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The East African : Oct 10th 2015
42 The EastAfrican BUSINESS OCTOBER 10-16,2015 E N E RGY Increased investment in energy but not enough power for local users A big chunk of ene≥gy investment is fo≥ expo≥t as opposed to domestic powe≥ gene≥ation By BERNA NAMATA The EastAfrican potential, particularly natural gas and solar, has led to an increase in private investment from Europe and Asia, there is growing concern that a big chunk of energy investment is for export as opposed to domestic power generation. According to the International W Energy Agency (IEA), although investment in new energy supply is on the rise, $2 out of every $3 put into the sub-Saharan energy sector since 2000 have been committed to the development of resources for export. Experts are now warning that if this goes on unchecked, power shortages on the continent may continue for a long time to come. For instance, as a new source of gas, Mozambique and Tanzania are of interest to investors as a means of diversifying their liquefied natural gas (LNG) portfolios. In South Africa, coal invest- ments are huge – but a big chunk of the energy produced will be exported. “This is good for the economy because it will bring revenues to the country, but it will not provide economic growth on a sustainable basis. Today, lack of energy in Africa is a brake on its economic growth,” Dr Fatih Birol, IEA executive director, told The EastAfrican on the sidelines of the G20 energy ministers meeting in Instabul in September. Dr Birol added that new large- scale generation and transmission projects as well as an expansion in cross-border trade would be determined by deeper regional co-operation and integration. IEA estimates show that the continent will outstrip Russia as a global gas supplier by 2040. This is sparking interest from the European Union, which is currently under pressure to reduce its dependence on Russian gas and diversify its energy mix. In particular, the recent crisis in Ukraine highlighted the EU’s dependence on Russia for gas, as diplomatic efforts to punish Russia for the annexation of Crimea were hampered by fears Moscow hile the region’s vast untapped renewable energy 2012, it accounts for only 4 per cent of the world total, despite being home to 13 per cent of the global population. Access to modern energy serv- ices, though increasing, remains limited, with more than 620 million people in sub-Saharan Africa without access to electricity and nearly 730 million relying on the traditional use of solid biomass for cooking. However, experts argue that sub-Saharan Africa has a huge untapped potential for a generating energy mix of river systems, solar, geothermal and wind energy availability and fossil fuels. However, according to Jamal Saghir, the regional adviser, for Africa region at the World Bank, limited public resources can be utilised to reduce investment risk and promote growth in the energy sector. He pointed out that energy growth is not keeping pace with GDP growth, hence the need for increased investment to bridge the electricity supply gap. IEA estimates show that every dollar of additional power sector investment in Africa will potentially boost GDP by an estimated $15. Currently, on average, Africa Experts argue that sub-Saharan Africa has a huge untapped potential for a generating energy mix of river systems, solar, geothermal and wind energy and fossil fuels. Picture: File would turn off the gas taps. Driven principally by Mozam- bique, Nigeria, Angola and Tanzania, sub-Saharan Africa will produce about 175 billion cubic metres per year (bcm/y) of natural gas by 2040. Sub-Saharan Africa’s gas production increased from just 7bcm in 1990 to 58bcm in 2012, according to the IEA’s 2014 Africa Energy Outlook. But unpredictable regulatory actions by African governments as well as inadequate energy infrastructure are undermining efforts to attract private investment to Africa’s energy sector. In addition, lack of legal cer- tainty exposes private sector operations to increased risk of adverse or unpredictable actions by government officials. While these risks can be par- For the private sector, it is important to have an enabling environment.” Dr Elham M.A Ibrahim, commissioner, infrastructure and energy, African Union Commission tially offset by agreements to arbitrate disputes in an international forum, the adequacy of this remedy may still depend on the local legal system to enforce an award. “For the private sector, it is im- portant to have an enabling environment — set the regulations, as well as capacity building for technical and policy issues for negotiations of contracts,” said Dr Elham M.A Ibrahim, commissioner for infrastructure and energy at the African Union Commission. Analysts say that while efforts to promote electrification in Africa are gaining momentum, private-sector investment remains below expectations. In particular, private invest- ment in Africa’s energy sector remains very low at just about one per cent, according to World THE CHINESE CONNECTION Currently, there are more than 200 million people in East Africa without electricity —around 80 per cent of its population according to the International Energy Agency (IEA). Nearly $10 billion is estimated to have flowed from China into the sub-Saharan energy sector from 2005-2011. China’s increasing stake in oil and gas plays across Africa is well-known and takes in both large oil producers, like Angola, and more nascent ones, such as Chad and Uganda. It also includes emerging gas producers, as exemplified by CNPC’s purchase of a 20 per cent stake in a consortium developing part of the Rovuma Basin in Mozambique. Bank estimates, which is well below other developing countries — 34 per cent for South Asia, 26 per cent for Latin America and Caribbean (LAC) countries and 25 per cent for Eastern Europe and Central Asia (ECA) countries, respectively. Just six countries in sub-Saha- ran Africa — Nigeria, Uganda, Cameroon, Ghana, Kenya and Tanzania — control 80 per cent of these investments, with the majority of countries lacking any private investment at all. And while Africa needs up to $40 billion-$50 billion yearly for universal access by 2030, currently only $9 billion-$10 billion is being invested, World Bank figures show. Of this, the private sector is investing approximately $5 billion annually. Chinese investment is not spread evenly across the subSaharan region, with countries such as Angola, Ethiopia, Zimbabwe, South Africa and Nigeria receiving a greater share, or across projects, with a relatively small number of hydropower projects receiving large sums. Chinese companies are among the largest investors in renewables across the continent, including major hydropower projects, but also solar, wind and biogas. For example, the Export-Import Bank of China has provided financing for transmission lines related to the Gilgel Gibe III hydropower project in Ethiopia and a $500 million project loan to the Transmission Company of Nigeria “The most important thing is to attract the private sector because the public sector money will not be enough. It is the case with all investment in infrastructure projects,” said Aye Sinirlioglu, Turkey’s G-20 Sherpa group ambassador. At the G20 meeting, energy ministers adopted an energy efficiency action plan that will focus on increasing access to affordable, reliable and modern energy services in sub-Saharan Africa. While bankable energy projects are available across the continent, Ms Sinirlioglu said investment risk is undermining efforts to attract private capital. While energy demand in sub- Saharan Africa grew by around 45 per cent between 2000 and adds about 1-2 GigaWatts (GW) of new installed capacity every year. However, this has to increase to 6-7 GW annually in the coming years for universal access to be achieved by 2030. “Access is growing more than 1 per cent per year over the past decade. At this rate, less than 60 per cent of Africans will have electricity in their homes by 2030,” Mr Saghir said. Given that Africa’s mining sector is poised for substantial growth, analysts say it will require large amounts of energy. Experts also argue that grid extension will not deliver universal coverage fast enough and in many cases is not the leastcost option. According to IEA forecasts 40 per cent of additional investments needed to achieve universal energy access should be in mini-grids or isolated systems. “Any strategy to bring about universal energy access must include a share of mini-grids and off-grid solutions,” said Alex Rugamba, director of the Energy, Environment and Climate Change Department at the African Development Bank. The severe shortage of elec- tricity infrastructure is also undermining efforts to achieve more rapid social and economic development. For the minority that has a grid connection today, supply is often unreliable, necessitating widespread and costly private use of back-up generators running on diesel or gasoline, according to IEA. Electricity tariffs are, in many cases, among the highest in the world and, outside South Africa, losses from poorly maintained transmission and distribution networks are double the world average.
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