SSA is one of the fastest-growing regions, averaging six percent over the past 15 years according to a 2020 research report by Deloitte titled “Sub-Saharan Africa Power Trends: Power Disruption in Africa” adding that with the continued high growth rates expected for the region (in excess of five percent over the years to 2019), reducing the current power infrastructure shortcomings will be crucial in supporting the next chapter of Africa’s growth model – one that pursues economic diversification and industrial development.
According to the research report, this is in order to make a dent in unemployment, poverty levels and rising inequality amidst a population that is expected to more than double to 2.7 billion people in 2050.
The report observes that a general increase in household incomes in Africa has facilitated the emergence of a growing middle class which has been coupled with increased household consumption expenditure. “Other demand drivers in the power sector include urbanization, increased household consumption and various infrastructure projects that are directly and indirectly linked to the power sector”, states the report.
It is further reckoned that three industries in particular will require an increasing amount of electricity and thus result in higher power demand. These include the mineral resources and related value-adding activities; consumer and retail-related manufacturing; and agriculture and agribusiness – all of which will underpin commercial and industrial developments going forward.
Countries are however grappling with low reserve margins, most less than five percent for the nine countries evaluated by Deloitte and increased pressure on power supplies creates a define need for government and public sector stakeholders to establish real solutions to address the supply deficit.
“Improved access to electricity across SSA is expected to be driven by electrification programmes, as well as better pricing and generation growth, with the largest generation growth expected to be seen in renewable energy through off-grid and mini=grid solutions”, states the Deloitte research paper adding that the “SSA changing energy mix is in part driven by the fact that the region’s energy woes have been underpinned by the reliance on a single source of electricity production. This over-reliance is waning and energy generation sources are diversifying”.
While power generation from coal will still account for an important share of the energy mix in the foreseeable future “SSA countries are reducing their dependence on coal and oil-based energy sources. Countries are diversifying into more sustainable solutions including non-hydro renewable and natural gas, as the fast-dropping cost of these technologies makes them more increasingly viable”.
According to the report, by 2022, non-hydro renewables are expected to increase their share in the energy mix by a factor of five from 2011 values. With 90 percent of the continent’s hydro-power potential still unexploited, hydro-generation is expected to double in output, and increase its contribution in the energy mix from one-fifth to one-quarter by 2022.
The report further reckons that another solution to SSA’s energy security challenges is decentralized renewable energy capacity in the form of off-grid and mini-grid solutions, particularly for remote and rural communities who have lagged behind access to electricity, given costly grid expansion to less densely populated areas.
To address some of the longer-term issues of energy security, “increased regional collaboration will be crucial. More affordable tariffs and an optimal generation capacity could be developed in the power sector through infrastructure linkages of power utilities and the regional power pools”.
These challenges include among others, “overcoming the power sector’s funding gap”. Out of all infrastructure sub-sectors, power is reported “to have the largest annual funding gap, at more than 70 percent of required funds for maintenance and new-build projects”.
Deloitte research shows that power sector projects by number make up a large share of infrastructure and construction sector projects at the regional level. This includes 44 percent of projects in Southern Africa and 39 percent of projects in East Africa in 2014. However, for some countries, power spending requirements make up a significant investment relative to the size of their economies.
There is however solace in that the emerging trend of increasing independent power producers (IPPs), private companies and entrepreneurs, as well as development finance institutions (DFIs) is helping to speeding up the process of bridging this gap. Closer relationships between public and private players in terms of funding models, as well as regional projects and solutions remain a requirement. China, the European Union and the United States are notable players who have and are contributing a mix of government loans, equities and private investment to Africa’s power funding requirements.
In addition to the physical power infrastructure development and funding, Deloitte has identified “skills and manpower development as the most significant area for investment in the power sector going forward. Investment in engineering and technical training will be required for the sector and its capital plans to perform optimally”.
It is further recognized that the refocused energy generation mix in SSA also includes a changing structural makeup of players and stakeholders that will complement traditional utilities in producing electricity. The role of consumers is changing. Consumers are increasingly complementing the role of producers through self-generation, co-generation and new generation.
“Despite the high urban growth rate in SSA, double the world average in 2014, the type of consumer is also changing, increasingly including more remote and rural consumers with localized requirements and funding capabilities. New industries are emerging such as ‘consumer-established’ industries ranging from small-scale cottage food processing to commercial businesses in manufacturing and private power generation, amongst others”, states the report.
Furthermore, through cleaner technologies for off-grid or mini-grid solutions, consumers have and will be shifting away from uneconomical and environmentally unfriendly options in the SSA region.
According to the Deloitte report, the economics and business case for renewable technologies is evolving. For example, the lower cost structures of more reliable, affordable and greener solutions, underpinned by increasingly energy-efficient, sustainability focused and climate-conscious trends globally.
It is also acknowledged that “improved and cost-effective and innovations linking the power sector to Information and Communications technology (ICT) advancements are also resulting in smarter systems and grids to incorporate such technologies into generation mixes of utilities, as well as new financing models for off-grid solutions”.
The paper further reckons that the cost of renewable technologies is fast-aligning to the cost of conventional electricity sources, including diesel-fired electricity costs, “the economic case for off-grid renewable becomes more viable. It is thus predicted that off-grid and mini-grid systems could account for as much as 70 percent of those gaining access to electricity in the next two to three decades, with the bulk of these systems likely to be powered by solar, small hydro and wind”.
Another significant factor coming into play is the apparent shift from currently centralized monopolies to unbundled structures and more decentralized power generation systems and models which are becoming evident and intensifying.
“Structural reforms through vertical unbundling, which is the process of ‘unpacking’ integrated utilities into separate generation, transmission and distribution companies, have been the preferred option for countries including Ghana, Kenya, South Africa, Uganda and Zimbabwe” states the Deloitte report.
It is further noted that reform options ‘disrupting’ the power sector in the region include management contracts, commercialization, IPPs, and electricity regulatory and legislative amendments. These reforms have had the most significant impact on renewable energy and energy efficiency in the region.
In Nigeria, for example, regulators have moved towards cost-effective tariffs, thereby providing sustainable returns for market participants. Transparent bidding processes and tariff incentives have also been aimed at boosting private sector involvement in the power sector in Nigeria.
The report observes that linked to the market structures and dynamics are smarter energy systems supporting better management and pricing structures, which are changing the relationship between producers and consumers, particularly given new application of technologies.
Smart grids – electricity supply networks that use digital communication technology to analyze, detect and react to local changes – are increasingly being incorporated into African power utilities’ action plans, including countries such as Kenya, Nigeria and South Africa, amongst others.
In addition to other power utility management objectives across the SSA region, “optmizing asset utilization and operational efficiency will be one of the major benefits of smart grid solutions”.
On revenue management, most countries in SSA have adopted numerous payment methods for electricity, ranging from old-school walk-in cash transactions to mobile and internet payments. In South Africa for instance, the introduction of pre-funded metering will improve the revenue management system in the country’s power sector. This is also the case in areas where pilot off-grid renewable energy is being implemented.
The Deloitte report concludes that “despite the skills and capital injection challenges that a number of African governments and power utilities face, opportunity lies in the integration of all these technologies to feed into the smart grid system, such that generation, consumption, payment and revenue management for instance, are possible from a single device or system.
“The integration of technology and intelligent solutions in the power sector is a clear transformation to more efficient, cost saving and ‘intelligent’ infrastructure. This is also tilts the balance of power in the sector, as consumers can sell excess electricity and feed it into the grid –legislation permitting”.