Of all the challenges facing Africa's economies, one of the most pressing is meeting the growing demand for energy in a region where two thirds of the population do not have access to electricity. It is a mammoth task and one which is becoming more daunting by the day. Currently, 600 million people across sub-Saharan Africa lack reliable power, and that figure is expected to rise to 645 million by 2030 as supply struggles to keep pace with population growth. Governments and developers face two problems: generating sufficient power to meet rising demand, and ensuring that the power is distributed to the businesses and consumers who rely on it for their livelihoods.
A question of supply and demand...
Until now, the focus has been on building new generation capacity, and with good reason. McKinsey estimates that energy demand will grow fourfold by 2040, necessitating an additional investment of USD 835 billion just to keep pace. In South Africa, for example, General Electric is currently adding 9.6 GW of steam power capacity.
Outside South Africa, the need to increase supply is even greater. The Rainbow Nation is home to over a third of sub-Saharan Africa's capacity, while the remaining 47 nations in the region (with a combined population of 860 million) generate less power than Spain (with a population of just 47 million). Policy makers cannot be said to lack ambition – the Grand Inga Dam envisaged by the Democratic Republic of Congo, for instance, would be the largest infrastructure project in history, generating twenty times as much electricity as the Hoover Dam – but many projects have not got past the drawing board.
Part of the difficulty is converting schemes into bankable investments. Fabio Borba, Managing Director of the Energy Infrastructure Team at the Abraaj Group and Themis Energy (leading investors in growth markets), points to the uphill struggle to attract funding. Last year only 23 projects in Africa reached financial close and all but seven were in South Africa. Long lead times, averaging seven to ten years from inception to financial close, can deter all but the boldest and most determined investors, who may still wait decades to see a return on their investment.
According to Borba, the solution to making these projects bankable may lie in development finance institutions (DFIs). "DFIs are a great bridge between the public and private sectors," Borba explains, and not just in terms of providing financing: "They can provide support to governments in undertaking legal and regulatory reforms." One such initiative is Power Africa. Launched by USAID in 2013, it combines funding and support from the World Bank, African Development Bank and various other DFIs with over 120 private sector partners. Power Africa projects are expected to add 29 GW to capacity, with over 4.6 GW of projects having already reached financial close.
The bitter irony is that although its energy supply is underdeveloped, Africa boasts abundant energy resources. While coal remains the single largest energy source, the share of production through gas, hydropower and renewables is growing, and McKinsey predicts that 40% of power in Africa will be gas-generated by 2040. In the long term, the potential for renewables is huge: solar capacity in sub-Saharan Africa is conservatively estimated at 11TW, enough to meet over half of the entire world's current energy needs. Harnessing renewable sources would go a long way towards closing the gap in energy supply.
...Or a question of availability
It is a mistake to assume that the solution to Africa's energy crisis is simply to increase supply. Supply struggles to meet demand, but outdated or overburdened transmission and distribution infrastructure compounds the problem. Power outages have become a fact of life in many African countries: in sub-Saharan Africa, businesses experience on average 40 hours of blackouts per month, resulting in up to 16% lower sales. Last year, Ghana experienced 159 days of blackouts (almost half a year), and load shedding remains a frequent annoyance for South Africans, despite having the most developed generation capacity in the region.
The unreliability of the grid also means that businesses and communities must rely on expensive redundancy options such as diesel generators or, in many households, kerosene lamps. Even for non-energy intensive businesses, these form a significant head of expenditure, holding back plans for growth. Investment to improve the availability of Africa's power is therefore also critical to providing the continent with reliable and economically viable access to energy.
Bringing power to "off the grid" industries and communities poses a further challenge. Simply increasing the energy supply to the main grid does nothing to satisfy demand in rural areas which are not connected to the grid. Regional disparities are huge: In Nairobi, 90% of households are connected to the grid, but this figure drops to just 10% in the rural north-west of Kenya.
Increasingly, governments are turning to temporary, interim power solutions. "It's a practical way to keep the lights on now, while giving governments and industry time to think for the long term," explains David Edwards, Managing Director for North Africa at Aggreko. Aggreko can provide a 200MW facility from greenfield site to commissioning in under four months, compared with 10 or more years for traditional power stations. One project powers a remote gold mine using stranded natural gas, which it would have been uneconomic to exploit using a traditional build – a "quick win", in Edwards' words, when it comes to bridging the energy gap.
Historically, off-grid markets have been overlooked by traditional utility companies and investors, meaning that the voluntary sector and innovative start-ups are, in many cases, pioneering the effort to satisfy off-grid demand. Barefoot College, a NGO, provides solar panels and lamps to rural villages. To ensure that they are a sustainable source of power for the community, it also trains illiterate and semi-literate women in the villages to maintain them. Meanwhile, in East Africa, Kenyan-based start-up M-KOPA uses mobile and solar technology to offer an off-grid, pay-as-you-go solution to over 400,000 customers.
Such projects are now catching the attention of major investors and DFIs. In October, the Green Climate Fund announced its anchor investment in a $3.5 billion debt fund investing in off-grid renewables, initially focusing on Benin, Kenya, Namibia, Nigeria and Tanzania.
The future for energy policy
Policy-makers are faced with a difficult juggling act: powering up energy supply to industry and a burgeoning urban middle class, without neglecting the issues of availability facing predominantly rural communities and small enterprises. While investment in new generation is essential, energy policy must go beyond simply increasing the load on congested transmission and distribution infrastructure. The twofold challenge is to ensure access to an adequate supply of energy, without which many of Africa's population could be left in the dark.