AFRICAN UTILITY MARKET INTELLIGENCE REPORT

Conference and Industry Insights May 2015, Cape Town, South Africa

Intelligence gathered at:

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Aurelia van EedenBusiness Unit Leader: Africa - Energy & EnvironmentTel: +27 21 680 3203Email: aurelia.vaneeden@frost.com

Johan MullerProgramme Manager: Energy & EnvironmentTel: +27 21 680 3210Email: johan.muller@frost.com

Evan SchiffEvent Director: African Utility Week & Clean Power AfricaTel: +27 21 700 3553Email: evan.schiff@spintelligent.com

Nevenka RisticProgramme Director: African Utility Week & Clean Power AfricaTel: +27 21 700 3537Email: nevenka.ristic@spintelligent.com

CONTACTS

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1. Abbreviations 42. Executive Summary 5

2.1 CEO’s Corner 5 2.2 Overview 5 2.3 Industry topics 6

3. Report Aims and Objectives 124. Report Structure and Scope 13

5.1 Report structure 13 5.2 Report scope 13 5.3 Methodology 13 5.4 Assumptions 13

5. Introduction 14 5.1 About African Utility Week 2015 14 5.2 Summary of the Opening Session 14 5.3 African Utilities: Key challenges to effective growth 16 5.4 African Utilities: Key trends anticipated to facilitate development 18

6. Finance and Investment Forum 21 6.1 Introduction 21 6.2 Key Insights 21

7. Generation 26 7.1 Overview 26 7.2 The importance of the PPA and the rise of gas as a generation feedstock 27 7.3 Distributed generation 37 7.4 Key trends and insights 40

8. Large Power Users 41 8.1 Overview 41 8.2 Mines and large industrials; and the human element 41 8.3 Drivers and challenges 50 8.4 Key trends and insights 51

9. Metering 52 9.1 Introduction 52 9.2 Smart metering and tariffs 52 9.3 Key trends and insights 59

10. T&D and Smart Grids 60 10.1 Overview 60 10.2 Smart grids 60 10.3 Segment drivers and challenges 63 10.4 Smart grids and regional integration 65 10.5 Rural electrification 69 10.6 Key trends and insights 75

11. Renewables 76 11.1 Overview 76 11.2 Solar 81 11.3 Wind 87

12. Hydropower 89 12. 1 Introduction 89 12.2 The role of initiatives such as special economic zones within the RE sector 92 12.3 Innovative hydropower solutions 93 12. 4 Key trends and insights 94

13. Water Utilities 95 13.1 Overview 95 13.2 Water Utilities 97 13.3 Key trends and insights 101

14. Conclusion 103

CONTENTS

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ABBREVIATIONS

AFCONE African Commission on Nuclear Energy

AMI Advanced Metering Infrastructure

AMR Automatic Meter Reading

BI Business Intelligence

BOO Build Own Operate

BSP Business Service Provider

CBO Community Based Organization

CCGT Combined Cycle Gas Turbine

CEL Cost Effective Location

CFL Compact Fluorescent Lamp

CHP Combined Heat and Power

COUE Cost of Unserved Energy

CSP Concentrated Solar Power

CTRG Clinical Trials and Research Governance

DBSA Development Bank of Southern Africa

DC Direct Current

DFI Development Finance Institution

DoE Department of Energy

DSM Demand side management

DTI Department of Trade and Industry

EDA Exploratory Data Analysis

EDF Électricité de France

EDM Electricidade de Moçambique

EE Energy Efficiency

EIA Environmental impact assessment

EPC Engineering Procurement Construction

EU European Union

FDI Foreign Direct Investment

GDP Gross Domestic Product

GHG Greenhouse Gas

GPRS General Packet Radio Service

GTL Gas To Liquids

GTP Gas Treatment Plant

GW Gigawatt

GWEC Global Wind Energy Council

HRD Human Resource Development

ICT Information and Communication Technology

IDC Industrial Development Corporation

IEC International Electrotechnical Commission

IEEP Industrial Energy Efficiency Policy

IMF International Monetary Fund

IPP Independent Power Producer

IRP Integrated Resource Plan

IRR Internal Rate of Return

ISSD International Institute for Sustainable Development

kW Kilowatt

KWh Kilowatt hour/hours

LCOE Levelised Cost of Energy

LED Light-emitting Eiode

LNG Liquefied Natural Gas

LPG Liquified Petroleum Gas

LPU Large Power User

LV Low Voltage

MW Megawatt

MWh Megawatt hour/hours

NCPC National Cleaner Production Centre

NEPAD New Partnership for Africa’s Development

NGL Natural Gas Liquids

NPV Net Present Value

NRW Non Revenue Water

OCGT Open Cycle Gas Turbine

OCHP Open Clearning House Protocol

OPEX Operating Expense

PHCN Power Holding Company of Nigeria

PLC Power Line Communication

PPA Purchasing Power Agreement

PPP Public Private Partnership

PV Photovoltaic

REIPP Renewable Energy Independent Power Producer

RFP Request for Proposal

RTP Real Time Pricing

SADC/SADEC Southern African Development Community

SANEDI South African National Energy Development Institute

SAPP Southern African Power Pool

SARS South African Revenue Service

SMEs Small and medium-sized enterprises

SSA Sub-Saharan Africa

STS Standard Transfer Specification

T&D Transmission and Distribution

UCG Underground Coal Gasification

UN United Nations

UNESCO United Nations Educational, Scientific and Cultural Organisation

UNIDO United Nations Industrial Development Organisation

US United States

US$ United States Dollars

USAID United States Agency for International Development

WEF World Economic Forum

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EXECUTIVE SUMMARY

2.1 CEO’s CornerThe top five things a CEO should know about the African utility landscape at the moment are:

1. Government’s involvement in projects is inevitable; projects in countries where there are strong levels of government support (whether by ways of policy master plans or legislation) have a strong chance of success compared to projects that do not have this support.

2. Projects need an experienced project team, often consisting of international advisors in instances where proverbial new ground is broken. This could include the introduction of new technology types and the design of policy, and specifically in matters concerning deregulation.a. Projects in Africa are dependent on international funding. The access to financing in

Africa is not adequate to address the infrastructure demand on the continent.3. PPAs in the energy environment are currently receiving increased attention due to the long

negotiation process involved. The private sector is often very risk averse and the subsequent expectations from the relevant government results in time delays.

4. The level of skills in Africa is collectively increasing with each project, based on localisation requirements often built into the procurement process; the current legal, financial and operational “teething problems” will become less as the broader energy and water sector is up skilled and becomes more sophisticated. This will result in a commercial environment with less risk and projects reaching the bankable stage in an expedited manner.

5. Africa has the ability to leapfrog various technology stages (and importantly challenges) experienced in developed countries. It is vital for governments and the private sector to jointly understand where improvements and advances are optimal, given global best practices and lessons learned, while ensuring that Africa is protected from becoming a “dumping ground” for developed countries’ dated technology types and processes.

2.2 OverviewThe 2015 African Utility Week, held in May 2015 in Cape Town, South Africa was an excellent showcase both of the direction that African utilities are moving in, as well as the challenges faced by the respective role-players active in the utility sector.

With various economies in the developed world facing low economic growth figures, there is an increased focus on the African landscape where high growth numbers often above 5% are cited by governments and economic role-players in order to attract investors. One of the biggest impediments to economic growth in Africa is reliable access to affordable power. This again was one of the major themes at the 2015 African Utility Week (AUW). Except for South Africa with an 85% access to power rate and a selected few Northern African countries with higher rates, the majority of countries in Africa fall in the 30% range.

It was emphasised during the 2015 conference by several presenters and during the panel discussions, that Africa has an abundance of resources. This is not under dispute, nor that there is an urgent need to gain access and beneficiate these resources. The challenge lies in finding ways to finance these projects in an environment of often high levels of policy uncertainty, lack of government drive, lack of skills, lack of utilities with strong balance sheets, bankable projects, and logistical challenges.

It should, however, be emphasised that this position is changing rapidly. The general sentiment amongst panellists and presenters is that projects can be developed and financed. The approach to projects is, however, unique to Africa, based on the unique challenges faced in Africa. This is something that project developers, governments, financiers and service providers are well aware off.

As the number of projects on the continent increases, so also does the “ease of doing business” with a shift towards more standardised PPAs, standardised process and procurement models, transparency on the project front, and governments providing fiscal backing to policy initiatives and

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EXECUTIVE SUMMARY

projects since they sense the unlocking of the economic benefit once these projects come to fruition.

The future of the utility landscape in Africa does indeed seem brighter than a year ago.

2.3 Industry topicsFinance and Investment ForumThe Finance and Investment Forum was a new addition to the AUW offering. Given that one of the biggest bottlenecks in developing energy projects is access to funding; this addition was indeed very welcome to help drive projects to a bankable stage.

Financing energy projects in Africa is a challenging environment, due to the non-homogenous nature of the landscape. Although certain neighbouring countries have the same natural resource potential (e.g. solar potential, access to coal), the political landscape and physical infrastructure landscape is often vastly different. This results in the financial and legal process that needs to be followed often being bespoke to each project. To this end, there has been talk of standardising the PPA documents in order to expedite the project process, but at best PPAs will likely be standardised on a country level, rather than on a regional or Africa level as has been attempted. During the conference, the option of Intra-African investment vs. Foreign Direct Investment (FDI) was discussed, which led to interesting points being debated. The level of investment needed to ensure that Africa does not have a power infrastructure gap is estimated at $ 800 billion, and this level of investment can only happen when sources outside of Africa are involved due to the lack of available funding from local banks and investors.

It was mentioned during the 2015 AUW that an experienced project team is vital to get projects to the bankable stage. The team should understand the nuances found within a country’s political landscape, the drivers of policy and projects and be able to navigate the various stakeholders that need to be managed in order to successfully launch a project. This explains the number of case studies presented at the 2015 AUW, such as lessons learned from the Lake Turkana Wind Project in Kenya, a case study on exploring Uganda’s de-risking mechanisms and several others. These case studies are not just informative, but help to provide context into the typical challenges one needs to understand in order to be successful in the African project landscape.

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One of the more prominent discussion points during the 2015 AUW was the general sentiment towards PPAs in power projects, and how the negotiation process is often extremely cumbersome. Project developers often want projects where there are unreasonable levels of risk mitigation, with the objective of obtaining government guarantees to compensate for a lack of risk appetite. During the discussions it became evident that the process is gradually being smoothed out with governments and project developers waking up to the realities of project development and the associated benefits (jobs, economic stimulation, local manufacturing market, export opportunities, growth in GDP and the like) when they manage to find a favourable process for all.

The report contains some of the success factors that are needed for both the public and the private sector to benefit from successful projects.

Generation With the low levels of access to power in the broader African environment, it is evident that power generation is a serious challenge that most countries need to overcome in order to boost economic development. South Africa has an access to power rate of roughly 85%, while only a few Northern African countries have higher rates. The majority of African countries, however, have rates averaging around the 30% mark. This needs to urgently change since Africa globally has the fastest growing middle class, with a population size of 313 million, 34% of whom spend US $2,20 per day. It is predicted that by 2035 Africa will account for 21% of the world’s population. With this rise in economic growth, comes a rise in energy needs.

During the 2015 AUW, various generation options were discussed, with an emphasis on nuclear and gas. Coal fired plants are limited to the Southern African region with South Africa, Botswana and Mozambique being the main countries serviced by coal fired generation in the short to medium term. Nuclear and gas on the other hand were presented and discussed with the objective to introduce a generation type to supplement the traditional hydro business model. Countries such as Kenya seem to have serious nuclear ambitions, with even hybrid systems being considered.

With the discovery of 125 tcf gas off the east coast of Africa in Mozambique, gas is expected to be a game changer if the global markets can respond favourably as an off-taker subject to long term contracts, gas needs and other countries also becoming net exporters of gas, coupled with the ability of local markets to absorb the additional energy source as is often prescribed in local policy. Gas furthermore can be transported in pipelines to neighbouring areas and countries, and this could prove to be beneficial for e.g. South Africa since gas can be used as a baseload generation. This also extends north of Mozambique, with Tanzania potentially also benefitting from this source.

The issue of PPAs was raised during the generation stream as well, driving home the point that all stakeholders involved in the project development space should be aware of the challenges associated with these legal documents. It is predicted that based on the current number of projects in Africa, that the process will be smoothed out compared to that of a decade ago.

Since Africa has abundant natural resources in the mining and agricultural environment, there is an urgent need for a stable power supply. With the question of additional generation still being unanswered, companies (and governments) have taken it upon themselves to provide medium term solutions such as distributed power solutions. Distributed power solutions vary based on region and localised challenges, but are expected to be the answer in various African countries over the medium term in the foreseeable future. Various countries, including Nigeria, are known to operate on diesel gensets in the absence of a stable baseload power supply.

Large Power UsersLarge power users are a very relative term in the African environment. South Africa for example has a very energy intensive industrial group of companies including companies such as Arcelor Mittal, Exxaro Resources, Sasol, PPC Cement, Transnet and various others. The reason for the large grouping of energy intensive users in South Africa is due to the abundance of natural resources in the mining sector, as well as very favourably priced electricity tariffs over the past couple of

EXECUTIVE SUMMARY

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decades. This situation is, however, changing with steep tariff increases by Eskom in recent years to provide for maintaining an ageing asset base and funding their new build programme.

The large power consumers in neighbouring countries and the rest of Africa are often not on the same scale as those in South Africa.

Some of the key themes discussed during the 2015 AUW are the need for demand response products in South Africa, given that the supply side at the moment is very constrained.

Another global theme gaining more and more momentum in the African environment is the concept of energy efficiency. Governments are supporting industry to be more energy efficient while maximising profits. The approach of behavioural economics within the energy efficiency space was presented with some of the key challenges being that, in order for the initiative to work, there needs to be buy-in from management and board level. Also, projects often internally compete with each other, and energy efficiency and specifically projects linked to innovative ideas such as behavioural economics, need strong internal project champions to drive the projects.

Another key end-user group attracting more attention is that of municipalities and metros. The City of Cape Town presented energy saving initiatives launched to educate and inform their consumers. While the city is showing economic growth and at the same time using less electricity, it is evident that these initiatives are bearing fruit.

Energy storage was thoroughly discussed at the 2015 AUW. It is anticipated that the next generation technology to store energy is receiving a lot of attention with possible solutions being implemented by Eskom, Africa’s biggest utility.

Large power users are very aware of their energy usage, especially with a drive to introduce cost-reflective tariffs in various countries in Africa, and especially since energy efficiency translates into savings that once achieved, can be applied elsewhere in a business or entity. The key challenge seems to lie with educating the end-consumer and ensuring that the right skillset is present to design, operate, implement, measure and verify initiatives. And of course, to ensure that momentum gained is not lost.

MeteringThe current trend in the metering space is that utilities are moving from a manual intervention to a more automatic (remote) intervention.

Prepayment metering systems have proven a successful tool by improving the efficiency of utilities operations’ and also supporting accelerated electrification targets of governments – most sub-Saharan countries have already implemented prepayment technologies. The next evolutionary step for prepayment is online smart metering.

Some of the key themes discussed under metering at the 2015 AUW is the concept of revenue recovery and monitoring, with the focus on key prioritisation areas and targeted initiatives, focus on people and process, the tracking and reporting of energy losses and recovery data daily, the need for strong leadership involvement and the implementation of contractor performance indicators.

Also, revenue protection technology associated with the installation of smart meters (including the activation of load limiting capability of meter), installation of protective enclosures, and the centralisation of deployment by a command centre.

As with most utility projects, another major theme at the 2015 AUW was the notion of stakeholder management which is vital to ensure project success. This includes customer awareness and engagement campaigns, stakeholder engagement, and the building of trust by creating visibility and transparency.

EXECUTIVE SUMMARY

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As discussed at the conference, the process is on-going. One of the major challenges highlighted during the conference is the role of “big data” for smart metering applications. The security aspect is currently a challenge with utilities implementing systems that are not as robust from a security perspective compared to global standards. It is vital to ensure that smart systems do not pose a risk to the utility and the consumers.

Apart from a direct impact on energy efficiency, it was cited that the financial benefits to utilities furthermore include the reduction of commercial, technical and non-technical losses, energy balancing throughout the network, large reduction in energy theft, with the continuous monitoring of consumption and thus controlling and deterring the illegal use of electricity, optimised operations once fully implemented, reduced onsite costs, reduction in over time call outs, cut out the costs of disconnections and re-connects.

There seems to be room for improvement in the utility metering landscape, and this is likely to occur when utilities are able to increase spending (measured against other critical generation and transmission projects) on this important aspect of the utility.

T&D / Smart GridsUtilities across Africa are looking to follow global best practice models and to implement smart grid systems in an effort to improve the management of electricity T&D. African transmission and distribution systems are characterised by high technical losses of 30% to 40% (AUW 2014 report), while non-technical issues such as theft have also significantly impacted on utilities’ revenue streams.

During the 2015 AUW it was evident that investment in transmission lines is a core focus area for utilities, not just within countries at large but also interregional transmission lines, to connect new regional power pools in the future. There are, however, various challenges prohibiting such regional integration such as: generation and transmission projects identified for implementation are not properly prepared, there is limited capacity within SAPP utilities to prepare projects and bring them to bankability stage, and that project preparation funds have not been forthcoming at a rate suitable enough to prepare a number of projects.

Several initiatives have been launched to accelerate the building of these new projects, including: obtaining buy-in from relevant ministerial departments in the SADC region, identification of SAPP priority projects, obtaining responses from cooperating partners, such as the Government of Norway, DBSA, ADB etc.

Eskom, Africa’s biggest utility, presented some of the numbers relevant to the South African position, including: capacity expansion - R 145,968 million, refurbishment: R 7,680 million, capital spares: R 2,397 million, EIA and servitudes: R 5,150 million, strategic: R 1,066 million, production equipment: R 519 million. Total: R 162,779 million during the period 2015 – 2024.

Whereas Eskom is a monopolistic entity responsible for power generation and power transmission in South Africa, there are other utilities in Africa that are unbundled. One such market structure is found in Nigeria. It is important to note that the transformation of the Nigerian power market did not happen overnight nor was it without its challenges. Some of the main challenges experienced during the power sector reform include: inadequate gas supply, upgrade project complexities, inadequate transmission capacity, stalled industry deregulation, influence of unions and the incomplete PHCN unbundling.

Another major topic at the 2015 AUW was the issue of rural electrification. A large portion of the African population lives in isolated rural areas that are not connected to the national electricity grid. As such, rural electrification has been identified as a core focus for many of the regional governments and energy utilities. While various solutions exists to address this issue, industry participants and development agencies have identified that the implementation and adoption of mini-grid systems will need to be a critical to such rural electrification programmes. Case studies from Botswana, Tunisia, Tanzania and South Africa in the report provide an idea of region specific solutions.

EXECUTIVE SUMMARY

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RenewablesAfrica is endowed with abundant and readily utilisable resources for renewable energy power generation. Wind and solar power plants can be constructed with relatively short lead times, presenting a rapid solution to the power generation shortfall experienced in so many countries in SSA. Both wind and solar are tested and proven generation technologies. The load profile of the power generated by these technologies closely matches the usage of many industrial and commercial businesses, so it is able to make a substantial contribution to reducing their consumption from the grid, or in cases where the grid is lacking, reducing their reliance on expensive back-up power. While renewable energy does present issues to the power system, the aggregation of renewable energy plants within countries and between countries can reduce the volatility of the power produced. Since the grid infrastructure does not currently extend to great swathes of the continent, the development of off-grid, clean power solutions presents a viable alternative to the expensive extensions of the grid network.

Key challenges identified by IRENA for large scale RE include: the lack of credible RE resource data, limited expertise and experience in RE grid integration, lack of investment-grade credit ratings of the public utilities, transmission constraints that are limiting electricity trading, lack of enforcement of cross-border trading guidelines and cost-reflective tariffs, and evolving regional markets.

Quite ambitiously, there is an overarching future aim of working towards an Africa Clean Energy Corridor (ACEC) essentially linking the Southern African Power Pool to the Eastern African Power Pool.

Solar PV has already reached grid parity in many industrial and residential segments, meaning that the cost of the PV power generated is lower than the cost of purchasing electricity from the grid. The power generated by solar is very well correlated with industrial and residential loads. In South Africa PV is able to compete with municipal distribution tariffs in several instances.

With the increasing number of solar projects on the African continent, the 2015 AUW was an excellent platform to discuss energy storage. Various presenters commented on the current and likely future position of energy storage and the benefit of advancement this space might hold.

The African continent has abundant wind resources which are currently underutilised. The availability of wind on the northwest, east and south coast of Africa is substantial and wind power is able to offer a relatively fast solution to the increasing power required to support economic growth.

EXECUTIVE SUMMARY

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Lake Turkana, a flagship wind project in Africa, was presented as a case study. The main challenges with this project were that grid reinforcement and grid development were needed. Also, the long transmission distance to the grid, the relatively large rating of the plant, and the potentially weak grid.

From a hydro power perspective - the majority of power plants in Africa are more than 30 years old and experience frequent breakdowns – the subsequently erratic supply of power is already threatening to stifle the economic expansion. However, sub-Saharan Africa is endowed with a tropical climate and a significant amount of perennial rivers. Previous Frost & Sullivan research estimated that the region has the potential to generate 1,750TWh from its hydro sources, of which less than 15% has been developed. Exploration of the available large and small scale hydropower potential sites could solve many of Africa’s power problems and it is envisaged that a majority of African countries may prefer to develop their existing hydropower potential rather than invest in other expensive sources of energy, such as fossil fuels or piped gas.

Apart from presenting on the fast tracking of hydropower projects, another key topic was the concept of a conduit hydropower scheme. The City of Tshwane did a presentation on the development of conduit hydropower in a city’s water distribution system, based on the significant potential for the economic development of small, mini, micro and pico hydropower plants, the 284 municipalities and several water supply utilities. The City of Tshwane is in a fortunate position that there are a number of conduit hydropower opportunities due to its geographic location relative to the main water sources.

From a case study perspective, the delivery of South Africa’s first project financed run of river hydro power plant - the Neusberg Project – was presented by the team. Project statistics and vitals for context include: first run-of-river hydropower scheme developed under REIPPP to achieve commercial operation, round 2 project that achieved financial close in May 2013. Construction started in June 2013, achieved commercial operation on time and within budget on 31 January 2015. Generating 10,8 MW with 90 m3/s of water at 15,34 m head, 72 GWh of baseload energy per year with a capacity factor of 82%, off-take weir and 130 m of inlet canal, inlet structure fitted with a radial gate, 1,400 m of open canal waterway, forebay structure with gates, stoplogs and conduits, partially buried powerhouse, 3 X 4 MW horizontal Kaplan turbines, 6.6 kV synchronous generators, 6.6 / 33 kV generator transformers, 300 m long tailrace canal, and 21 km long 33 kV transmission line to the Eskom distribution network.

Water UtilitiesWater utilities in Africa are facing similar challenges as the power utilities in Africa, such as the need for sustainable business models, the question of whether to introduce private sector players and if yes, where in the value chain from a deregulation point of view, the improvement of utility performance by means of for example smart meters and smart grids, cost reductions, revenue collection, an ageing infrastructure system amongst many others. Governments do, however, recognise the crucial need for a stable supply of adequate water both in the residential, commercial and industrial sectors, and as such various country specific plans are being developed (and implemented) to ensure market attractiveness.

In Africa, more than 90% of the water utilities are state owned. Some of the specific challenges public water utilities are locked into, include the political intervention in the management of the enterprise, the economic and financial weakening of the enterprise, the proliferation of controls, the erosion of management accountability and lack of transparency, and an increase in subsidies but coupled with poor service delivery.

As with power utilities, there is a need within water utilities for smart meters in order to enhance sustainability of the system, as well as engage with revenue collection and revenue protection programmes. Given the strong link between water management and increased revenue performance, it is clear that water utilities in Africa will in the future focus a great deal more on water management programmes.

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This section discusses the aim and objectives of the report.

Project AimThe aim of this report is to provide an overview of the emerging trends and challenges across the African utilities landscape, as uncovered during the attendance at the 2015 African Utility Week supplemented by Frost & Sullivan.

This report includes some of the key insights that were identified, addressed and discussed by delegates, speakers and panel members during the African Utility Week, and subsequently captured in this document.

Project ObjectivesIt was Frost & Sullivan’s objective to present the trends, policies, industry standards and innovations that were identified to be of central importance to African utilities and other participants currently involved in the energy and water sectors. In addition, Frost & Sullivan aimed to provide a high-level analysis of the trends and facts as presented – offering our expertise and insights (specifically within the energy and utilities sector) into where we perceive these markets to be headed in the future. This resource document is intended for use by both utilities and businesses to influence strategy, investment decisions, technology choices, and expansion efforts – as well as for training purposes.

REPORT AIM AND OBJECTIVES

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4.1 Report structureThis report will be presented according to the following structure:• Introduction: an overview of African Utility Week and the key trends that were identified across

all themes.• Individual topic analysis (as per African Utility Week framework), including:

- Finance and Investment Forum - Generation - Large Power Users - Metering - T&D / Smart Grids - Renewables: Solar / Wind/ Hydropower - Water Utilities

• Conclusion: a summary of the current market dynamics within the utility space, and where the industry perceives this sector will move over the next decade. This includes an analysis of the primary challenges and opportunities that are presented.

4.2 Report scopeThe scope of this report includes an analysis of the African utility sector, according to the framework designed by African Utility Week, namely: Finance & Investment, Generation, Large Power Users, Metering, T&D, Smart Grids, Water Utilities, Hydropower, Solar and Wind. This report includes only those topics addressed during the course of African Utility Week, and does not venture to provide insights on additional aspects of the energy, resource and utilities sectors which were not addressed as part of African Utility Week’s scope.

4.3 MethodologyWhile attending the African Utility Week conference, Frost & Sullivan critically engaged in the various presentations and panel discussions – in order to understand what key trends and challenges currently face participants within the African utility sector. Frost & Sullivan engaged in primary interviews with key industry participants, policymakers and market experts (both at African Utility Week, and in the weeks leading up to the event) to gain a comprehensive understanding of the relevant qualitative and quantitative data points with which to conduct the analysis of the various topics presented.

4.4 Assumptions• Primary research assumption: Frost & Sullivan assumed that all information obtained from

primary sources, such as industry experts, was correct. In instances where information obtained was suspected to deviate from the truth or be factually incorrect, the information was sense-checked and indicated as such.

• Secondary research assumption: The same assumption, principle and process as above, was applied to secondary research.

• Documentation assumption: It is assumed that all documents provided by respondents are comprehensive and reflect the current state of research.

REPORT STRUCTURE AND SCOPE

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5.1 About African Utility Week 2015The 2015 African Utility Week was held from 12 to 15 May 2015 in Cape Town, South Africa.

The conference delegates comprised senior representatives from African utilities, service delivery companies, public sector officials with a strong interest in service delivery, innovators and other global industry leaders at the forefront of development of utility services - power and water specifically - across the African continent, sharing insights to facilitate interaction and knowledge transfer – and with the aim to progress utility-related development across Africa. The event aimed to facilitate collaboration between both public and private entities with the goal of improving resource security and bolstering economic development. Africa Utility Week provided a central platform for key public and private stakeholders to engage in discussions around the future of African energy utilities, as well as offering stakeholders the opportunity to benchmark their operations, achievements and challenges against their peers from across the continent. Industry experts from diverse backgrounds and knowledge collaborated to serve the various conference tracks, and engaged and connected with peers on topics such as: “Electricity Market Reform” and “Risk Mitigation and Creating Sustainable Business Models”.

5.2 Summary of the Opening SessionOne of the key themes emphasised during the opening session and also captured as the umbrella theme guiding the opening session speakers was “Africa is open for business: investing in Africa, the hottest frontier”. The speakers included:• Martin Ganda, Africa Investor, Greylock Capital Management, Zimbabwe, USA

- Presentation: Opportunities in Africa through solving Africa’s problems and leaving a legacy• Mamadou Biteye, Managing Director: Africa, Rockefeller Foundation, Kenya

- Presentation: Improving the wellbeing of Africans from Durban to Dar as Salaam to Dakar• Victor Kgomoeswana, News Anchor and Business Advisor, South Africa

- Presentation: Africa is open for business: Insights from news headlines• Andrew Herscowitz, Coordinator for Power Africa & Trade Africa at United States Government,

USA - Presentation: Power Africa: Investing for the future

Some of the key points made by the speakers above include:Martin GandaWords below adapted from Mr. Ganda’s presentation:For context and to indicate the scale of some African countries, an American football stadium uses the same amount of power during a match as the entire country of Liberia uses in one day. In sub-Saharan Africa, 75% of the population and 30% of health facilities, including hospitals and laboratories, do not have electricity. Less than 2% of the rural populations in Chad, Ethiopia, Malawi and Niger have access to electricity. These numbers are disheartening. But there are other numbers that give us hope. Africa produces 11% of the world’s oil, 6% of its natural gas and 4% of its coal. Our potential for wind power generation is enormous – Sudan’s wind alone could provide the power to supply 90% of its energy needs. The Great Rift Valley in East Africa could generate 9,000 MW in geothermal energy. Many areas in sub-Saharan Africa feature daily solar radiation between 4kWh and 6kWh per square meter. Only 5% of our hydropower potential is currently exploited.

We live on one of the richest continents in the world, both in resources and human capital. Renewable energy is inevitable, and we are poised to be on the cutting edge of it, from hydroelectricity to solar power to wind power. Demand for electricity is likely to increase six fold by 2050. The bricks we lay today will pave the path for an Africa of the future, where our children will all have access to basic needs like electricity. But how can we turn our resources from untapped potential into a source of wealth for the continent?

We’ve got a good start. Six of the world’s top 30 energy producers call Africa home. Sadly, much of this energy is exported rather than used to fuel Africa. 90% of Nigerian oil is exported to

INTRODUCTION

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non-African countries, while Nigeria imports about 70% of the processed oil products it needs to meet domestic requirements. The country currently has four oil refineries with the total capacity to process about 445,000 barrels/day, but they operate below capacity. Regional power trade would save Africa $2 billion a year, and make us less reliant on others for our needs.

Africa has trillion dollar opportunities buried in its lands, not just for us but for our descendants. It will not be easy to unearth them. Africa requires more than $300 billion in investment capital to achieve universal electricity access by 2030. If we were to reinvest just 5% of our oil and coal export revenue, the Africa Development Bank predicts we could raise that money and meet that goal. We have to challenge the status quo. Africa’s future is in our hands. As captains of industry, entrepreneurs, and government leaders we can change the future of this great continent.

Mamadou BiteyeWords below adapted from Mr. Biteye’s presentation:Electricity can increase household per capita income by 39 per cent. Businesses are able to operate at higher levels of productivity. Farmers can run irrigation systems and processing machines that improve their yields. Electricity has less impact on the environment than dirty diesel fuel.

Small enterprises, such as carpenters or agri businesses, that need electricity to operate and grow, and will pay for reliable electricity, will in turn contribute to overall economic growth and empowerment.

In our quest for provision of reliable utilities in Africa, we will need to apply innovative approaches and partnerships. For example, last month the Foundation launched Smart Power India, a $75million initiative which aims to expand rural electrification and catalyse long-term economic growth for some of the most vulnerable populations. Together with local and national NGOs, industry leaders and government actors, Smart Power is pursuing a solution that would promote de-centralized, renewable electricity mini-grids – installations that generate and distribute electricity that can serve thousands of households.

To help cities plan for sufficient utility systems, in 2013 we launched the 100 Resilient Cities Challenge to catalyse the marketplace and provide a distribution channel for resilience innovations in products and services, technology and financing.

Innovative partnerships can help increase coverage of water supply and sanitation services by providing utilities with technical options for increasing coverage, methodologies for liaising with poor communities to develop demand-responsive infrastructure services in these areas, and methodologies for managing and monitoring service expansion programs.

Electrification needs to form a key part of our governments’ economic development agenda, through greater investment in telecommunications companies that need electricity to run their mobile phone towers and are currently relying on expensive and environmentally polluting diesel. Governments have a key role in aligning their policies to build an enabling regulatory environment to support the creation of markets for mini-grids and opportunities for interactivity between mini-grids and the national grid.

Now is the time for a utility revolution in Africa. Significant investments are required to improve their provision if the UN Sustainable Development Goals are to be met.

Clear roles and responsibilities for utility provision are needed, starting off with our policy makers who are responsible for the necessary budgetary allocation and systemic enablement. There is an urgent need to increase access to utilities by developing clear and realistic expansion programs with committed funding streams, and targeted and inclusive investments.

Victor KgomoeswanaWords below adapted from Mr. Kgomoeswana’s presentation:Doing business in Africa requires a unique mindset, based on the unique circumstances present on

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the continent. Mr Kgomoeswana highlighted some of the attributes one needs to have in order to be successful in the African commercial environment.

• Think, talk & walk African• Backlog is opportunity – for you or someone else.• Do not budget for bribes – that is not sustainable.• Lose your fears, South Africanisms and superiority complex.• Poor people value quality more than you think.• Partner governments, not connected crooks.• Think regional.• Cape Town/NYC/London is a dangerous place to view greater Africa from.• Do not hate the Chinese; learn from them.• Build partnerships everywhere, all the time.• Share, give, collaborate or lose everything.

5.3 African Utilities: Key challenges to effective growthThe core challenges faced by utilities listed below are adapted (and updated where relevant) from the 2014 African Utility Week Post Event Report.

The core challenges faced by African utilities were identified as:

INTRODUCTION

Challenge: Explanation:

Capital constraints: a shortage of capital and high capital costs

It was emphasised during the 2015 AUW conference that the availability of funding in Africa is not sufficient to address the infrastructure needs currently experienced in Africa. Public funding has supported the bulk of the investment in power infrastructure to date as most African utilities do not have the financial strength to raise the required funding on their own. Private funding for power projects in Africa is often challenging to obtain due to perceived risks relating to: instability within countries, poor regulatory regimes, lack of infrastructure, or creditworthiness of off-takers. The African landscape consists of countries where there is political and labour stability on the one end of the spectrum, and countries which are suffering from the effects of civil wars on the other end – as such capital funding is becoming increasingly difficult to access in certain African countries – with debt and equity partners expecting increasingly higher returns.

Electricity revenues that do not cover costs

The position is very country specific, with non-standard levels of subsidies and cross-subsidation within e.g. local government. The revenues collected by electricity generators in most of sub-Saharan Africa typically do not cover average operating costs. This occurs for a number of reasons, including: failure to fully collect revenues and inefficient pricing schemes that are not cost-reflective.A recent study by Frost & Sullivan does, however, indicate that there is movement across more and more African countries to introduce tariffs that are more cost-reflective – effectively freeing up public sector budget to spend on education, health care and other infrastructure projects rather than electricity subsidies.

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INTRODUCTION

Challenge: Explanation:

Inefficiency in generation, transmission and distribution

Utility operations across the continent have been identified as highly inefficient relative to operational examples in the developed world, as well as in other developing nations. These inefficiencies, coupled with a lack of generation capacity, have perpetuated power shortages, poor asset management and low revenue collection.During the 2015 AUW, there was a strong focus on the ICT sector within the utility sector, and the introduction of smart metering systems and energy managers in the respective markets will help to eradicate some of the inefficiencies.

Poor regulatory regimes Regulations, policies and energy are often not regionally aligned, and thus do not facilitate the cross-border trade of electricity. In addition, poor policy implementation limits investment opportunities by raising the risk attached to central projects. Stable and sound policies will facilitate the advancement of the energy sector across the continent.During the 2015 AUW, it was evident that as generation capacity increases in Africa as a collective, a stronger regulatory environment is needed to strengthen cross-border power sales. It is predicted that there will be an increased focus on the overarching power pool entities to help drive this. Also, as governments increasingly understand the necessity for policy certainty as a risk factor for the private sector, there will be a concerted move towards more robust regulatory regimes.

Project implementation ineffectiveness

Poor project implementation has limited the development of the energy and water industries on the continent. According to Frost & Sullivan research, one of the most challenging aspects of project development in Africa is that development times are typically at least 30% longer than in developed countries as a result of logistical challenges. In addition, only one in ten projects are typically commissioned based on announcement numbers on the continent.However, as indicated in the key note speech, this challenge is slowly being overcome with the introduction of platforms such as Power Africa, which is a USA driven initiative with the aim to help guide and implement power projects in Africa by using in-house skills and networks to help expedite and de-risk the process.

Lack of skills Africa lacks the necessary skills, not only in project implementation, but also the engineering and administration skills required to manage and operate facilities once capacity is established. UNESCO reports that as much as one in every three young children in sub-Saharan Africa fails to complete even a primary school education. This can be equated to 30 million young children who miss out on the most basic level of education, while a further 22 million teenagers are calculated to forego high school education. Power projects are seeing higher levels of localisation requirements as part of the procurement requirements that will eventually help to counter this challenge, as well as stimulate local economies.

Lack of infrastructure There is a lack of existing infrastructure across the continent. While the World Bank had identified that the largest infrastructure deficit lies in the power sector, there is also an acute absence of the necessary water, road, rail and port infrastructure to implement and sustain the relevant energy generation projects. The IMF estimates that more than US$93 billion is required per year to close Africa’s infrastructure deficit.

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5.4 African Utilities: Key trends anticipated to facilitate developmentThe core trends faced by utilities listed below are adapted (and updated where relevant) from the 2014 African Utility Week Post Event Report.

The following trends were identified to be of central importance to African utilities:

Trend: Explanation:

The move toward cost-reflective tariffs

Power tariffs are increasing on average in SSA, such that new projects are beginning to offer a viable return on investment. Both private sector participants and regulatory bodies (who have realised the need for ‘sustainable’ electricity prices) have begun to emphasise the importance of cost-reflective tariffs. These more realistic tariffs are set to encourageinvestor interest, as well as development which secures a reasonable return on investment.

Development of context specific solutions

During one of the 2015 AUW panel presentations a comment was made that a contractor entered into a contract which he initially did not expect to enter into. The terms were not in his favour from a risk perspective, but he grew comfortable with the potential scenarios. This is a prime example of current project development issues giving rise to context specific solutions. On the public sector side, while examples of successful frameworks that have been implemented across the globe should be considered in pursuing development goals, utilities should also keep in mind that these solutions would need to be adapted to produce solutions which are suited to each unique context. Even where successful programmes have been implemented within Africa, industry experts warned against proceeding with the exact same approach without first pausing to consider the specific implications of local infrastructure, economic, social, political, technical and fiscal dynamics.

Efforts to balance economic development goals with sustainability targets

While adding power capacity is vital to economic growth, it was stressed that these goals could not be pursued in isolation. Strategies to develop utilities will need to align with “green economy” targets that are being established across the continent – in line with global benchmarks. Such considerations will ensure that Africa develops a sustainable energy model that can continue to meet energy requirements 30 years into the future. However, facilitating development models that balance both these concerns will be complex and costly. During the 2015 AUW, it became clear that international institutions such as the Power Africa initiative are becoming vested in the African energy space, bringing with them not just transactional advisory skill sets, but also “softer” aspects such as socio-economic development best practices.

Developing streamlined and efficient operational structures within utilities

Oftentimes, utilities have been identified to have organisational structures that facilitate the inefficient transfer of knowledge, poor communication channels, repetition of core responsibilities and poor resource utilisation. There is a rising need to address this issue and ensure that the most effective and well organised processes and structures are implemented.

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Trend: Explanation:

Regional integration and cross-border energy trade

There is a long term goal to link the various African power pools, with the East African / Southern African power pool interconnection being specifically mentioned during the 2015 AUW. This position will have to be balanced against increasing the access to power rate in strategic areas in countries in Africa over the short term. Given recent developments with the Grand Inga Project in the Democratic Republic of Congo, delegates from Eskom indicated they anticipate regional integration to progress quite well over the next 10-15 years – voicing the aim of developing an integrated Southern African grid by 2030. While, in the past, grids were conventionally developed on a national level, the IEC believes the current trend is moving away from this. However, it was stressed that if Africa is to move in this direction, conformity assessments will be crucially important. It was recommended that utilities therefore begin to consider reliability, quality and – most importantly – conformability, over initial cost, when making infrastructure and equipment investment decisions. The East African Power Pool has been a good example of this, and has been harmonising power quality in line with IEC standards. There was also an ongoing discussion of the need to continue to promote cross-border power trade. The National Energy Regulator of South Africa (Nersa) indicated in 2014 that in Southern Africa, the establishment of day-before and intra-day markets for energy would be central to ensuring the efficiency of power trade.

Innovative solutions to address financing constraints

During the 2015 AUW the question was asked as to what is needed for Africans to invest in Africa. The answer given was that the projects should be of such a nature that the investment becomes an attractive option when taking into account return and risk. It should, however, be kept in mind that Africa needs FDI in order to address infrastructure demands. The difficult financial landscape across Africa, with limited capital and higher risk portfolios, has produced a need for innovative financing solutions which can facilitate funding for capital projects. Governments, development agencies and markets have responded to this need. Examples of solutions to this challenge have been on the rise. Examples include: donor partnerships, development agencies which provide guarantees for debt, government backing of PPA agreements and lower project risk, project grants, new energy bonds and project financing opportunities.

Enabling policy implementation

During the 2015 AUW the role of government within the utility space was emphasised. Without public sector buy-in, projects often stall or struggle to attract the right stakeholders. Enabling policy (such as energy master plans) will be critical to the continued development of power capacity across African utilities. While poor policy has limited the expansion of the energy sector, there has been a trend towards clearer and more attractive policy-making across the board. Utilities should lobby regulatory bodies to consider global best practices in terms of power and water policy implementation.

Privatisation and public-private partnerships

Privatisation of utilities has produced successful results in countries like Nigeria, while South Africa’s Independent Power Producer (IPP) Programme has generated significant investment in generation capacity across the country. This trend is anticipated to continue to play a key role in the implementation of capital projects across the continent. Globally, there has been a shift in focus from government aid toward public-private partnerships.

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Trend: Explanation:

Diversification of the energy mix

During the 2015 AUW it became clear that there is a strong drive to not just include renewable energy technology types into the energy mix, but also other alternative energy sources. This includes geothermal-nuclear hybrid systems, innovative hydro solutions in cities and the like.Renewables are beginning to play a more central role in the addition of new energy generation capacity – and will continue to do so over the next 30 years. However, utilities warned that renewables alone would not provide a complete solution to energy concerns, and that Africa will need to strive for a more diversified energy mix. This energy mix would need to include coal, gas, geothermal and nuclear generation (alongside renewables), if Africa is truly to build a sustainable energy future. Utilities will need to focus on small-scale systems – rather than just large-scale projects. Turnkey solutions, such as rural electrification programmes, which utilise mini-grid systems, will be required to ensure that energy security is not limited to urban areas. Within this realm, off-grid solutions will begin to play a larger role in electrification efforts – especially where existing infrastructure networks are limited, and the geography of the region renders traditional grid networks difficult and costly to establish.

Rising attention on the water-energy-food nexus in project and policy considerations

Future challenges will require integrating the various elements of the water-energy-food nexus and taking into account the interconnections between them, because decisions enhancing one area of security while compromising other areas will prove unsustainable.

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6.1 IntroductionOne of the new additions to the 2015 African Utility Week conference was the introduction of a dedicated Finance and Investment Forum stream. With various conferences focusing solely on energy, water, economics or finance, African Utility Week 2015 managed to combine the aforementioned concepts resulting in an environment conducive to productive cross-industry and cross-vertical thought sharing and idea generation.

The focus of the Finance and Investment Forum was on engaging with leaders in the utility, IPP, power developers, EPC contractor, investor, regulators and government official space. These typically are the players who broker and approve deals and deliver on power projects. Some of the key topics included: • Changing Investor Perceptions: Success Stories of Project Finance and Risk Management• Powering Africa’s Marginal Power Projects: Creative Investment Vehicles and Initiatives• Creating the Right Conditions for Investors: Financial and Legal De-Risking Mechanisms by

Policy Makers

6.2 Key InsightsChanging Investor Perceptions: Success Stories of Project Finance and Risk ManagementThe focus of the discussion was on an 8,5 MW Rwandan solar PV project and the lessons learned / arising from this project. Located 60km from Kigali, the project is claimed to be the first utility-scale solar plant in East Africa and expected to generate annual energy production of 16 million kWh.

The Rwandan project is small compared to the South African projects, but the value lies in it being a strategic project for the project developers in order to obtain a project footprint. From a tariff perspective, the tariffs in South Africa are still seen as more financially competitive and viable (Round 4: $0,07 per kWh for solar), however, the tariffs outside of South Africa are encouraging investors to see other countries in a more favourable light compared to the past, due to an increase in cost competitiveness. Proactive government involvement is vital to ensure project success, together with an experienced team with a great deal of trust between the respective stakeholders and project players. Scatec and Norfund function as a joint investment vehicle providing equity, and a joint EPC and OEM package which helps to expedite the project and decision making process since there are less negotiations with a third party EPC within the context of an existing IPP framework. The biggest need is for bankable frameworks and predictable (and rational) procurement processes. The current South African programme will likely spill over into the rest of Africa in some shape or form.

Another driving factor that helps is an existing set of documents / framework (e.g. Uganda’s GetFit programme / based on previous projects), that the counter parties are familiar with, helped to expedite the process immensely since months of negotiations are saved. The technology type (solar) chosen was less complex than other technology types, this also helped making the project bankable in a faster manner than was originally expected.

A dedicated developer, plus a group of experienced people that made the project possible cannot be underestimated, coupled with a realistic and committed government is vital to work through all the administrative detail. This was a key success factor for the Rwandan project. However, government’s system for approving and system rewarding still needs to be ironed out.

Several teething problems will be experienced in Africa based on the often nascent market structure. For example, establishing the security over the land where in this instance, no one has ever created security over a piece of land under a land lease. New ideas then need to be discussed in order to satisfy the lender’s requirements. Rwanda also has a “one stop shop” with the mandate to help drive these projects; effectively avoiding a back-and-forth between the project team and the Department of Energy, Department of Finance and various other government institutions, as is

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often the case in other countries.

Face-to-face negotiations and physical presence is another vital point, despite technology advances such as email or Skype. If one is not on the ground, then often required deal activities do not happen or are delayed. A smaller group of core lenders taking the lead is perhaps another success factor. For example, in order to limit the number of institutions (to expedite the process) during the negotiation phase, trust is needed between the parties to also increase project efficiency.

Government guarantees were not issued for this Rwandan project and the state utility’s creditworthiness and similar IPP projects (showing credibility) are therefore often required / evaluated e.g. in Kenya where a letter of support is issued - potentially also with a concession agreement and a separate government guarantee to determine an environment of bankability. The government should support the project and be able to step in where the state utility is unable to support.

To have a way out in the case of non-payment (based on credit risk) by the national off-taker / utility, there are often government guarantees built into the PPAs.

Accessing and Leveraging Soft Funding for Social Development ProgrammeMarginal projects might not be marginal for the people in Africa. Energy access and the reduction of vulnerability are key to the success of projects. Financing should be catered for in each level of the financing and energy value chain. Innovative financing and innovation in technology should go hand in hand, ensuring that the financing instruments are available to the bottom of the pyramid segments.

There is a large mosaic of financing instruments available to finance in Africa. The correct financing instrument should be carefully selected, since the administrative burden is something that should be understood by the parties involved.

Loans are one of the main instruments used, especially soft loans that can be refinanced in the capital markets – by non-profit entities such as the European Investment Bank. It is not just about the financing, but also about the engagement with the client – that can contribute in developing the best technical solutions and technical assistance that includes global best practices – giving comfort to the promoter and co-financiers. The EIB can also function as a facilitator, making the total project more attractive to other parties keen to be involved, building capacity and enhancing project preparation / implementation on the ground.

Soft funding versus conditional funding such as grants. Grants are not as prevalent. Donors and governments have various programmes, such as matching funds. The commercial DFIs are looking more and more into project preparation, and also an influx of angel investors such as Mr Aliko Dangote from Nigeria. All funding, however, comes with an array of conditions. The practical implications are, however, vital.

The small IPP bid window in South Africa and the financing of these projects are expected to be problematic from the perspective of attracting regular project financing, due to a limited / or no track record of projects and smaller balance sheets than the bigger IPPs that have a better risk profile. The ability of the larger projects to absorb the transaction costs is also a prohibiting factor for the smaller projects such as will be found in this new programme launched in South Africa. An efficient finance structure is therefore needed. An example of such is a programme called First (to be launched in June 2015) – 2 Billion ZAR fund that will provide financing for SME project sponsors, on a risk pooling basis, where the idea is to standardise the project documentation, bridge financing facilitation to commercial operation stage and place the projects in a bond in the South African market. This will be the first renewable energy bond to be placed in the South African market. The facility will provide senior and subordinate debt through the facility, accept very high risk, but will not provide concessional or subsidised finance. The facility will also provide targeted technical assistance, to help projects move into financial close.

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How could grant money be coordinated better? Potentially clubbing the instruments and donors together, as happened in Kenya, Zambia and Mozambique where co-ordinated groups meet on a monthly basis, also interacting with government in constructive dialogue. The effective marketing of products is vital, and there seems to be a vacuum between the operators and the financiers in terms of what is available (from a funding perspective) in the market. There is a need for a funding navigation service to link the donors with the operators.

Putting the Right Legal Framework in PlaceThere exists a high variance in country performance and a variance in project performance. Investors and hosts are satisfied with some projects, whereas other projects have led to utter disappointment. Investment in the electricity sector is an activity that leads to high political visibility, case in point the South African media. Tariffs and services become part of a large social contract. Investors and IPPs may find additional requirements and charges not originally planned for. Regulation of electricity services is a complex and delicate process requiring real time monitoring and a response to varying conditions. Investors require predictability. This is a complex environment, often including social aspects.

Power Africa (as an institution) is supporting companies and individuals who they believe are already busy with proactive activities in the utility space, for example the ADB legal support facility team. There is a need that host governments are represented by good legal counsel, when negotiating PPAs. Building local capacity is vital.

The development of the Power Purchase Agreement Drafting Guide as a tool. This addresses some of the key clauses of PPAs to ensure a solid guide of international standards during the deal negotiation phase.

However, the process is complicated. Governments will not have time to become comfortable with all the intricacies of the financial and legal market, and therefore they need to have a strong team of articulate advisors placing a great deal of trust in them, specifically advising on risks that the government needs to take. What is essentially required to make a deal work and a project successful. Where a good legal system is absent, a robust contract is then put forward with the government needing to buy in. If the government changes the law, then there will be implications such as divestment. Currency risk is a factor that needs to be addressed as well. Convertibility of currency, repayment of the investment, mechanisms to control the variations in exchange rate as in some countries there has been a large depreciation of currency in a very short space of time. Some developers are still demanding direct government support, demanding every aspect of a deal to be backed / guaranteed by government. The idea is rather to only put the government at risk for the minimum amount.

With deregulation being the ideal, the question is rather what is the roadmap towards such a state? For the past four years the REIPPPP has been operational, and besides the IRP 2010 document – the target is that 30% of South Africa’s energy should be produced by renewable energy producers. This is an optimistic target and the feeling is that the government has been slow in reaching it with a very cautious initial approach. There are, however, signs of a ramping up of activity in the shorter term.

The three issues needed in order to get policies right in the financial sector in the central bank space and to make the environment more conducive for investors are: 1. ensure the price is right, 2. ensure that the level of funding is appropriate, 3. provide support and challenge operators to be innovative.

Fundamentals for a Bankable PPACan a standardised PPA contract be considered? There are a couple of instruments offered by the World Bank Group, such as partial risk guarantees, insurance against off take risk, or non-payment, insurance against changes in law, political force majeure in the case of war or expropriation, transferability and convertibility of foreign exchange, and insurance against ineffective arbitration. The World Bank can also do local currency loans.

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Five years ago it took three years to negotiate a PPA. However, currently even in countries with a shorter PPA negotiation history, these long periods of negotiation are over. This is due to support programmes bringing capacity, such as is offered by the World Bank, practical energy laws and providing for IPPs. The most successful countries are South Africa, Uganda and Kenya. The reason why these countries are the most successful is because of the standardisation of the project documents (PPA, government guarantees that take the time to negotiate, not the financing of the project). When the standardised documents are accepted by the relevant parties in the countries, then the focus shifts to competiveness.

Although PPAs could be standardised in certain countries, it would be difficult to standardise PPAs across the continent. This is due to the risks that are inherent to a certain jurisdiction, such as the financial credibility of the off-taker, as well as the macro-economic environment of each country. Some of the more practical points that need consideration are technology and labour laws. Technology needs to be implemented in the most cost effective manner relevant to the region, and be catered for in the documentation. Local country issues, such as labour laws and strikes need to be catered for specifically in the documents and one needs to include the right mitigation measures. Another important factor is community engagement. The community needs to be involved with the project with inclusion in a community strategy plan. This will assist in possible disputes with local municipalities for example.

A standardised PPA should lead to a bankable project. Overseas Private Investment Corporation (OPIC) – USA Government DFI - listed ten of the most important features that should be in a PPA. A document titled “Understanding Power Purchase Agreements” developed by Power Africa is also a very useful tool. The aim of this document was to develop a standardised PPA. Discussing the typical risks, who should bear the risks such as currency risk, transmission risk, what is understood under force majeure?

The practicalities dictate the terms of the PPA. The vastly different local circumstances mean that there will not likely be a unique / standardised PPA in the very near future.

These practicalities can include local political and investment risk / civil disturbance.

The context of intra-African investment vs. foreign direct investmentThe idea is that Africans should invest in Africa, despite various limitations such as a perceived lack of interest in our own continent. However, intra-Africa (IA) investment is gaining momentum. African investors nearly tripled their share in FDI over the last decade, from 8% in 2003 to 22,8% in 2013. The question remains: will Africa ever be able to finance itself in its totality? In the short to medium term the answer seems to be no.

There is a shift towards funding renewable energy projects, as also explicitly stated by the World Bank. This bias seems justified, given the size and need for these projects to be funded since in Africa they are often used as baseload power.

Although the number of IA deals are on the increase, there is still a large need for funding from outside of Africa. What is critical for African financial institutions is to be the catalyst and to attract funding from outside of Africa. Africa has about $2 trillion in banking assets, of which $800 billion is in North Africa and $600 billion is in South Africa. The balance is taken up by Nigeria, and then in a distant second, Kenya. JP Morgan, as a bank, has $2, 6 trillion in banking assets, which is more than the whole of Africa. These numbers provide some context into the African landscape. The largest bank in Africa, Standard Bank, has about $200 billion in assets. Given that a recent McKinsey report states that $800 billion in investment is needed in the power sector over the next 20 years, it is then evident that there is a need for external investment given local resources. The South African, Nigerian and Kenyan banks have a catalysing role to play with the global banks.

In order to stimulate the investment environment, there is a need for stable political environments with countries becoming democratic and politically stable. A further need is the availability of investable funds within a country, which is also perceived to be on the rise. Coupled with the

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availability of investable funds, is the availability of the appropriate instruments, which requires the right backing to reduce the level of risk involved. Investors are cautious based on the perceived risks involved in projects, such as currency risks. The risk of execution is another risk which investors require to be lower than is currently the perception in order to increase IA deals. This goes hand in hand with exchange control regulations which also need to be revisited to stimulate investment. There needs to be a balance between risk and return. Africans will not invest in Africa because they are Africans, they will invest in Africa because they obtain a viable return on their investment.

A distinction needs to be made between the debt and the equity side. On the equity side there is a host of funds investing in Africa. This means that there are a number of investors looking at Africa, but they are teaming up in order to mitigate their risk. On the debt side, the African banks and the commercial banks are active in the energy landscape, which also translates into the availability of access to financing. There are various routes to follow to assist projects in getting started.

What is being done by financiers to educate and upskill the public sector in terms of what is required to progress projects? Often the answer lies in what is not available, such as a lack of data held by the government statistics office. A lack of data results in an increased level of risk, and this is something that governments can address. A great deal of information needs to be released in the market (by the government) to enable investors to gauge their appetite for investment and to reach the right levels of initial comfort.

Long-term outlook for Africa’s power sectorThe gradual growth of indigenous sources of capital is a theme that is more evident in 2015 than in 2014. Where historically, local banks were constrained by their understanding of the market, this position is being overcome as projects increase and the market is up skilled on the technical and financial aspects of these projects. There is also a move to remove the constraint / adjustment of local banks being able to lend in the local currency, rather within the context of dollar based PPAs, and then another trend is the ability of local banks (if they are lending on a local balance sheet often dependent on short term deposits) to lend in local currency in a satisfactory manner up to the long term requirements of the projects, e.g. 15 years. On the debt side, the role of pension funds and other forms of institutions investing are also changing – with a direct impact on the energy market and access to funding. As the market deepens, more players will be involved with project financing, especially since pension funds have a longer term risk view than commercial banks.

On the equity side, there is a debate as to whether the local capital will grow as much, which is based on historical trends that there was only a small amount of equity players in the energy space in Africa. There has been a rather large influx of sources of equity capital in South Africa during a period when the credit rating was heading in a negative direction. It is hoped that this will also happen in the other countries as well.

Regulatory reforms need to support the above, coupled with the structure of the energy industry being privatised or state off-take system. Investors need to find certainty in the future of the regulatory landscape.

There is often a sensitive interaction between government policy and political risk, which is often perceived as high. The validity of the government policy beyond the short term framework is therefore not guaranteed based on the high political risk. As an investor, one therefore really needs to understand the crux of what is happening in a specific country and sector, essentially going into the streets and understanding the culture of the country. There is an expected tidal wave of innovative African-tailored solutions that will take over Africa the moment when the traditional DFI entity is not willing to finance smaller (more risky) projects with less of a return than the traditional projects.

Governments often hinder the progress of deals – as governments want to control the power sector. This is often the biggest political risk associated with the energy landscape. This therefore is a matter to be noted as it is an African challenge that investors need to understand. The risk is therefore rather linked to government interference, rather than changes in government.

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7.1 OverviewTrends and challenges in electricity generationFrom the 2014 African Utility Week report - forecasts from the International Monetary Fund, sub-Saharan Africa’s GDP is growing at a compound annual growth rate of more than 6%. As a result, there is a pressing need for additional power generation capacity continent-wide. However, large-scale infrastructure projects in Africa often encounter critical setbacks, experience costly delays or prove to be economically unviable. The ability to implement such projects effectively is often due to a lack of the required skills, poor project management or inadequate coordination across the relevant public sector enterprises. Accordingly, there is a need for more integrated planning in the implementation of large power infrastructure projects. Rather than considering projects in isolation, the stakeholders need to address whether sufficient logistics networks exist to enable project implementation and also consider end-to-end process models. Industry participants stress that a focus needs to be placed on developing energy generation solutions that are context-specific. Within areas with difficult topography, this is expected to involve the construction of off-grid solutions, while the need to electrify isolated rural communities and industrial facilities is expected to drive the implementation of hybrid energy solutions. Large energy-intensive industrial firms often resort to developing their own generation capacity including solutions such as cogeneration, gas-fuelled power plants or hybrid-renewable systems, to ensure that their operations have access to a reliable, affordable supply of electricity. This trend is anticipated to continue, with growing potential for such projects to feed electricity into national grid networks and contribute to regional energy security.

Human resource management has also been identified as a key concern – given the current gap between the availability of the relevant management and engineering skills, and the requirements needed for generation project implementation. In line with this, the World Bank has identified a lack of education and skills as one of the core restraints to economic growth in SSA. Industry will therefore need to focus on labour management and retention, as well as skills training and human capital development, if it is to continue to develop the sustainable growth of electricity generation capacity. While in the past, African development and resource extraction has had limited benefit for local inhabitants, governments and local communities have begun to place an increased focus on ensuring capital expansion involves and benefits local economies and communities. There is consequently a regional trend toward increasing local content quotas and employment quotas – and more direct attention is being given to community development programmes. Policy tools will therefore need to be implemented effectively to ensure energy policies are supportive of efforts to eradicate poverty and to integrate diversified energy policies into national sustainable development strategies, poverty reduction strategies and national development plans.

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The lack of existing infrastructure in Africa has historically limited the continent’s growth potential. Traditionally, power generation within Africa has been dominated by utilities, with very few private players. However, the operational structures of such utilities have proven to yield multiple inefficiencies, while also often lacking the funding to expand generation infrastructure. As a result, public-private partnerships (PPPs) have been on the rise within the generation industry. Such partnerships, along with programmes to completely privatise generation, are expected to play a critical role in addressing the issue of electricity generation shortfalls. Many innovative generation solutions (as well as other such infrastructure projects) are already being driven by partnerships between large multinationals and government entities.

From the 2015 AUW, certain key themes discussed at the conference were: the unfolding of Africa’s generation roadmap, how to develop Africa’s renewable generation capacity, the achievement of energy security in Africa, basic principles for least cost generation planning and regional interconnection of East African countries, impact of intermittency costs on the compositions of profitable power generation mixes for Africa, unlocking the East African Rift System’s geothermal power potential as a means of guaranteeing reliable electric power, the combination of geothermal and mini portable nuclear power in Kenya, gas-to-power (regional developments, developing opportunities, and technical considerations to make projects bankable), investing in nuclear, distributed generation: small scale generation models and case studies, skills needed and developed for the effective maintenance of generation plants

7.2 The importance of the PPA and the rise of gas as a generation feedstockThe role of the PPA in Africa was much discussed and debated at the 2015 AUW. Whether there should be a standard PPA, or a regional standard or bespoke documentation is still up for debate. However, what is clear is that as new generation capacity is investigated and finalised, the focus on robust power purchase agreements is increasing. Ashley Grohn, Power Generation Leader for Aurecon, emphasises that the PPA should be balanced from a buyer / seller perspective. As context, he stated that there will be a fundamental shift in generation asset creation in Africa – with the private sector replacing the traditional utility BOO model. The PPA should be bankable, balanced and enduring.

Source: Ashley Grohn

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Based on the emphasis on PPAs during the 2015 AUW, the guidelines below are provided based on Mr Grohn’s presentation. According to Grohn, the fundamentals of the above are:• Agreement for sale and purchase of power

- Buyer or off-Taker (Utility, industrial consumer) - Seller (IPP)

• Buyer primary roles - Take (reliable energy) - Make payment

• Seller primary role - Make available capacity (MW) and Energy (MWh) - Develop, fund, build, operate, maintain and decommission

Key inputs to the PPA are: technical inputs (specifications, testing and commissioning, capacity, energy, availability (performance), tariff structure, grid connection and metering, dispatch, O&M considerations, integration with other project agreements). Then also the financial aspects: term, currency, indexation, local content / participation, tariff calculation, commercial damages. And also the legal aspects: termination / transfers, warranties, remedies on default, environmental aspects.

Also relevant to the PPA, are the performance conditions, including: contracted capacity, reference conditions, dispatch and forecasting, testing and commissioning, COD, tariffs, grid rules, technical specifications (capability), degradation (achieved capacity, tariffs for the energy component and related carbon costs, dispatch and forecasting, and on-going testing). Also falling under performance considerations are: ramping, start-up / shutdown, open cycle, combined cycle, and EOH penalties.

Operations and maintenance (O&M) considerations include: technology curves (class and material evolution, and continuous improvements), cyclical maintenance (equivalent operating hours and factors starts, trips etc.), as well as contractual obligations (e.g. Long term service arrangements, defects and warranties, refurbishments etc.), and fiscal factors.

Power projects also need to take into consideration: fuel supply agreements, grid connection factors, EPC agreements and O&M agreements.

Another big theme at this year’s African Utility Week, was the future of gas. With Mozambique on the east coast of Africa having roughly 125 TCF of gas, gas is expected to be a game changer over the medium to long term in East Africa and not just for the Mozambican economy, but also impacting South Africa and Tanzania directly and other neighbouring countries indirectly. In terms of the available gas reserves available in Africa, Craig Hart from Energy Exemplar provided the graphic summary below to illustrate the point.

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The above gas resources should be seen in the context of the solar and wind potential below, also provided by Craig Hart.

One of the key messages from Mr. Hart’s presentation was that a blend of power generation technologies is necessary, including a combination of wind, solar, hydro, coal and gas – with hydro and GTPs providing the flexibility that renewable energy generation requires balancing the supply and demand questions. Software and skills exist to help determine the optimal generation mix.

Much has and can be said about the future of gas as a feedstock in Africa. Various studies by leading consulting houses, financial institutions and service providers have recently been done to try and gauge the opportunities in Africa. Ebrahim Takolia, CEO of the South African Oil and Gas Alliance (SAOGA) firmly believes that gas will change the energy dynamics of Africa. According to Mr Takolia, Africa has the fastest growing middle class, with a 313 million population size, 34% of whom spend US $2,20 per day. He predicts that by 2035 Africa will account for 21% of the world’s population. With this expected rise in economic growth comes energy needs. Within this context, gas will serve as an electricity source (baseload, peaking, distributed and support for renewables. Also, the role of gas-to-liquids will increase in focus, with liquid fuels and chemicals and fertilisers playing their part in the energy landscape. One of the largest drivers behind the uptake of gas as a fuel source is the amount of Africans living without access to electricity. The graphic below illustrates the aforementioned in a visual manner:

Source: Ebrahim Takolia

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Some key points: reserves have remained stable at about 8% of the global total since 1993, 66% = deep water, 33% = land, new recent additions to gas reserves will increase Africa’s share of global reserves, flared gas: ~ 35 Tcf flared to date in Africa, challenge: monetising gas reserves, natural gas share of energy is likely to increase from 24% in 2013 to 35% in 2035, large infrastructure investment is required (based on a McKinsey study) in order to meet the 2040 electricity projected shortfall namely: generation: 490 billion, infrastructure: 345 billion, transmission: 80 billion, distribution: 265 billion, estimated gas infrastructure needed: 118 billion (extrapolated)

One of the key requirements for a stable and growing gas economy is a gas masterplan. Currently, nine countries in Africa have such a gas masterplan either existing or in development: Angola, Nigeria, Ghana, Mozambique, South Africa, Namibia, Tanzania, Gabon and Kenya. The nine countries above will likely benefit from the contribution that an entrenched gas value chain will have on a country’s’ economy. The above is represented below

Source: Ebrahim Takolia

When gas is compared to other baseload power sources, the numbers (in terms of Mr Takolia’s presentation) are as follows: • Combined Cycle Gas Turbine – 400MW

- 270 MW gas turbine coupled to a 130 MW steam turbine at a cost of $ 800,000 per MW• Nuclear – 9600MW

- It will take +30 years and about $90 billion to realise any nuclear projects at a unit cost of US $9 million per MW

• Hydroelectric – 4,500MW - It will cost $80 billion to bring the Inga III Hydroelectric Power Project online at a cost of

$17 million per MW

As part of the solution, Mr Takolia said that the old mindset of economies of scale and large power plants should be revisited. The future lies in the flexibility of gas and renewable energy constructed in a distributed power setting with a changed revenue model. There should be an increase in public-private partnerships and a move towards a future energy equity market.

Frost & Sullivan recently completed an eight month project on the future of African gas infrastructure. The project analysed gas reserves / resources, current infrastructure and demand, planned infrastructure, potential demand, potential infrastructure and opportunity size. The product scope included LNG, LPG, NGL amongst others. Some of the key findings of the project included the sub-Saharan gas infrastructure opportunity over the next 20 years which equals $ 174 billion. The regional ranking of countries with the largest gas infrastructure opportunities include Nigeria, Mozambique, Tanzania, Ghana, Cote D’Ivoire and South Africa.

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Some of the key trends and challenges facing the gas infrastructure sector over the forecasted period include: • Four out of the nine countries profiled have a gas master plan – a comprehensive and clear

plan will aid the attraction of FDI into a country’s gas sector, and the direction of the FDI to particular projects.

• Political stability – Without a stable political environment the realisation of future gas infrastructure is limited and so many countries will be left with non-monetised gas resources.

• There are three current LNG terminals in sub-Saharan Africa – With the exception of Cote D’Ivoire all the countries profiled require a LNG anchor project for gas development.

• Urbanisation is driving the need for increased power - Lagos, Johannesburg, Dar es Salaam and Nairobi are areas where domestic gas demand is expected to increase significantly over the forecasted period.

Globally a total of 177 new discoveries were made during January and September in 2013, with 12% of the discoveries coming from Africa. East Africa benefitted the most with 11 gas finds in 2013.Technology developments in drilling have led to massive new gas finds which has benefitted Africa with 12% of global gas finds. This is illustrated by the graphic below:

Current gas infrastructure is not sufficient to meet the growing gas demand in sub-Saharan Africa, as the map below indicates the expected regional gas hotspots that are expected to develop between 2014 – 2050.

Source: Johns Hopkins

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With low oil prices, the focus is on projects with a clear value creation; legislation and gas utilisation plans are key to project attractiveness. With the exception of mature oil and gas markets such as Nigeria, Gabon and Cameroon, in order for the gas reserves in a country to be attractive and commercially realisable timeously, the country needs to have a clear gas master plan and policy in place.

Some of the key oil and gas legislation, sub-Saharan Africa in 2014 are summarised in the table below:

Source: Source: PWC, Ernst & Young, Deloitte, Frost & Sullivan

The more mature gas markets of West and Central Africa have a focus on ring networks, aiming to stimulate domestic gas demand. Countries which have recently discovered gas such as Mozambique and Tanzania focus more on transmission pipeline investment and LNG facilities for export as planned infrastructure. Sub-Sahara Africa plans to set-up six LNG facilities for LNG export and import of gas, two planned new GTL facilities and two additional LNG trains at existing LNG facilities. Four planned ring networks distributing gas within cities are also expected to be set up to help establish domestic gas economies for most cities, as illustrated by the graphic below where a 20-year timeframe was selected:

Source: Frost & Sullivan

The position in Mozambique is currently keenly followed by both local and global players. In the Frost & Sullivan report, the countries’ gas infrastructure potential is analysed in depth. Some of the key findings include that there is 125+ Tcf of recoverable gas resources in Areas 1 and 4, as indicated below, with the subsequent stakeholders.

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Image Source: INP, ENH, INP, Frost & Sullivan

Given the large volume of gas resources in Mozambique, the following power plants are predicted to follow over the forecasted period:

From a pure gas perspective, the following gas scenarios might see the light:

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The Mozambican gas landscape has a direct impact on the neighbouring countries’ energy mix, especially South Africa and Tanzania. How this will unfold over the longer term is yet to be seen, but over the short term there has already been movement to connect the interregional resources, such as the Sasol project below.

A gas to power plant case study was presented by Mr Kribs Govender, Vice President of Business Development – Power and Gas at Sasol. The value proposition of natural gas to electricity included: technology (well proven, high combined cycle efficiency (~60%), modular, experienced equipment vendors). Also, constructability (short construction periods 18-24 months) and a standardised package. Following on constructability is operation (dispatchable power – quick ramp-up rates, and load following) and lastly the lower CO2 levels associated with gas projects. Less than half the CO2 emissions compared to coal fired generation.

For context, the CTRG power plant vital statistics include:11 PetaJoule (PJ) of natural gas, plant capacity of 175 MW, partnership between Electricidade de Mocambique (EDM) and Sasol, all electricity produced contracted to EDM, operational since February 2015, 18 gas engine generator sets.

Various benefits stem from the project, including 175MW of power capacity, 500 temporary jobs during construction phase, 50 permanent jobs in operational phase and local business stimulation. Success factors included public-private partnerships, correct contracting approach and local vs. expatriate mix, also the engagement of the local community and an intensive training programme. On a more sensitive note - another relevant technology type discussed at the African Utility Week, is nuclear. Dr Fawzi Issa, Managing Director for EDF South Africa, discussed how to fast track nuclear new build projects through strategic partnerships and localisation. Issa emphasised the complexity of a nuclear project, as can be seen by the high level representation below:

Source: EDF

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Various pitfalls and challenges were highlighted that can be avoided in the case where the correct strategic partner is selected. This point being another key theme at the 2015 AUW, namely that selecting a strong project team is vital in the African environment, leading to project credibility and the avoidance of several project pitfalls. This aids to streamline the activities along the supply chain, from construction challenges (e.g. specialised skills and engineers, construction risks and unique supervision requirements), legal and regulatory challenges (e.g. permits), HRD challenges (mobilisation and training of thousands of people), operational challenges (safety and competitiveness) and project bankability challenges (e.g. lenders expecting a track record in safe nuclear project delivery).

The right localisation strategy aided by know-how transfer is a winning solution for the owner/operator, the industry and the government: local industry familiar with the local requirements (legal, procurement etc.) will be needed to help bridge the nuclear gap, owner / operator will be given the choice among several suppliers capable to deliver top level maintenance, SMEs can transfer the know-how through local partnerships and local job creation in the direct and indirect industries.

It was emphasised that because of a nuclear programme spanning a 100 years, a robust and long term co-operation between the local owner / operator and an experienced nuclear utility is essential for success.

Greg Kaser, Senior Project Manager, World Nuclear Association also made the case that there is a viable role that nuclear can play, given global and local nuclear developments. The map below provides an outline of the global nuclear projections up to 2030:

Source: World Nuclear Association

Mr Kaser added that the benefits of nuclear include: reliability (usually baseload, but adaptable), low carbon technology, resource safe and secure (uranium is plentiful), affordability. The question was posed as to why nuclear technology is cheaper in China than other technology types. The answers include: lower labour costs then Europe and North America which reduces construction costs, China has a programme of standardised reactor sizes, which results in economies of scale, technology and knowledge transfer permit Chinese reactors to take advantage of worldwide operating experience and the availability of finance at a normal risk premium. Whether this model can be replicated in Africa is yet to be seen. Mr Kaser cited the following as motivation in answer to the factors above: labour costs: yes, but training will be needed, economies of scale: if the African Union / NEPAD and AFCONE can coordinate a standardisation programme while maintaining competition, technology and knowledge transfer: possible, availability of concessionary finance: not until the development banks accept nuclear energy projects

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Various countries in Africa have serious nuclear ambitions. One such country is Kenya. A concept being driven by Kengen is the geo-nuclear concept. Ronoh Kibet, Geothermal Projects’ Engineer, KenGen, provided some insight into this matter. The problem statement is threefold, namely an acute power shortage in East Africa (expected demand of 15,000MW by 2020), cost of electricity (geothermal energy is capital intensive) and geothermal development duration (lengthy timeline to develop geothermal projects).

To illustrate the two technologies, the following flowcharts were provided:

Source: KenGen The so-called “wedding” of the combination of geothermal and nuclear power is summarised by a combination of having the nuclear reactor re-heat condensed steam after running the geothermal turbine to run the additional turbine. This will yield an additional 100MW; an equivalent of 35 geothermal wells. Illustrated below: From a cost implication perspective:

Whether this marriage will come to fruition, is yet to be seen. However, it does open the door to all kinds of economic opportunities and associated services.

Africa is blessed with an abundance of energy generating resources, whether viewed in the traditional sense and also in the more unconventional sense. One such an unconventional source of power is biomass power generation from bush encroachment. Dr Jens Reich from STEAG presented on the opportunity to produce power from the aforementioned source.

Some facts to keep in mind include: massive bush encroachment (26-30 million ha is affected, 8-20 t/ha biomass amount, 23,4 million t/a biomass potential, 0,6 million t/a utilised). There is a decrease of agriculture productivity (loss of grazing land for cattle, reduction of live-stock capacity, economic losses of Nam $ 1,6 billion per annum). The target of the study is the treatment of biomass, for use in Namibia or for exportation.

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The production cycle of biomass based fuels is shown below as:

Source: STEAG

Harvesting can be done by means of manual harvesting, mechanical harvesting, a kangaroo vehicle or with an excavator – all the while being selective and aware of the species and the environment. Some of the challenges include a high level of wear and tear due to hard wood, and transport and logistics, amongst others.

The concept is still at the study stage, due to bankability challenges, including securing the biomass supply chain, ensuring the financial strength of the off-takers and the investors and the complexity of the power plant project. The investment is estimated at between Nam $ 250 – 800 million.

The potential in the SADEC region seems to be high, with Namibia providing 20 million t/a, South Africa providing 30 million t/a and the broader Sub-Sahara Africa region providing 125 million t/a, the aforementioned without energy crops. However, at the moment the private and governmental / institutional initiatives are weak.

There have been bankable biomass projects however. In a presentation by Allesandro Piccinini, Biomass Plants Business Unit Manager, Building Energy, he discussed the first biomass baseload project in South Africa, namely Mkuze. The project is located in KwaZulu-Natal in South Africa. The power is generated by burning the tops and trash of sugarcane from Mkuze and surrounding areas. The power generated totals an estimated 118 GWh/year (16 MWe; 40,000 households in SA). In terms of financing the project, the total project value is R1 billion, with the EPC contract value being R 650 million, and the total OPEX value being 52 million. The biomass consumption associated with the project totals an estimated 106,000 tons / year, with an electrical efficiency (net) of about 30%.

From a timeline perspective, the following dates are important: 19 August 2013: Bid submission for the REIPPP, 29 October 2013: Bid awarded, Q3/2015: EPC contract coming into force, Q4/2017: Expected plant commercial operation date. The reason for the inclusion of the timelines is that various times during the 2015 AUW, it was stated that projects in Africa typically take a longer period of time to develop. It should be noted that there is a caveat to this statement, namely that where there is strong government support coupled with an experienced team then project time overruns are minimised.

7.3 Distributed GenerationDistributed power generation is a recurring theme in the African energy conversation. Saliem Fakir and Tjasa Bole-Rentel from the Living Plant Unit, World Wildlife Fund (WWF) presented on this topic at the 2015 African Utility Week, and more specifically the role of distributed generation in electricity supply in Africa. With access to power in most of sub-Saharan Africa being very low (with the near sole exception of South Africa’s 85% rate), the topic of distributed generation is a very relevant one – deserving a closer examination. Certain key questions were answered by the WWF’s presentation, such as:

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Why do we need distributed generation (DG) and what makes it possible? Centralised electricity systems are now faced with a number of supreme challenges, including: concerns about climate change, rising input prices, threats to security of supply and limits to achieving universal electricity access. Technological innovation and liberalisation of energy markets support DG as a means to address these challenges, facilitating the production and distribution of electricity that is reliable, affordable and clean.

What is DG? Distributed generation has various terms, but essentially = Embedded generation (in Anglo-American countries, including South Africa) = Dispersed generation (in North America) = Decentralised generation (in Europe and parts of Asia). Distributed generation ≠ Renewable generation

Source: WWF

DG systems have several applications, namely, standby systems: at a load site as a back-up in case of outages from the central electricity supply system; stand-alone systems or “remote” systems: DG replaces a centralised power supply because connection to the national grid is impractical; micro-generation systems: small-scale systems that are primarily powered by renewable or alternative sources, best catered to meet residential electricity needs; peaking plants: to reduce the electricity costs of large industrial users during peak load times; combined heat and power systems: often owned and operated by commercial or institutional organisations, metal industries, paper or chemical industries, or electricity providers; baseload systems: utility-owned DG units used to supply part of the required power, supporting the grid by enhancing system voltage, reducing the losses, and improving the system power quality.

DG technology-application combinations include:

GENERATION

Technology: Application:

Biomass/biogas-based generators

Base load, CHP, micro-generation, commercial

Microturbines Peaking plants, cogeneration, baseload, commercial

Fuelcells 0CHP for heating and cooling, baseload (larger stations)

Solar CSP Baseload (if combined with storage) commercial

Wind turbines Stand alone, baseload if dispersed across larger geographic area

Traditional internal combustion engines (e.g diesel engines)

Peak load shaving and standby

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The main drivers for DG include:

As with any project or technology type in Africa, there are certain challenges: Financial: high up front capital investment needed and the related lack of access to capital (even more relevant in non-liberalised electricity markets); governments have wide array of economic instruments available to mitigate this.

Regulatory: lack of standards for interconnection between grids, technical standards for the necessary connecting equipment, and power quality characteristics; the need for DG system operators to get various technical parts of their systems and the system as a whole approved by different entities; high interconnection fees; a lack of standard tariff schemes, which may render DG systems unviable.

Technical: bi-directional power flows can make it difficult to tune the protection systems in the grid -> redesign of local fault protection system may be required; voltage fluctuation can become a problem after a certain amount of DG is connected; increased load volatility can lead to higher grid maintenance costs.

How much DG based on RE can we expect? Based on the WWF, by 2030, 8.3% of the total regional demand and 59% of rural electricity demand in SAPP would be met by DG based on RE; small hydro and PV with storage are likely to play an important role in rural electrification; South Africa would account for 21 of the 23 GW installed in the region by 2030. This would meet nearly 50% of rural and over 20% of urban electricity demand in the country by 2030; in line with IRP 2010 Update of 2013: PV installed by residential and commercial users could reach 22.5 GW by 2030.

What is needed to achieve the above numbers? More financial incentives – since currently the following is available: On a national level: small-scale REIPPPP (projects between 1 and 5 MW), Eskom’s pilot small-scale renewable energy programme as part of the larger Standard Offer Programme, the IDC’s Green Efficiency Programme, SARS’s Accelerated Depreciation Programme, various carbon mitigation and trading schemes.

On a municipal level: feed-in-tariffs only offered in a few municipalities: City of Cape Town, Drakenstein, eThekwini, City of Johannesburg and Ekurhuleni. The requirements and tariffs offered vary widely among these municipalities.

What is the role of DG in Africa’s future electricity supply system? DG is motoring on in one direction: ahead; utilities need to re-think their roles: develop a business case for grid services for the growing number of embedded generators or face grid defection; the role of the regulator is crucial. As DG is reaching grid parity, regulatory bottlenecks are a bigger issue than financial

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incentives; shifting the paradigm away from mammoth centralised systems to a more dynamic, responsive system that empowers users to take control of their electricity needs (= prosumers); the rise of the ESCOs (energy service companies) in Africa – a whole new sector that needs to find a way to co-exist with utilities.

7.4 Key trends and insights

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There is an urgent need for additional generation capacity in Africa, with both of the two largest economies (Nigeria and South Africa) facing supply constraints. Electricity generation capacity will continue to expand rapidly across Africa, with an increased focus on smaller scale projects due to access to financing constraints.

The optimal energy mix question is a crucial one that needs answering on both a national and a regional level. Long-term planning and sustainable growth management will be a core focus for governments and utilities, coupled with regional planning initiatives becoming more targeted.

Small-scale projects will become increasingly important in terms of their contribution to generation capacity, especially in answering the off-grid / rural electrification challenge.

Utilities will continue to face financing challenges and will need to continue to seek innovative funding solutions for capital projects.

The industry will continue towards global and regional standardisation of nuclear energy safety, with more countries exploring nuclear as an option.

Gas and renewable energy projects seem to hold more promise than proposed nuclear build programmes.

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8.1 OverviewElectricity provision across most of sub-Saharan Africa is notoriously unreliable, with the 2014 African Utility Week stating that the World Bank research indicate that African manufacturing enterprises report power outages of an average of 56 days a year, and that lack of power is the single greatest source of lost productivity in African businesses. Energy, both electrical and thermal, also constitutes one of the largest operating expenses in any industry; as such energy management represents a strategic area for cost reduction within companies. Across sub-Saharan Africa, electricity prices are rising as utilities endeavour to bring them to cost reflective levels while the costs of back-up power generation are also extremely high. Companies need to recognise that the operating environment has substantially changed and that what has worked in the past, may no longer hold true. Energy is no longer cheap and freely available. Companies require a reliable energy supply, affordable energy costs and all this needs to be effected with a reduced environmental impact.

Reasons for Energy Efficiency in Africa

Source: Frost & Sullivan

9.2 Mines and large industrials; and the human elementOften large power users, such as mines and large industrials, are operating within a volatile economic environment, facing fluctuating commodity and currency prices, as well as rapidly rising energy prices. They may experience an unreliable power service or be situated far from the existing grid infrastructure that leads to production downtime which can be very costly to their operations.

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Companies therefore need to alter their energy management strategy. Energy management can be a source of competitive advantage through reduced operating costs. Although energy saving activities currently rank low amongst many competing priorities, the implementation of an energy management system and the prioritisation of energy efficiency will positively impact the bottom line. Any savings that are achieved through sustainable energy management practices can be re-invested or applied to other mandated purposes.

As a consequence, industry participants have demonstrated a rising awareness of the need for energy efficiency. During the course of the 2015 African Utility Week conference, large power users discussed new strategies that were being implemented to help companies to understand all energy-related expenses. In a presentation by Dr Aurelia Rochelle Figueroa, Economist, German Development Institute, the angle of the human dimension of energy efficiency in emerging and developing economies was investigated – based on a case study conducted in Africa, Asia and Latin America spanning the industrial, commercial and residential sectors. Within the industrial energy efficiency space, one of the biggest hurdles is challenging the status quo of the behavioural change process within the innovation space. Essentially, introducing behavioural change within the energy efficiency space. Some key statistics cited by Dr Figueroa include: the industrial sector accounts for roughly 30% of global final energy consumption, the proportion is often higher in industrialising economies, where it may exceed 50%, significant competitiveness benefits; 65% of potential profits located in developing countries.

In South Africa the following facts need to be taken into account: low electricity costs imply longer payback periods for EE investments through numerous challenges demand these, between 1990 – 2011 the industrial sector GHG emissions increased by 194%, South Africa is poorly competitive to countries with similar production processes, initial challenges included: “no man’s land”, access to finance, status quo processes, low awareness, lack of urgency, training and awareness, and very importantly - management buy-in is vital.

The table below provides insight into the project type and the relevant components applicable to the energy efficiency space:

Source: Dr Aurelia Figueroa

With this branch (behavioural economics) of the power landscape relatively new in South Africa, it is important to emphasise some of the key behavioural insights for energy efficiency: it is a necessary and frugal component; case example – R500,000 resulting in a R362 million saving in five years; can be pursued independently or in tandem with technology upgrading efforts; key platform upon which to build energy savings; integrating behaviour in energy efficiency interventions: behaviour is a strong basis for energy management systems, challenging the status quo bias, establish and build upon social norms, catalyse employee engagement, delegate resources and avoiding “time poverty”, provide feedback and foster top-of-mind focus, and seize the windows of opportunity. Energy intervention and policy design: necessity and frugality of behavioural change; a valuable first and on going step, value of collaboration with UNIDO-IEEP, social norm establishment and development, bottom up and top down engagement, autonomous opportunity identification, and integrating behaviour into incentives and training.

Project type Components

Systems Reporting, ISO 50001, control items management infrastructure

Operational efficiency Air separation units, water treatment plant, rotary hearth furnace

Efficiency innovation LPG, conarc energy input, O2 purity

Tariff structure Engage load shedding to align with different tariff time periods

Technology Variable speed drives, waste heat utilisation (rotary hearth furnace), lighting replacement

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With the abundant natural resources in Africa, coupled with the stage of economic development, it is logical that mines will be some of the largest energy consumers in Africa. Charles Siwawa, CEO of the Botswana Chamber of Mines echoed this sentiment. He stated that the Botswana mining industry accounts for approximately 50% of the national grid’s electricity consumption. Currently Botswana is supplied by a generation mix of coal, diesel and solar with investigations into other forms of power generation such as gas and renewables.

In Botswana (mining context) the greater part of the electricity is used in running the mineral processing plants – electric motors. Further minerals beneficiation consumes large amounts of power due to the heating processes – heat furnaces.

The industry needs energy audits to establish where efficiencies can be actioned and implemented. The largest consumers of power typically are: electric motors, furnaces, compressed air and steam producing plants.

Initiatives include: Focus on electric motor drives (energy efficient motors, vibration, noise and heat, variable speed drives (power relative to demand), correctly sized motors (load match), regular maintenance (keep to manufacturers’ specifications). Manage demand by incorporating the latest technologies that can control items such as geysers; use of CFL’s and LEDs; better plant design: eliminate long range conveyors, install efficient electric motors, use of natural gravity; alternative energy supply: renewable energy (solar), co-use of power e.g. solar panels in houses, gas generation of electricity, research into platinum fuel cell technology.

Behavioural change as a concept can also be imposed not just on an individual company, but also on a city, as Sarah Ward, Head: Energy & Climate Change, City of Cape Town demonstrated in her presentation. The theme of her presentation, namely “doing more with less” is clearly illustrated in the graphic below, keeping in mind that the Western Cape economy has grown over the same period that energy consumption has been reduced substantially.

Source: City of Cape Town

The City of Cape Town leads by example, with a retrofitting of 14 of the largest buildings, smart metering and energy management training, efficient street lighting and complete retrofitting of traffic lights. The savings total R 25 million per year, with payback periods of between 3-7 years on the initiatives.

One of the largest drivers of the behavioural change is public campaigns and programmes. Examples of these campaigns can be seen below: The above edited photos show power stations being superimposed in the heart of Cape Town’s promenade area, sure to stir a few emotions.

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Other campaigns include a solar water heater accreditation programme and community road shows to schools, as well as creating platforms where industry and interested stakeholders can gather to brainstorm ideas, such as energy efficiency forums.

Within the South African industrial and commercial environment, Chris Ahlfeldt, Energy Specialist, Blue Horizon Energy Consulting Services made the case for the introduction of solar PV into the sectors. Cities are seen as large customers and should be managed as such.

Building the case for renewable energies in the large customer space, Mr Ahlfeldt explained the dramatic drop in price of solar and onshore wind technology types since Round 1. The graphic

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below illustrates:

Source: Blue Horizon Energy

While it is clear that South Africa has excellent solar resources, the graphic below provides a summary of the average monthly sum of irradiation per city in kWh per square meter.

Source: Chris Ahlfeldt

The traditional argument that coal is still the cheapest technology type based on a levelised cost of electricity, has also been challenged by the renewable energy advocates. In the chart below, it can be seen that solar PV has become a technology that can compete with the traditional power supplied by Eskom from coal fired power stations. With the expected rise in electricity tariffs in South Africa to become more cost reflective, this equation is expected to play more in favour of solar PV and other renewable energies going forward.

Source: Chris Ahlfeldt

In order to show the pockets of activity in South Africa, the next table provides an overview of total installed PV capacity per each of the provinces in South Africa.

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Source: Chris Ahlfeldt

Mr Ahlfeldt furthermore provides an overview of the municipalities in South Africa that are open to application from embedded generators who wish to connect to the distribution network:• Nelson Mandela Bay (Port Elizabeth) requires the customer to pay 50% of the cost for a new meter

and effectively reimburses customers for excess solar PV at the same rate it charges them.• City of Cape Town reimburses customers for 50% of what it charges them and requires the

customer to pay for smart meters.• eThekwini (City of Durban) is accepting embedded generation applications and is authorised to

purchase electricity from embedded generators at Eskom’s Mega Flex rate.

Other market drivers include: NERSA set to finalise small-scale embedded generation regulatory rules by the end of May 2015, Eskom plans to increase tariff prices 13-25% in 2015 followed by at least 8% per year over the next four years, loadshedding, energy storage market is set to grow rapidly in the next couple of years due to declining battery costs.

Another key theme at the 2015 AUW week was that Africa will have innovative and unique energy solutions based on unique market circumstances such as access to power challenges, access to financing challenges and the lack of skills. One such solution was presented by Mr Wilco De Villiers, PV Diesel Hybrid Manager, SMA Solar - who also echoed Mr Ahlfeldt’s sentiment. A diesel PV hybrid solution is an option enabling business operations during load shedding. Based on the 9,600 MW to be added to the grid when the Medupi and Kusile Eskom powerstations are commissioned, there is likely to be a 40,000 MW shortfall by 2025 (Mr De Villiers’s calculation). Mr De Villiers estimates the resultant costs of the current loadshedding situation in South Africa at R 20 billion for stage 1, R 40 billion for stage 2 and R80 billion for stage 3. He cites Mr Chris Yelland (Managing Editor, EE Publishing), who said that the cost of unserved energy is R100 per kWh. In the past, energy was inexpensive and reliable, whereas in the future the supply quantity is more uncertain and likely to be much more expensive, says De Villiers. In proposing solutions, he provides the following options and numbers:• No power• Eskom : R 0,30 – R 1,80 / kWh• Generators : R 4,20 – R4,80 / kWh• Batteries : R4,00 – R10,00 / kWh• Other

All of the above versus the cited R100 per kW for unserved energy.

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A practical solution is a hybrid model of solar PV and diesel generators, illustrated by the graphic below:

Source: Wilco De Villiers

The advantage of such a system is: generators allow companies to trade, and PV systems reduce costs, with or without the grid, resulting in reliable power at a predictable price.

The topic of energy storage is a recurring topic hotly discussed across most of the energy generation technologies. Professor Kenneth Ozoemena, Chief Research Scientist: Electrochemical Energy, CSIR presented on the future of next generation energy storage. He cited storage as the main impediment to the development and widespread utilisation of renewable energy.

The next generation of energy storage is segmented into:• Rechargeable lithium-ion batteries (state of the art – next decade)• Lithium-sulphur batteries (yet to be demonstrated)• Metal-air batteries (e.g. Li-air, ZN-air)• Sodium-ion batteries (low cost, large scale storage)• Multi-valent systems (e.g. Mg2+, Ca2+)• Redox flow batteries (good, but expensive chemistry)• Super capacitors (hybrid / asymmetric systems, batteries on steroids)

Professor Ozoemena presented the multiple application areas of batteries, namely: residential, commercial, utility, power, portable electronics, automotive and industrial equipment.

Professor Ozoemena listed the popular chemistries of lithium-ion batteries:• Lithium cobalt oxide, LiCoO2:Sony 1992• Lithium manganese oxide, LiMn2O4 (LMO): Nissan Leaf• Lithium manganese nickel oxide, LiMn1.5N0.5O4 (LMNO): CSIR• Lithium nickel manganese oxide, LiNiMnCoO2 (NMC): Argonne, CSIR• Lithium nickel cobalt aluminium, LiNiCoAIO2 (NCA): Tesla, Panasonic• Lithium iron phosphate, LiFePO4 (LFP) – Hydro-Quebec• Lithium titanate, Li4Ti5O12 (LTO) – CSIR

From a future business case perspective, a very interesting aspect raised by Professor Ozoemena is the energy storage and mineral resources available in South Africa, namely: manganese: world ranking 1, titanium: world ranking 1, chromium: world ranking 1, vanadium: world ranking 1, zirconium: world ranking 2, fluorspar / fluorite: world ranking 2&3. Also available in Africa are cobalt, nickel, tin, iron, sodium and the like.

However, based on the early stages of the energy storage market development in Africa, the levels of research & development and IP development in Africa are but a fraction compared to global numbers. The graphic below depicts this, but one needs to keep in mind that is but one aspect of gauging market readiness. Africa can still leapfrog other technology developments as happened within the telephone space where Africa bypassed the fixed landline phase and went from no connectivity directly to cellphone connectivity.

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Source: Professor Kenneth Ozoemena

Utilities are looking into the concept of energy storage as well, as was evident by a presentation by Mr Owen Lock, Application Manager – Asia Pacific, S&C Electric, Australia. Mr Lock presented some of the solutions currently being rolled out in Australia, which are relevant to large parts of Africa due to the semi-arid climatic conditions similar to Australian conditions.

Some of the applications and benefits of the technology used in Australia include: Renewables integration and diesel reduction (smoothing and ramp-rate, energy shifting, VAR compensation), network support (peak shaving, voltage regulation, frequency regulation, power factor control), dynamic islanding (reliability and micro-grid).

From a more local point of view, Mr Peter Langley, Senior Consultant, Eskom, presented on Eskom’s current and expected storage solutions. From Mr Langley’s presentation, the following:

Eskom presently has three energy storage facilities using pumped storage, namely, Palmiet (400MW for 28 hrs), Drakensberg (1,000MW for 28 hrs) and Ingula (presently under construction at 1,333MW for 14 hours). Eskom has been looking at alternative means to store energy for the last 15 years, resulting in the formation of the Large Scale Energy Storage Portfolio, some eight years ago. Technologies being considered range from mechanical storage to batteries, chemical storage, thermal energy storage and super-capacitors. Batteries are considered the most likely alternative means of storage in the future. Presently no technology can match the cost per lifetime kWh of pumped storage. Eskom will need to become more flexible and may become the supplier of last resort by the year 2030. Within the renewable energy context, there is 8,400MW of wind generation and 8,400MW of solar PV generation expected on the grid as per IRP 2010. Neither solar PV, nor wind can be regarded as despatchable resources and cannot be relied upon to supply a constant source of energy. Eskom anticipates only an average load factor of 27% from its Sere Wind Farm. Solar PV can only generate at a maximum load factor of 25%. The solar production is not available for the maximum demand period from 6-9pm in the evening. Eskom will therefore be expected to meet the full load demand during this peak period without support from the solar PV generators. When solar irradiation is low, clouds pass over, or the sun does not shine, Eskom must make up the shortfall (up to 75% fluctuations). When the output fluctuates, Eskom must stabilise the grid. When solar output is at its maximum, Eskom will be expected to reduce its output to accommodate the solar generators. If the wind does not blow on any given day, Eskom will be expected to pick up the supply shortfall and if the wind is gusty, Eskom will be expected to accommodate the fluctuations in supply. On days where the wind is ideal and the wind farm is at maximum output, Eskom will be expected to reduce its supply.

Therefore in order to achieve the above, Africa’s largest utility will need to install more energy storage. The predicted solar and wind contribution in 2035 is:

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Source: Eskom

Eskom will be required to have considerably more flexibility in its generation mix. By 2030 Eskom will need to accommodate fluctuations of as much as 16.8GW during the day and also meet a peak demand of up to 12GW (July). Base load stations, nuclear and coal fired can accommodate some fluctuation in load but at a high cost. Nuclear should ideally be operated at almost full load. Coal fired generators can vary their load between 100% output and 60% with less efficiency loss than nuclear, but resulting in an increase CO2 per kWh produced. Without substantial sources of natural gas, the operation of open cycle gas turbines, this can be switched on and off at will, can fluctuate their output, although extremely expensive. The current cost is approximately R5/kWh, or more than 12 times the cost of base load generation. One source that may prove more economic is the use of combined cycle gas turbines, using UCG technology at Eskom-owned mines. It is therefore believed that this flexibility will need to be supplied by energy storage. Eskom’s present method of storing energy is by using pumped storage schemes. Eskom presently has three such schemes, totalling 2 700MW, once the Ingula scheme is completed. A further scheme has been proposed at Steelpoort, providing 1 600MW of storage. Pumped storage can only be installed at discrete locations with suitable geography. A network of large batteries could be the solution to Eskom’s needs for increased flexibility – e.g. up to 4,000 discrete battery units of 1MW, 6-8MWh. The installation of battery energy storage systems is presently uneconomical. Battery energy storage system costs are an order of magnitude greater than the cost of pumped storage on a cost per lifetime kWh basis. Future developments (flow batteries, Ambri’s liquid battery, EOS’s zinc air battery) or Aquion’s aqueous sodium ion battery are all forecast to be up to ten times cheaper than present costs. Eskom must determine the REAL performance of these batteries prior to widespread installation, especially in view of the current costs. Comparative testing is therefore essential. Eskom has launched a battery programme project. The objectives of the project are as follows:• Demonstrate the effectiveness of battery energy storage on a grid scale.• Test individual battery technologies under real operating test regimes.• Identify the best technology for various applications.• Establish the probable life cycle of each of the various technologies under real working

conditions.• Establish the round trip efficiencies of the various units.• Give Eskom insight into the future installation of commercial battery storage units of the

Megawatt scale.• Eskom’s Test and Demonstration Facility has been designed to accommodate five batteries

of different technologies and manufacturers, which will all be tested under identical load discharge profiles over a minimum period of three years.

• The output of the five units is then synchronised and fed back into the grid, as if they were a single 1MW battery unit, in order to demonstrate the effectiveness of this form of energy storage.

• At the end of the three year period, suppliers must guarantee an output of at least 96% of the nameplate performance.

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8.3 Drivers and challengesDrivers for energy efficiency:• Increasing regulatory pressure to improve energy efficiency, driven through compliance

requirements, incentives and taxes.• Enabling cost and energy reductions within operations and supply chains.• Risk mitigation (against price volatility, security of supply).• Brand enhancement opportunities including Business to Business (B2B) and Business to

Consumer (B2C) sales.• As a competitive advantage or in response to increased competition.• Creating investor value through a business based upon sustainable operations, indicative of a

long-term future.

Despite this, many barriers exist to the implementation of energy efficiency programmes :• Energy efficiency not being considered one of the core functions of a company’s operations.• High upfront capital costs for equipment.• Competition with other internal capital demands often results in non-implementation of

energy efficiency projects, even when the projects may have similar or better paybacks. • Technical staff may experience some difficulty in getting management endorsement for even

short-payback energy efficiency projects due to overly cumbersome corporate decision-making systems.

• Additionally, small or medium-sized energy savings projects often do not compete well with other projects in garnering management attention and enthusiasm.

• There may be limitations on staff resources or limited availability of skills to implement and maintain energy efficiency initiatives.

Key success factors for energy efficiency project implementation include the following: • Planning energy management projects effectively.• Targeting low-hanging fruit first.• Using real-time metering. • Making optimal use of a company’s resources. • Using human capital effectively and training staff on energy efficiency and implemented

initiatives.

The ongoing sustainability of operations is a key consideration when effecting energy efficiency measures and attempting to reduce energy expenditure. Energy efficiency needs to be maximised in operations through the use of energy management systems and achieved through the implementation of energy specifications and guidelines that need to be aligned with existing activities.

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8.4 Key trends and insights

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Energy efficiency programmes are increasingly making financial sense as tariffs increase. Energy-intensive companies need to alter their energy management strategies. Energy-intensive users are consequently increasing investment in energy efficiency projects.

Management buy-in to energy efficiency projects is vital to gain and maintain momentum. Energy-intensive users are focusing on long-term energy requirement planning.

There is a rising need for specialist skills to address energy efficiency and energy planning requirements.

The role of public-private partnerships is on the rise, e.g. the NCPC’s involvement in South Africa. This also includes international funded programmes.

Governments are looking to implement sustainable policies that can balance energy security, environmental awareness and economic growth targets.

Collaboration between private enterprise and public corporation is needed to address energy security concerns and develop innovative and effective fiscal policies that maximises economic benefit for all.

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9.1 IntroductionPrepayment metering systems have proven a successful tool in improving the efficiency of utilities’ operations and support accelerated electrification targets by governments – most sub-Saharan countries have already implemented prepayment technologies - the next evolutionary step for prepayment is online smart metering.

Automatic meter reading (AMR) is the first generation in smart metering, which in turn can be viewed as the primary component of smart grids– and is the key new metering technology currently being rolled out across Africa. AMR enables utilities to remotely read meters and detect outages and theft along the grid.These smart meters are able to record the electricity consumed over a given time period and provide utilities or other electricity wholesalers with information on how and when this electricity is being used. Energy usage data is sent to the utility through a communication network such as GPRS, PLC or fibre. The deployment of these smart meters across the globe exceeded 60 million units in 2008 and is anticipated to have demonstrated significant growth since. New and more efficient AMI technologies have since been rolled out and continue to be adopted across Europe and North America. The majority of these smart metering systems are scalable systems that allow for the minimisation of cost and complexity while maximising the reliability of grid networks.

9.2 Smart metering and tariffsTypically the implementation of smart meters involves the implementation of a new type of electricity rate – which is rolled out based on electricity consumption patterns. The time-of-use tariff system is the pricing method that industry participants have suggested should accompany smart metering in Africa. This tariff system requires consumers to pay different rates, depending on the time of day and day of week that they utilise energy. The customer will typically pay higher rates for the energy use at peak times, but lower rates for energy used in shoulder and off-peak times. This system of charging encourages the customer to change their electricity use to lower

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cost times, highlighting the potential to save on electricity cost. Some industry participants have suggested that a time-of-use tariff is not cost reflective at this stage, and that within Africa, real time pricing (RTP) would offer a more ‘fair’ and sustainable solution. With real time pricing, times of use are varied, while prices are declared 24 hours in advance, such that prices are more cost reflective. However, utilities would need to implement systematic changes to prepare for real time pricing – and it would be far more administratively intensive and costly to manage than a time-of-use system.

To better understand what smart metering is, Mdu Nzimande, Director – Engineering Services, City Power provided the following summary during his presentation:

Source: City Power

City Power is Smart Metering strategy is enforced based on some challenges the entity currently faces, namely: meter reading, revenue recovery, accurate billing, reduction of non-technical losses and load shedding. These challenges are not unique to City Power and are likely faced to some extent by most cities in Africa. Some of the key strategy items deployed by City Power to combat the aforementioned include: Revenue recovery and monitoring: focus on key prioritisation areas and targeted initiatives, focus on people and process, track and report of energy and recovery data daily, strong leadership involvement, implement contractor performance indicators.

Revenue protection technology: install smart meters (including the activation of load limiting capability of meter), install protective enclosures, centralise deployment by a command centre. Stakeholder management: customer awareness and engagement campaign, stakeholder engagement, build trust by creating visibility and transparency.

The process is an ongoing project, but the journey and some of the lessons learnt thus far include prioritised data clean up (insight into customer numbers), improved integration (understanding of current state, flow of information), establishment of quality and governance (processes and reporting frameworks, and controls) and more informed stakeholders (engagement, reporting and transparency).

One of the consequences of a smart metering system is the ability to better manage revenue. The enhanced availability of data and other types of information allows the utility to become a more sophisticated service provider. Daniel van de Ghinste, Technical Director: Metering / Alen Ribic, Technical Director: Software, Eldo Energy presented on this topic at the 2015 African Utility Week. They define revenue protection as prepaid for large power users, improved cash to cash cycle, bad debt migration strategy, inherently AMI in nature.

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Smart metering is not: traditional prepaid, not an STS or token based system, not an automatic remote disconnection, not an intermittent AMR compatible solution.

The financial benefits of such a system for the utility is an improved cash to cash cycle, off balance sheet funding or projects / metering infrastructure upgrades can be enabled, customers who are disconnected owe less, improved financial planning, and an overall improvement in access to funding.

The risks of such a system for the utility include: remote disconnection is discouraged and in some cases not legislatively possible, automatic disconnection cannot be implement for most LPUs (factories, hospitals), slim meter approach is not possible where some types of pulsing is required, and there exists a need for a good service level agreement from the communications provider.Ashley Maistry, Smart Grid Delivery Lead, Accenture presented on revenue protection, and using AMI technology as a silver bullet. His AMI benefits case (benefits tree) is shown below:

Source: Ashley Maistry

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Maistry mapped the benefits to the business outcomes as follows:

Source: Ashley Maistry

It is important that entities and utilities who desire to implement the above system(s) have a clear view on the end goal and the applicability to the local utility environment. Africa has the ability to leapfrog global technology development eras, but this leapfrog stage should be tailored to suit current needs with the short and medium term evolution of the landscape born in mind to avoid a situation where a solution is rolled out based on uninformed decision-making. Africa is often a “dumping ground” for outdated global technologies and this situation should be avoided at all cost in the energy space.

Harold Hayes, Chief Technical Officer, Landis+Gyr presented on the opportunities in metering technologies. The summary below provides insight into his view on the opportunities and the challenges that utilities face:

Source: Harold Hayes

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Opportunities around metering Challenges in Utilities

Manage energy better Rising energy prices (more customer issues)

Revenue protection Rising energy prices, increased tampering

Improved customer interaction Sluggish economy

Accurate account information Perceived inaccurate billing

Re-branding utilities or service companies Multi-channel communication from utilities (many people required to address customer problems)

Internet service provision Response time to customer queries

Enhancing the customer experience PV or other generation into the grid

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Apart from a direct impact on energy efficiency, Hayes cites the financial benefits to utilities as the reduction of commercial, technical and non-technical losses, energy balancing throughout the network, large reduction in energy theft, with the continuous monitoring of consumption and this controlling and deterring the illegal use of electricity, optimised operations once fully implemented, reduced onsite costs, reduction in over time call outs, cut out the costs of disconnections and re-connects.

One of the consequences of smart metering and an overall smarter system is the concept of “big data”. Jaco du Toit, Data Scientist, Eskom provided some insight during his presentation on some of the lessons that Eskom has learned on this topic. The data science process includes:

Source: Jaco du Toit

Some points to consider during implementation are to: start small (internal), start with a business case, start with an Exploratory Data Analysis (EDA) process, run a project in parallel with existing Business Intelligence (BI) solutions, encourage interdepartmental collaboration, get subject matter experts on board, make data easily available, use agile project management methodologies, encourage curiosity and storytelling among the team, respect academic / research approaches, and set up effective communication between team and decision-makers.

A major benefit associated with a smarter network and the correct usage of “big data” is in curbing electricity losses, and specifically theft. Maboe Maphaka, Senior Manager: Energy Trading & Sales Forecasting, Eskom, presented on the triad-factor in preventing electricity theft and energy losses: technology, the law and society.

Eskom faces energy losses as shown below:

Source: Eskom

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Furthermore, Eskom’s non-technical revenue losses are estimated at R4,7 billion per year, while municipal loss estimates are around R3,4 billion annually. This means that South Africa loses at least R 8,1 billion a year to electricity theft. To combat this, Eskom in 2006 established the Energy Losses Management Programme (ELP), consisting of five streams namely: 1. audit, measure and fix customer installations, 2. ring fence electrical networks to balance energy delivered, 3. implement tested technologies, 4. ensure sustainability, 5. and spanning across the four above: communicate to and educate internal and external stakeholders.

The results of the above include: contribution of almost R 1 billion to Eskom revenue over 3-4 years (R400 million in lost revenue recovered / R500 million in energy and revenue losses prevented), over 15,500 tip-offs from communities, from a 0 base at launch.

It is important to note that all sectors in a country are affected, from townships, suburbs to business, industry, commercial and agricultural sectors. Employees and contractors in the electricity industry are also involved in illegal activities.

Zambia has faced similar challenges, as Patrick Wakalila Simwinga, Manager Product Security – Zesco, indicated during his presentation. He spoke about the management of power distribution losses in the Zambian electricity industry from 23% to below 14%. The main drivers of the distribution losses were classed in technical and non-technical losses.

Reasons for technical losses include: long power distribution lines, overloaded distribution networks, ageing distribution infrastructure, loose connections on distribution lines.

Reasons for high non-technical losses include poorly managed commercial cycle processes and electricity theft. Other causes of distribution losses include: aged electromechanical meters, defective metering units, unmetered services, non-payment of bills, diesel power stations, unaccounted customers, and delays in enrolling new customers.

The major challenges faced in distribution loss management include: non-compliance to procedures, high number of unmetered services, incorrect meter reading and billing challenges, low inspector-to-customer ratio, corruption, load shedding, introduction of prepayment metering system, weak legal framework, use of unqualified electricians by customers, incorrect customer data base, impersonators, resistance by customers, poor reticulation, difficulties locating premises, socio-economic problems (poverty), and difficulties in collecting revenue.

Simwinga cited the following as the strategies to reduce non-technical losses: identifying the greatest distribution loss potential areas, strictly monitoring the commercial cycle processes, improved meter reading and billing, metered all BSPs and customers, documented all revenue protection processes, intensified community sensitisation campaigns, introduced penalties for offenders and rewards systems, and restructuring of the revenue protection department.

Strategies to reduce technical losses include: identified weakest areas, built new substations and upgrade old substations, reinforced overloaded transformers, upgraded conductor sizes for HT and MV lines, balanced loads between phases on feeders, eliminated loose connections at joining points, and installed shunt capacitors – power factor. The outcome was a reduction in distribution losses, as well as in revenue losses, coupled with 100% of customers being metered (662,526 as at December 2014).

Thantaswa Mtsabe, SPO: Business Information Analyst, City of Cape Town presented on a theme called “Consumption data analysis into SWIFT: Improving and adding value to the metered data at City of Cape Town”. SWIFT is a local computer programme that performs statistical analyses of data from municipal billing databases. Data is integrated from SAP data, GIS data, landuse / zoning data, and bulk meter data. It is ideal for the following functions: for infrastructure managers, for utility billing database users, population of models (water and sewer) to monitor water and reduce water losses with the city, to process large quantities of information, consumption related reports.

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Some of the advantages of using SWIFT are to produce statistics for: water demand management initiatives, such as pressure management, leak detection and rector fitting, water audits, calculation of water tariffs, to process monthly consumption before and after intervention measurement, identification of faulty meter readings. Benefits to the consumer include: external consultants receive accurate data when there is a new development, and students doing research in water or sewer environment.

The SWIFT system experiences the following challenges: missing cadastral data, informal areas with no meters, data in treasury no water consumption, and an informal / invalid treasury. In conclusion, Mtsabe said that appropriate software is needed in order to make use of integrated data to obtain a deeper analysis. One can look at locations where revenue is not calculated, and where both water and sewer can be modelled. With the lure of budgets that can be improved, it will be needed to introduce certain interventions into the system.

Some of the key insights from the metering stream panel discussions include:Learning from meter rollouts in an African contextSome of the key questions posed during this panel discussion were: what is the meter roll out planning process? What are the objectives behind technology deployment? Is there a process implementation and strategy? What are the key challenges and achievements? What are the lessons learnt from meter roll outs for future planning?

The Zimbabwean experience looked at the prepaid metering project as a case study which included the following highlights and lessons learnt: The Zimbabwean Electricity Transmission and Distribution Company underwent a restructuring, resulting in multiple new companies, owned by the Zimbabwean government. Number of customers is about 650,000, covering about 75,000 square kilometres. Metering activities are supported by corporate objectives to ensure that activities do not lose momentum and form part of the strategic map to ensure that business requirements are met, such as increased revenue, the management of costs, improving utility efficiency and effectiveness. The migration from post-paid to pre-paid came with new driving forces. A paradigm shift was needed to support the new metering technology. The right metering technology for Zimbabwe is likely to be the same for most of the SADC countries, based on similar conditions, but needs to align with the national electricity policy and master plans and best practices.

One of the major challenges that need to be overcome is the culture of non-payment within Zimbabwean communities. Great strides have been made compared against past practices, but revenue collection is still a sensitive point that needs to be addressed. A key point is that one should not just look at the benefits to the organisation, but also at the societal benefits – and as such should be cost-effective to deploy. It is important to note that a metering project will be weighed up and ranked with other projects within a utility. As such, the project will be competing on a rate-of-return basis with other projects and it needs to therefore make business sense on a NPV and IRR basis. During the conceptual design stage of planning for the prepaid meters rollout, one of the key driving factors was revenue collection. Also, whether there is a viable business case for ranking and weighting purposes. The changing of technology cannot be seen in isolation. It goes hand-in-hand with the changing of process and people / resources which therefore also need to be managed in order to support the implementation and maintenance of the new technology. Project financing considerations are vital and whether the capacity exists within the utility to fund the project. Once the project planning stages are finished, it is vital to develop a project implementation strategy. This ties into a recurring theme at the 2015 AUW, that projects in Africa need strong project teams that are able to implement action items.

From the start of the planning process to the implementation thereof, there are stakeholders whose expectations need to be gauged and managed. These include the shareholders, the customers and the regulator.

The current trend in the metering space is that utilities are moving from a manual intervention to a more automatic intervention. In terms of energy efficiency, to date in Zimbabwe there has been

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a deployment of 540,000 meters and release 120 MW of capacity. This is enough energy to avoid load shedding in certain cities, such as Mutare (the third largest city in Zimbabwe). Currently, about 60% of energy provided and billed on post-paid is being paid in Zimbabwe. This is not a sustainable position. With the prepaid metering solution, the collection index is above 100%, since one can also collect debt.

These numbers do not occur by chance. A tailored and targeted approach is taken to develop a metered solution using a clear metering strategy. Since the utility wished to deploy the solution in a short space of time, the function was outsourced from a skills perspective to fou contractors. This was also a more cost-effective solution, based on the avoided cost principle. The project was launched with a pilot project which helped overcome the stakeholder management and other identified challenges and barriers. Retrofitting is the route that was followed which was also a challenge in itself since it involved the application of new technologies on old infrastructure, and this had to be weighed up against a lack of available skills and competence in key areas such as the back-end system – hence the outsourcing of the project. Customers resisted the step-tariff, which is another area that had to be addressed since it led to customer confusion. Lastly, the challenges dealing with debt needed to be addressed since the debt had to be linked to the point of connection so that the debt remains even where the party is not involved anymore.

9. 3 Key trends and insights

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Revenue protection, collection and management is one of the key drivers behind metering systems, with utilities often citing a culture of non-payment as being a major challenge that needs to be overcome.

Selecting the best metering solution is vital and requires an in-depth understanding of the utilities’ business model and broader landscape.

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10.1 OverviewUtilities across Africa are looking to follow global best-practice models and implement smart grid systems in an effort to improve the management of electricity T&D. African transmission and distribution systems are characterised by high technical losses of 30 to 40% (African Utility Week 2014 report), while non-technical issues such as theft have also significantly impacted utilities’ revenue streams. The adoption of advanced smart technologies will reduce the costly technical and non-technical inefficiencies, enabling a reduction in longer-term operating expenses, enable better asset management, improve T&D efficiencies, alter consumer behaviour and facilitate the move toward a more environmentally sustainable industry (Harold-John Hayes, Landis+Gyr).

10.2 Smart gridsSmart grids are difficult to define, as the term has been used to characterise a number of different technologies and system combinations by utilities, academics and equipment suppliers. However, for the purposes of this report a smart grid is defined as a network of technologies designed to automate and improve the efficiency of the grid during generation, transmission and distribution of electricity. Smart grids typically have four major components, all aimed at improving efficiency and increasing the availability of electricity on the grid:

Smart Grid Components

Smart systems enable complex, two-way communication along the grid, having the ability to communicate with the power utility and transmit the consumption profile of end users, as well

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as to receive information or remote commands from a control centre connected to the grid. Such systems have been identified to offer certain potential benefits for African utilities and power consumers, including: demand response which allows the minimisation of power disruptions; load management which ensures that only the required amount of power is transported to consumers; and customer engagement which enables end users to manage their own electricity usage more effectively.

Rationale for Smart Grid Adoption, Africa

Source: Anthony Adoghe, Covenant University

This four-dimensional perspective of smart grid solutions will be instrumental in industry strategy and policy design aimed at the expansion of this segment of the energy sector in Africa. Moreover, in order to increase the awareness of the benefits of advanced T&D technologies, equipment suppliers should aim to identify the benefits that are attached to specific elements of advanced smart systems, such as:• Sensors: If there is a disruption in the grid, the disturbance is detected by sensors and

the affected part of the grid can be isolated from the central grid to prevent any further disruptions.

• Power storage: Energy that is generated during non-peak hours can be stored for later use. This ensures minimal wastage.

• Smart meters: Electricity use can be monitored by the utility and the end users. This is a key element in electricity demand management as use can be shifted to off-peak times to save money.

• Micro-generation: Small scale power generation can reduce demand on the grid. Larger networks, like offices, can generate their own power using solar panels or wind turbines and can, in turn, supply energy back to the grid.

• Smart appliances: These appliances can shut off in response to frequency fluctuations or instability of the grid.

• Processors: Processors execute special safety and protection schemes in short periods of time. This makes the smart grid ‘self-healing’.

Much of Africa’s T&D infrastructure is ageing and the continent remains a few steps behind more developed regions in terms of the modernity of its energy infrastructure network. However, industry participants have highlighted that Africa has the opportunity to ‘leapfrog’ certain intermediate technologies, and dive directly into the implementation of smart grid networks – which have only recently begun to be adopted successfully in developing nations. In efforts to access the potential benefits of new technologies, and with limited access to capital, African utilities are currently driving the adoption of smart grid technologies through pilot projects which implement specific and isolated smart components.

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Operational Efficiency• Integrate distributed generation.• Enable remote monitoring and diagnostics.• Optimise network design.• Improve asset and resource utilisation.• Improve asset management.

Customer Satisfaction• Reduce outage frequency and duration.• Improve power quality.• Empower consumers to reduce energy costs.• Improved communications with utility.• Provide for more accurate metering and billing.

Energy Efficiency• Reduce system and line losses.• Enable DSM offerings.• Improve load management.• Comply with state energy efficiency policies.

Environmental Agenda• Reduce greenhouse gas (GHG) emissions via

DSM and ‘peak shaving’.• Integrate renewable energy resources.• Comply with carbon legislation.• Enable wide adoption of electric vehicles.

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Mbulelo Kibido, General Manager – Transmission Eskom, presented on the investments within the South African transmission space. Some of the key numbers include: capacity expansion - R 145,968 million, refurbishment: R 7,680 million, capital spares: R 2,397 million, EIA and servitudes: R 5,150 million, strategic: R 1,066 million, production equipment: R 519 million. Total: R 162,779 million over the 2015 – 2024 period.

The cost drivers in this grid expansion included: load growth (connection of new and anticipated customer loads, resolution of quality of supply excursions, legal and regulatory compliance, N-1 reliability investments, power corridors, transformer capacity, mitigation of fault-level exceedances (existing and anticipated), integration of new generation (Eskom generation new build, new and anticipated IPP generation), land development (securing of lands rights and environmental authorisations).

In summarising the Department of Energy REBIDS 1,2,3 programme, the following transmission line map showcases the above investment to date:

Source: Eskom

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The investment associated with the above, include (ZAR million):

Source: Eskom

Some of the constraints to grid access include: servitude acquisition and EIA’s (taking up to 24 months to resolve), long lead times for new infrastructure (can take up to seven years), high cost of the shared infrastructure, CELs issues to IPPs are non-binding but are utilised in the bid price.

Kibido states that the required investment to unlock capacity for future IPP projects (9,500 MW of capacity to be unlocked) totals R 13,000 (ZAR million).

10.3 Segment drivers and challengesThe key drivers of the advancement of T&D infrastructure in Africa and the adoption of smart technologies are:

• Demand-side management requirements Africa currently faces a critical electricity supply crisis – with rolling blackouts and electricity shortages. While this is partially as a result of the fact that investment in power generation projects has not kept pace with economic growth, this has also been aggravated by underinvestment in transmission and distribution infrastructure. While utilities are investing in new generation capacity, there is also a rising need to improve energy efficiency and manage the available electricity supply more effectively. The implementation of smart grids allows for better control of peak hour demand without having to increase generation capacity. Consumers can be encouraged to use electricity during off peak hours, which will result in a more stable demand curve. The implementation of AMR, more specifically, enables utilities and municipalities to implement variable tariffs through time-of-use (ToU) metering, which incentivise customers to change their electricity usage habits and provide for more accurate monitoring of electricity usage.

• Remote control access Thin face meters often need to be monitored manually, which results in significant expenditure on labour. As cost-reduction strategies become increasingly important for African utilities, smart meters which automate meter monitoring are seen as a crucial means to improve efficiency and reduce the manpower requirements.

• Obtaining real time information Frost & Sullivan research reveals that obtaining real time information is a vital benefit to potential smart grid and smart meter customers – particularly municipalities. Utilities and municipalities have previously expressed frustration with obtaining inaccurate information from existing meters - especially for credit meter customers, where there may be an extended lag time in billing. Customers accordingly often receive bills that do not truly reflect their consumption, are estimated and that may be unexpectedly inflated. With smart grid two-way communication, the analytics of this real time information will also allow for more efficient management of energy resources and accurate modelling of energy consumption determinants.

• The need to reduce energy theft and technical losses As financing and investment become increasingly difficult to attract, revenue protection and recovery are beginning to play an increasingly important role for African utilities. Loss of

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Bid window Capacity enabled Direct costs (IPP costs)

Shared costs (Eskom costs)

Total Connection Investment

1 1,436MW R113,60 R541,30 R654,90

2 1,054MW R426,00 R217,80 R645,80

3 1,475MW R571,50 R1.629,80 R2.201,30

Total 3,965MW R1.113,10 R2.388,90 R3.502,00

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revenue due to energy theft and technical losses are identified to be some of the most critical challenges facing the African utilities sector at this current moment. The theft of electricity in the prepaid customer environment in urban regions is shown to be on the increase and is resulting in massive losses – particularly within urban squatter and low cost housing settlements. While electricity theft accounts for only slightly more than 1% of all electricity consumed across the globe (Leonardo Energy Initiative), Frost & Sullivan research has indicated that in certain regions within Africa, revenue loss from electricity theft can be as high as 50%. Smart grids will enable utilities to also address the problem of energy inefficiencies. Sensor networks on the grid are able to detect any disruptions in the system with limited physical human input. The affected part of the grid can be isolated from the central grid to prevent any further disruptions. It is also a method of identifying areas of concern. Smart grids also possess power storage devices to store excess power created during non-peak hours. This ensures minimal wastage and a more efficient grid.

• The need to replace obsolete and aged technology Much of the T&D infrastructure in Africa is aged, outdated and in need of replacement. For example, the majority of residential users have their meters inside their houses, which makes it difficult for municipal personnel to access these meters and collect the necessary information on consumption patterns. Much of the existing transmission infrastructure network equipment, such as transformers and switchgear, is also in need of replacement. As this technology becomes increasingly aged, there is a rising need to invest in new equipment in line with global technology advances.

• Integration of IPPs into the national grid A multi-directional flow of energy would be required to integrate and efficiently utilise these renewable sources of energy. More advanced metering technologies will enable an easier method of incorporating centralised power to the grid via the use of two-way metering and sensors.

While interest in smart grid and metering technologies has been expanding rapidly, the implementation of this infrastructure across Africa will depend on whether the key stakeholders are able to overcome certain critical challenges, namely:

• Compatibility issues The lack of codes and standards for a common design and planning - which provide interoperability and enable different communication technologies to be used by any application - has proved a major challenge to the implementation of smart metering technologies, even on a global level. The large-scale deployment of exclusive technologies in several regions has thus remained a major challenge to the implementation of smart meters. The need to develop a common standard is consequently of vital importance to the progression of this industry within Africa too - as this would allow the various networks across countries and regions to communicate with each other. South Africa, as the second largest and most advanced economy on the continent, has demonstrated itself to be a market leader in this regard.

• Limited communication infrastructure One of the biggest challenges in implementing a smart grid project in Africa is the lack of information infrastructure and an integrated communication platform for real time data exchange. The cost of telecommunication in Africa can be quite high - and thus an in-depth cost-benefit analysis needs to be carried out and clearly understood before smart grid projects can be rolled out.

• Regulatory barriers While this challenge is also directly linked to the challenge of compatibility issues, it is also important to isolate it as a limiting factor in its own right. Government support will play an important role in the implementation of smart grids in Africa. The industry might not have the financial capacity to implement these projects on their own and will require financial assistance from government. Governments and industry also need to establish protocols and evaluate strategies according to key priorities. Definitions and standards need to be developed for equipment, data transport and cyber security. Customer concern over the privacy and security of the usage data that is collected will also have to be addressed. Historically, African governments have demonstrated poor regulatory clarity and slow policy implementation across the energy

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sector – producing uncertainty with regard to equipment standards and local content quotas. This issue could slow the implementation of smart meter systems, as utilities and equipment suppliers await policy clarity.

• High initial capital expenditure and lack of research and development funding The limited financial capacity of regional municipalities and national utilities is a major challenge across Africa – especially with the already dire need for the allocation of funding towards new and retrofit generation projects. While the difference in price between smart meters and the meters currently being utilised is already a matter of central concern to the majority of customers, those implementing smart metering programmes then also have to factor in expensive installation costs. Accordingly, the initial capital expenditure that is required to implement smart meters presents a primary challenge to smart meter rollout in Africa.

• Lack of skills required for implementation, as well as after-sales service and support Ensuring effective implementation of smart grid technologies, as well as after-sales support is a critical challenge because of the persistent skills shortage across the African continent. Industry participants revealed that advanced data management, information technology, statistical and analytics skills will be critical to the effective implementation and management of complex smart systems. Yet most national utilities do not even have sufficient engineering skills to manage their existing operations effectively, let alone sufficient in-house skills to operate the complicated database systems required in the management of smart metering and smart grid systems. This challenge is therefore expected to limit the rate of expansion of smart meter networks in Africa.

10.4 Smart grids and regional integrationThe trend toward the regional integration of Africa’s electricity grids is anticipated to be a crucial element that will interplay with the rise of smart metering and smart grids networks within Africa. Utilities have suggested that Africa should strive to implement a market-based mechanism in the electricity sector, with developed intraday and day-ahead markets and wholesale electricity markets which encourage a high level of competition in generation. Africa has the ability to leapfrog traditional, ageing grid structures, and jump straight into the implementation of a grid network which consists of inter-operational and smart grid networks. Such a grid network would contribute significantly to the improvement of supply and transmission challenges. However, the progression towards such a network faces many obstacles. Energy generation within Africa has traditionally been dominated by monopolistic utilities. Electricity prices tend to be regulated, power supply is inadequate, there are few independent system and market operators, only a small degree of bilateral energy trade and there is limited political will to integrate regional grids. The industry will thus require appropriate political will and intervention, more harmonised policy and regulatory frameworks such as cost-reflective tariff methodologies, and a critical focus on the implementation of compatible power networks for such integration to be achieved. However, certain developments are proceeding and regional power pools have been established – with day-ahead markets being piloted in the Southern African Power Pool (SAPP). SAPP is also in the process of developing cross-border trading guidelines and establishing regulatory harmonisation within the region.

Dr Lawrence Musaba, Coordination Centre Manager, SAPP presented on the SAPP programme for accelerating transformational energy projects. He stated that in 2007/2008 SAPP ran out of generation surplus capacity due to inadequate investments in both generation and transmission infrastructure over the past 30 years. The region is now in need of investment in both generation and transmission infrastructure. Challenges include: generation and transmission projects identified for implementation are not properly prepared, there is limited capacity within SAPP utilities to prepare projects and bring them to bankability stage, and that project preparation funds have not been forthcoming at a rate suitable enough to prepare a number of projects. Several initiatives have been launched to accelerate the building of these new projects, such as: obtaining buy-in from relevant ministerial departments in the SADC region, identification of SAPP priority projects, obtaining responses from cooperating partners, such as the Government of Norway, DBSA, ADB etc.

Given the above changing policy landscape, it should be seen within the context of the changing

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energy landscape. Various energy megatrends are driving the operational change. Imraan Mohamed, Regional Marketing Director, Sub-Saharan Africa, Itron, presented on the technology trends that are transforming smart grid strategy. The megatrends that he feels are impacting the energy landscape are: an increase in renewable energy, emergence in storage technology, decentralisation of energy, de-carbonisation incentives, shale gas and shoal oil increase, new business models and new entrants, new emerging and converging technologies, utility balance sheet under pressure, new competition, also from consumers, decreasing utility process, wholesales trending to zero or negative versus increasing end consumer prices.

Mohamed cited the benefits of smart grids as: accommodates various generation and storage options, provides the power quality for the range of needs, optimises asset utilisation and operating efficiency, provides resilience to disturbances, attacks and natural disasters, enables informed participation by end customers, enables new products, services and markets.

The smart grid technology application areas are shown below:

Mohamed provided insight of the technology maturity in the smart grid space:

* Battery storage technologies are less mature than other distributed energy technologies** High temperature superconducting technology is still in the developing stage of maturity.

Source: Imraan Mohamed

Technology area Maturity level Development trend

Wide-area monitoring and control Developing Fast

Information and communications technology integration Mature Fast

Renewable and distributed generation integration* Developing Fast

Transmission enhancement applications ** Mature Moderate

Distribution management Developing Moderate

Advanced metering infrastrucutre Mature Fast

Electric vehicle charging infrastructure Developing Fast

Customer-side systems Developing Fast

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Mohamed summarised his presentation with the following insights: smart grid is not a single event, project or technology but it is a journey, smart grid strategies will vary from region to region depending on key drivers and priorities, smart grid technologies span the entire electrical ecosystem and are at different levels of maturity and deployment, note the importance of the communication infrastructure for the bigger vision (smart metering, distribution automation, smart cities, IoT and societal impact), other considerations are: regulation, policy, funding, collaboration, resources and knowledge.

Africa’s biggest economy, Nigeria was also strongly represented at the AUW 2015. The Nigerian power sector was presented by Seun Faluyi, Aloe & Squires, from Nigeria, on the electricity market reforms faced and insights. The Nigerian power landscape is a large impediment to economic growth, with large sections of the country being powered by diesel powered generator sets. The Nigerian power sector developed as per the graphic below:

Source: Seun Faluyi

Faluyi discussed the principles that were followed in order to guide the Nigerian restructuring, deregulation and introduction of competition. The graphic below contains the high-level flow chart:

Source: Seun Faluyi

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The overall project’s objectives and challenges are contained below:

Source: Seun Faluyi

The transformation of the Nigerian power market did not happen overnight nor without challenges. Some of the main challenges experienced during the power sector reform include: inadequate gas supply, upgrade project complexities, inadequate transmission capacity, stalled industry deregulation, influence of unions and the incomplete PHCN unbundling.

It is important to note the transitional electricity market and the structure thereof. The private sector and especially investors require policy certainty, and a clear path to the implementation of policy objectives. It is vital to have a clear picture of the desired end-state of the transformed entity.

On the retail side, the introduction of the private sector to the power generation front is a step towards a more transparent market, which goes hand in hand with developed world notions of spot prices and the like, albeit part of the end-goal. Other African countries are also introducing cost-reflective tariffs in order to draw in the private sector. The graphic below provides an overview of the retail electricity market.

Source: Seun Faluyi

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Faluyi cites the following lessons learnt: Governments: policy inconsistencies should be avoided since they result in market confusion, process delays are costly and painful, and labour union influences should not be underestimated.

Regulators: conflicts can be intense, regulatory independence cannot be assumed, price-based regulation can be restrictive.

Operators: strong financial and risk management capabilities are required, human performance issues need immediate attention, business plans need to be dynamic)

10.5 Rural electrificationA large portion of the African population lives in isolated rural areas that are not connected to the national electricity grid. As such, rural electrification has been identified as a core focus for many of the regional governments and energy utilities. While various solutions exist to address this issue, industry participants and development agencies have identified that the implementation and adoption of mini-grid systems will need to be a critical to such rural electrification programmes.

African countries struggle in providing access to power to rural communities due especially to the financial viability of the projects, or lack thereof. Gordon Molefe, Director: Customer Services and Supply, Botswana Power Corporate presented on this topic. Botswana currently has 316,959 rural households, and 223,481 SMEs. The rural access to electricity is 69,2%. Various principles and structures aim to reduce this gap, such as: National Development Plans, Energy Master Plan (BEMP I, II, III) developed in 1996, MMEWR Strategic Plan and Energy Policy, Vision 2016 Pillars: Pillar 2 – “A prosperous, productive and innovative nation”: Economic Growth Objective; Target of 80% access by 2016, governance structures.

Botswana has implemented various grid projects:

Source: Gordon Molefe

Also helping to provide access to Botswana and the rural areas are other complimentary interventions, such as cross-border supplies: total of 41 points supplying 33 villages and eight individual SMEs, cross border supplies include - 35 points from Eskom, three points from Nampower, two points from ZEZA and one point from ZESCO.

Another example of such a complimentary intervention is the Seronga Diesel Generator Station. This is aimed at the isolated settlements in Northern Botswana, where the Namibian cross-border line capacity is facing capacity constraints and access challenges due to the crossing of Okavango River. The solution is the Seronga Diesel Generator Station, consisting of 3x300 kVA diesel generators, serving 380 customers in ten villages.

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The strategic impact of these projects includes: employment creation, economic empowerment of local communities, increased private sector participation, improved livelihood, curbing of rural-urban migration, and the proliferation of other services, e.g. ICT, health, educational facilities.

Some of the challenges include: low buying power, isolated and sparsely distributed communities, lack of funding for appropriate solutions, cultural backgrounds, and the acceptability resulting in low uptake.

Jamil Korked, Deputy General Manager, STEG International Services, presented the Tunisian landscape in electrifying rural communities. The theme of the presentation was that rural electrification should be seen as a lever of socio-economic development. STEG has an electrification rate of 99,5%, and performs 120,000 new electricity connections each year. They also have a gas programme with the aim of supplying 70,000 clients per year. Within the Tunisian government’s integrated rural development strategy lays the notion to forward rural electrification initiatives. In 1973, the rural electrification rate was 6%. Various initiatives have been implemented, such as developing a master plan of the distribution network and a technical audit of the distribution network in 1974. Also, in 1976, STEG adopted the distribution SYSTEM MALT to allow for single phase distribution. This choice has expedited the completion of electrification projects and reduced delays and costs by about 35% depending on the area to be electrified.

Also, solar PV was introduced in 1980 with the 29kW (peak) plant, used to power 50 homes in a village. This pilot project was used to introduce and refine the process of adopting renewable energies in rural areas. In the mid 1990s STEG started applying solar PV solutions to rural electrification, water pumping and telecommunications relays.

The results of the above are shown in the graphic below:

Source: Jamil Korked

Similar to other African countries, the rural exodus to cities has slowed down, urbanisation rate stabilised, standard of living improved and economic activity in rural areas have developed. Various sectors have been positively impacted, such as the industrial sector, mechanical and electrical industries, and the agri-food industry.

In various African cities there is an element of urban sprawl often linked to informal settlements located within the cities’ area. These cities battle to provide access to power and other basic services to these informal settlements, but innovative solutions are being put forward. One such a solution is “Backyarder electrification”, referring to multiple people within the city boundaries who reside in backyards, often in informal structures. The steps cited by Hein Boshoff, City of Cape Town, and Philip Jacobs, Gibb Engineering & Architecture are: identify target areas, information and area data from human settlements, asses information and area data (electricity), appointment of consulting engineers (design and project management), design and design approvals, draft project programme and budget, budget applications and approvals, appointment of contractor, wayleave and site allocation applications, material procurement, registration of beneficiaries applications and training, start of construction, connecting of backyarder services, monitoring budget and cash flow regularly and then the final handover.

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Successful implementation requires a robust design (new LV street front underground network, and provision for future backyard connections, as well as new street lighting), construction (using a reputable contractor with good project and material planning skills, community involvement, community communication and stakeholder management).

Results of the project included: improved aesthetics and general area safety, social upliftment and improved living conditions.

Another rural solution was presented by Gianluca Cescon, COO, Devergy, Tanzania. Devergy is active in the grid extension and smart micro grids space, serving rural households and small businesses through DC solar power and smart micro-grids solutions. Their business model is built on a prepaid and for-profit approach, offering a 24/7 energy access, providing electricity initially for lighting and phone charging, fans, stereos, televisions, sewing machines, projectors and the like. Some key points of their projects include: $20 connection fee, prepaid energy packages from $0.20 / day, mobile payments, starting with lights, then grow to more lease-to-own appliances.

Due to the rise in mobile money, data driven choices and the workforce in villages, Devergy feels this is an opportune time to invest in Africa. With their 800 customers in six villages, ranging up to 250W per connection and three years of operations in the field and 30% saving in energy expenditure, the following are the key benefits: rural communities can be served in a financial sustainable way, technical manpower can be sourced directly from the community, and that micro smart grids are a real alternative to grid extension.

Helene Smertnik, Advisory Manager for GSMA Mobile for Development presented on the link between mobile phone functions / accessibility and access to power. The GSMA Mobile for Development Utilities programme leverages mobile infrastructure to improve access to basic energy, water and sanitation.

In an interesting graphic, Smertnik illustrated the evolution of access to services in the period 2000 – 2015 in SSA.

Source: Helene Smertnik

From the above, it can be seen that the access to power rate is rising marginally compared to the GSM population coverage rate. The link is then emphasised and strengthened between access to electricity vs. access to mobile services.

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Source: Helene Smertnik

According to Smertnik, the role of mobile within the space can be that mobile money is used to improve revenue recovery (supporting remote, digitised payment, automates pre-post payment, flexible tariff structures to ensure affordable access). Also, mobile services can be used to improve customer service (e.g. SMS, IVR, USSD) and support communication between customer and utility (regarding breakages and power outages). Lastly, M2M to reduce losses, metering inefficiencies, last mile distribution (remote monitoring of energy consumption and energy supply, and remote control of energy supply).

With technological advances, also come technological risks – especially in an environment such as Africa which is often seen as less sophisticated compared to developed countries. In an interesting presentation by David Erswell, Automation Engineer, Eskom Holdings, he highlighted some of the security risks associated with Supervisory Control and Data Acquisition (SCADA) systems. SCADA systems connect operational data to the internet which is dangerous in an unsecured environment.

Currently, there are 15 billion devices online (internet) versus 90,000 SCADA devices.

Mr Erswell states that information technology and operational technology have merged, with modern mission critical applications becoming dependent on IP-based devices. This is a security concern and currently open to abuse. As an example, Mr Erswell states that using a freely available database, he found an internet service provider that grouped IP addresses of 40 SCADA systems into one sub network. This does not happen outside of South Africa, and one can access this information from home. Connecting SCADA systems to the internet is a cost-effective way for an operator or administrator to connect remotely while intelligent devices can communicate with each other. However, he states that if your systems were connected to the internet with no encryption during 2014, then your system may be at risk. Attackers may use the following banner information to damage / mis-operate your system: IP address, name of internet service provider, banner location, GPS co-ordinates, contact person, host name, and the applicable serial number.

South Africa currently has 160 SCADA devices online that should ensure that such a security breach does not occur, e.g. the encrypting of data.

Some of the key insights from the panel discussions include: Restructuring the industry: lessons from reformed marketsSome of the key questions posed during this session were: what business models and ownerships

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are most appropriate? Does reform mean unbundling? Can reform drive utility modernisation?

Reforms must align with the changing of people’s minds. In order to move forward with the industrialisation of African countries, there is a need for power. This is the time to change the paradigm and the approach to energy in the sector in order to move away from poverty. The African continent has significant energy resource availability and the increase in mining activities and natural resource discovery needs to be exploited in order to grow wealth on the African continent in order to put Africa as a whole on a secure growth path. This can be achieved by implementing business models, such as inclusive growth, through PPPs, and through private civic society movements through governments – in order to sensitise the population.

It is often found in developing countries where there have been deregulation activities, that the performance of private sector utilities / entities are more efficient that those of their public sector counterparts. The reason cited for this occurrence is the management structure of the public sector companies being less optimal than those found in the private sector, spilling over into economic planning and execution, especially on the distribution company side. In Brazil, in both the generation and transmission functions there is a perception of a better level of service delivery from the public sector entities. This is likely due to better management, a more robust structure and operational framework. In Brazil, the ownership of the public company model is a combination of state owned and federal owned, and then a municipal minority ownership. The municipal ownership is focused along the distribution part of the value chain. On whether there was a change on the side of the regulator after privatisation (in Brazil), the answer was that after privatisation the biggest effect was on pricing and competitiveness. In Nigeria, like elsewhere, the role of the regulator is to protect the end user and to incentivise investment (increased private sector return on investment). In Nigeria these two concepts compete with each other since the end user is expecting a low power tariff, whereas the private sector is expecting a strong return on their investment. As such, the regulator plays a balancing role. In Nigeria, there is a move towards cost reflective tariffs, however, with the generation price being extremely high this is not a viable option and will result in resistance from the end users and social upheaval. There was a decline in the quality of supply during the market restructuring and the reason offered was that the private sector investors did not receive the returns they were expecting, and as a result did not re-invest as expected. The companies have developed strategies to circumvent this position and it is expected that once the pricing regime changes that the status quo will also change to one of improved service delivery.

In order to achieve policy consistency, one needs a great deal of engagement. This is because there is often resistance from those who fear how the change might negatively affect them. This would imply that the head of the regulator, who has been tasked with this function, should be articulate about the benefits of the process to all the stakeholders and work towards getting the stakeholders to buy into the deregulation. This includes government, consumers, labour unions and suppliers.

One of the key challenges is policy implementation. The policy and strategies exist, but the implementation is a challenge. The power sector must be made familiar to the “man on the street” in order for general buy-in and reduced vandalism. There is a perception that the general populace places more priority on the education sector and the health / hospital sector; it is time that the power sector is raised to the same level of perceived importance in order for implementation initiatives to gain a stronger foothold.

The improvement of the regulators capacity to regulate more clearly is another challenge facing developing countries. This is because of the gap between the regulation and the implementation of the regulation.

The 5-year view: Regional power infrastructureSome of the key questions posed during this panel discussion was: what will regional connections look like by 2020? Can we work beyond national power grids?; what is the future of distributed generation and smart metering?

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Africa has challenges on the market side. We are trying to do mega projects and smaller projects through PPAs. These PPAs take a length of time which is often cumbersome to conclude the projects. There is a need to open up the market. This can be done through power pools. We have five power pools in Africa, but they are not yet interconnected. The SAPP has nine countries that are interconnected. The evolvement of the power market is vital. The competitive market was initiated in 2009 showing benefits to this process. A more liquid regional power pool will lead to increased investment. The view is that within the next 20 years, end consumers will be able to select their power providers from anywhere in Africa once we are interconnected.

Regional power pools should perhaps focus rather on technology types that are best for the region, instead of following a country specific basket of technologies provided for by e.g. the IRP 2010 in South Africa. The uptake of IPPs in the absence of a centralised control will also come with potential teething problems. This element of distributed generation can be overcome.

Various regional connections are taking place (some historic such as the 60 year history between Kenya and Uganda), with strengthening of the lines and system components, e.g. Kenya – Uganda / Kenya – Rwanda / Kenya – Tanzania / Kenya – Ethiopia interconnector. The longer term plan of Kenya is evident in that it is heading towards the South African power pool, to increase regional interconnectivity. Apart from extensive plans to connect the region, there is also a large amount of internal transmission line activity been planned. The Kenyan system is already unbundled, with one company doing the transmission unlike e.g. Eskom. Some of the challenges faced are that the grid projects are very expensive. The initial capital cost is very high. The government’s response is very slow based on project size and capital intensive nature of the projects. However, East Africa is working hard to be grid connected and harvesting the access to natural resources.

In 20 years from now, it is predicted that the Southern African and Eastern African Power Pool will be interconnected. The question of interconnection is a question of design. The Tanzania – Zambia line will likely be the last piece of the puzzle to fall in place.

How can we work beyond national power grids? One needs to look at the system as an integrated system, both from the supplier to the consumer. The consumer is turning into a supplier, which is a trend that needs to be observed closely. The issue of looking beyond national borders often lies with the technocrats. However, by planning regionally, the political will is likely to follow. In the East African region, the pool needs to be strengthened, while cheaper resources need to be harnessed first.

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10.6 Key trends and insightsThe move towards smart technologies will be a process of transition for the African continent. It is suggested that the progression of this industry will involve the implementation of hybrid models – which combine conventional technologies with directed implementation of smart technologies to produce context-specific solutions (considering capital availability, existing infrastructure, economic dynamics and local culture).

The adoption of compatible, regional smart grid standards to allow for regional integration of smart grid networks is anticipated to facilitate industry growth.

The deregulation and introduction of private sector players within the sector will require careful planning in order to keep all stakeholders interested, since uncertainty in the planning and implementation stages is known to cause projects to stall.

The implementation of smart systems and new technologies which enable more effective asset management remains a core focus for utilities.

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RENEWABLES

11.1 OverviewFollowing on the 2014 AUW, within the wind and solar streams, there was a recurring theme around the need for greater electrification in Africa. Africa is endowed with abundant and readily utilisable resources for renewable energy power generation. Wind and solar power plants can be constructed with relatively short lead times, presenting a rapid solution to the power generation shortfall experienced in so many countries in SSA. Both wind and solar are tested and proven generation technologies. The load profile of the power generated by these technologies closely matches the usage of many industrial and commercial businesses, so it is able to make a substantial contribution to reducing their consumption from the grid, or in cases where the grid is lacking, reducing their reliance on expensive back-up power. While renewable energy does present issues to the power system, the aggregation of renewable energy plants within countries and between countries can reduce the volatility of the power produced. Since the grid infrastructure does not currently extend to great swathes of the continent, the development of off-grid, clean power solutions presents a viable alternative to the expensive extensions of the grid network. Distribution of Identified Renewable Energy Potential in Africa

Source: IRENA

Gurbuz Gonul, Acting Director – Country Support and Partnerships for International Renewable Energy Agency (IRENA) presented some of IRENA’s key findings in the renewable space in Africa.

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Key challenges identified by them for large scale RE include: the lack of credible RE resource data, limited expertise and experience in RE grid integration, lack of investment-grade credit ratings of the public utilities, transmission constraints that are limiting electricity trading, lack of enforcement of cross-border trading guidelines and cost-reflective tariffs, and evolving regional markets.

Gonul discussed the future aim of working towards an Africa Clean Energy Corridor (ACEC), as indicated below, essentially linking the Southern African Power Pool to the Eastern African Power Pool.

Source: IRENA

Gonul presented some of the findings from their research, including renewable energy resource assessment and zoning, as shown in example format below. The mapping of the resource assessment and the zoning thereof helps to attract project developers and investors.

Source: IRENA

In addition to RE resource assessment and zoning, Gonal also presented on Enabling Frameworks for Investment – Renewables Readiness Assessment (RRA). Various countries were highlighted, including Swaziland, Mozambique, Zambia and Djibouti amongst others. It is clear that investors and developers require policy certainty to help strengthen the investment decision making process. The enabling frameworks reduce investment risk, attract timely and efficient investment, and ensures reliable and affordable RE integration. The process includes a first phase: Planning Governance Project, Integrated Capacity Building. Followed by a second phase: Governance of Regulatory Institutions, Tariffs and Incentives and System Code Governance.

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The third leg, after enabling frameworks for investment – Renewables Readiness Assessment (RRA) is national and regional planning. Long-term plans are needed to make sure that investment decisions are made wisely, and that national policy goals are addressed – tremendous needs to fulfil energy access aspirations. Also, a planning process is as important as the plan, since it speaks to continuity and improvement, timely updates and consensus building among sub-sectors. The investments needed for Africa offer great opportunities with IRENA citing ACEC investment analysis stating that between 2015 to 2030, $20-25 billion is needed in generation and an additional $15 billion for transmission and distribution networks each year.

The above cannot be possible without capacity building, and as such skills need to be developed. Institutions need to be strengthened to build, plan and operate, maintain and govern power grids and markets with higher shares of renewable electricity.

In a recent study by Frost & Sullivan titled “Large-Scale Renewable Energy Power Development Opportunities in Sub-Saharan Africa - A Story About Bankability, Affordability, and Grid Capacity” the above points made by IRENA are emphasised.

Some of the key output of this study includes the following: • Following South Africa’s recent rush for renewable energy, developers are showing an

increasing interest to develop their activities up north in the rest of sub-Saharan Africa.• Power demand remains, however, limited in most countries and, therefore, does not allow the

economies of scale benefitting RE developers in North and South Africa.• Nevertheless, there is a plenitude of “smaller” opportunities across the region. It will be more

a matter of finding an efficient way to finance them. • The main challenges to build large-scale RE power projects remain: (i) projects’ bankability, (ii)

grid capacity, and (iii) electricity affordability.• A lot of RE power projects are being developed. However, very few have reached financial

close to date. • The process to negotiate a power purchase agreement (PPA) and to get the land permits can

take many years. • Access to land has also been an issue for large RE power projects; especially in Kenya and

Ethiopia (e.g. land permits, land owners’ rights issues with regards to compensation and resettlement).

• Having good RE resources is not sufficient. Investors must also look at the country’s independent power producers’ (IPPs) track record and the private sector ability to conclude an acceptable PPA with the offtaker.

• The current market trend is rather in favour of competitive bidding process even though Renewable Energy Feed-in Tariff (REFiT) have been adopted in Kenya, Uganda, Tanzania, Rwanda, Nigeria, and Ghana.

The following table summarises the top five countries offering the best opportunities to develop large-scale RE power projects in sub-Saharan Africa.

Source: Frost & Sullivan

Three countries have also been identified as outsiders and should also deserve particular attention for future investment opportunities, thanks to their favourable legislative and institutional framework.

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Source: Frost & Sullivan

The United Nations Environment Programme has helped several countries in Africa to develop green economy strategies with a related action plan. The countries highlighted in green on the map (11 in sub-Saharan Africa) have all adopted a green economy strategy and/or an associated action plan at the national level. These countries are supposed to be more inclined to open their power sector to foreign investors wanting to develop RE power projects, indicated below:

Source: Frost & Sullivan

Namibia is also developing its renewable energy programme. Rojas Manyame, General Manager: Regulation, Electricity Control Board (ECB) presented Namibia’s renewable energy landscape where wind, solar, biomass and hydro are available in abundance. The institutional framework includes the Ministry of Mines and Energy (policy maker), the Electricity Control Board (policy implementer) and the Electricity Licensees (service providers). The Namibian market model is in an evolutionary state. Historically, there was a single buyer. Currently, the model is taking a modified single buyer shape. Renewable energy IPPs are attracted in Namibia by the RE procurement mechanisms developed, RE targets, IPP and investment market framework, robust licensing system and a clear policy on tariffs. The table below provides a summary of the licences issues to date:

Source: Rojas Manyame

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Stage Advanced Early

Countries Ghana (solar PV)Cote d’Ivoire (solar PV)

Ethiopia (wind and CSP)

Licence type No. of licenses Total Capacity

Wind 1 44 MW

Solar PV 22 131.5 MW

Biomass 1 5 MW

CSP 1 5 MW

Biogas 1 16 MW

Hydro 1 20 MW

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Policies on tariffs include: that tariffs should be cost reflective, be based on sound economic principles, create a level playing field for all participants, reflect long run marginal cost, generation tariff methodology developed (cost plus), Cabinet decided that bulk tariffs should be cost reflective in 2011 / 2012 (above was achieved).

Challenges include: the need for a solid base line database for RE, lack of RE uptake support mechanisms (absence of specific RE policy, support mechanisms e.g. IAs still under discussion), introduction of special instruments to ensure a greater share of RET in the electricity supply (like quotas, REFIT and others).

In conclusion, Manyame stated that there is an urgent need for exploiting Namibia’s RE resources, regulatory regimes play a crucial role in promoting ESI investments, there is a need to create a level playing field, a need to develop specific RE policy and a robust RE framework, coupled with the need for subsidies to support RE uptake to mitigate tariff impact. Also, as with most countries within Africa, there is a need for private sector participation.

Job creation and the rising middle class in Africa is a question that is central to most projects in Africa. Energy being an economic enabler and a key pillar for development is a direct function of employment. Sarah Stands, Wind for Communities / GM, SAWEA / AltGen presented on the job creation and sustainability aspects of the renewable energy landscape in South Africa. The graphic summary below provides insight into the job creation aspect:

Conclusions: the REIPP creates meaningful jobs, yet much of this data is lost or not collected, the REIPP does not have the capacity to create all meaningful jobs, yet incentives need to be established, and data is often unutilised and misunderstood (misaligned with policy).

Recommendations: realign IPP data collection for more ‘meaningful’ job outcomes, inject training institutions with funding and incentives, standardise quantifying job creation across industries. The programme is unique, and is a developing programme that will pave the way for other development in South Africa and outside borders. A great opportunity exists to create fulfilling and value adding jobs, while generating clean electricity and achieving sustainable development goals, and there is the potential for leap-frogging over traditional and outdated methods of economic development using established frameworks such as the Sustainable Livelihoods Framework.

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11.2 SolarSolar power can play a substantial role in Africa’s energy transition. The costs of solar technologies, especially solar PV, have been falling rapidly over the past few years, so that the levelised cost of energy (LCOE) is now competitive with many other conventional generation technologies, especially for distributed, off-grid and hybrid solutions. The low capital cost, ease of construction and scalability of PV (and to an extent CSP given new technological advances) makes it one of the best options for rural electrification. Solar power generation technology is proven and the power generated can be predicted to within an acceptable level of variability. South Africa’s Department of Energy has procured several hundred megawatts of concentrated solar power (CSP), much of which comes with the benefit of having integrated storage solutions. This allows the CSP plants to serve the evening peak demand period and reduce the reliance on expensive back-up diesel power generation. The storage ability also counteracts the argument that renewables are unable to serve a base load function, with CSP projects having storage capabilities of up to 15 hours currently in operation and thus being able to provide dispatchable power.

Source: SolarGIS

Solar PV has already reached grid parity in many industrial and residential segments, meaning that the cost of the power generated is lower than the cost of purchasing electricity from the grid. The power generated by solar is very well correlated with industrial and residential loads. In South Africa, PV is able to compete with municipal distribution tariffs in several instances.

Several arguments are made against using renewable energy technologies for power generation. This includes the technology is intermittent – it exhibits large fluctuations, it is uncertain – it is less predictable and difficult to forecast and that it is non dispatchable – it is not controllable.

But the cost of unserved power has been proven to be far higher (World Bank). Problems will arise only when the penetration reaches sufficiently high levels that their installed capacity begins to substantially alter the normal transmission system power flow pattern or to cause large voltage swings in the transmission system, thought to be at a penetration of around 30%. The integration of renewable energy generation from wind and PV does make additional demands on the design and operation of the electricity transmission grid, requiring greater flexibility of the overall system.

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The aggregation of PV plants has proven to substantially reduce the variability of the power generated, due to changing weather conditions, to within an acceptable level of variability of around 5%, as per the 2014 AUW report. Furthermore the uncertainty and variability can be managed by ramping conventional reserves up or down on the basis of forecasts, making RE the perfect complement to gas power generation.

Adequate long term planning can reduce the system requirements. For instance, in South Africa the IRP 2010 envisages a staggered roll out of renewable energy power generation over the period to 2030, allowing time for further transmission, distribution and systems operation planning. There exists a “grid code” which sets out the requirements that plants have to meet in terms of:• Frequency• Voltage• Power factor control• Active power curtailment• Low voltage ride through requirements

Numerous technological changes are also likely to occur over this time period, which will remove many of the existing challenges related to grid connection.

Abraham Cambridge, DNV GL Business Developer, Head of SAPVIA EG Storage Workstream presented on the above mentioned energy storage concept. Energy storage remained one of the most relevant topics for discussion at the 2015 AUW, due to the economic potential it stands to unlock. Cambridge indicated the SANDIA report (SAND2013-5131) from July 2013 as a good source for an initial conversation in understanding energy storage principles.

During his presentation he asked the question “why use storage with renewables”? In response to the question: storage will enhance renewable values (time shifts energy to better match the demand (dispatchable), helps renewables to provide ancillary services (play the market), increases capacity factor – reduces curtailment). Furthermore, storage will have the effect of buffering the adverse impacts of renewables (smooth out the intermittencies, voltage regulation, stabilise the grid, reduce need to upgrade or install new lines or equipment). However, storage is not the only option for renewables. One can also: do nothing (most utilities prefer this option to risky alternatives), adjust output of other generators (low efficiency, increased emissions), focus more on demand management (low cost but limited value too), or investigate energy storage (more expensive but offers many more functions and values). Energy storage technologies are segmented by Cambridge as follows:

Source: Abraham Cambridge

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From an application perspective, there is a solution for all the different sized requirements, as per the illustration below that summarises the East Asia, Western Europe, Rest of the World and North America position:

Cambridge provides a summary of the storage technology capacity:

The presentation looked at the various energy storage options above. Relevant to the wind and solar space which is prevalent in South Africa, where hydropower is less viable, the table below looks at the economics of different storage options:

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Source: Abraham Cambridge

What does the future hold for energy storage solutions? As Cambridge states, at the market level disruptive change is not expected in the next four years. The graphic below provides some insight into what might be expected in this space in the next decade:

Source: Abraham Cambridge

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The current barriers to storage deployment include: high cost for single or simple applications, most storage technologies are not commercially mature, low comfort level (many types / applications / stakeholders), regulatory barriers, and unclear sharing of cost when it benefits multiple stakeholders.

Dr Tobias Bischof-Niemz from Chief Energy Engineer, CSIR presented on the actual financial costs and benefits of renewable energy in South Africa, and how renewable energies saved R800,000,000 in 2014.

Based on the average tariffs in R / kWh, wind and solar are already cost competitive in South Africa:

Source: Dr Tobias Niemz

South Africa is still by far coal power dominated. However, with the recent introduction of renewable energy projects as well as the potential set to be unleased by the Gas Utilisation Master Plan, the per centage dominated by coal is set to change substantially in the future, even with Medupi and Kusile coming online. This is due to the large number of coal fired power plants that are set to be decomissioned over the next decade or two.

The CSIR uses a three pronged methodology of calculating the effect that wind / solar PV have on the electricity system:1. Saving coal fuel: output from the OCGT = 0 MWh2. Saving diesel fuel: output from the OCGT > 0 MWh3. Avoiding “unserved energy”: output from OCGTs > 0 MWh and (reserves of OCGTs and

pumped hydro) < (wind and PV)

Applying the above methodology, the results for 2014 are captured below indicating how the CSIR came to the R 800,000,000 net benefit to the South African economy:

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Source: CSIR

In calculating the savings:• Per energy unit, wind saved fuel to the value of R1,60 per kWh of wind energy• Per energy unit, PV saved fuel to the value of R 1,72 per kWh of PV energy = weighted average

of R1,66 per kWh of renewable energy (Jul 2014 Rand)• Wind and PV avoided 19,2 GWh of unserved energy in 2014, which saved the economy R1,67

billion, which is 0,76 R/kWh of renewables - In 2014, 117 hours of “unserved energy” were avoided. This is 19,2GWh of avoided

unserved energy due to wind / PV. Economic value: R1,67 billion (@ 87 R/kWh in Jul 2014 Rand)

- = 0,76 rand economic value per kWh of renewable energy

A core question posed by Dr Komla Folly, Associate Professor, University of Cape Town, was “how much solar power can the grid handle?” Solar power for purposes of the presentation was both solar PV and solar CSP. Solar PV remains, after hydro and wind power, the third most important renewable energy source in terms of global installed capacity. Solar PV is now becoming mainstream electricity. The global cumulative installed capacity worldwide reached 140GW in 2013. Asia represents around 56% of the world PV market in 2013, surpassing the European PV (29%).

Within the South African context, Dr Folly stated that according to the IRP 2010, 42% of South Africa’s newly-installed capacity should be renewable by 2030. Solar PV could deliver up to 8,4 GW of new capacity. However, South Africa’s solar PV market is significantly behind those of other countries, developing at a rate of just 7,6%. Given that South Africa is the most attractive emerging country for solar energy, this is set to change. To date, solar PV in South Africa has been limited to off-grid usage, such as rural electrification, isolated farms and lodges, and telecommunication. Solar PV, according to Dr Folly, is not yet a viable economic option for residential applications because of cost. Utility scale solar PV plants under the South African Renewable Energy Independent Power Producers Programme provide more than 1,500 MW of solar power to the grid (addition of 415MW – fourth round of REP). With solar PV reaching grid parity in 2013, coupled with the massive rise in electricity prices requested from Eskom, it is expected that more people in South Africa will turn to rooftop solar PV and that connections will be made to the grid at the distribution level.

Some of the challenges associated with integrating solar PV into the grid include: reverse power flow, sudden voltage rises (transient and steady state), increase line losses and power factor modification, more switching / tapping for voltage control (variability), real and reactive power fluctuations, interaction with capacitor banks and voltage regulators, protection coordination with islanding issues, voltage unbalance (single phase PV-DG), and harmonics (e.g. potential total harmonic distortion THD-increase).

Dr Folly presented an Australian case study, where due to grid stability problems, some utilities are discouraging “small scale” rooftop solar PV owners from exporting power to the utility grid. Any rooftop solar system under 30kW will gain automatic approval provided that it has equipment

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installed that can prevent it from feeding into the grid. Large systems of more than 30 kW are required to have export limiters to avoid what they call the “Christmas Day” effect – when large amounts of solar electricity are fed back into the grid when there is no demand.

Mitigation methods include: use of distributed energy storage devices (super capacitors, flywheels, electrochemical batteries), relocation of capacitor banks and modifying settings of capacitor banks, modification of reference voltage of load tap changers (LTCs) and compensation of current on line drop compensation (LDC) applications, implementation of dynamic VAr compensation scheme, reactive power control (use inverter control-operating the PV at leading pf), use of reactive power compensation, and active power curtailment approach (plant-level controller).

Conclusions from Dr Folly include that the current South African power system was not designed for large integration of solar PV. Therefore, the power industry will need new technology and new business and regulatory models (smart grid technology, adequate grid investment policies). Flexibility is the key requirement for planning and operating the power system with a large share of variable renewable energy. Flexibility can be provided by four types of assets, namely: interconnections, storage, demand side management (DSM), flexible generation (ability to balance demand and supply in real time). Key conclusion is that there is no absolute limit to how much solar PV can be integrated into a given system or location. However, there will be material impacts and costs to mitigate.

11.3 WindDuring the 2014 African Utility Week, Africa’s installed capacity of wind power generation was forecast to grow substantially over the next few years, albeit off a very low base. This growth will be driven, in part, by the continually increasing efficiency of wind turbines and the simultaneous decrease in investment costs per installed megawatt. Bloomberg New Energy Finance sees almost 20,000 MW of new wind being installed across Africa in the next five years, a substantial amount.

Africa Wind Installation Forecast

Source: Derek Campbell, Senior Analyst, Bloomberg New Energy Finance

As electricity production is highly dependent on the prevailing wind conditions, choosing the optimal site, as well as the appropriate wind turbine for the site, is critical to achieving economic viability. The African continent has abundant wind resources, which are currently underutilised. The availability of wind on the northwest, east and south coast of Africa is substantial and wind power is able to offer a relatively fast solution to the increasing power required to support economic growth. Across Africa, governments are investing more resources in exploring the potential of renewable power generation, with several countries already offering incentives for renewable power generation.

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African Wind Resource Map

Source: 3TIER

The Lake Turkana wind project is one of the flagship wind projects in Africa. Frederik Groeman, Senior Consultant, DNV-GL presented on the challenges in renewable energy integration experiences with the project.

The main challenges were that grid reinforcement and grid development were needed. Also, the long transmission distance to the grid, the relatively large rating of the plant, and the potentially weak grid were also challenges that needed attention.

Furthermore, the site is in a very remote area of Northern Kenya, semi-arid conditions, it has a low population density with access by dirt track or plane only. There is also no grid connectivity to start with and no GSM mobile coverage, to name but a few. Some of the project scope statistics include:365 Vestas V52 850 kW wind turbines, 150 km 33 kV overhead line collection grid, 1 x 33 kV, substation 3 bus bars, 8 bays each, 204 km of public road construction / upgrades, and 3 x 100 MVAr dynamic reactive power compensators.

Project finance: total project construction fund is 625 million Euro. In conclusion: successful grid integration is an integral part of the feasibility of the project, including reinforcements and flexibility of the system.

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12.1 IntroductionThe majority of power plants in Africa are more than 30 years old and experience frequent breakdowns – and the subsequently erratic supply of power is already threatening to stifle the economic expansion. However, sub-Saharan Africa is endowed with a tropical climate and a significant amount of perennial rivers. Previous Frost & Sullivan research estimated that the region has the potential to generate 1,750TWh from its hydro sources, of which less than 15% has been developed. Exploration of the available large and small scale hydropower potential sites could solve many of Africa’s power problems. It is envisaged that the majority of African countries may prefer to develop their existing hydropower potential rather than invest in other expensive sources of energy such as fossil fuels.

Many internal and external factors are anticipated to drive the adoption of hydropower solutions across the continent. The benefits of hydropower that are anticipated to drive the development of hydro-electricity generation in Africa include:

• The accessibility of water. Water is readily available in many African countries, for both large and small scale hydropower projects. While expensive transportation costs are typically associated with carrying coal, gas or fossil fuel from the extraction sites to power plant locations, these expenses can be avoided in hydropower generation. Moreover, hydropower can be effectively explored for potential distributed generation, which is suitable for industrial power consumers.

• The flexibility of hydro-electric power supply. In addition, hydropower generation can easily be ‘stopped and started’, making it very flexible and adaptable to demand levels. Consequently, it has the ability to supply power both for peaking and base load.

• Hydropower allows for cheaper electricity generation. Hydropower plants typically have very low operational costs and a limited (or complete lack of) reliance on feedstock. As a result, the lifetime cost of power from hydro-electric plants is significantly lower than that generated by thermal power plants.

• Hydropower generation can be renewable and environmentally friendly. Hydropower is climate friendly (as it does not result in the conventional air pollutants associated with other fossil fuel generation options) and is one of the few renewable energy sources that is able to provide stable, baseload power. The adoption of hydro power will therefore play a significant role in helping Africa toward its goal, adding valuable generation capacity, while still reducing greenhouse gas emissions. However, hydropower projects will need to be carefully conceived, in coordination with environmental experts, as the construction of large-scale dams can also have significant negative impacts on the surrounding environment.

Given the above benefits of hydropower in Africa, Bertrand Collet, Technical Director, Aurecon presented on how to fast-track hydro infrastructure build in developing countries. Essentially, some of the key points a government or project developer needs to be aware of are: rehabilitation / refurbishment of existing plants, having dedicated programmes in place to encourage new build hydro (renewable) development (REFIT, GETFIT, REIPPP etc.) and have legislative and tax incentives to encourage developers, good planning from pre-feasibility stage to development stage, using “off the shelf” products and early engagement to accelerate delivery, using well understood contract terms (FIDIC / NEC), the consideration of off-grid solutions, ideal project selections (rather focus on many small projects, than a mega project), co-ordination from all government departments, finance the project off balance sheet (not project finance) and reduce requirements for small projects (< 50 million capex) in terms of a “project finance lite”.

Chris le Grange and Pierre Pisterman, Project Manager Hydro Tasmania & CEO HPP presented on the delivery of South Africa’s first project financed run-of-river hydropower plant: the Neusberg Project.

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Project statistics and vitals for context include: first run-of-river hydropower scheme developed under REIPPP to achieve commercial operation, round 2 project that achieved financial close in May 2013, construction started in June 2013, achieved commercial operation on time and budget on 31 January 2015, generating 10,8 MW with 90 m3/s of water at 15,34 m head, 72 GWh of base load energy per year with a capacity factor of 82%, off-take weir and 130 m of inlet canal, inlet structure fitted with a radial gate, 1,400 m of open canal waterway, forebay structure with gates, stoplogs and conduits, partially buried powerhouse, 3 of 4 MW horizontal Kaplan turbines, 6.6 kV synchronous generators, 6.6 / 33 kV generator transformers, 300 m long tailrace canal, and 21 km long 33 kV transmission line to the Eskom distribution network

Project finance aspects: obtaining finance for small hydropower projects is hard. Large upfront investment, regarded as high risk compared to thermal projects. Small hydro projects are therefore typically not of a sufficient scale and traditionally delivered “on balance sheet”. The Neusberg project showed that limited recourse project financing is possible for small hydro projects, and that opportunity exists for the development of small hydro throughout Africa with the use of limited recourse project finance.

With projects in Africa often running over budget or time projections, the following timeline is indicative, that given the right circumstances and project team, projects can be developed within reasonable timeframes: June 2013: Start of Construction, 28 June 2014: Handover of Power House, 1 Nov 2014: Start of Wet Commissioning, 5 Dec 2014: Practical Completion, 19 Dec 2014: IE Certification, 6 Jan 2015: RPP Code Testing, 31 Jan 2015: Commercial Operation.

Adriaan Kurtz, Design Engineer, City of Tshwane presented on the development of conduit hydropower in the city’s water distribution system, based on the significant potential for the economic development of small, mini, micro and pico hydropower plants and the 284 municipalities and several water supply utilities. The City of Tshwane is in a fortunate position that there are a number of conduit hydropower opportunities due to its geographic location relative to the main water sources.

In the City of Tshwane, water is distributed through a large water system which includes 165 reservoirs, 39 water towers, 10,863 km of pipes and more than 280 pressure reducing stations. The latter operate at pressures up to 250 m.

The City of Bloemfontein is following a similar route as the City of Tshwane. M van Dijk, Lecturer and Principle Researcher, University of Pretoria presented on Bloemwater’s head office and the manner in which it is becoming energy independent with its own conduit hydropower generation plant. Conduit hydropower, being energy from pressurised conduits. As long as there is a demand for water, then hydroelectric energy can be generated – since conduit hydropower uses the available water distribution infrastructure.

The operational life of the existing pressure reducing valves is extended, and conduit hydropower “piggy backs” onto existing water infrastructure resulting in a minimal environmental impact. Bloemwater cites this solution as a “low hanging fruit”, which can be developed. Based on current spending of Bloemwater head office on monthly electricity bills will result in a payback period of 60-72 months for the project (5-6 years). The theoretical generation from this hydroplant is 830,000 kWh/a (based on annual average flow and pressure values).

Addressing the idea of environmentally friendly desalination, is the enhanced sustainable usage of the water value chain. M van Dijk and A Kurtz, Lecturer and Design Engineer, University of Pretoria and City of Tshwane presented on finding the sustainability in water supply and distribution systems.

Sustainable water systems should provide adequate water quantity and appropriate water quality for a given need, without compromising the future ability to provide this capacity and quality. Accessing the sustainability features in water supply (the three-fold goals of economic feasibility, social responsibility and environmental integrity) is linked to the purpose of water use. Sustainability is a challenge, since there is limited capacity (knowledge, skills etc.), inadequate

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financial revenues and a legacy approach that has been a fragmented service delivery model, with sometimes competing agendas.

The supply and demand side needs to be efficient. From the supply side: it is fundamental to enhance operation and maintenance capabilities of water utilities, reducing non-revenue water, leakages and energy usage, as well as improving the capacity of the work force to understand and operate the system. Possibilities of economic savings, social benefits and the range of environmental gains make the adoption of water efficient technologies viable. It therefore involves a sequence of combined actions and isolated strategies.

Some of the key insights from the panel discussions include:Learning and recommendations for implementing private small hydro schemesWhat needs to be done to drive more small hydro projects? Three main questions: how can project and finance risks be effectively mitigated? What support mechanisms are in place to assist private project developments? Which regions are currently incentivised in the micro to small hydropower space?

NuPlanet currently has three projects in the South African hydro sector. The approach followed was a split contracting strategy, where not just the role of the EPC was segmented in five packages (e.g. engineering, electromechanical). The reason for this segmentation is that the types of projects in South Africa have been categorised as “low head / high flow”, which translates into big civil works. In Rand terms, this roughly translates into R50 million / MW “inclusive / all in”. In order to make the project bankable and keep the costs down, one looks at split contracts and other relevant structures. This leads to less mark-up costs, but an increased interface risk. The downside of this splitting of contract approach is that it places a larger financial burden on the project sponsors due to completion guarantees and cost-overrun support requirements since the EPCs are segmented making it more difficult to obtain a wall-to-wall view. The challenge was convincing the lenders of the aforementioned. If you pursue an EPC contract then one will pay the risk margin and the cost overruns, whereas if you go for the split contract, one will perhaps not pay for the risk margins and the cost overruns. Mitigation of risks can be done, but there are various ripple effects one needs to be aware of.

From a lender perspective (DBSA), some of the challenges experienced are based on quantums. The bank would prefer to finance larger projects. This ties into the development cost of hydro, which is technically more difficult than thermal plants. Therefore high skills and expertise are needed, which is not often found on the continent. The chance of failure is another factor. Hydro has seasonal effects, which need to be priced into the risk models. This differs from thermal projects. The grid connection is not such a huge issue – if it is less than 10 MW one does not need to connect to the grid. Local content makes a project attractive – but with hydro the manufacturing happens overseas with assembly happening locally. This is not the sector’s fault; there just is not a large enough economy of scale yet.

In order to mitigate the risks, one needs a very experienced team from the manufacturers to the operator and maintenance team, as well as the financiers such as an equity partner. Coupled with huge penalties to incentivise contractors to adhere to timelines and budgets.

Other projects move all the risk down to the EPCs, spending money on a bespoke contract, such as the Hydro Tasmania project in South Africa. The coordination and interface agreement was put in place to manage the risk.

Regarding regions or areas that incentivise hydro projects; the South African environment is a good example of an enabling environment. In South Africa one can borrow in the same currency as the PPA and we have long time span PPAs. Other bulk potential lies locked up in state owned infrastructure water transfer schemes. Government has over the last 15 years still not figured out how to utilise this potential. Outside South Africa, East Africa, specifically Uganda, is relevant with their GetFiT programme. West Africa has larger projects, also taking a longer time than the projects in East Africa and South Africa.

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Other countries attract investors by the government partaking and offering viable tariffs, tax incentives such as tax breaks and tax free periods for 20 years of the PPA. Some DFIs are willing to do project preparation. The DBSA has partnered with local and global agencies, looking at projects between 1-5 MW in order to stimulate this market. A developer will then have access to the legal, financial and technical panel, as facilitated by the DBSA. This extends into the EPC and operations and maintenance panels, in order to reach bankability stage in a faster manner. The objective behind this programme is to allow for smaller players to also be included in the energy market and not be excluded based on bidding price or bidding expertise.

12.2 The role of initiatives such as Special Economic Zones within the RE sectorLarge industrials also have a role to play in stimulating the market. Once there is a critical mass reached e.g. on the manufacturing scale of for example turbines, then costs decrease based on economies of scale and e.g. reduced transport costs. An example of an environment that stands to be created in order to stimulate both economies of scale and the local economy is found in the Western Cape of South Africa. Evan Rice, CEO of Greencape presented on the Green Technology Special Economic Zone in Atlantis, where the manufacturing opportunities for the development of local capacity are being explored. The vision of the Atlantis SEZ “the Western Cape is the green economy hub for sub-Saharan Africa – the regional headquarters and manufacturing centre for leading companies in this space”. A SEZ is a geographically designated area set aside for specifically targeted economic activities, supported through special arrangements (that may include laws) and systems that are often different from those that apply in the rest of the country. Certain benefits include:15% company tax, building allowance, 12i tax incentive, employment incentive, customs controlled area.

Some key statistics include: 60% of successful REIPPPP projects developed by Cape-based developers, major foreign manufacturing investments in wind, solar PV and inverters, SARATEC providing local skills for the industry, Atlantis greentech hub established – incentives for local manufacturing and services, R 8 billion investment into the Western Cape since 2011, > 2500 new direct jobs created.

Other key findings: job creation and local content are key for South Africa, local content requirements have been increasing from round to round in the REIPPPP, the DTI has completed wind and PV localisation strategies, several manufacturers already established facilities (wind turbine towers, PV modules, inverters), a number of additional opportunities have been identified (blades, nacelles and PV cells).

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Two of the proposed SEZs will focus on renewable energy: Atlantis (GreenTech) and Northern Cape (solar, especially CSP)

12.3 Innovative hydropower solutionsIndustry participants have identified that the development of micro-hydropower solutions (hydro solutions which are smaller than 10MW) will also be vitally important to the expansion of electricity generation capacity in Africa. Micro-hydro projects overcome the various critical challenges associated with large-scale projects (such as high capital costs, long implementation timelines and critical environmental impact concerns), and are thus able to offer more viable, and context orientated solutions. Gianluca Stanic, Chief Technical Officer at MareliMotori, indicated that the firm had demonstrated significant successes in the implementation of micro-hydro projects across the world, including within the African continent (in countries like Zimbabwe). These plants typically took less than two years to be completed – from the awarding of the contract to the commencement of operations. The additional benefits of such micro-hydro projects is that they allow for the use of local companies (whose capacity is usually too small to be involved in large-scale projects) and thus generate local employment.

Conduit hydropower is an innovative solution that is suggested to overcome certain challenges that stand in the way of the successful implementation of traditional hydropower projects in Africa. Conduit hydropower utilises the mechanical energy of water as it flows through existing distribution infrastructure (tunnels, pipelines canals etc.) to generate electricity. Since conduit hydropower “piggy backs” on existing infrastructure networks, Marco van Dijk (from University of Pretoria) highlights that relative to alternative solutions, it involves very low capital investments and has limited environment impacts.

Some more of the insights from the panel discussions include:How do we develop Africa’s Clean Energy Corridor?Some of the key questions asked during this panel discussion where: what is the vision for Africa’s Clean Energy Corridor? What are the regulations and policies needed? What are the challenges? Will this be a game changer for Africa?

Statistics from IRENA indicate that we have the highest renewable resources in the world, however very little of this potential is utilised. Less than 1% of the renewable energy mix makes up the total energy mix. We have a number of challenges with this technology, with the integration of the renewable resource into the grid being the biggest challenge, coupled with associated grid stability. Another challenge are the tariffs. The initial cost is high, but this can be combated by the introduction of cost-reflective tariffs. In Southern Africa, the role of IPPs is driven in countries such as Zambia, South Africa, Mozambique, but in other countries the government policies are not as clear. What are needed, are bankable renewable energy projects.

Different challenges are faced in Africa, such as low electrification vs. high electrification looking at doubling their energy efficiency initiatives and increased generation. Some utilities are constrained and need to recover costs, while needing to put up grid infrastructure that is accessible and affordable. A utility in Zimbabwe is owed $1 billion, while south of the border, Eskom is owed ZAR 8 billion by the SOWETO township. This is not a sustainable position to be in.

The identification of key strategic areas are vital (especially due to the resource rich areas having been identified), since with the uptake of renewable energy technology and with the associated grid connectivity constraints it will help from a planning point of view to ensure equitable grid access to all involved. This places the grid operator on the front foot to be pro-active regarding environmental processes, rather than waiting for the IPP to approach them. It is not just large transmission lines that should be relied on. Smart grids and distributed generation and plants that are smaller than 10MW can be classed under off-grid solutions. Bankable PPAs need to be associated with the above, and one should avoid building long transmission cross-country lines which are stifled by country level political interference and funding issues.

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The high energy demand that Africa is likely to face over the longer term, coupled with the level of investment that will be needed translates into a situation where countries will have to look beyond the traditional fossil fuel reliance.

On the point of enabling mechanisms, understanding where renewable energy policy slots into the broader policy landscape is often a complex matter. In South Africa for example the REIPPPP programme is contained within a system of electricity, policy and regulatory frameworks, while also being guided by the relevant national procurement programme. In addition to the aforementioned, the REIPPPP programme must be seen within a broader national growth environment of the Integrated Resource Plan, the National Development Plan, and the National Infrastructure Plan. It is, however, manageable and navigable. There is, however, no one-size fits all strategy or plan. Apart from hydro, many of the countries in the same regional areas share the same resource potential, but the electricity sectors are very distinct as well as differing national objectives and this needs to be kept in mind during planning processes. The renewable energy programme in South Africa had a couple of teething problems at the onset, but at the moment the planning process and the integration process is a great deal more streamlined than was initially the case. Also, it is vital to keep the interests of the private sector alive and aligned with government initiatives by providing a “line of sight” into the future. Certainty regarding timely bid window announcements and certainty on grid connection, and the objective to continuously improve is vital to maintain private sector interest.

Creating a Clean Energy Corridor will go hand in hand with creating an enabling environment. Currently it is a chicken and egg situation. The utility needs to develop the grid based on where the projects will be, and the project developers will not gain traction if there is no grid…

The argument of intermittency of renewable energy is being heard less and less. The reason is that grids are becoming more and more interconnected, and somewhere in the ever increasing region the wind will blow or the sun will shine which differs from the current position where grids are often limited to region.

12. 4 Key trends and insights

Renewable projects need strong government support, often because of grid connectivity challenges, the change in the countries’ energy mix and the changing monopolistic nature of the utility.

Renewable projects need strong government support, often because of grid connectivity challenges, the change in the countries’ energy mix, and the changing monopolistic nature of the utility.

PPAs (in general) need to be streamlined to help attract investment and project developers.

Unique solutions are often being developed to cope with Africa-specific needs, such as for projects in areas with no cellphone connectivity, projects in areas with logistical challenges and the like.

There is a large number of visionaries in Africa with long-term goals of renewable energy corridors which need to be balanced with the need for stable baseload power.

The role of gas in Africa and the impact thereof on renewable energies is yet to be seen, especially in East Africa with Mozambique’s gas reserves.

A pragmatic renewable energy policy / programme is vital to attract investors.

Global pressures (especially in the form of financial criteria for FDIs before they invest into African projects) are likely to shape the energy mix since the focus globally is on cleaner energy. This position needs to be understood by local policy makers and other relevant stakeholders when long term scenarios are discussed and energy masterplans are designed.

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13.1 OverviewWater utilities in Africa are facing similar challenges as the power utilities in Africa, such as the need for sustainable business models, the question of whether to introduce private sector players and if yes, where in the value chain from a deregulation point of view, the improvement of utility performance by means of e.g. smart meters and smart grids, cost reductions, revenue collection, an ageing infrastructure system amongst many others. Governments do, however, recognise the crucial need for a stable supply of adequate water both in the residential, commercial and industrial sectors, and as such various country-specific plans are being developed (and implemented) to ensure country attractiveness.

The water-energy-food-nexus is a topic that is receiving increased attention. A recent Frost & Sullivan presentation included the following discussion points to highlight the importance of interaction between water, energy and food. • 98% of South Africa’s water supply has already been allocated.• According to the Department of Water a shortfall of 1,7% is expected by 2025.• The National Development Plan for South Africa plans a 50% increase in irrigated land by 2030• An estimated 50% of the population do not have access to sufficient food.• This country is facing an energy crisis. 86% of energy is currently generated using coal;

reduction measures are in place to reduce this to 65% by 2030.• 35% of food produced is wasted; 9 million tons of food is wasted per annum (the equivalent

weight of 1,636 million elephants).

The below interdependence between the water-energy-food nexus is illustrated by the table below:

Source: WWF – The Food Energy Water Nexus – Understanding South Africa’s most urgent sustainability challenge

As with the power sector in Africa, there are various lessons that can be learned from global best practices. This includes amongst others how to plan for future demand, how to plan for operational issues such as maintenance and repair, how to implement operational excellence in the utility etc. It is, however, very important to recognise that the broader African environment

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and economic reality should be carefully interpreted when implementing global best practice. An example of the potential disconnect is the roll-out of energy saving light bulbs by Eskom. On paper the concept is feasible. However, once the light bulbs needed to be replaced, a great deal of the population reverted back to the more energy consuming incandescent light bulbs based purely on price sensitivity factors. Softer issues such as behavioural change and cultural legacy should be kept front of mind when concepts are designed in Africa.

With the above being said, Frost & Sullivan has conducted several global research projects and consulting engagements within the water sector. This has led to Frost & Sullivan being able to develop insight into certain key focus areas where there are risks and opportunities. Why this is important to Africa is: by having an idea of the future end goal, one can focus on ways on how to reach this end state. With the African utility environment often facing the challenge of human resources with limited skill sets compared to global standards, it is vital to have a clear and informed future strategy. The graphics below indicate the segmentation that Frost & Sullivan uses to define the Water Asset Management Space within the City / Municipalities and Utilities, as well as within the Industrial Water and Wastewater Management space. Utilities and service providers within the African environment could use this segmentation to align strategy and operational planning sessions, ensuring that all the aspects of a water utility is addressed.

Source: Frost & Sullivan

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Source: Frost & Sullivan

By following a “future back” approach, the utilities in Africa will ensure that robust implementation plans are designed to ensure sustainability and enhanced competitiveness.

The future back approach begins by defining the ‘virtual’ water business and then working backwards to establish the roadmap and action steps. It can be an adaptive process, ensuring that market forces are constantly incorporated into the utilities’ future state.

13.2 Water UtilitiesPart of the larger initiative to make African utilities sustainable entities, is transformation. Dr Silver Mugisha, Managing Director – NWSC, Uganda presented on transforming state enterprises to increase value for citizens. He stated that the role of public enterprises are to provide a service to improve the common good of the citizens and play an economic and social developmental role in a country’s development. In Africa, more than 90% of the water utilities are state owned. Some of the challenges public water utilities are locked into include the political intervention in the management of the enterprise, the economic and financial weakening of the enterprise, the proliferation of controls, the erosion of management accountability and lack of transparency, and an increase in subsidies but coupled with poor service delivery.

Mugisha presented on some of the initiatives launched by the NWSC, such as a change in focus – five year strategic direction, including: 100% water coverage, increased geographical coverage (>95 towns), improved service reliability, infrastructure growth, financial sustainability, and ensuring customer delight.

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Some of the highlights of the above initiatives include:

Source: Dr Silver Mugisha

A potential answer to some of Africa’s hydro power challenges was presented by David Onyango, Managing Director, Kisumu Water & Sewerage Co Ltd, Kenya. The presentation focused on the delegated management model: an answer to water service provision challenges in informal settlements. The utility that Onyango is associated with is Kiwasco. The following statics are relevant: population in service area: 1 million, service coverage: 67%, number of connections: 27,000, number of staff per 1,000 connections: 6, turnover in USD: 6 million, NRW: 43%, 60% of residents live in informal areas.

The utility’s business model expects revenue flow even from the poor segments – and in reality this does not happen. Challenges faced serving the poor include: the poor are found in informal settlements that are poorly planned physically, overcrowded space, with inadequate space for roads or way-leaves for water or sewer infrastructure, vandalism and theft, settlements are transient, properties are owned by others – resulting in a community that does not have a great interest in service improvement.

The service provided was poor as piping was of an informal spaghetti type, prices were high (USD 2.3 / m3 against normal tariffs of USD 0.4/ m3), NRW was high at 70%, revenue collection was low at 20%, disease was prevalent in the area as quality was poor, the service was provided through water kiosks, customers expected: good water quality that is easily accessible, at a price per m3 that is affordable, reliability that is acceptable. Balanced against this was the utility expectation: Low NRW, quality water, reduction of price charged by water vendors in the informal settlement, a sustainable service: revenue generation and collection.

Onyango stated that there is a need to innovate in order to survive. The water loss was threatening the sustainability objective. Vandalism and non-collection of revenue was adding to the costs and loss on efficiency. This resulted in the following goals: reduce NRW from 70% to under 10%, improved revenue collection from 20% to over 90%, increase access by extending the service to un-served areas, reduce costs from Kshs 5 per 20 litre container to Kshs 1 per 20 litre container, and it should be a pilot method capable of replication.

The Delegated Management Model has the objective of solving the above challenges: Partnership between the community and the WSP, company identifies a CBO, NGO or individual in the community to operate the network on delegated authority from the Company. The entity is the master operator.

Performance indicator 1998 2011 2015

Number of NWSC towns 12 24 97

Service coverage 48% 75% 79%

Total connections 50,826 272,406 405,140

New connections per year 3,317 25,633 32,166

Proportion metered accounts 65% 99.8% 99.8%

Staff per 1000 connections 36 6 6

Collection Efficiency 60% 98% 107%

NRW 60% 33% 31.6%

Monthly turnover (Billion Kshs) 1.75 ($1.5 million) 11 ($4.5 million) 20 ($7.5 million)

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Onyango also presented the model above as a picture. The above mentioned pilot project was initiated in Nyalenda informal settlement. The performance metrics speak for themselves below:

Source: Kisumu Onyango

Based on the above success, the momentum gained will ensure that the solution will be rolled out to a larger market. It has been rolled out in three other informal settlements, and attracted both local and international attention. The project pilot has proven resilient in delivery in a tough environment like the informal settlement.

Lessons learnt from the project include: new concepts and technologies require community involvement and robust communication at feasibility pre-launch and post-launch stages, early adopters convince laggards to follow suit, customers are interested in adopting technology or concepts that enhance quality of life with minimal disruption to their chosen lifestyles, deploying technology without considering social dimensions is likely to fail, answer to each situation could include smart metering, smart water dispensing and smart collection, and lies in the stakeholders’ hands.

With innovative ideas such as city level conduit hydropower and the implementation thereof, comes the need for further technological advancement such as smart water systems. Andy Slater, Director Marketing, Sensus presented on smart water systems, and using the network. On why smart water networks are needed, the following statistics where cited: 300 million people do not have access to clean water in sub-Saharan Africa, 80% of illnesses are related to poor water and sanitation, 50% of primary schools do not have access to clean water or sanitation, more people in Africa have smart phones than access to potable water, Yet: a global survey in 2013 showed data from smart water networks can save utilities up to $ 12,5 billion a year and help ensure a balance between supply and demand.

Smart metering helps by reducing wastage and energy costs, improving network and customer

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Indicator Status of Mo 2006 Statuf at March 2015 Change

Billings (Kshs) * 427,780.00 11,726,856.00 X26

Revenue collection (Kshs) * 396,176.00 11,140,250.70 X28

Metered customers (No) 650 1,774 X3

Populatio served (No) 4,101 28,424 X7

Volume sold (m2) 10,200 37,134 X4

NRW 70 8.5 X0.12

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side leakage detection, and reduces non-system losses. Also, helping to better pressure management meaning fewer bursts, improve use of field staff on maintenance operations, streamlining monitoring of remote wells (water quality), and better prioritisation and allocation of capital expenditure.

The graphic below visually answers what a smart water network is:

Source: Andy Slater

The business case is proven globally, but it needs to be tailored and refined for each situation.

Given the strong link between water management and increased revenue performance, it is clear that water utilities in Africa will in the future focus a great deal more on water management programmes. Joseph Ndegeya – BRDM, NWSC Uganda presented on how to improve utility performance to become commercially and financially viable entities. He listed the key characteristics of a commercially and financially viable utility as: having a robust governance structure, market and customer orientation, staff development and operational efficiency. Under the governance and strategic management provisions structure, the corporate plans, performance contracts, annual budgets and operational plans and five year strategic plan is vital.

Under commercial and market orientation, geographical expansion, competition and incentives, stakeholder management and customer services are key. Investing in staff capacity development was also cited by Ndegeya as crucial, which is understandable given the changing water landscape in Africa due to urbanisation and ageing infrastructure and the need to retain human capital.

Although selected portions of Africa have abundant water, there are also areas that are water scarce or where the quality of water is low. Dr Olufemi Fasemore, Senior Technology Specialist, Hitachi presented on energy saving and environmentally friendly desalination. Desalination can be described as a process of removing salts and minerals from water to make it suitable for human consumption or fit for industrial use. About 1% of the world’s population is currently dependent on desalination as treatment technology for drinking water. This number is expected to rise to 14% by 2025. More than 17,000 plants are installed globally, with the market size of desalination plants having increased by 157% in the past five years. What the future might hold for Africa is exciting, and the real question is how quickly global best practice can be implemented in a financially feasible way in Africa to increase the level of quality drinking water in Africa.

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13.3 Key trends and insights

The water utility sector within Africa is currently in a transformational state, similar to the power sector, when it comes to access to water initiatives.

While Africa has large water resources as can be seen by the number of hydro projects, there is a need to also service the needs of the lower income groups who do not have ready access to water.

Water losses based on ageing infrastructure and theft are a major concern, with smart meters proving a solution to combat some of the challenges faced by utilities.

African utilities can learn from global best practices, while keeping in mind local conditions and requirements such as lack of infrastructure and lack of economies of scale.

Stakeholder management and especially community involvement is vital for the success of water related projects.

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CONCLUSION

The 2015 AUW emphasised the need for knowledge sharing within Africa. The challenges faced within the energy and water utility sectors and within the respective regions are unique – but certain common themes do arise. These include cross-country spanning challenges such as the need:• for bankable projects• for pragmatic and experienced project teams• global assistance with the roll-out and planning of innovate projects• for insight and skilled negotiators during the PPA process• a more streamlined PPA process• for strong policy e.g. energy master plans• for transparency• for senior stakeholder buy-in when it comes to key projects• for investors / private sector to have a clear line-of-sight when it comes to future projects

and governmental objectives• for governments to understand the requirements of the private sector, such as specific

financial requests when it comes to de-risking projects• to have an end goal in mind when projects are developed• to have Africa specific solutions to challenges, while still being aware of global best practice to

ensure that global learnings are not ignored• to not be a “dumping ground” for dated global technologies• to weave in sustainable business practices into utility decision-making processes• to have knowledge sharing platforms where countries that have successfully implemented

projects share their knowledge with countries that still need to follow suit• to understand the end-consumers / human behaviour better when designing country specific

solutions such as demand side management or energy efficiency programmes• to develop a list of priority projects / a roadmap to success, and importantly to implement

these action items• to have utilities with stronger balance sheets• the ability to attract foreign investment, since Africa is unable to adequately fund its own

projects to the extent needed

With the above challenges and success stories in mind, it is becoming clear that energy and water challenges cannot be seen in silos. Projects involve stakeholders on multiple governmental levels (national, provincial, local), stakeholders in the business and financial services space, project developers, logistics, academia and various industries providing services and products to the water and energy sectors. With this being said, it is evident that platforms such as the African Utility Week are vital to help consolidate ideas, concepts and visionary thinking from these stakeholders to ensure that the most optimal plans for Africa are adopted and implemented over the longer term, that will allow Africa as a collective to remain both sustainable and competitive in the global market.

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SOURCES CONSULTED

African Development BankCooperation in Reactor Design Evaluation and LicencingEskomGlobal Wind Energy CouncilIncite SustainabilityInternational Institute for Sustainable DevelopmentInternational Electrotechnical ComissionInternational Energy AgencyInternational Renewable Energy AgencyKPMGNational Energy Regulator of South AfricaSasolSolarGISSouth African Department of EnergyTransnetUnited Nations Human Settlements ProgrammeWorld BankWorld Bank Enterprise Survey Online DatabaseWorld Business Council for Sustainable DevelopmentWorldwatch Institute

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