Some countries on the continent – including Ethiopia, Ghana, Kenya, Nigeria, and South Africa that are already implementing climate-resilient, low-carbon developments, most of them through IPPs

By Michael Tichareva

This week I continue with our discussion on the 2015 Africa Progress Report (“APR”) produced by the Africa Progress Panel (“APP”). Earlier I introduced Part I of the discussion in the previous article, where I highlighted the fact that Africa can take a leadership role in developing clean energy to power Africa whilst accelerating economic development and reducing poverty.

Reader, subscribers, followers and fans will have seen where I gave various startling statistics showing the state of affairs and how the poorest in Africa are paying amongst the highest cost of energy in the World, sometimes up to 80 times more. I highlighted both challenges and opportunities. Africa can forge ahead with tangible and sustainable solutions, working together as Africans through coordinated regional integration.

This must include forging strategic and smart partnerships with the international community, as our fortunes are inextricably linked to the whole world.

The 2015 APR articulates the challenges, noting that the energy-sector bottlenecks and power shortages cost the region 2 to 4 per cent of GDP annually, undermining sustainable economic growth, job creation and investment.

For example, the GDP growth for South Africa has been revised downwards many times, largely due to power shortages that hinder economic growth, reinforcing the triple challenge of poverty, inequality and unemployment.

 

 

The situation is worse in other parts of Africa. These power shortages reinforce poverty, especially for women and people in rural areas. It is estimated that investment of approximately US$55 billion per year is needed until 2030 to meet demand and achieve universal access to electricity.

This huge investment requires Africa to develop various sources of sustainable financing locally and into the international market. The 2015 APR gives interesting perspectives, noting that one of the greatest barriers to the transformation of the power sector is the low level of tax collection and the failure of governments to build credible tax systems.

The report estimates that domestic taxes can cover almost half the financing gap in Sub-Saharan Africa if loopholes are closed. A number of power utilities in Africa struggle with revenue collection and have serious cashflow problems that lead to subsidies from their Governments.

The report notes that approximately US$21 billion is spent annually on subsidies to wasteful utilities that are run inefficiently. This US$21 billion wasteful expenditure could be redirected towards more productive investment into the power sector, social protection and targeted connectivity for the poor.

The 2015 APR further notes that additional revenues can be mobilised by tightening financial systems to capture revenue lost through illicit financial transfers, by narrowing opportunities for tax evasion and by borrowing cautiously on bond markets.

 

 

There is a great need for Governments to develop enabling environments to encourage increased private sector investments into infrastructure. The emergence of Independent Power Producers (“IPPs”) certainly helps to attract private sector investments with more and more countries encouraging IPPs to develop clean energy, with power utilities as offtakers.

Some countries are already at the fore-front of the global trend of climate-resilient, low-carbon development, most of them through IPPs. These include Ethiopia, Ghana, Kenya, Nigeria, and South Africa that are already implementing, with many others still at policy development stage.

Other examples in West Africa include the Republic of Benin that previously announced a 360 MW multiple gas-fired power project supported by the Africa Development Bank.

This is relatively cleaner energy as natural gas emits 50 to 60 percent less carbon dioxide, compared to a coal plant, when combusted in a new efficient gas power plant. In other countries, Mozambique and Tanzania are said to account for about half of gas-fired power potential.

These initiatives need to be accelerated as they are considered cheaper over the long term.

Then Zambia and Zimbabwe in Southern Africa should jointly develop the potential 2,400 MW Batoka Gorge Hydro Power Station along the Zambezi River. DRC in Central Africa has huge potential of up to 100,000 MW of hydropower, with the Grant Inga project alone having potential of 44,000 MW.

Then we have the Grand Ethiopian Renaissance Dam that will be one of the world’s largest dams.

 

 

A number of other major hydro-projects with a capacity in excess of 1,000 MW have been under development in Ethiopia, Angola and Mozambique.

Then Niger, Orange and Senegal river systems have large potential for hydropower. Then wind, solar and geothermal sources are all available as potential sources, and hugely undeveloped.

The examples are many, but the implementation really needs to be accelerated so that we can see tangible results.

In the next three articles, I will unpack the emerging trends and recommendations as contained in the 2015 APR in more detail.

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Michael Tichareva is the Managing Director of National Standard Finance Africa and the Executive Chairman of its affiliate, Claxon Actuaries. He can be reached on mtichareva@natstandard.co.za or michael.t@claxonactuaries.com.

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