Private investment trends and

challenges in power in Africa

Anton Eberhard, Professor, University of Cape Town

Katharine Gratwick, Consultant, USA, ex PhD & Postdoc, Univ. of Cape Town

Elvira Morella, Senior Energy Specialist, World Bank

Pedro Antman, Lead Energy Specialist, World Bank

Africa Utility Week: Finance & Investment Forum 17 May 2016 Cape Town

Power investment

trends in SSA

Power requirements will double by 2030 and treble by 2040

400

514

640

812

1020

1297

2015 2020 2025 2030 2035 2040

Source : IEA, 2015

Generation capacity additions flat in 1990s but now picking up

20

25

30

35

40

45

50

50

55

60

65

70

75

80

85

SSA (left axis) SSA-RSA (right axis)

MW

MW

12 counties account for 90%

of capacity

27 have grid-connected

power systems smaller than

500MW

14 smaller than 100MW

Few economies of scale

Large energy resources

remain undeveloped

Power generating capacity concentrated in a dozen countries

Country MW GDP (PPP,

2013, $ bln.)

Nigeria 7,044 972.65

Sudan 3,038 153.09

Ghana 2,812 103.65

DRC 2,444 50.47

Mozambique 2,382 28.40

Ethiopia 2,094 129.86

Zambia 1,985 57.07

Zimbabwe 1,970 25.92

Kenya 1,766 124.02

Tanzania 1,659 117.66

Côte d’Ivoire 1,521 65.55

Angola 1,509 166.11

Cameroon 1,238 69.98

Countries that have added the most MWs since 2000

South Africa

Sudan

Ethiopia Angola

Ghana

Kenya

Cote d'Ivoire

Senegal

Uganda

Madagascar Cameroon

Rest

China and IPPs fastest growing sources of power investment

$-

$200.00

$400.00

$600.00

$800.00

$1 000.00

$1 200.00

$1 400.00

$1 600.00

$1 800.00

$2 000.00

Investm

ent in

$ m

illio

ns

Sum of IPP Investments Sum of China Flows (private & public)

Arab (private & public) ODA (OECD)

DFIs (Multilateral) (5 year rolling average – excl. RSA)

0

100

200

300

400

500

600

700

800

900

1000

IPP capacity added in SSA (excl. RSA), MW

DFI contribution to IPP investments

$-

$ 100.00

$ 200.00

$ 300.00

$ 400.00

$ 500.00

$ 600.00

$ 700.00

$ 800.00

Investm

ent M

n $

IPP Investment DFI investment in IPPs

100 100 170

271.8 304

351 427 445.9

656

866

1065.5

1521

MW

Countries with the most IPP capacity (excl. RSA)

The big picture of power investments: IPPs, Chinese, RSA

0

500

1000

1500

2000

2500

3000

3500

Ch fund IPP RSA IPP

Factors that support

IPPs and their success

Relationship between IPP investment & sector reform

Why have some countries been more successful than

others in attracting private investment?

To what extent are power market reforms (unbundling,

privatization, competition, independent regulation)

important in attracting investment?

Or are other reforms, such as effective planning,

competitive procurement and contracting important?

2c: main utility under private concession, with private generation utility(ies)

• Côte d'Ivoire

Not interconnected:• Cameroon• Gabon

28

D

• Benin• Burkina Faso• Burundi• Congo, Dem. Rep.• Malawi• Mauritania

Not interconnected:• Central African Republic• Chad• Comoros• Equatorial Guinea• Eritrea• Gambia, The• Guinea-Bissau• Liberia• Seychelles• Somalia• South Sudan

2b: main utility state owned with some private generation

• Botswana• Mali• Rwanda• Senegal• Swaziland• Togo

Not interconnected:• Cape Verde• Guinea• Madagascar• Mauritius• São Tomé and Principe

DD

Group 1: One vertically integrated state-owned utility

(17 countries)

Group 2: One main vertically integrated utility with gencos

(15 countries)

T

D

T

G

T

DG DDGDDG

South Africa

D

T

DDD

Key:G = Generation activitiesT = Transmission activitiesD = Distribution activities

Majority state-owned utility

Majority private owned company

GG

T

D DD

G

Mozambique

Zambia

Namibia Nigeria

Ghana

Zimbabwe

Kenya

Angola (not

Inter-connected)

D

UgandaTanzania

T

Sudan

DDG

Group 5: Full vertical unbundling w & w/o

horizontal unbundling(4 countries)

Group 4: Partial vertical unbundling w & w/o other operators

(5 countries)

DDG

DDG

DDG

DDG

DDG

DDG

DDG

GTD

GTD

GTD

GTD

GTD

GTD

GTD

GTD

GTD

GTD

TD

TD

2a: main utility state owned and a state owned generation company

• Republic of CongoG G

TD

GG

Niger

GTD

GTD

Group 3: One main vertically integrated utility with other operators

(7 countries)

GLesotho

TD

DDG

GT

D

Ethiopia (interconnected) &

Sierra Leone (not

interconnected

GT

20 years of reforms: what has really changed?

Source: Trimble 2016

Independent power sector regulator: does it matter?

27 Sub-Saharan African Countries have independent regulators

Most countries with IPPs have independent regulators

But some countries with independent regulators don’t have IPPs

Quality of regulation is critical (transparent, credible, predictable)

Reform elements that do matter:

planning, procurement and contracting

•

•

•

•

•

•

0

50

100

150

200

250

300

Round 1 Round 2 Round 3 Round 4

Onshore wind Solar PV

Solar and wind energy are now the cheapest generation sources

3.1

3.8

4.4 4.4

5.5 5.8

6.2 6.4

6.7

7.8

10.9

 0.0

 2.0

 4.0

 6.0

 8.0

 10.0

 12.0

Morocco 850MW 2016

Peru Auction2016

MexicoAuction I 620MW March

2016

South AfricaREIPPP BW4

1,363 MW2015

Brazil A3Auction 536MW August

2015

AustraliaHornsdale

100 MW 2015

Brazil A4Auction 548

MWNovember

2015

CanadaOntario LRP I300 MW 2016

AustraliaSapphire 100

MW 2015

Chile Auction2015

South AfricaSmall-Scale 5MW REIPPP

2015

US

$ c

ent/kW

h

3.0 3.5 3.7 3.8 3.9

4.8 5.0

5.9 6.1 6.1

6.4 6.5 6.6 6.9

7.5 7.7 7.8 8.1

8.8 8.9 8.9 9.2 9.4

11.6

15.2

16.4

 0.0

 2.0

 4.0

 6.0

 8.0

 10.0

 12.0

 14.0

 16.0

 18.0

US

$ c

ent/kW

h

16.4

21.4

25.0

6.6

10.8

18.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Auction REFiT Directly Negotiated

US$

c/k

Wh

MW

Contributing elements to IPP success

Favourable investment climate

Clear policy and legal framework

Transparent and credible regulatory oversight

Dynamic power sector planning

Competitive bidding practices

Country level

Contributing elements to IPP success

Committed and experienced equity partners

Favourable debt arrangements

Secure and adequate revenue stream

Credit worthiness of off-taker

PPA

Appropriate security & credit enhancement measures

Secure, competitive fuel contracts

Positive technical performance

Ongoing strategic and risk management

Project level

Key findings and

messages

Key findings

Privately funded IPPs make an important and

growing contribution to SSA power needs. These

investments are concentrated in a few countries,

but there is scope to widen private investment

across the continent

Renewable energy IPPs are breaking through

and can be competitively procured

DFIs are playing an important role in IPP

financing and risk mitigation and crowd-in rather

crowd-out private investment

Key messages: the importance of reforms

IPPs have been developed in countries with very

different power sector structures but need clear

policy and regulatory frameworks for private

investment

Key to accelerating IPP investments is dynamic

power planning, effective procurement

practices, adequate contracting capacity and

financially viable off-takers

Key messages: the importance of competition

Competitive procurement of IPPs more often than

not results in better investment and price outcomes

than unsolicited or directly negotiated projects

Competitive procurement has its trade-offs, but

unsolicited and directly negotiated deals are not a

better solution

If a country still opts for an unsolicited bid, it should at

least have in place effective systems and

capabilities to evaluate projects and negotiate

favourable contracts

Thank you

Anton Eberhard, Professor, University of Cape Town

Katharine Gratwick, Consultant, USA, ex PhD & Postdoc, Univ. of Cape Town

Elvira Morella, Senior Energy Specialist, World Bank

Pedro Antman, Lead Energy Specialist, World Bank

@AntonEberhard www.gsb.uct.a.za/mir