EMERGING MARKETS

Electrifying opportunities

Gas burner flame

African power opportunities are booming, as is clearly evident from the annual West African Power Industry Convention (WAPIC) held in Lagos, Nigeria late last year. The event, a first of its kind in the post-privatisation period in the country, hosted by Nigerian Minister of Power, Professor Chinedu Nebo, was aimed at assisting leading power industry stakeholders and professionals in finding strategic and practical solutions to improve and develop the generation, transmission and distribution of electricity in the region, and to establish a roadmap for achieving the Millennium Development Goals related to electricity and energy supply.

In an exclusive with Opportunity, Cape Town base event organiser Emmanuelle Nicholls (Spintelligent Portfolio Manager) spoke to us about the opportunities there currently are on offer for those interested in this fast-growing sector. As Nicholls points out, the WAPIC was born in 2003 by demand from their West African utilities colleagues who were interested in receiving such an event.

Nicholls says Africa’s remarkable growth trajectory was projected to remain above 5% in 2014 and West Africa is the fastest growing sub-region, representing the continent’s largest business opportunity. According to her, it is an exciting period of great opportunities for private sector involvement in the West African power and energy market with enormous growth potentials.

Initiating the discussion on Africa’s main energy sources, she specifies that half of all electricity in sub-Saharan Africa is generated in South Africa and says that the region’s generation mix is led by coal at 56%, hydro at 22%, natural gas 14%, and oil at 9%. According to her, countries with gas/diesel/coal fired power plants often find themselves with no electricity whenever there is disruption in supply of these fossil fuels due to either high costs or production disruptions.

“Although hydro-electricity is the biggest source of electricity in a number of countries in Africa, its potential remains largely underutilized. Gas and renewable power are expected to be the two major sources of energy growth on the African continent in the coming years. Natural gas consumption is expected to quadruple by 2040, with gas-fired generation increasing to 25% of the total, from 17% currently. Gas is expected to account for 50% of the generation mix in West Africa by 2040, driven by reforms in Nigeria,” she says.

Nicholls highlights that renewable sources of energy are a key focus in developing a more diverse energy mix on the continent, especially in regions heavily dependent on hydropower and maximizing use of local resources. According to her, West Africa is becoming a magnet for millions of dollars renewable energy investments especially Ghana, Mali, Guinea, Senegal and Cote D’Ivoire.

“2014 saw the launch of the African Renewable Energy Fund (AREF) jointly sponsored by AfDB and Sustainable Energy Fund for Africa (SEFA) with US$100 million (target of US$200 million by year end) of committed capital to support small- to medium-scale IPPs for grid-connected renewable energy projects including small hydro, wind, geothermal, solar, biomass and waste gas (size of between 5 and 50MW); commitment per project of between US$10 million and US$30 million.

“Ghana is regarded as one of the priority countries for AREF funding. Ghana’s energy strategy sets a goal of renewable energy constituting 10% of national energy generation by 2020. To reach this goal, the Parliament passed the Renewable Energy Act, providing the necessary legal and regulatory framework,” she says.

International businessman and chairman of Heirs Holdings, Tony Elumelu, a keynote speaker at the event, shared some of his views on the latest investment opportunities in this sector: “The power industry is a catalytic sector and the development of our country and our continent cannot happen without fixing it.”

An example he refers to is the USA’s Power Africa Initiative and calls it “an amazing opportunity to democratize access to power for Africans, and the $2.5 billion investment commitment we have made reflects exactly how excited I am about it. The present administration made a bold decision when it decided to affect the changes envisaged by the Power Sector Reform Act — legislation that had been on the books since 2005. And that bold step was reinforced during President Barack Obama's last visit to Africa. We felt more strongly than ever, the need to help power Africa.”

He continues: “our experience so far at Ughelli power plant is testimony to the size of the opportunity; our amazing team has taken that plant from 150MW capacity when we took over in November 2013, to 450MW today; we expect it to increase 700MW by October and to achieve 1 000MW by the second quarter of 2015. At that rate, we’ll be contributing 20 per cent of Nigeria’s total power generation.“ Furthermore, he says they are working on a greenfield project that will expand the capacity of Ughelli by an additional 1000MW in the next three to five years and they have signed an MOU with GE and Symbion Power to facilitate this.

Elumelu has also termed his own economic philosophy, “Africapitalism”, which he says places more weight on long-term investments in key sectors that drive growth. He explains: “my personal experience also suggests that sustained economic prosperity must be inclusive and must create social wealth. Africapitalism is my attempt to advocate and promote what has worked for me. We as Africans are uniquely qualified to take the lead and develop Africa. I think we need to be more self-confident in order to create the sort of future our children deserve. All the ingredients for success are here in Africa and investing for the long term in key sectors, our people, and processes, will help to solve our problems and retain wealth within the continent.”

One of the main topics that emerged from the recent discussions at the convention was the importance of privatisation. Nicholls says the entire West African region is plagued by unstable power supply, affecting their economic growth dramatically and that Nigeria, leading the way in the power reforms and privatisation of their sector, is a good example of government stepping up and implementing policies to increase the generation capacity and energy mix.

“Target figures in Nigeria are 40 000 Megawatts by 2020, needing a minimum of $3.5 billion per annum investment into the sector for the next 10 years. There is a huge gap in supply with available installed capacity at 6 056 Megawatts of electricity. An entire segment of private stakeholders that was not active in the power sector has emerged with more investment spend, financing needs, and up-skilling requirements. Nigeria is now United States’ top investment destination. Additionally privatisation comes with multiplier effects and opportunities for local manufacture of power facilities and power service provision,” she says.

When asked how South Africa fits into the picture, she points out that we are entering a new era of renewables integration through REIPPP programme which encourages IPPs to propose tenders and bids in order to contribute for a bigger share of solar, wind and hydro in the energy mix.

“Such a model could be adopted in West Africa and the South African experience will be shared during the Clean Power West Africa conference. Moreover, the South African Department of Trade and Industry has already confirmed that they will be hosting a pavilion again at WAPIC.

“They have identified the West African market and especially the Nigerian market as a key focus area and have been investing into the show over the last three years. South African technologies will be on display at the show with approximately 18 companies participating,” she concludes.

Nilo Abrahams

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