How can Africa develop its electricity infrastructure?

Little is as critical for economic progress as a reliable electricity supply. In Africa, the lack thereof has taken a heavy toll on regional integration, productivity and competitiveness. Take the impact of power outages as an example. Over the last two decades, power outages have cost 39 sub-Saharan countries the equivalent of up to 2 percentage points in annual growth of real per capita GDP.

The structural woes of Africa’s cash-starved electricity sector are well and widely documented. But the devil is in the details, and these are marked by a growing sub-regional divide. North Africa’s intensive use of fossil fuels and its geostrategic location, for example, have allowed the region to have a relatively low-cost electricity supply, to enjoy strengthening energy interconnections and to meet rising — up to 8% a year — electricity demand.

The same cannot be said of the 48 sub-Saharan nations, whose cumulative generation capacity, estimated at 80 GW  (less than 40 GW if South Africa is excluded), is inadequate. Average electrification rates in these countries are below 30% (against a world average of 82%), leaving nearly 600m people and 10m small- and medium-sized enterprises literally powerless.

Unless this major shortfall is addressed, worse is almost certain to come: a growing population and the gradual rise of the African middle class will require the continent to put in place a minimum of 250 GW of additional generation capacity through 2030 to meet power demand. A way out of this power-failure trap is available, but huge efforts will be needed.

Getting the price right will be key. Centralised power production is often expensive on the continent, with costs in sub-Saharan Africa averaging $180 per MWh in 2013 — almost twice that of other developing regions. Connecting users at cost-efficient levels will require better pricing methods and improved electricity transmission and distribution systems. (Losses can be as high as 46%.) It will also require strengthening sector-planning capabilities, expanding regional electricity trade and improving utilities’ cost-recovery ratios — in 2011, the average for the continent was below 60%.

Africa’s renewable energy potential will also be an important part of the solution. With 10% of the global economically exploitable water reserves but only 17% of its 150 GW hydropower potential installed, the region has room for growth. This could enable countries like Democratic Republic of Congo, Ethiopia and Guinea to emerge as hydropower exporters, feeding half the power needs of up to 16 nations — provided an appropriate regional power trade mechanism can be put in place.

Additionally, the rapid decline in the prices of solar photovoltaic (PV) is making PV projects highly cost-effective for off-grid energy access — notably in remote rural areas that are difficult or expensive to connect to the central network. Overall, the potential for solar in sub-Saharan Africa could be as high as 11TW, according to a McKinsey report published last February.

This potential for distributed power in the continent hasn’t gone unnoticed and companies such as SolarCity, Solar First and GE are entering the market. As part of its contribution to the US’s Power Africa initiative, GE announced an objective of installing 5 GW of distributed power — mostly diesel or gas-based  capacity — to feed industrial power needs across Nigeria, Ghana, Kenya and Tanzania. In collaboration with the US African Development Foundation, it also launched a $2.8m open-innovation challenge to develop renewable energy solutions for productive sectors, including agriculture. The open challenge is now in its third round.

African governments are actively investing in building up their generating capacity: Of the 800 infrastructure projects active on the continent in 2012, more than one in three were dedicated to power infrastructure. But with $40bn per year needed over the next decade, partnerships with foreign investors remain necessary.

Such investors are already quite present in the investment space, with more than $11.7bn invested in 2013 for greenfield projects in the areas of electricity, gas and water (nearly double 2012 levels). A noteworthy move in this regard is the US Electrify Africa Act of 2014, which would enable the US to provide government guarantees to support and promote private investment in African energy infrastructure. (At the time of writing, the bill has yet to be turned into law by the 114th Congress). According to USAID’s then administrator, Rajiv Shah, such an approach could increase the leveraging power of the $7bn the US government has committed to as part of its Power Africa initiative.

Increased investment, reduced costs of renewables and innovative partnerships are all good news, but change will require reform on the ground. Should this succeed, new opportunities to power (and empower) the region could be just around the corner.

This article is published in collaboration with GE Look Ahead. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Ricardo Falcon writes for GE Look Ahead.

Image: Dusk settles over the Angolan capital, Luanda. REUTERS/Mike Hutchings