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.
Solutions
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
ENERGY JOURNALIST
Biography
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
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