A simple energy solution for Africa?

A large percentage of people living on the African continent still have little or no access to energy. With the potential to reduce poverty and unemployment, and to save companies millions in lost productivity,  Africa is in desperate need of a viable and sustainable energy solution.

Former South African Minister of Energy, David Mahlobo, estimates the African population is set to grow by 800 000 people by 2040. With a large percentage of the population on the continent currently without electricity, the increase in demand by 2040 will cripple many countries, unless something is done – and soon.

Kweku Bedu-Addo, CEO of southern Africa at Standard Chartered Bank, notes that Africa will need around
250 GW of energy by 2030. He adds: “We are already lagging behind and will need massive investment in the energy space to catch up. At the same time, we have one of the lowest, if not the lowest, per capita consumption of electricity in the world.”

The World Bank estimates that countries in sub-Saharan Africa consume a combined average of 480 kW of electricity per hour per capita, according to 2014 statistics. Nigeria uses around 144 kW per hour and Kenya uses only 167 kW per hour per capita. South Africa far outweighs its peers with a use of 4 198 kW of electricity per hour per capita.

Bedu-Addo points out: “The average electrification across the continent is estimated at about 32 percent compared to 82 percent globally. While a sixth of the world’s population lives in Africa, the continent generates only about four percent of the electricity globally.”

This is not because Africa lacks natural resources. Bedu-Addo estimates that there are about eight-trillion cubic metres of natural gas, 75-billion barrels of crude oil, an abundance of water for hydroelectricity and sunlight for solar power.

Instead, Africa faces a lack of implementation and ineffective or outdated power stations with many countries relying heavily on a single power source for their energy. This leads to many countries remaining in a rut of unemployment and weak economic growth.

Amadou Hott, vice-president of power, energy, climate and green growth at the African Development Bank (AfDB), says: “A recent study showed that out of 39 power utilities in southern Africa only two were credible.”

Louis van Pletsen, co-founder of Quantum Power, notes: “In the last four years, we have added 7 000 MW of new power generation to Africa, excluding South Africa, and we have decommissioned about 5 000 MW.”

To add to this burden, many sub-Saharan countries rely on hydro-electricity. Recent droughts have led to a number of power outages, with some lasting several days. A 2015 article by BusinessTech estimated that at that time Eskom blackouts were costing the South African economy R80 billion per month.

According to Sello Hatang, CEO of the Nelson Mandela Foundation, investment in energy could decrease unemployment in South Africa from 25 to 12 percent, while reducing the number of people living below the poverty line from 49 to 18 percent.

“Research illustrates that energy provides many with a way out of poverty and takes countries out of the unemployment rut. Research also shows that if parents are at the bottom of earnings distribution, their children have a 95-percent chance of getting stuck there,” he says.

One solution considered by leaders in the African energy sector is a regional integrated programme, which will allow countries to share energy resources. Mosad Elmissiry, head of energy programmes at the New Partnership for Africa’s Development (NEPAD), explains: “The goal is to pool all the energy in Africa in order to generate it where it is most efficient and economical to do so; thereafter transmitting it to where it is needed.”

It has been said that South Africa has the potential to become the energy hub for the entire southern African region. While there are many plans for creating a well-lit African continent, the biggest challenge is funding.

It is estimated that the African Union-approved Programme for Infrastructure Development in Africa (PIDA) will need between US$ 65 billion (R757 billion) and US$ 95 billion (R1,1 trillion) to provide electricity to the entire African continent by 2025.

Governments will need to rely heavily on investors, which will require an investor-friendly environment. This includes quick decision-making processes to ensure a quick return on investment.

One example of an energy programme that created an ideal environment for investors is the Benban Solar Park programme in Eqypt. Elham Ibrahim, vice chair for Africa at the World Energy Council, explains: “What made the programme easy or achievable was that it set an environment that encouraged investment. The project was divided into numerous programmes each of which had 50 MW. The various divisions were sold to different companies.”

The 37,2 km² solar-panel park was divided into a total of 41 plots. This division offered smaller companies the opportunity to invest and reduced the risk for all investors. Development financial institutions, such as the AfDB, have the ability to place pressure on government, which can fast track decision-making.

Hott uses the example of a 700-km electricity connectivity project between Chad and Cameroon, in which the AfDB was involved. The initial expectation was for approval to be passed in April 2018. Hott says: “We hired consultants, shorted the process and by mid-December we went to the board and obtained approval.”

While South Africa is still largely powered by coal, it is considering the renewable energy space.

While delivering the speech of former South African Minister of Energy, David Mahlobo, at the 2018 Africa Energy Indaba, Elizabeth Marabwa, chief director of programmes and projects at the Department of Energy, said: “Empirical studies have concluded that the renewable-energy market penetration is capable of creating more than 6,5 million jobs globally.”

Newly appointed South African Minister of Energy Jeff Radebe announced earlier this year that 27 renewable projects would be signed off without further delay. With the current energy plans, South Africa will have an energy capacity of more than 60-GW by 2022. The current demand is below 30 GW, which is a decrease compared to previous years.

The decrease is due to an increase in electricity costs of over 500 percent in recent years. Mining & Energy Advisory has noted that prices have ballooned from around 15 c/kWh to an average of over R1/kWh, and in some cases to over R3/kWh, depending on the demand profile.

This massive increase has created a “profit umbrella” for power utilities as the cost of coal power for Eskom is below 35c/kWh. Ted Blom, a partner at Mining & Energy Advisory, forecasts: “The consequence of this recipe spells disaster for South African consumers and businesses.

“It will lead to a 20-year depression, as electricity tariffs get blown sky high to compensate a dying Eskom and inflation-linked renewables with guaranteed off-takes. If the renewables had such a compelling story, government should just have opened the grid to competition, which would have benefited everybody.”

With many plans in place and eager investors, Africa has the potential to be a global energy leader, particularly in the renewable energy sector. However, in order to successfully address these issues, governments need to create an investor-friendly environment and establish a diversified energy pool that offers affordable electricity to residents.