|
Let there be lightEnergy development in Africa has always presented special problems, many deriving from the continent’s fractured and traumatic history as it emerged from its colonial chains. Paul Garrett and Sam Olsen report. Africa’s energy needs are well documented – a sixth of the world’s population, nearly a billion people, generating only four per cent of the world’s electricity. No wonder the satellite pictures of the earth at night show Africa as truly a dark continent. Economies and societies do not thrive in the dark, and now, without electrically powered information technology. African countries have, for a long time, known this; but the approach of partners from elsewhere – and indeed African governments and agencies themselves – has not always yielded the expected results. David Tennant, Partner at DentonWildeSapte has seen how the absence of strong local markets, combined with political instability, has hindered the development of a modern energy economy in Africa. ‘The low levels of generation – and electrification generally – reflect the low levels of income experienced by the vast majority of Africa's population. ‘The reasons are in many respects historic. Natural resources have always been exported to support the development of other economies, not African economies themselves, and the receipts have not been used to develop domestic economies. ‘With a few exceptions,no manufacturing base has developed; this restricts employment levels and opportunities, inhibits wealth creation and the ability of most households to afford electricity. If there is no market for electricity, project developers and investors will look elsewhere. For instance, in Rwanda commercial gas reserves were identified in Lake Kivu in the 1960s yet today remain undeveloped – a classic example of the negative effect of political instability, the need to develop a new extraction technology, and the absence of a local market for the product.’ Since the end of World War Two and the onset of post-colonial independence, there have been many efforts to increase the electricity-generating capacity of Africa. Taking their cue from other areas of the developed world, many of them have been focused on centralised electricity generation. Many of the large projects undertaken from the 1950s to the 1970s were aimed at harnessing Africa’s own natural resources. Some of this thinking – such as the use of large rivers and high rainfall for hydro-electric power – could be seen today as sustainable and green. The problem is that other, local issues have got in the way. The traditional model that has dominated energy in many parts of the world – vertically integrated, often state owned, monopolist utilities based on big power stations and national grids – often doesn’t work in Africa. A more local – more ‘African’ – solution, just might. A recent World Bank statement suggested that ‘the future of electricity generation in Africa will involve a combination of large scale centralised energy generation projects in a mostly publicprivate mix and mainly private microgeneration’. The bank also warned:‘One of the biggest risks for investors in Africa is political instability.There are ways of mitigating this – such as political risk insurance – but it is still vital that potential investors understand the unique facets of African electricity generation.’ A specific example of this ‘Africa factor’comes from Helen Tarnoy,the Deputy Managing Director of Aldwych International, an investor in African power projects. She says: ‘A good example of Western investors being slightly misaligned from the realities of energy on the ground in Africa comes from the Songas development in Tanzania in the 1990s. The World Bank in Washington was reported as pushing for villages to have gas pumped directly from the gasfield project into their homes to power mini-turbines, and so provide local people with electricity. But when asked about this the villagers said they didn’t want it, and would prefer bicycles instead so they could get their produce to market. They had never had electricity before and didn’t miss it.’ At the European Investment Bank (EIB), the politics, finance and negotiating process is seen as the major stumbling block in African power investment. A spokesman says that ‘it’s actually the engineering which is the easy part. Most investments in Africa are made with hard currency. The structure is purchased with dollars, pounds or euros but the returns will be mainly made with softer, local currencies.The issue is how investors calculate these returns, which may be very insecure. There is a huge amount of risk. ‘One of the biggest challenges,’ adds the EIB, ‘is how to make the investment profitable in the long run. For example, Power Purchase Agreements are hard to set up, for a number of reasons. First, many of the potential customers for the electricity are not on a grid, as they live in isolated locations with low population density. But building out a grid is expensive, so unless public money is used to subsidise this construction, the power may end up being too costly for local people to afford. ‘Additionally, political and economic instability in many African countries make accurate return forecasting difficult to do with certainty. And many countries also lack effective regulation, which increases the level of risk.’ It is suggested that the telecoms market may provide a model on how the energy market could develop.Africa has leapfrogged into the telecoms age using not landlines but mobiles, and it is proposed that it could do the same with energy by going straight to direct generation through solar or wind. No more pouring concrete to build dams, no more grids where wire is difficult to maintain or gets stolen quickly, but an easy-to-maintain, locally owned and cared-for mosaic of sustainable microgeneration. That is something Africa would understand and embrace. To complement any renewable developments, if African countries are to develop a complementary national power network similar to its northern neighbours in Europe, then they need to convince the national oil companies and investors that, rather than finding their profit by getting the energy out of Africa, they can get a greater return by investing in Africa.
|
