Sub-Saharan Africa needs to spend $41bn/y to meet power needs

14th March 2011 By: Jade Davenport - Creamer Media Correspondent

Sub-Saharan Africa’s energy sector requires an investment of $41-billion each year, approximately 6,4% of the region’s gross domestic product, to address the region’s significant shortfall in electricity supply.

This was according to African Development Bank division manager for Eastern and Southern Africa energy finance, Emmanuel Nzabanita, who told delegates at an energy summit in Cape Town on Monday that Africa was suffering from a severe infrastructure deficit, which was hindering economic development.

Nzabanita said that total infrastructure financing needs for sub-Saharan Africa was estimated to be $93,4-billion each year and just under half of that total was required for the energy sector.

The entire installed generation capacity of 48 sub-Saharan African countries was 68 GW, which was about the same as Spain’s generation capacity, said Nzabanita.

Chronic power shortages plagued 30 African countries, and only one in four Africans had access to electricity.

In order to meet demand, keep pace with projected economic growth, and provide additional capacity to support the rollout of electrification, the energy sector in Africa was required to install approximately 7 000 MW of new generation capacity each year.

Nzabanita said that closing the large energy-financing gap would require improving the creditworthiness of utilities and sustaining the recent increase in external finance to the sector.

It was believed that the financing gap could be reduced by $3,3-billion a year if power utilities’ operating inefficiencies were addressed, by $2,2-billion a year if improvements were made in cost recovery, and by $300-million a year if capital budgets were better executed.

However, foreign investment was crucial to significantly reduce the African energy sector’s financing shortfall.

According to the African Development Bank, new major non-Organisation for Economic Cooperation Development power financiers, particularly Chinese and Indian export-import banks, had emerged and increased their investments from an almost zero-base to an average of $2-billion a year between 2005 and 2007. The Asian banks were predominantly financing hydropower projects.

While Asian public investment was growing, Nzabanita said that private sector investments in Africa’s power sector was still rare, averaging about $1-billion a year between 2005 and 2007 with the bulk of such investments going into 3 000 MW of independent power projects.

Nzabanita elaborated that the way to address Africa’s severe power shortage was with the assistance of the private sector.

Thus, it was essential that African governments focus on the creation of public-private partnerships (PPPs) to attract more private sector investment.

The best PPP units had established programmes of prioritised investment opportunities with features including clear political support, a proper legal and regulatory structure, a transparent procurement framework, and support services to facilitate implementing project timetables. These features reduced uncertainty, lowered the risk profile, and improved viability of PPP projects.

Nzabanita added that, given the continent’s abundant natural resources and the many innovative environment-related financing instruments available, Africa had the opportunity to grow under a low-carbon, clean energy path.

“Africa must develop its energy needs in a clean way,” concluded Nzabanita.