With many African governments’ debt levels and servicing costs growing and economies taking hits from plummeting oil and mineral commodity prices, it will become increasingly necessary for private sector participation in infrastructure projects, particularly in the energy space.
However, structural reforms remain unimplemented and legislation remains stringent and, in some cases, closed-off for independent power producers in many countries.
This sentiment was shared by various energy experts who spoke during a webinar session hosted on May 11 as part of the industry event African Utility Week (AUW).
A number of webinars are due to be hosted every other week over the next few months, leading up to the AUW event later this year once travel and public gathering restrictions ease.
Private equity fund manager African Infrastructure Investment Managers chief investment officer Romain Py said the private sector only accounted for 24% of net energy generation between 2010 and 2017.
African Development Bank power systems development manager Angela Nalikka added that electricity revenue losses during Covid-19 lockdowns and challenges around high tariffs and debt levels would, however, give rise to renewed interest in private sector participation in the energy sector.
She noted that countries would be seeking self sufficiency and, therefore, growth in industrialisation and mining. To this end, private sector funding could be an additional source of funding where public resources fell short during this time.
Nalikka believes that a “second wave” of sector reforms would follow soon across the African continent, targeted at utility transformation to ensure the sector's sustainability, improve private sector participation models in electricity transmission, result in more independent power producers in generation and an increase in off-grid or mini-grid solutions to increase access to electricity in rural areas.
“Despite years of power reforms in Africa, the continent has not recorded the expected incremental benefits, owing to most of the utilities being on the brink of bankruptcy. The viability of Africa’s utilities are based on several variables including better governance, increased capacity of staff and reduction of technical, commercial and collection losses.”
She said the solution was in decentralised power systems.
Kenya-based Empower New Energy CEO and founder Terje Osmundsen, meanwhile, said African businesses were most in need of competitive energy, considering its focus on industrialisation or in some cases re-industrialisation.
However, the average electricity prices paid by businesses in Africa were between 30% and 50% higher than the world average, he pointed out.
He believes African businesses can save between 10% and 50% of their daytime electricity cost by buying electricity from a solar photovoltaic power plant installed on site by private solar developers, by way of a 25-year power purchase agreement contract.
“There is huge potential to dynamise businesses in this manner. However, only a few countries allow for private power purchase agreements. The businesses can still enter leasing or other arrangements, but this brings about more risk for the client.”
Osmundsen noted that there was a lot of money available worldwide for new-build solar projects and that the intelligent approach for African countries would be to make sure that the market can facilitate such investments.
“We must open the market for the private sector to address this huge handicap that African businesses are suffering from,” he adds.
PROVINCIAL LEVEL
During the AUW webinar, Western Cape Department of Economic Development and Tourism energy director Ajay Trikam also discussed the Western Cape’s approach to private sector participation.
He said the energy focuses globally revolve around security of supply, resource efficiency, which includes carbon emission reduction, localisation and building resilient infrastructure.
The Western Cape has installed 167 MW of solar PV since 2015, including solar panels on all provincial government buildings, as well as some department buildings.
Trikam says that 24 of the province’s 25 municipalities allow for small-scale embedded generation, while a process is under way to allow for power to be sold to the municipalities.