the time of writing, details of the proposed structure have either not yet been decided or not released.

The COVID-19 crisis triggered a 9GW drop in national power consumption by early 2020 that will also hit the company’s finances. In late April, Eskom gave this assessment: “Electricity consumption has fallen in the country and left us with excess capacity. The demand for electricity is expected to increase to more or less the same level as before after the pandemic. This means that there will always be a need to increase the contribution of independent power producers to the grid”.

Eskom has been criticised by the South African Wind Energy Association for issuing curtailment notices to renewable energy projects, informing them that their output will not be needed for the foreseeable future, although their PPAs will be extended to allow them to recoup their losses. South Africa’s wind generating capacity is expected to increase from 1.9GW at present to 3.3GW by 2024, with a further 14.4GW planned by 2030. The Department of Minerals and Energy expects wind power to make a bigger contribution to additional generating capacity than any other technology between now and 2030.

The erosion of Eskom’s dominant position could speed up the pace at which South Africa is adopting renewables. Commercial solar PV, CSP and wind power programmes are all under way. The Renewable Energy Independent Power Producer Programme (REIPPPP) was launched in 2011 and contracts for 9GW have been awarded to date, of which 1.5GW is solar. South Africa has a target of installing more than 8GW of solar by 2030.

Gas may also gain more prominence in the future energy mix, if reserves from the recent Brulpadda discovery off South Africa’s southern coast is commercially exploited.

The COVID-19 emergency and economic fallout is likely to have a long-term impact not only on the pace of power sector investment but also on the generation technology favoured. If the crisis has as big an impact on global economic growth and energy demand as many fear, there will be less demand for new generating capacity in Africa over the next five years than previously expected.

The installed generating capacity in Egypt – South Africa’s rival in terms of generating capacity on the continent – jumped to 50GW as a result of the completion of its three new gas-fired plants, so its power supply situation has already become less critical than it was. Continued falls in solar and wind project costs could mean that thermal projects are not only less environmentally desirable, but also less economically attractive by the time demand recovers.

While thermal plants provide more consistent power production than solar or wind, they are a lot less flexible as output cannot easily be adjusted up or down. However, governments such as Morocco that have already fully embraced renewables could be reluctant to overcommit to solar, unless improvements in battery storage needed to maintain supply come quickly. ESI

You can read this piece in full in the Africa Energy Yearbook, published July 2020. With thanks to African Business, author Neil Ford, and EnergyNet for permission to publish in ESI Africa.

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