by Samantha James

Getting wider

West African IPPs' demand-supply gap opens up

Gap appears for IPPs in West Africa as the need for electricity infrastructure increases.
Africa 2.jpg

New analysis from Frost & Sullivan (http://www.energy.frost.com), Investment Opportunities for Independent Power Producers in West Africa – Update, covers the power sector in Nigeria, Ghana, Ivory Coast and Senegal.

The research reveals that many customers in these countries will be willing to pay a higher tariff for more reliable electricity supply.

“Reliable energy supply is very important to support the growing economies of West Africa,” explained Frost & Sullivan’s energy and power supplies research analyst, Tanye ver Loren van Themaat.

“The majority of the region does not have adequate electricity infrastructure to meet this escalating demand; governments have under-invested in electricity infrastructure, which has led to power outages and load shedding on a regular basis,” she said.

To bridge the gap between supply and demand, most West African countries have started a process of power sector reform, paving the way for the entry of IPPs.

The path to greater IPP involvement is, however, riddled with potholes. Electricity tariffs in West Africa are not cost-reflective yet, but most countries are working towards more reflective tariffs. And while reforms have been initiated in the power sector, key legislation is often inadequate to facilitate effortless deregulation. 

“Reliable gas supply is another area of concern,” added van Themaat. “The investment opportunities for IPPs are influenced by the uncertainty of gas supply, due to complications with West Africa’s gas pipelines and rampant gas flaring.”

IPPs that want to invest in West Africa will first need to ensure that there is reliable gas supply to run its power plants on. It is important that Power Purchase Agreements (PPA) are structured correctly for both the country and investors to realise benefits.

“An understanding with the electricity regulator must be reached as to how the electricity tariffs will be structured. The will ensure the power company has a fair chance at making a suitable profit, while keeping the tariffs affordable,” advised van Themaat. “IPPs will need to conduct research about the legal and regulatory environment, as well as how well the deregulation process has been implemented in the countries they want to invest in.”

• Investment Opportunities for Independent Power Producers in West Africa – Update is part of the Energy & Power Growth Partnership Service programme, which also includes research in the following markets: Financing Energy Projects in Africa and, Technology and Cost Comparison for Various Energy Types in South Africa. All research included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants.

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