Consulting Mind: Power for Africa

Africa’s power sector is facing many challenges, mainly due to insufficient generation capacity which has limited electricity supply, resulting in low access and frequent power failures.

The main obstacle to the increase in electricity generation capacity is the high investment cost of developing power generation plants. Many such initiatives fail already in a reluctance to invest in competent feasibility studies, or with low cost feasibility studies resulting in low-quality assessments which are non-bankable with investors. Also, most power development initiatives work at the individual project level, leading to fragmentation and inconsistency between projects that discourage long term investors.

Last week, Bearing hosted a study tour and conference in Stockholm for a delegation from Kenya, and one of the conference sessions was a presentation by Lars Ekbom from Siemens Industrial Turbomachinery. Mr Ekbom gave a very interesting presentation, based on his 20+ years experience of working with power solutions for Africa.

Mr Ekbom started by explaining that Africa’s current energy consumption level equals that of New York State. That is, the 800 million people of the African continent currently does not use more power than the 19 million inhabitants of New York State, which clearly shows the needs for power generation development in Africa. Africa has an average electrification rate of 24%, while the rate in the rest of the developing world lies closer to 40%.

This article contains some facts from Mr Ekbom´s speech, and also facts we have gained knowledge of through work with project finance assignments over the past ten years. Then at the end of the article is a video of Mr Ekbom´s speech.

As can be seen in the chart on the right, power production in Asia and Latin America has developed substantially since 1990, while in comparison the capacity in Africa has risen very slowly.

Across Africa business people joke about living in a “bring-your-own-infrastructure” continent, in which business companies must provide independent generators, water purification and even sewage treatment when building a factory or a hotel.

Of these the costliest is often power. Nigeria, which has a population three times larger than South Africa’s, generates just a tenth as much electricity and a the central business districts in both Abuja and Lagos have power outages several times every day.

There is a large disparity in electricity cost levels between African countries. For example, while electricity tariffs in South Africa and Zambia are among the lowest in the world, prices in Djibouti and Gabon are among the highest globally. The average tariffs in Africa are also much higher than in other developing regions.

Power from private generators costs $0.35 per kilowatt-hour or more, ten times more than electricity from the grid in most other countries. Independent analysts reckon electricity cost accounts for 6% of costs at Nigeria’s retail banks, where each branch needs a generator, and 10% of the costs of telephone companies, where each cell phone mast must have its own power.