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The enigma of Africa: why distributed power players are so drawn to the region

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More than one billion people live, work, and consume in Africa today. But decades of lacklustre investment efforts into power generation capacity, amongst other things, have short-changed the region’s economic development. The correlation is evident in Table 1 – countries with higher electrification rates seem to also have greater GDP per capita (>$3000) and vice versa. Angola is the exception below, with its wealth buoyed up by natural resources. 

Recent announcements (e.g., the Angolan government’s ambitions to increase installed generating capacity from 2.7 GWe in 2016 to 9 GWe by 2025), initiatives like Power Africa, and a healthier pipeline of both centralized and decentralized energy projects suggest that the region aspires to rectify its energy supply-demand disequilibrium. And as Oil & Gas countries like Nigeria and Angola slowly recover from the 2014 oil price decline, and other emerging economies aim to maintain their 3-7 per cent year-on-year GDP growth rates, the region will only become more power hungry.

Who has the need? 

Government utilities

Governments across Africa are trying to increase electrification rates (the current sub-Saharan electrification rate is ~40 per cent) and support economic growth. Most of this will come from massive coal-fired power stations (e.g., the 4.8 GWe Medupi and Kusile power plants in South Africa), but as more natural gas becomes locally available (especially in countries planning to further develop their natural gas resources such as Angola, Tanzania, Ghana, Mozambique and Gabon), governments will also rely on gas as a cleaner and less carbon-intensive alternative to coal. Tanzania and Ghana are particularly promising countries given their expanding gas reserves, gas infrastructure and favourable policies.

Private IPPs (Independent Power Producers)

Electricity prices are rising across the continent as governments reduce costly subsidies that were previously available. In parallel, some governments have started introducing privatization (e.g., Nigeria), open markets and more transparent regulations in a bid to stimulate private capital. Cash-strapped governments are partly turning to IPPs to help meet power demands more cost-competitively. This trend is expected to increase (including in Tanzania and Ghana). Issues do, however, exist with non-payment by utilities to IPPs in some countries (e.g., Nigeria, Tanzania and Mozambique).

Industrial customers

Industrial customers need reliable power supply or else they incur costly production disruptions. Captive power is hence crucial in countries with weak electricity grids and remote industrial operations where there is often no grid connection available at all.

Africa's primary focus is on natural resource extraction and, for most of the countries above, this is focused on the Oil & Gas sector. Other large industries (e.g., chemical and plastics) are non-existent or do not exist on a large scale. The cement industry is an additional industrial opportunity due to fast paced economic growth and large infrastructure projects undertaken in the region. 

Where do gas turbines and gas engines fit in? 

Africa needs power – and it needs it fast and affordably.

So, any technology that can be quickly deployed while remaining within budget will remain popular. It’s no wonder – Africa is currently the biggest market for 1 MWe-40 MWe mobile gas turbine units (not because of its mobility element, but due to its faster deployment times). Towards 2027 there will likely be an increase in the number of Combined Cycle units sold as governments mature and start focusing on policies to improve energy efficiency and reduce carbon emissions. 

International mining and oil and gas companies have been increasingly entering Africa in partnerships with governments to help effectively extract Africa’s large mineral and hydrocarbon resources. This will drive the sale of some simple-cycle turbines for remote mining operations, offshore platforms and a growing number of LNG terminals and refineries.

In terms of gas engines, they face the herculean task of competing with diesel engines, but the switching rate to natural gas is growing thanks to gas grid expansions and improved logistics for CNG (Compressed Natural gas) use.  Figure 2 shows the share of countries with the highest annual installed capacity of gas engines (the sum of the past four years). Nigeria, Mozambique, Ghana and South Africa are currently the most active markets (together comprising 80 per cent of the market).

The trick is understanding which nation will have a steady pipeline of power plant projects every year until 2025 vs one-off spikes in investments, and when the need for fast and affordable becomes the need for efficient and flexible (to support intermittent renewables).

Africa is a continent with massive economic potential that still faces very real and significant barriers to growth. For Distributed Power players, navigating through key market dynamics and understanding market drivers are fundamental to successfully identifying growth markets in Africa.

To find out more about Delta-ee's ongoing Distributed Power research, please contact Dina at dina.darshini@delta-ee.com

Matthew Myers and Dina Darshini are market analysts at Delta Energy & Environment, a consultancy specializing in global heat and distributed energy markets. 

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