A gradual process of development has started yielding results for African hydropower, with a swathe of international hydro and associated power export projects under way or planned. It seems that Africa is becoming a more attractive place to invest in infrastructure development, but what has changed?
Figure: a graphical representation of the so-called "energy gap" on the African continent
It is well known that Africa has an abundance of hydropower resources, but it remains in desperate need of development, with the vast majority of the population lacking access to reliable electricity supplies. Africa holds about 12% of the world's hydropower potential, with a technically feasible output of about 1,800 TWh/year. Yet Africa produces only about 3% of the global hydropower and exploits less than 10% of its technical potential, the lowest proportion of any of the world's regions.
Hydroelectric facilities are being built and are operating in Africa, including this plant in Ghana.
Despite this, there is evidence of change in African hydro development, where installed capacity now exceeds 20 GW. In several African countries — for example Mozambique, the Democratic Republic of Congo (DRC) and Uganda — hydropower accounts for over half of all electricity generation and there are numerous large hydropower projects under consideration or in development, too.
Changing face of African hydro
With obvious resources and demand, it is financial and political — as distinct from technical — challenges that have presented the biggest obstacles to African hydropower and all too often stymied much needed development. Perhaps the most obvious is a need for peace and political stability, but in the case of hydro development, strong political — often cross-border — and public support is needed, too. Transparent financial structures and independent regulatory authorities are also a fundamental requirement to attracting investment, as is energy sector reform in many cases.
In addition, negative perceptions of the environmental and social impact of large hydropower projects have lingered.
Alongside structural and political reform, though, there is evidence of a change in the perception of hydropower by institutional lenders and others.
The International Hydropower Association (IHA) observes in its latest outlook that for much of Africa, the integration of communities into national grids is seen as a stepping stone for development, and the provision of electricity and water services to business and industry remain an investment priority for economic progress. While conditions vary, they note that common challenges are capacity building, transparency and grid integration.
One of the key milestones in African hydropower development is an interconnected regional transmission system, a fact that is being increasingly recognized by African governments, which are now implementing a growing number of cooperative energy projects.
There are many interesting developments under way in this regard. For example, the Southern African Power Pool (SAPP) was the first formal international power pool in Africa, created in 1996 with the aim of providing reliable and economical electricity supply to the consumers of the 12 member states: Angola, Botswana, DRC, Lesotho, Malawi, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. A key objective is to co-ordinate and co-operate in the planning and operation of electricity power systems.
SAPP says it has made it possible for members to delay capital expenditure on new plants due to the existence of interconnections and the regional power pool. It does, however, note that a number of major challenges remain, including a lack of infrastructure, a lack of infrastructure maintenance, limited funds to finance new investment, insufficient generation and high losses.
Just about a decade later, in 2005, the Eastern African Power Pool (EAPP) was founded, comprising power utilities and regulators from Burundi, DRC, Egypt, Ethiopia, Kenya, Rwanda and Sudan. EAPP now has nine countries and 13 utilities as members.
Major interconnection projects in the region are expected to be commissioned between 2014 and 2017, enabling power exchange among nine utilities and leading to the development of a regional market.
The IHA report notes that over the past decade the region has seen significant investment in both generation and transmission. In recent years, for example, Ethiopia began exporting electricity to Djibouti and Sudan. Elsewhere, Kenya plans to connect to Tanzania this year. Further connections are planned over the coming years from Ethiopia to Kenya and Eritrea, from Tanzania to Uganda and from Uganda to DRC and Rwanda.
Meanwhile, the West African Power Pool (WAPP) includes Benin, Cote d'Ivoire, Burkina Faso, Ghana, Gambia, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo. As with its sister organizations, WAPP includes public and privately held generation, transmission and distribution companies and is designed to ensure regional power system integration.
Investment more attractive
Among the projects being facilitated by WAPP is a transmission line connecting Cote d'Ivoire through Liberia and Sierra Leone to Guinea – the CLSG Interconnection Project. In a crucial step in advancing the project, it secured African Development Fund (ADF) grants and a loan, a Nigeria Trust Fund (AfDB) loan of US$10 million, and an €10 million (US$13.7 million) EU-Africa Infrastructure Trust Fund grant toward the cost of the line, due to be commissioned this year.
Indeed, many of the WAPP-supported projects are hydropower generation projects together with associated transmission and distribution, and this is a theme that has been extensively explored by institutional lenders. For instance, the African Development Bank is supporting large scale hydropower installations and is engaged with five such projects.
In 2012, African Heads of State endorsed a set of priority energy projects to be implemented by 2020 as part of the Programme for Infrastructure Development for Africa (PIDA), while the energy infrastructure program focuses on major hydroelectric projects and interconnections between the power pools. Nine hydro projects were identified for this phase, amounting to more than 50 GW of potential capacity and representing some 40% of the continent's actual installed capacity.
The bank is the executing agency for PIDA, and among the projects it is supporting is the Mphanda-Nkuwa project in Mozambique, which is at the financial closure stage.
Alex Rugamba, Director of AfDB's Energy, Environment and Climate Change Department, said, "Through this support, we hope to enable Mozambique to leverage its natural resources for growth and poverty reduction and to reduce its energy deficit."
The country is also endowed with abundant hydropower resources, second only to the DRC in the SADEC (Southern African Development Community Region).
ADB also is involved in a number of cross-border developments, such as the Inga hydropower projects in DRC, hydropower components of the Lesotho Highlands water project Phase II, and the Ruzizi III project in Rwanda, which will provide additional electricity capacity in Rwanda, Burundi and the DRC. It is the first regional public private partnership (PPP) power project in Africa.
More recently, AfDB approved a $113 million loan to support the electricity transmission development for the 80 MW run-of-river Rusumo Falls project that will supply Tanzania, Rwanda and Burundi, with construction of the transmission facilities expected to be complete by August 2018. Rusumo Falls has also been supported by other institutional investors such as the World Bank, which approved a US$340 million loan last year for a project with a total cost of US$468.6 million.
In recent comments, Rugamba said infrastructure deficit was the biggest barrier to Africa's development, and the adoption of PIDA was a major milestone towards addressing this challenge. The bank has also provided support to infrastructure project preparation aimed at bringing projects to bankability. "This is extremely vital to unlock financing for these infrastructure projects," Rugamba stated.
While Africa is indeed bringing substantial financial support to the table, a key trend also identified by IHA is the increasingly global nature of hydropower investment. Africa is benefitting from this type of trans-national infrastructure investment. For instance, in the country's largest private sector investment to date, 2012 saw the commissioning of Uganda's 250 MW Bujagali hydro station, which meant electricity production exceeded demand for the first time.
Subsequently, in mid-2013, the country signed a deal with China's Sino-Hydro Group Ltd. for construction of the Karuma hydropower project on the White Nile. This 600 MW installation is backed by Chinese credit worth a reported 15% of the total $1.65 billion cost. In September 2013, Uganda's President, Yoweri Museveni, launched construction, now due for completion in 2018.
The USA is also reportedly considering financing some of the DRC's $12 billion Inga 3 project. According to a recent interview with Bloomberg, Rajiv Shah, head of the U.S. Agency for International Development, said Inga may be added to the $7 billion Power Africa program.
Indeed, it is potentially the scale of such investments that makes them opportunities for a multitude of players. In the case of the giant Grand Inga 3 project, three groups of companies are bidding to develop this 4,800 MW installation — China Three Gorges and Sinohydro, Posco and Daewoo in partnership with SNC-Lavalin, and Actividades de Construccion y Servicios SA and Eurofinsa Group.
But, according to media reports, Energy Minister Bruno Kapandji said at a recent mining and infrastructure conference: "We're open to other operators [joining the bid groups], the candidates are not closed." A development group is expected to be chosen next summer.
Along with these types of trans-national investment deals, private sector investment is also seeing growth. In 2012, for example, Tata Power and Exxaro formed a joint venture company to develop energy projects in South Africa, Botswana and Namibia. Cennergi (Pty) Ltd will focus on the development, ownership, operation and management of electricity generation projects with an initial project pipeline focused on renewables.
Africa's hydropower future
International Commission on Large Dams President Adama Nombre, speaking at a recent African hydropower event, said that water storage and hydropower are at the heart of progress and welfare for the people and nations of Africa. In particular he noted that since the 2008 launch of the World Declaration for Africa, a new pace of development was now occurring in Africa, with large projects under way throughout the continent. Meanwhile, Michel de Vivo, ICOLD secretary-general, identified key elements for successful hydropower development, including securing the necessary investment, ensuring energy independence, and establishing regional stability by exporting power to neighbouring countries.
It seems that Africa's mighty rivers and abundant resources have at last produced a route to development, and with it bringing a multitude of direct and indirect benefits to its people.
David Appleyard is chief editor of HRW-Hydro Review Worldwide