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Power Africa's leaders (and skeptics) speak out

Jul 17, 2013 - By Michael Igoe - Devex.com

Thermal Power Plant

Workers maintain the thermal power station in Takordi, Ghana. U.S. President Barack Obama's Power Africa, an initiative to improve the access to energy in sub-Saharan Africa has been billed by some as his legacy for Africa. Photo by: Jonathan Ernst / World Bank / CC BY-NC-ND

Power Africa, a new multi-billion dollar initiative by U.S. President Barack Obama to increase electricity access on the continent, is rallying supporters to generate some energy of its own.

Over the past week or so, both U.S. Agency for International Development Administrator Rajiv Shah and Power Africa coordinator Andrew Herscowitz have addressed concerns from Washington’s development and energy policy communities about the initiative’s structure and long-term vision.

 

Power Africa, it appears, is more a “branding” and ramping-up of existing initiatives under a single label and management framework than a wholly new policy strategy. Yet it has been billed by some as Obama’s “legacy initiative” for Africa, drawing comparisons to former President Bill Clinton’s African Growth and Opportunities Act, which provided trade preferences to African countries, and former President George W. Bush’s $15 billion Presidential Emergency Plan for AIDS Relief.

 

And the support of African corporate leaders — so far, most notably Tony Elumelu, the Nigerian billionaire and philanthropist — may prove to be a game-changer.

 

Obama’s plan to boost energy access in sub-Saharan Africa aims to coordinate U.S. government agencies and programs that are already engaged with the continent’s energy development, provide them with additional funding, and place U.S. government tools at the disposal of public-private partnerships deemed capable of accelerating and sustaining investment in Africa’s energy sector.

 

The arrangement has left some observers wondering whether the initiative is more committed to getting U.S. companies a foot in the door of the African energy sector than to tackling energy poverty with a truly balanced mix of conventional, renewable and off-grid solutions.

 

Power Africa’s supporters say it can do both.

 

Unconventional development model

The bulk of the $7 billion U.S. funding targets a “transactional approach” to African energy development, which Herscowitz says flips the traditional development model upside down.

 

Instead of spending years setting up the “correct” regulatory environment to attract energy investment to partner countries, Power Africa starts with business deals that are already on the table and looks at how a combination of government tools from participating agencies might be applied to help get them online faster and more effectively.

 

USAID will provide $285 million in technical assistance to partner governments to implement Power Africa-supported reforms, as well as grants and risk mitigation “to advance private sector energy transactions.” Some of those efforts will likely be channeled through the agency’s Development Credit Authority, which issues credit guarantees to support loans in high-risk markets like rural energy development.

 

The White House points to $9 billion of private funding committed by energy development and investment partners including General Electric, Symbion Power and Husk Power Systems, an off-grid developer that “will seek to complete installation of 200 decentralized biomass-based mini power plants in Tanzania — providing affordable lighting for 60,000 households.”

 

As much as $2.5 billion is expected to come from Tony Elumelu, a billionaire banker and philanthropist from Nigeria who controls the pan-African proprietary investment company Heirs Holdings and years ago established his own foundation to help entrepreneurs across the continent.

 

“Power is the single biggest obstacle to Africa’s development, and as such, it is the most catalytic and strategic investment anyone can make in Africa,” he wrote in a recent opinion cited by an editorial in The New York Times.

 

Still, some analysts question whether an initiative designed to support road-blocked energy deals might eventually end up subsidizing projects incapable of moving forward on their own.

 

In its first phase, the $9 billion of private sector funding Power Africa has “leveraged” corresponds mostly to later-stage power development deals, not new initiatives; so that question will likely go unanswered until less-proven energy sector improvement plans are targeted.

 

What to expect

Herscowitz says that in the medium term — by 2020 — Power Africa will provide 20 million people with access to energy by generating roughly 10,000 megawatts of additional electricity in the six participating first-phase countries: Kenya, Liberia, Ghana, Tanzania, Ethiopia and Nigeria.

 

Obama offered his own “aspirational goal” of doubling access to energy in sub-Saharan Africa.

 

But an impact of that scale will require a long-term financial commitment beyond the $7 billion over five years already set aside; estimates suggest $300 billion would be required to reach the president’s target for sub-Saharan Africa.

 

Supporters in Congress are hoping to provide some security through legislation, the Electrify Africa Act of 2013, which aims to “establish a comprehensive U.S. government policy to assist countries in sub-Saharan Africa to develop an appropriate mix of power solutions.”

 

The bill calls for efforts to “encourage the installation of at least an additional 20,000 megawatts of electrical power in sub-Saharan Africa by 2020” and to “promote first-time access to electricity for at least 50,000,000 people.”

 

However, reducing Power Africa to megawatts and numbers of people connected to power obscures the complex challenge the continent’s energy poverty presents.

 

By branding itself as the Obama administration’s whole-of-government energy approach to Africa, the initiative has set a difficult path to success if it is to avoid disappointing any of its three potentially conflicting mandates: Increased private investment, off-grid power and renewable energy development — or their constituencies in the energy policy and implementation arena.

 

Helping hand or foot in the door?

Power Africa aims to bolster private investment in Africa’s energy sector by making the market more attractive to United States, international and African businesses.

 

Seven of the ten fastest-growing economies in the world are in Africa, but unreliable electricity restricts more robust, consistent, and inclusive growth. Supporters of Obama’s energy plan for the continent hope U.S. companies can help provide the energy security both to foster steady growth and to benefit from it.

 

Country-level participation requires a “strong commitment” from partner governments to make “necessary” reforms, like breaking up state-owned utilities, some of which will be coordinated through existing or future Millennium Challenge Corp. country compacts.

 

At the same time, the coordination team will work with energy firms to identify the obstacles they face at various stages of the power transaction process, like prohibitive upfront costs for feasibility studies, perceptions of higher risks in unknown markets and in-country counterpart offices that may have little experience negotiating power-purchasing agreements.

 

Most observers think Power Africa’s greatest potential contribution is the debt financing it can provide through the Overseas Private Investment Corp. and the Export-Import Bank, which together account for over $6 billion of the $7 billion portfolio. Both entities are set to provide loans and loan guarantees to help businesses purchase energy products and services that contribute to the initiative’s goals.

 

Further motivation can come from concerns that U.S. investment in Africa has lagged behind Chinese competitors, who offer cheaper prices on less-regulated products and service.

 

“If we’re not careful, or if we go in with rigid rules, we will not achieve our goals,” Mark Green, president and CEO of the Initiative for Global Development, a Power Africa founding partner, told Devex.

 

On- or off-grid?

Some observers have argued that Power Africa should do away with, or at least revise, the renewable energy-prioritizing legislation that it is tied to, a so-called “carbon cap” that requires OPIC to reduce carbon emissions across its investment portfolio by 50 percent over 15 years and — as certain analysts believe — fights climate change by withholding energy from the people who need it most and who contribute the least amount of carbon to the atmosphere.

 

OPIC’s “carbon cap” also seems to offer the only legislative teeth within Power Africa to ensure investments target renewable energy projects, which are also likely to benefit off-grid energy-poor communities in rural areas of the continent where extending the power grid is not a feasible option.

 

Herscowitz says Africa’s lack of rural infrastructure presents an opportunity for joint American-African innovation to “leapfrog” the high-emitting production systems found elsewhere, the way mobile phones have done with landlines in much of the developing world.

 

But of the $7 billion in U.S. government funding commitments, only $2 million is specifically earmarked for off-grid energy development. That money establishes the “Off-Grid Energy Challenge,” a grant competition for “African-owned and operated enterprises to develop or expand the use of proven technologies for off-grid electricity [for] rural and marginal populations.” Another $20 million is specifically directed to supporting renewables through the U.S.- Africa Clean Energy Finance Initiative.

 

With no explicit mechanism in place to quantify Power Africa’s intended private sector commitment to off-grid or renewable investments, some worry the initiative will channel the vast majority of its funding to large-scale centralized projects likely to benefit international energy corporations over the rural poor, especially since African countries generally lack the technical experience and infrastructure to facilitate rapid renewable and off-grid adoption and distribution.

 

Renewable and off-grid business models struggle with the same obstacles as conventional power projects, says Daniel Schnitzer, founder of EarthSpark International.

 

Schintzer tells Devex: “I’m worried they don’t realize there are great companies that are manufacturing and distributing small-scale clean energy products like solar lamps and home energy systems that can really make the difference.”

 

Public-private-partnerships for renewables offer a viable, well-researched and well-documented solution, he notes, but they require the same sorts of commitments and governmental risk reduction and financing support as centralized energy production projects.

 

Grant funding for social entrepreneurs to conduct impact and feasibility studies for unproven products and low-interest debt financing for businesses to distribute renewable energy technologies at scale represent areas where US government tools could make a difference in vitalizing the sector, adds Schnitzer.

 

“My concern is whether the White House understands that those small-scale solutions really exist.”

 

Read more on U.S. aid reform online, and subscribe to The Development Newswire to receive top international development headlines from the world’s leading donors, news sources and opinion leaders — emailed to you FREE every business day.

 

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Updated: 2016/10/20

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