S08 ATR July 2022 AEF Aggreko Q&A_ATR - New Master Template 2016 29/06/2022 15:32 Page 28
A helping hand for utilities
Image Credit: IFC
POWER | UTILITES
After speaking at Africa Energy Forum 2022, Linda Munyengeterwa, regional industry director of infrastructure Africa at the IFC, illustrates the key issues facing African utilities and what help is at hand. African Review (AR): What are some of the key challenges facing African utilities? Linda Munyengeterwa (LM): Africa is currently facing several challenges as it continues its difficult recovery from the economic and social impacts of the pandemic, including increasing levels of food insecurity that is now being exacerbated by elevated global energy and food prices due to the war in Ukraine. As a result, countries and utilities are suffering fiscal stress due to fossil fuel-based generation, forex stress and civil unrest due to power outages. Significant investments are required to meet growing electricity demand, but governments are heavily constrained amid rising debt and competing demands for funding to deliver a range of critical services. Government and development partner subsidies will not be sustainable in the long-term. Currently, more than three-quarters of utilities in sub-Saharan Africa are not recovering their operating and debt-service costs. And many utilities suffer from high losses related to electricity transmission and distribution issues. In the Africa region, overall loss levels typically range between 15-35% compared to a global average of 10%. AR: What are some of the steps utilities could make to meet these? LM: Strengthening the regulatory environment – energy and electricity policy, planning and regulation – will help utilities to attract more financing to address limited, aging, or outdated infrastructure. Governments can adopt national electrification plans to develop renewable energy and transmission lines and scale up electricity services based on least-cost planning supported by geospatial analysis and accounting for fragility caused by growing insecurity and climate risks. Regulatory frameworks that allow competitive selection of independent power producers (IPPs) will also enable the region to benefit from falling solar costs and developments in storage technology. Leveraging private sector participation, including through mini-grids, solar home systems, clean cooking, and productive uses of electricity, will help utilities meet demand. By strengthening governance mechanisms, utilities can also improve their operational and
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AFRICAN REVIEW OF BUSINESS AND TECHNOLOGY | JULY 2022
financial performance and foster regional trade with neighbouring countries, thereby reducing the burden on national budgets and allowing larger projects with economies of scale to be developed. Strong governance helps utilities to integrate renewable energy and strengthen the sector's resilience to climate change. Utilities could also leverage private sector participation to improve and strengthen their operations. Lastly, utilities can put in place loss reduction programmes. Reducing losses improves sector cash flows directly through reduced generation purchases, and indirectly by attracting more IPP investment which helps lower the cost of generation. Part of this improved cash flow can then help lower end user tariffs which in turn helps reduce commercial losses further. In addition, the distribution utility can finance more of its own capital costs, thereby reducing the need for external subsidies. AR: How can the international community support African utilities? LM: The international community can support the development of public-private partnerships and offer advisory support to ensure procurement transparency, competitive sourcing of projects, clear benchmarking for bilaterally negotiated deals, and affordability analysis to promote the sustainability of procured investments. Additional support can be provided to help utilities develop least cost generation plans, including through sustainable and renewable energy resources while also managing intermittency, and to develop multi-year tariff plans that are equitable, meet the cost of service of utilities and support the financial health of utilities in the long-term. AR: How can DFI financing help and what can be done to attract more of this to the continent? LM: DFIs can help finance power sector projects under an appropriate regulatory framework that encourages private participation. Many gains have been made in Africa’s power generation sector but more needs to be done to meet growing demand and to ensure long-term sustainability. DFI financing can help utilities adopt commercially viable renewable energy and
Linda Munyengeterwa, regional industry director of infrastructure Africa at the IFC.
finance power storage technologies and support municipalities in greening their energy mix. AR: What is the appetite for investment in renewables on the continent? LM: While access to electricity in sub-Saharan Africa is expanding, the region’s population is expected to double from one billion people in 2018 to more than two billion in 2050, and the IMF forecasts that demand for electricity will increase by 3% annually. The large amount of renewable energy resources available on the continent presents a unique opportunity to provide reliable and affordable access to electricity. In 2020, 9% of all energy generated in Africa came from renewable sources, with a strong reliance (6.8%) on hydropower. From 2019 to 2020 alone, solar and wind capacity increased by 13% and 11%, respectively, while hydropower soared 25%. Total installed renewable energy capacity in Africa has grown by over 24GW since 2013. Forecasts to 2050 predict an extra 27.3 exajoules (EJ) of renewable energy compared to the current 1.8EJ. A challenge with expanding renewable energy has been related to the intermittent nature of the supply. Technological advances in energy storage have mitigated supply fluctuation issues with renewable energy, although more investment is required in storage at a utility scale. This contrasts with the comparatively inexpensive cost of building new fossil fuel plants which are expensive to run, and the high installation costs of renewable sources, which are inexpensive to operate. The high upfront cost of renewable energy necessitates greater capital expenditure. Consequently, there is a clear role for IFC and other development partners to support renewable energy infrastructure projects including financing for the upfront costs. ■
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