Africa’s energy sector is on the cusp of a renaissance, with the most important driver being the growth in African economies. Conversely, the lack of energy necessitates investment in energy to sustain the growth of business on the continent, says auditing and consulting firm Deloitte Southern Africa Infrastructure and Power leader Shamal Sivasanker.

“This dichotomy means business must get involved in gener- ation capacity in Africa in an affordable and responsible manner to sustain the business environment.”

A specific challenge is the market structure of the economies in Africa and a significant barrier for investment in energy generation is that many electricity tariffs are not yet cost reflective.

“New plants and generation capacity require long-term plan- ning and investment-friendly environments to attract participants across the energy value chain, not only independent power producers but also the manu- facturers of tools and components used in the energy industry,” says Sivasanker.

The skills challenge is also significant, as Africa requires engineers and economists to establish and run generation plants in a viable manner.

“Key points are labour, the price of electricity and the localisation of components. If we can deal with these and the regulatory challenges, we should be able to harness Africa’s energy potential for its benefit.”

There is also improved invest- ment in and sentiment for renew- able-energy generation technologies on the continent, adds Sivasanker.

There is expertise across a range of power generation technologies and in the use of different energy sources, including wind and solar generation, in West Africa, says Ghanaian independent power producer (IPP) Sunon-Asogli Power chairman Li Xiaohai.

Sunon-Asogli Power is a private combined-cycle natural-gas turbine power producer, created through a China-Ghana joint venture, and was also the first IPP in Ghana.

Li says

Chinese energy companies have significant experience in investing in emerging markets and the African markets are attractive, with significant opportunities for cooperation.

However, less stringent regulations would help boost invest- ment in manufacturing in the African countries aiming for greater power generation, similar to the example of Italy, which increased its power sector materially between 2010 and 2013 through investment incentives and participation in renewable- energy generation by Italian industry, says Sivasanker.

“This drive to boost local invest- ment and participation is not happening in South Africa, where a standard capped-auction model is being used, resulting in little incentive to invest in the sector. Monolithic State-owned power utility Eskom’s dominance can be combated by establishing an independent buyer separate from the utility.”

However, having an independent buyer’s office will mean that power prices will increase to meet production costs, he warns.

South Africa could also learn from China, where there is fierce competition among State-owned companies and this form of competition can lead to a genuine start of a competitive energy market in the country, concludes Sivasanker.