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Chinese companies such as China Southern Power Grid Corp, one of China’s two power grid operators, are leading BRICS investment in power generation in Sub-Saharan Africa [Xinhua]
The IPP and PPA conference was sponsored by Herbert Smith Freehills, an international law firm with extensive experience in advising IPPs in Africa.
There is huge international investor focus on IPPs due to the power shortages and load shedding in Africa with two-thirds of Africans not having any access to power. To address this need, opportunities for energy projects using both renewable and thermal technologies are expanding.
South Africa’s Department of Energy’s Renewable Energy Power Producer’s Procurement Programme (REIPPPP) launched an IPP development boom in Africa which has spurred investment in Africa in various technologies.
Wikus Kruger from the Graduate School of Business at the University of Cape Town told The BRICS Post that Professor Anton Eberhard had done a major study for the World Bank which showed that South Africa led in terms of the number of IPPs concluded in the past five years, but China was also a significant player when it came to BRICS members involvement in African IPPs.
“The World Bank study showed that China is a significant player, while India and Russia are just starting,” he said.
IPPs are now present in 18 Sub-Saharan African (SSA) countries. Currently there are 59 projects of greater than 5 Megawatts (MW) capacity in SSA countries other than South Africa with a committed capital investment of $11.1bn and 6800 MW of installed generation capacity.
Including South Africa, this adds 67 more IPPs, bringing the total to 126, with an overall installed capacity of 11,000 MW and investments of $25.6 billion.
In addition to IPPs, significant increases in generation capacity have stemmed from Chinese-funded projects. Chinese-funded generation projects can be found in 19 countries in Sub-Saharan Africa.
Eight of these countries have IPPs as well as Chinese-funded projects.
Between 1990 and 2014, there were 34 such projects in Sub-Saharan Africa, totaling 75,000 MW. Chinese-funded projects far exceed IPPs in terms of total megawatts, especially for the years 2010–14, with an average size of 226 MW, in contrast to the IPP average of 98 MW.
The majority of Chinese-funded projects are large hydro-power projects for which Chinese engineering, procurement, and construction (EPC) contractors such as Sino Hydro have become renowned globally.
The typical project structure involves a contractor plus a financing contract. The majority of these projects received funding from the China Export Import (ExIm) Bank.
Paddy Padmanathan from ACWA Power said in his keynote address that SSA countries needed $45 billion per year for generation capacity augmentation and a further $25 billion per year for transmission and distribution needs, but the socio-economic benefits are vast as the removal of 60 per cent of wood stoves will deliver $20 billion to $30 billion per year saving on health spending on respiratory diseases.
The key to successful IPPs was the allocation of risk to those best able to mitigate the risk.
ACWA Power’s philosophy is to focus on cost so that the customer can get the lowest possible tariff.
“This philosophy is reflected in large differences in between the tariffs we submitted and those of the highest tariff with the variation as much as 31 per cent,” Padmanathan noted.
Helmo Preuss in Johannesburg for The BRICS Post
