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Rousing the Giant

Jul 17 - Power Economics Despite a vast amount of energy export potential, Africa remains in the doldrums. How can it improve its transmission links?

THE AFRICAN POWER SECTOR is full of contradictions. With massive hydroelectric power potential and a large slice of the world's oil and gas reserves, the continent should easily be able to meet its fairly limited power requirements, with plenty of capacity left over for export. Yet the vast majority of Africans are without access to electricity and even those homes and businesses which are connected are subjected to frequent and unpredictable power cuts. However, the development of regional pools and eventually a continent wide power grid could at last provide a solution to Africa's power problems.

The continent's limited consumption of electricity and the poor state of the power sector in most countries have a common cause. The lack of money available to finance new generating capacity and improve downstream infrastructure also hampers the ability of many people to pay for electricity. Yet the two factors also complete a vicious circle, as the lack of electricity helps to restrict economic growth and the lack of growth restrains the amount of money available to invest in ageing and decaying infrastructure, thereby sustaining relatively high tariffs.

Yet if the price of electricity can be brought down then more people will be able to afford it, increasing demand and providing a boost for the power sector. At the same time, increased access to electricity will assist economic development, generating a further boost for the sector. Various African states have adopted a variety of strategies to bring about the latter scenario but most have failed to a greater or lesser extent.

Reverting a weakness

However, moves are now afoot to turn one of the African power sector's greatest weaknesses into a strength. The lion's share of the continent's generating capacity is provided by hydroelectric power plants, which can provide a relatively cheap source of electricity but which are also prone to the seasonal nature of rainfall in most parts of the continent. Generating capacity tends to fall in most countries during the local dry season and can fall rapidly during periods of the all too frequent extended droughts that affect many countries.

Over the past seven years, two regions have been particularly badly affected. The climates of the East African states of Kenya and Tanzania and the West African countries of Ghana and Cote d'Ivoire are characterized by a mixture of dry and wet seasons, leading to a drop off in generating capacity towards the end of the long dry season. However, both regions have experienced the total failure of their rainy seasons over the past few years, creating 18 month droughts.

Production at the main hydroelectric plants fell to less than a third of normal output and some had to be closed entirely. Even where generating capacity had previously managed to meet demand during most dry seasons, drastic rationing had to be introduced. In some instances, electricity was supplied to homes for only two hours a day; in others, water supplies were totally cut off for many days at a time. The experience of major droughts in both regions has sharpened awareness of their over reliability on hydroelectric production.


Two complementary solutions have been devised to cope with this problem. Firstly, some countries have sought to increase the level of generating capacity proved by nonhydro means. Many African states traditionally rely on small oil or diesel fired generators to make up the shortfall in generating capacity during periods of drought. However, these are expensive to run and subject to wild price swings in the cost of available feedstock.

Both the regions under discussion are increasingly turning to modern gas fired plants to create a more balanced generation mix. While civil unrest in Cote d'Ivoire has upset that country's plans to utilize its own offshore natural gas reserves in power production in the short term, the West African Gas Pipeline (WAGP) project finally looks like going ahead, providing gas for new power plants in Togo, Benin and primarily Ghana.

Earlier this year, the Songo Songo project delivered its first gas supplies to the Ubungo plant in Tanzania. As well as increasing the country's total generating capacity, the project should reduce power tariffs in what is currently one of Africa's most expensive electricity markets, as well as greatly increasing Tanzania's non- hydro generating stock. Once Ubungo is fully brought on stream it should prove invaluable in times of drought.

In neighboring Kenya, the new government of President Mwai Kibaki is similarly eager to make the most of the country's geothermal potential. Kenya already possesses Africa's only two economic geothermal power plants and the national generating parastatal, Kenya Electricity Generating Company (KenGen), hopes to provide 575 MW of new capacity through a string of new geothermal projects by 2017. The construction of each new plant depends upon Ken Gen's ability to secure sufficient financial backing, but the new government has quickly acted to restore relations with the IMF, World Bank and other multilateral and bilateral donors and lenders, and so substantial support is likely to be forthcoming. The existing geothermal plants are among the most reliable in Africa.

Bringing the continent together

However, by far the biggest hope for the African power sector is the integration of national power grids and the creation of cross- border power pools. Although most of Africa's hydroelectric power plants are subject to reduced capacity at one time or another, different parts of the continent experience dry spells at different times of the year and unseasonable droughts rarely affect more than a third of the continent at the same time. As a result, improved transmission links should enable electricity to be sold during times of plenty and purchased during periods of reduced production.

Table 1: Power in East Africa by country

This should also encourage the construction of new power plants, whether by state owned power utilities or independent power producers (IPPs), in the knowledge that excess production can always be exported. Even within a relatively limited geographical area, such as East Africa, the benefits seem enormous. Uganda already exports electricity to Kenya and the completion of the interconnector between the Kenyan capital, Nairobi, and the northern Tanzanian town of Arusha should bring the East African power pool into being. This will encourage the exploitation of Uganda's hydroelectric potential, given that the landlocked country enjoys a markedly different climate to its two coastal neighbors. It will also provide an enlarged market for the Ubungo facility and other gas fired plants that could be constructed to make the most of Indian Ocean gas discoveries, as well as any Kenyan geothermal plants.

It is hoped that the completion of regional power grids, in addition to any more localized bilateral agreements, will eventually lead to the creation of a pan-African power grid and pool. Connecting all parts of the continent to the South African power sector would provide access to by far Africa's biggest generating capacity and would also provide a massive electricity market for IPPs and anyone else considering constructing power plants in other parts of the continent.

Thanks to the economic strength of South Africa and national power company Eskom, the Southern African Power Pool (SAPP) has already become the most developed power pool on the continent. Although Eskom is in the middle a period of deep seated change, as a result of restructuring in preparation for the deregulation of the South African market and the possible break up of parts of the company, it remains the fifth biggest power producer in the world. Since South Africa's re-entry into the international community, Eskom has also become a big investor in many African power sectors, selectively acquiring assets and building transmission links in preparation for more cross-border trading.

The SAPP's operating members, who are already participating in trading, are: Botswana Power Corporation (BPC), Lesotho Electricity Corporation, Electricidade de Mocambique (EDM), Namibian Power (NamPower), Eskom of South Africa, Swaziland Electricity Board, Zambia Electricity Supply Corporation (Zesco), Zimbabwe Electricity Supply Authority (Zesa) and Societe Nationale d'Electricite (SNEL) of Democratic Republic of Congo. Although all these countries participate in power trading, they are not all interconnected with each other, because of the lack of a line through Angola between Namibia and DR Congo. The organization's three non-operating members, Electricity Supply Corporation (Escom) of Malawi, Angola's Empresa Nacional de Electricidade (ENE) and Tanzania Electricity Supply Company (Tanesco), should be connected within five years.

STEM trading

In November 2003, the World Bank agreed a $178 million credit with the SAPP to support the creation of a genuine regional power pool. According to Bank officials, the pool has not yet operated effectively because of excess generation capacity in the region. This excess capacity is steadily being eroded and the pool will have to function efficiently if prices are not to rise sharply. At present, the pool operates through long term power purchase agreements (PPAs), with limited short term trading. It is feared that negotiations on new PPAs will see tariffs rocket. The volume of short term energy market (STEM) trading based on the supply of electricity in hourly blocks is small but increasingly fairly rapidly.

STEM trading would generally be more efficient in Africa than PPAs, as the high level of dependence on hydroelectric power production means there is wide variation in the amount of power supplied. Some of the World Bank funding will be used to improve transmission connections with Democratic Republic of Congo. It will also fund a feasibility study into the construction of an interconnector between Pensulo in Zambia and Mbeya in Tanzania, connecting the SAPP with the East African power pool.

Within SAPP and further afield, the greatest obstacle to increased power trading remains the inability of governments and power utilities to fund imports. Yet although the development of IPPs on the continent has experienced something of a setback over the past couple of years, the opportunities for independent producers within an attractive regulatory climate must be great once a range of export opportunities are made possible.

The Gulf of Guinea, in particular, must be an attractive option. The West African Power Pool (WAPP) encompasses more countries than its East African counterpart but is at an earlier stage of development. However, the oil producers of West and Central Africa are finally beginning to seriously develop their gas resources after years of wasteful flaring, so it seems entirely likely that gas could either be piped to other parts of the continent for use in power generation or, more likely, that gas could be used to generate electricity within the region itself, both for domestic consumption and for possible export.

Table 2: Power in SADC by country

Nigeria offers both the biggest example of hope and despair in this regard. As with much of the country's infrastructure, the Nigerian power sector is in a terrible state of repair, although the democratic government of President Olusegun Obasanjo has managed to stabilize generating capacity at national power company National Electric Power Authority (NEPA). Capacity struggles to reach the 4,000 MW level, while estimates of actual national demand range up to 10,000 MW, so there is sufficient demand to justify the construction of new plants.

In addition, the Obasanjo administration is to outlaw gas flaring from 2008, so the oil majors which dominate both onshore and offshore operations are developing a string of major gas projects to make use of associated reserves. Although a great deal of gas is being consumed by the export driven liquefied natural gas (LNG) sector, Nigeria possesses the world's eighth biggest reserves of natural gas and so there is plenty of gas to feed any number of new thermal plants. The construction of a West-South transmission line will be vital as any generator would be loath to rely solely upon Nigerian consumption.

Economic reform and rebuilding is proceeding painfully slowly in Nigeria and so it is entirely likely that the deregulation of the power sector will take another decade. This could just be long enough to enable the construction of transmission links between the West African giant and the south.

In the past, there were two great obstacles to constructing power transmission lines between the Gulf of Guinea and the SAPP: instability in Democratic Republic of Congo (DR Congo) and civil war in Angola. However, the war in Angola has come to an end and reconstruction efforts are underway in that country. At the same time, although regional conflicts continue to rage in various parts of DR Congo, the shaky peace agreement over the main conflict seems to be holding, offering the prospect of greater stability in the future.

Congolese potential

A peaceful outlook for DR Congo would help efforts to strengthen the African power sector in two ways. Firstly, it would allow the construction of a transmission line from the SAPP to Nigeria, connecting the continent's richest and most populous nations, as well as two of the countries leading the New Partnership for Africa's Development (Nepad) initiative to promote African growth through greater cross-border cooperation. However, any companies prepared to finance the construction of the interconnector must be confident that DR Congo will remain stable and that the line will remain in place long enough for them to recoup their investment. In terms of transmission infrastructure, this means at least 20 years and probably a great deal longer.

DR Congo's other contribution to a PanAfrican power grid could be in providing massive additional generating capacity. Unlike most other parts of the continent, the Congo Basin is generally blessed with year round rainfall and as the second biggest river in the world, the River Congo possesses huge hydroelectric potential. The country as whole has 419,210 MW of economically feasible potential, a figure many times greater than Africa's current total generating capacity.

At present, the country possesses 2.5 GW of installed hydroelectric generating capacity, including 1.7 GW at the Inga site, divided between the 351 MW Inga I and 1.4 GW Inga II schemes. Work has begun on rehabilitating the two plants after years of underinvestment, while the proposed Inga III project would boost total capacity at Inga to 3.5 GW. Feasibility studies are underway but it is likely that the state owned power company SNEL would be able to secure funding for the project, probably in conjunction with a foreign partner. Inga is already one of the country's biggest foreign exchange earners, exporting electricity to Congo- Brazzaville, Zambia and Zimbabwe, while South Africa and Botswana are also considering contracts.

However, it is the Grand Inga scheme which really fires the imagination. The project was first investigated by an African Development Bank (ADB) financed pre-feasibility study in the early 1990s but Eskom has recently expressed its interest in reviving the scheme. Grand Inga would boost generating capacity at the site to a total of 44 GW, through the addition of 52 new generators with average capacity of 750 MW each.

It is likely that a new company would have to be set up to manage the project, although Eskom would probably be a leading partner in the venture. Build operate transfer (BOT) contracts could be offered on each stage. Although the successful completion of such a big project may seem unlikely, particularly in a country as unstable as DR Congo, Eskom would not be putting time, manpower and money into (he scheme without good reason. While African demand made be able to absorb Grand Inga's output by the time it is completed, it is more likely that any development consortium would principally target markets outside Africa.

While the creation of a pan-African transmission grid may be regarded as the ultimate goal by many on the continent, the existing connections between North Africa, the European Union and the Middle East offer the prospect of almost unlimited export markets. Moreover, further transmission links across the Mediterranean are planned. In December, Red Electrica de Espana (REE), Morocco's Office National de Electricite (ONE), Pirelli of Italy and French firm Nexans signed up to the $147 million project to construct a second interconnecter between Morocco and Spain. The project will be financed by ONE and REE.

The EU is currently liberalising its gas and power markets to allow spot trading: this would allow African gas and electricity producers to access one of the world's biggest markets, providing the required transmission infrastructure can be put in place. Any potential backers of Grand Inga, which comes with an estimated price tag of $30 billion, would probably commit themselves with European supply in mind.

The benefits of improved transmission links within Africa are huge but so too are the problems. International power companies are reluctant to commit themselves to a continent where they perceive limited profits, while most African state owned power companies are struggling to maintain services, let along improve them. Yet Eskom could easily make the difference. As a major power company, it has the financial muscle to achieve a great deal on its own but it can also help to attract international partners to African projects. At the same time, it is very much committed to Africa, something that can only benefit the continent as whole.

'Africa's power market is full of contradictions'

By Neil Ford



Neil Ford is a journalist and consultant on African and Asian affairs, specializing in the power, water and oil & gas sectors. He has previously worked as a political risk analyst


Copyright © Wilmington Publishing Ltd. Jun 2004

Updated: 2016/06/30

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