The big read: Africa's energy revolution takes shape - African Business Magazine
The big read: Africa’s energy revolution takes shape

The big read: Africa’s energy revolution takes shape

At a vast coal-fired power station under construction in South Africa’s northeast Limpopo province, workers go about their business in a cavernous engine room, inspecting the generators that will power the continent’s second largest economy.

Among this bustling brigade of engineers and technical experts, one unusually dressed figure stands out from the crowd. The high visibility jacket and regulation hard-hat only draw attention to his unique features – a garish bow-tie and an outsized pair of spectacles. 

Akinwumi Adesina, president of the African Development Bank (AfDB), may not be a permanent employee at Medupi Power Station. But given his bank’s €1.86bn ($2.1bn) loan to the project – the fourth-largest coal plant in the Southern Hemisphere – Adesina has every reason to be just as attentive as his hosts during this April visit. Checking computer screens and shaking hands with workers, the former Nigerian politician gives every impression of taking charge of the facility. 

Few would object if he did. For years, this project has stood as a potent symbol of Africa’s failure to generate enough power for its citizens – a byword for delay, wasteful expenditure and environmental indifference on a grand scale. Conceived in 2007, Medupi’s approved R70bn ($4.8bn) budget and schedule proved embarrassingly optimistic. After endless cost overruns, labour disputes and technical problems, management finally expect the plant to be finished by 2020 at a cost of over R100bn. Independent experts suggest anything up to R300bn could prove more accurate. 

Some may dismiss Medupi as a one-off. Yet across the continent, failed power generation continues to be the major drag on development, hobbling households, schools and businesses. 

In its flagship 2015 report – Power People Planet the Africa Progress Panel, chaired by Kofi Annan, estimates that some 621m people – two out of three Africans – have no access to electricity. Sub-Saharan Africa’s entire installed capacity is 90 GW of power, roughly equivalent to Spain. Africans outside South Africa consume an average of just 162 kW hours per year – compared to an average of 7,000 kWh elsewhere in the world. 

“You see a common thread – low access to electricity, huge losses in distribution networks due to not enough money spent on maintenance, outdated technology, and theft. State utilities have got no money, bills aren’t being paid by government entities and they don’t have the money to reinvest,” says Chris Holmes, managing director of global gas and LNG consulting at IHS. 

In the past, much of this was greeted with a shrug – a passive acceptance that the only power worth fighting for in Africa was political. Yet as the continent’s economic emergence continues, citizens are no longer prepared to see their education, businesses and medical facilities crippled by avoidable power shortages.

“In many of these countries, people are angry because they don’t have access to power,” says Caroline Kende-Robb, executive director of the Africa Progress Panel.

“The rich are super angry because they don’t want to use generators, the middle class are angry because they are dependent on power for their livelihoods and businesses. And the poor are angry because they don’t have access to power for fundamentals like education and healthcare.” 

Faced with this tide of discontent, policymakers are forging a response. Governments, multilateral institutions and donors have launched a raft of initiatives to get to grips with the problem. From Barack Obama’s Power Africa to the AfDB’s New Deal on Energy and the UK’s Energy Africa, all claim to offer a way out of the impasse and a formula for achieving cooperation among stakeholders. Yet despite lofty rhetoric and ambitious goals, investors are still waiting for a sign that the message has hit home.

“Clearly the dialogue has changed and governments are more open about admitting that this is a priority,” says Ousmène Mandeng, a former deputy division chief at the International Monetary Fund (IMF) and now head of research at New Sparta Asset Management, an investment firm targeting African power assets.

“Whether the conditions for setting up and installing more electricity have changed remains to be seen. I don’t think we’ve seen the sort of acceleration that we should have expected in light of the initiatives – I think we need a big bang, some sort of major breakthrough that African governments are serious and want to get it off the ground”.  

Powering ahead?

As he took to the lectern hours after an emotional visit to Nelson Mandela’s Robben Island cell, few expected Barack Obama’s June 2013 speech at the University of Cape Town to serve as anything more than a generous tribute to South Africa’s democratic transition – perhaps sprinkled with references to Robert F. Kennedy’s famed 1966 speech on the same campus. 

But in launching Power Africa – and promising “light where currently there is darkness” – Obama came as close as any to offering a big bang solution to the continent’s most intractable problem. The idealistic rhetoric of the speech, combined with the prospect of a sustained assault on the continent’s energy deficit, left many Africans thrilled. Emboldened by early progress, the President tripled the scheme’s ambitions in September 2014. 

For Andrew Herscowitz, the Power Africa coordinator currently tasked with delivering 60m connections and 30,000 MW of extra installed power capacity to an expectant continent, the ambitious goals represent more than an African legacy pitch by the US President.  

“It’s ambitious and achievable. If any world leader understands it, it’s Obama. Anyone who thinks a major power project will be up and running in two years doesn’t understand how the market works – infrastructure takes time. We’re trying to make sure projects don’t derail, and if we can expedite them in some way, that’s going to happen,” he says.

Herscowitz says that Power Africa – a one-stop shop where more than 120 development partners can accelerate deals, raise capital and discuss regulatory improvements – is changing the energy picture on the continent. The results of this expanding network, he says, are evident in the $43bn worth of funding commitments that have already been raised.

Not all observers are convinced. In a downbeat 2015 assessment, the New York Times reported that Power Africa had got off to a “sputtering start”. 

“The reality of Power Africa’s promise bears little resemblance to the president’s soaring words. It has yet to deliver any electricity,” argued the paper, pointing to alleged disputes among would-be partners, the glacial pace of project delivery and an overreliance on existing schemes.

A look at the numbers offers more ammunition for the sceptics. Power Africa’s roadmap, released in March 2016, predicts that up to 21,000 MW will be online by 2030. The scheme’s ultimate target of 30,000 MW by that date depends on several pieces falling into place – including the acceleration of gas, solar and geothermal projects, and increased efficiencies at existing plants.  

Has the President bitten off more than he can chew? If the initiative continues to convene the right private sector operators, donors and advisers, argues Herscowitz, the technical problems are eminently solvable. A somewhat harder issue to tackle – and one that Herscowitz admits requires patient, sustained work – is deepening government capacity. 

“The greatest challenge is capacity, and that means a lot of different things – it might be a minister who’s never negotiated a deal before and might need a little help … You’re dealing with real people with real jobs, so when someone’s been running a utility and controlling all the power projects and then the private sector comes in and does it, that person might fear their job is at stake.”

Until recently, this status quo went largely unchallenged. African governments held all the cards – posing as owners and operators of power plants, the national grid, and underperforming state utilities. On the rare occasions when private sector operators were permitted a role in power generation, a reliance on underfunded, occasionally corrupt utilities to deliver the power to customers quickly dampened any realistic commercial prospects. 

Yet with an estimated $850bn needed to ensure universal access by 2030, governments are increasingly desperate for private sector cooperation. With its unashamed enthusiasm for business involvement – and convening expertise – Power Africa is playing a key role in loosening this state stranglehold.  

“We need to make sure that partners in African governments and markets understand the tremendous opportunities, and how in the long run, having the private sector play a key role will benefit everyone and make things happen a lot more quickly … our hope is that partners will make the right reforms, and their neighbours will feel increased pressure to do the same,” he says. 

It’s a philosophy that is finding a sympathetic ear among a new generation of African policymakers who see it as the only way to get bankable projects off the ground – and the investors keen for market access.  

“There may have to be a rethink around the government role,” argues New Sparta’s Mandeng. “Should it be the European model, where government builds the basic infrastructure which means an enormous burden in terms of administrative capacity and financing, or should government play the regulator and leave most things to the private sector? I think the latter is the only approach likely to be effective in Africa.” 

Power to the people

If previous generations of African policymakers can fairly be accused of lacking ambition to tackle the continent’s energy deficit, the opposite could prove equally true today. 

Medupi is not the only facility to receive a high-profile visit from Adesina. The AfDB president continues to shuttle back and forth across the continent, preaching the gospel of his New Deal on Energy – which goes beyond even Power Africa in envisaging universal electricity access by 2025.

As Adesina encourages, lobbies and pays for change – the bank is disbursing an estimated $12bn over the next five years – his director of energy, Alex Rugamba, says the message is finding a willing audience.

“I’ve just come back from Mozambique, Malawi, and South Africa. The message is the same wherever we go. They are acutely aware of the need to fix regulations, move towards cost-reflective tariffs and restructure state-owned entities … I’d want to believe it’s a majority of countries where investors are being welcomed through good policies and regulation,” he says.

As African states retreat from their traditional role under the combined pressure of multiple coordinated initiatives, there is a renewed hope that space will open up for more effective domestic solutions. While much effort has been put into working with government entities to fix inefficient grids and stricken utilities, much of Africa’s potential lies outside the existing grasp of governments in the so-called “offgrid” space.

Removing the regulatory barriers to this sector could see local entrepreneurs and communities taking a central role in power generation. This DIY model could offer the reduced cost and sustainable solution that has eluded both governments and large foreign investors. 

“It’s not just about building a grid, people now see that we can light up Africa in different ways,” says the APP’s Kende-Robb. 

“Many private companies won’t invest in power because they can’t reach customers through the utilities. But there’s a way around that by working off grid … To enable this, it’s about supporting millions of what we call energy entrepreneurs. In Tanzania, Kenya and Ghana, entrepreneurs are bringing in small solar panels.”

In the aftermath of the Paris Climate Agreement, there is both renewed financing and political momentum behind a shift to local and sustainable solutions. Few believe that the disbursal of solar panels alone will fix Africa’s energy deficit. Yet a general move away from a government-dominated grid is finding support among a majority of stakeholders – especially investors.  

“We need more grids, more integrated grids, more intelligent grids that would allow us to evacuate electricity wherever it can be produced cheaply,” says New Sparta’s Mandeng.

This approach – a combination of the deregulatory zeal of Power Africa and the country-by-country expertise of the AfDB  – could finally offer a path towards the light for a continent so often shrouded in darkness.

“There’s no reason that Africa shouldn’t have universal access today because the technology exists,” says Herscowitz. “We don’t need any moon shots.”

David Thomas


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Written by David Thomas

David Thomas is Digital Editor at IC Publications and a features writer at African Business Magazine. He has previously been published at the Financial Times, Wall Street Journal and South Africa's Cape Times.

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