Analyst Says IPPs to the Rescue

Sub-Sahara Africa could be on the verge of changes that will give private power companies the opportunity to expand into the region despite the previous leeriness of investors, according to Frost & Sullivan.

“Developments in the commodity market and the expected shift in oil patterns mean that the region’s hope of hitching on to the world economic locomotive is not unrealistic,” says Frost & Sullivan Industry Analyst Jeannot Boussougouth. “The energy sector is expected to contribute significantly to shaping the economic development of the region.”

Sub-Saharan Africa contains 14% of the global population, but its electricity generation capacity is less than 2% of the world’s total. Only around 25.0% of Africa’s population has access to electricity. The South African National Energy Association said recently that the continent’s energy supplies would have to increase at least fourfold by to meet demand. The growth rate in electricity demand is expected to be 4.4 per cent for the next 25 years, and this would require capacity expansions of approximately 270 GW by 2030.

“Developing energy infrastructure on the continent is widely seen as one of the key growth strategies for Africa,” said Boussougouth. “The continent’s power generation is expected to require a total investment of more than $163 billion over the next 20 years.”

In Cameroon and Ivory Coast, the concession Independent Power Producer (IPP) agreements approach has been followed whereas Kenya, Rwanda, and Ethiopia are still pending – which the analyst notes reduces the attractiveness of investment.

“The status regarding power purchase agreements (PPAs) has also not been clarified yet in many sub-Saharan African countries,” notes Boussougouth. “The model currently applied involves private companies selling electricity to a principal that, in many instances, is the public utility. The issue here lies with reaching a mutually beneficial agreement on power purchasing between the seller and the buyer.”

“The strategic choice of integrating the continent’s electricity sector through power pools is expected to increase the number of cross-border projects in Africa,” Boussougouth says. “As this significantly reduces completion and operational risks, it is a development that should be welcomed by private companies.”