africa energy: a myriad of challenges
TRANSCRIPT
AFRICAN UTILITY MARKET INTELLIGENCE REPORT
Conference and Industry Insights May 2014, Cape Town, South Africa
Report summary
Intelligence gathered at:
2
Johan MullerProgramme Manager: Energy & EnvironmentTel: +27 21 680 3210Email: [email protected]
Tom HarrisResearch Analyst: Energy & EnvironmentTel: +27 21 680 3269Email: [email protected]
Gareth BlanckenbergIndustry Anaylst: Energy & EnvironmentTel: +27 21 680 3215Email: [email protected]
Russell HughesEvent Director: African Utility Week & Clean Power AfricaTel: +27 21 700 3515Email: [email protected]
Nicolette Pombo van-ZylProgramme Director: African Utility Week & Clean Power AfricaTel: +27 21 700 3554Email: [email protected]
CONTACTS
3
CONTENTS (FULL INSIGHTS ONLY)
1. Contents 32. Abbreviations 43. Executive Summary 5 3.1 Overview 5 3.2 Introduction 5 3.3 Industry Topics 54 Report Aims and Objectives 105 Report Structure and Scope 11 5.1 Report structure 11 5.2 Report scope 11 5.3 Methodology 11 5.4 Assumptions 116 Introduction 12 6.1 About African Utility Week 2014 12 6.2 African Utilities: Regional economic growth, energy and the role of utilities 12 6.3 African Utilities: Key challenges to effective growth 15 6.4 African Utilities: Key trends anticipated to facilitate development 167 Generation 18 7.1 Overview 18 7.2 Financing generation projects 19 7.3 Nuclear energy and the role of IPPs 20 7.4 Key trends and insights 218 Large Power Users 22 8.1 Overview 22 8.2 Mines and large industrials 22 8.3 Drivers and challenges 25 8.4 Energy efficiency and fiscal policy 26 8.5 Key trends and insights 279 Metering, T&D and Smart Grids 28 9.1 Overview 28 9.2 Smart grids 28 9.3 Metering 30 9.4 Segment drivers and challenges 30 9.5 Smart metering and tariffs 33 9.6 Smart grids and regional integration 33 9.7 Rural electrification 34 9.8 Key trends and insights 3410 Clean Power 35 10.1 Overview 35 10.2 Solar 36 10.3 Wind 3711 Hydropower 42 11.1 Overview 42 11.2 The role of large industrials 44 11.3 Innovative hydropower solutions 45 11.4 Hydropower and local development 4512 Water 46 12.1 Overview 46 12.2 Overview of the Water-Energy-Food nexus 46 12.3 Trends toward change 4813 Conclusion 5014 Sources Consulted 51
4
REPORT SUMMARY
African Utility Week was comprised of innovators and global industry leaders at the forefront of development on the continent, sharing insights to facilitate interaction and knowledge transfer across the continent – with the aim of progressing development in Africa. The event aimed to facilitate collaboration between public and private entities on the continent which would improve resource security and ensure economic development.
GenerationAfrica critically requires the mobilisation of sufficient financial resources in order to provide electricity services in a reliable, affordable, economically viable and socially and environmentally acceptable manner. Stakeholders identify the need for better integrated planning - with public-private partnerships accordingly anticipated to continue to play a critical role in addressing the issue of electricity generation shortfalls. The addition of generation capacity by large energy-intensive industrial firms will support energy security in the coming years, while the construction of off-grid solutions is expected to be vital to achieving rural electrification targets. However, the availability and cost of financing remains a challenge, and if Africa is to access the required financial resources for the development of generation capacity, it will be critical to ensure that investors are able to achieve the required return on investment.
Large Power UsersEnergy, both electrical and thermal, constitutes one of the largest operating expenses in any industry. Energy management thus represents a strategic area for cost reduction within companies, and Maria van Hoeven, Executive Director of the International Energy Agency, has highlighted that the “key to adapting to higher energy prices…will be efficiency”. Energy-intensive companies are beginning to confront the rising need to alter their energy management strategies. Many companies have begun increasing investment in energy efficiency programmes and are
Trends and Challenges across the African Utility Landscape
Key trends and themes: Key challenges:
A move toward cost-reflective tariffs. Electricity revenues that do not cover costs.
The privatisation of utilities and public-private partnerships.
Capital constraints: a shortage of capital and high capital costs.
Regional integration and cross-border energy trade.
Inefficiency in production, transmission and distribution.
Enabling policy implementation. Immature regulatory regimes.
Balancing economic development goals with sustainability targets.
Lack of skills.
The development of context-specific solutions.
Project implementation ineffectiveness.
Balancing new capacity additions and maintenance requirements.
Lack of infrastructure.
A diversification of Africa’s energy mix.
The rise of innovative financial solutions.
A focus on the Water-Energy-Food nexus in project and policy considerations
5
focusing on long-term energy requirement planning. However, there is a growing deficit in the pool of specialist skills required to properly address these issues.
Metering and T&D/Smart GridsThe move towards smart T&D technologies will be a process of transition for the African continent. It is suggested that the progression of this segment of the industry will involve the implementation of hybrid models – which combine conventional technologies with directed implementation of smart technologies to produce context-specific solutions, considering capital availability, existing infrastructure, economic dynamics and local culture. These technologies will facilitate improved asset management, demand management, energy and cost efficiencies, electricity security and revenue collection. Key challenges to the adoption of such technologies will include: poor regulative frameworks, local content requirements, high initial capital costs and a lack of the necessary specialist skills.
Clean Energy: Solar and WindAfrica is endowed with abundant and readily utilisable resources for renewable energy power generation and wind and solar PV power plants can be constructed with relatively short lead times, presenting a rapid solution to the power generation shortfall experienced in so many countries in sub-Saharan Africa. The load profile closely matches the usage of many industrial and commercial businesses, so it is able to make a substantial contribution to reducing their consumption from the grid or reducing their reliance on expensive back-up power. The costs of solar technologies, especially solar PV, have been falling rapidly over the past few years, so that the costs are now competitive with many other conventional generation technologies. Africa’s installed capacity of wind power generation is also forecast to grow substantially over the next few years due to improving efficiencies.
HydropowerExperts have identified that sub-Saharan Africa has the potential to generate 1,750 terawatt-hours from its hydro sources, of which less than 15% have been developed. Exploration of the available large and small scale hydropower sites could solve many of Africa’s power problems, and it is envisaged that a majority of African countries may prefer to develop their existing hydropower potential than invest in other expensive fossil fuel energy sources.
The drivers of hydropower solutions in Africa will be:• The accessibility of water.• The flexibility of hydro-electric power supply.• Hydropower allows for cheap electricity generation.• Hydropower generation can be environmentally friendly.
The expansion of the industry is also anticipated to face certain critical challenges, such as:• Highly capital-intensive.• Long implementation timelines coupled with long payback periods.• Resistance from environmental and social pressure groups.• A lack of specialised skills.
WaterSub-Saharan Africa lags behind most other regions in the world when it comes to water access, management and supply. Water is a scarce resource and better management of the existing resource by utilities can deliver large gains. To accomplish these goals, water utilities have to reshape and optimise their businesses and to align with rising environmental standards and low carbon economy requirements.
REPORT SUMMARY
6
REPORT SUMMARY
The implementation of new technologies such as smart water grids could reduce costs and enhance the efficiency of water distribution systems. Information and communications technology appears to be playing an ever-increasing role in smart water service development. Similarly to electricity, the price of water needs to be cost reflective. Utilities and service providers need to price water such that revenues can cover operation and maintenance – and profit can be re-invested in expansion and rehabilitation of infrastructure.
ConclusionThe increasing demand for water and electricity across Africa, largely due to growing populations and rising levels of urbanisation, has highlighted the urgent need for power and water utilities to expand and improve their generation and distribution capacities. In order to facilitate this, African utilities’ need to reshape and optimise their businesses models and to align these with more stringent environmental standards and low carbon economy requirements.
Africa is in a unique position: as the required power generation capacity additions come online, the continent is poised to take advantage of the numerous and bountiful new gas finds and recent progress and cost reductions in renewable energy technologies, to leap frog the development path already taken by industrialised countries and move directly to a renewable-gas hybrid system. This will ensure a rapid, cost competitive, clean and sustainable development pathway for the power sector, able to support economic growth and foster social development and help unlock the vast potential that Africa holds.
For more information on this study, please contact Samantha James, Corporate Communications for Frost & Sullivan Africa at
+27 21 680 3574 or [email protected]
Value: ZAR4,950.00The full report includes 50 pages of the latest in-depth African market insights, statistics,
graphs and figures collected at African Utility Week and Clean Power Africa 2014.
7
First Floor, Maitland 2, River Park, Liesbeek Parkway, Mowbray 7700, Cape Town, South AfricaTel: +27 21 680 3260Fax: +27 21 680 3296www.frost.com
Spintelligent House31 Bell Crescent, Tokai, 7945Cape Town, South AfricaTel: +27 21 700 3500Fax: +27 21 700 3501www.spintelligent.com