Brighter Africa: The growth potential of Sub-Saharan Africa's electricity sector - McKinsey (Report)

Table of Contents

  • Executive summary
  • The African power system is significantly underdeveloped
  • Estimating sub-Saharan Africa’s electricity demand in 2040
  • Estimating capacity needs and investment requirements
  • Sidebar: Is nuclear in Africa’s future?
  • Sidebar: Power project cost overruns
  • Sidebar: The role of coal imports
  • Exploring different paths that could reduce carbon emissions or save on capital spending
  • Sidebar: Can countries rely on imported electricity?
  • Sidebar: The story behind Grand Inga
  • Sidebar: An African gas revolution?
  • Sidebar: Two and a half million new jobs in Africa
  • Sidebar: Can Africa grow without a grid?
  • Pursuing a new approach to achieving Africa’s energy potential
  • Sidebar: The disincentive to grow the power sector
  • Appendix I: Structure of the African Regional Electricity Model
  • Appendix II: Calculation of the capacity available by primary-energy source
  • Appendix III: Weighted average cost of capital
  • Appendix IV: Cost inputs for calculation of levelized costs of energy
  • Appendix V: How the optimization model works
  • Appendix VI: Structure of different scenarios run in the African Regional Electricity Model

Read the full report below.

Preface
The power sector in sub-Saharan Africa offers a unique combination of transformative potential and attractive investment opportunity. The inadequacy of electricity supply is a fact of life in nearly every sub-Saharan country. Furthermore, in most countries, electricity is provided by expensive diesel generators, with prices ranging from three to six times what grid consumers pay across the world. This makes many Africa-based industries and manufacturing sectors uncompetitive, slows job growth, and drags down annual GDP growth between one to three percentage points. The high penetration of generators, however, demonstrates that African businesses and consumers are willing to pay for electricity. This creates opportunities across the entire power-sector value chain in sub-Saharan Africa, especially as growth rates in other regions stagnate.

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Not surprisingly, we are starting to see significant momentum in power across the continent. Governments are becoming more sophisticated and increasingly opening up to private-sector and foreign investment. Monumental gas discoveries in East Africa between 2010 and 2012 have attracted investment and increased fuel-supply options for power generation. The United Nations’ Sustainable Energy for All initiative has attracted more than $120 billion in commitments for the sector in Africa. Most recently, in 2013, the United States announced its Power Africa initiative, underscoring the importance of the opportunity.

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One of our goals in this report is to explain the momentum in the sub-Saharan power sector and to project what might happen to it. The topic is gaining increasing attention; most recently, the International Energy Association included extra detail on the power sector in its Africa Energy Outlook. We also want to provide a fact-based perspective assessing different themes and trends. We seek to demystify the sector and to help our audience understand the opportunities, challenges, and uncertainties. We hope this will help advance the discussion on how to transform the sector, creating opportunities for domestic and international investors, and most important, facilitating the economic development that would result.

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Our work builds on the McKinsey Global Institute’s 2010 report Lions on the move: The progress and potential of African economies, which focused new attention on Africa’s accelerating economic growth. This report, its scenarios, and its supporting model are not intended to forecast the future but to lay out the opportunities and the challenges. We also offer examples from our own experiences in power-sector development across Africa and across the globe. We believe that sub-Saharan countries will witness a true economic breakthrough if they are able to successfully promote massive development of the power sector. If this report helps speed this breakthrough, then we will have achieved our goals.

Brighter Africa: The growth potential of Sub-Saharan Africa’s electricity sector – McKinsey

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