Table of Contents
- Executive summary
- Big challenges
- Megatrends, growth and infrastructure
- The energy trilemma
- Affordability and cost recovery
- Big responses
- Technology and energy transformation
- Regional power integration
- Energy policy and market design
- Power company transformation
- Investment and ownership
Read the full report below.
Africa faces a huge electricity demand challenge. Existing infrastructure is insufficient to meet current requirements, let alone the growth of the coming decades. Installed power capacity is expected to rise from 2012’s 90GWto 380GW in 2040 in sub-Saharan Africa. Nonetheless 530 million people, primarily in rural communities, are expected to remain without power.1 But difficulties such as the investment barriers facing the sector are being addressed. An era of rapid technological change is also coming at a pivotal time in the expansion of African power infrastructure.
This report examines industry opinion on these issues as well as a range of other important challenges facing the sector in the period ahead. Here are some of the key findings.
Bright spots among the challenges
Two-thirds (67%) of those we interviewed cited ageing or badly maintained infrastructure as a high or very high concern. Encouragingly, many felt this situation would improve, with only 39 per cent predicting that it would be a similarly high or very high concern in five years’ time. If this proves to be the case, it is very significant. We estimate that raising the availability of generation by ten percentage points could add significantly to the continent’s GDP. There are other near-term bright spots as well, with the level of concern about skills shortages and, to a lesser extent, market reforms easing in the next five years. However, other pressing concerns are not set to change. Affordability and access to primary resources were the other two issues among the top concerns mentioned, highlighted as high or very high concerns by around three-fifths of those surveyed and with very little change expected in the near-term future.
Optimism on a number of fronts
Insufficient generation and creaking infrastructure mean that planned power outages and load shedding are a well-established feature of life for many African power consumers. But our survey participants are optimistic that improvements are on the way. An overwhelming majority (96%) say there is a medium or high probability that load shedding will be the exception rather than the norm by 2025. Indeed, nearly three-quarters (72%) are confident enough to rate that scenario as a high probability. The mood of optimism also extends to regulatory change. Ninety four per cent say there is a medium or high probability that, by 2025, the challenge of finding a market design that can balance investment, affordability and access issues will have been largely solved.
An energy-transformed landscape
A range of technologies are combining, in different ways, to move power systems away from being top-down centralised systems to ones that are much more decentralised and fragmented. Seventy per cent of our survey respondents believe there is a medium to high probability that advances and cost reductions in green renewable off-grid technology will deliver an exponential increase in rural electrification levels by 2025. The prospect of future local mini-grids and off-grid distributed generation being an important feature of the African power mix, alongside centralised generation, is an energy market vision that is viewed as likely or highly likely by 83 per cent of survey participants. But the majority of survey participants (54%) continue to see centralised generation and interconnections being the main future energy provision to meet demand growth in urban areas.
Business model transformation lies ahead
When we asked survey respondents about the impact of these and other changes on future power utility business models, only around one in eight (12%) thought that future business models would be the same or similar. Instead, the vast majority (88%) said that power utility business models would be transformed. Most respondents thought that some features of current models would remain in place but nearly a quarter (22% of all respondents) went so far as to say that business models would be completely transformed and unrecognisable from those operating today.
Cost-reflective tariffs remain a big challenge
Two-thirds of our survey participants pinpoint the inability to recover the cost of new generation via current electricity tariffs as a major barrier to investing in new large-scale generation and transmission projects. It’s a recurrent theme in our survey and heads the list of energy policy measures needed to address the key problems of expanding power provision and making existing assets more reliable. Eighty three per cent say that moving to cost-reflective tariffs would have a high or very high impact on increasing electrification and improving reliability.
Room for big performance improvement
While policy reforms are a key requirement, many African power utility companies are conscious of the need to reform their own organisations. Making limited resources go further is an essential part of maximising power availability and adding to investor confidence. The vast majority (70%) report that cost base savings and efficiency improvements of more than 10 per cent are possible and many (42%) say there is scope for African power and utility companies to achieve savings in excess of 20 per cent. Between 70 and 80 per cent of all survey participants see high or very high scope for performance improvement in asset risk management, customer service and capital project management. And around two-thirds see the same big scope for improvement in loss reduction and in the development of local skills.
Many of the essential prerequisites are in place for an increase in private investment and participation in the sector but there is still a considerable way to go. As well as the big issue of the need for cost-reflective tariffs (see above), between a third and two-fifths of our survey participants reported that they didn’t feel there was sufficient transparency around the procurement of new power capacity and sufficient certainty on government backing for power purchase agreements (PPAs). And only six per cent felt that the local commercial banking industry had sufficient liquidity to finance new power projects without some form of credit enhancement being available. Indeed half said that even then such finance was not possible.