Africa has a number of power supply challenges, many of which can be overcome with renewable energy. Foremost among the options is hydropower. While large projects can meet stiff resistance in the development stage, small- and medium-sized projects are often less disruptive and easier to complete.
Africa needs more power. According to World Bank data, an estimated 600 million Africans—about 45% of the population—have no ready access to electricity. Although there was a total of 236 GW of grid-connected generation capacity installed in Africa at the end of 2018, the electricity generated is falling short of current needs.
This is the current situation, but there’s also the future to plan for. The United Nations, as indicated in its 2015 world population prospect report, expects the African population will reach 2.5 billion by 2050. Moreover, if Africa continues urbanizing, industrializing, and becoming a global economic force, businesses will need reliable and affordable electricity to power their growth.
Financing Power Projects
While Africa is desperately short of electricity, the governments of its 54 countries are responding to the huge challenge and are cooperating regionally to increase generating capacity, with hydropower projects featured prominently in their planning. Governments are increasingly turning to private sector investors to help electricity generation projects go from the early planning stages right through to construction and operations. African Infrastructure Investment Managers (AIIM), Africa’s largest private infrastructure investment fund manager, is one of many players bringing private sector capital, accompanied with financial, technical, legal, and structuring expertise, to governments in Africa to assist with bridging the energy infrastructure gap.
Large-scale power projects are typically financed on a limited-recourse project finance basis, with the private sector investing circa 30% of the capital required as equity, and the remainder of the capital coming from international and local financial institutions (development finance institutions, commercial banks, and the like).
At the moment, most of the people without electricity in Africa live in rural areas, a long way from towns and cities. Their very isolation is the greatest part of the challenge. Africa’s huge land distances sometimes make it too expensive to build the initial transmission infrastructure to connect small communities to the electricity grid.
Even where there is grid access in rural communities, it can cost more than $1,000 per household to connect to the grid, which is typically prohibitively expensive for a rural household. Furthermore, given the low consumption of rural households, the economic viability of rural home connections is questionable. Lastly, even when rural households or communities do connect to the grid, the supply of power is often erratic and intermittent, leaving consumers in the same position they were in prior to the grid connection—relying on alternative sources of energy for their requirements.
Renewable Energy Offers Options
These factors have been key drivers in the advances of off-grid renewable energy and mini-grid systems on the continent, especially solar power in combination with battery storage. Through a combination of advances in technology, and lower production and maintenance costs, it has become economically viable to supply and install solar panels to individual homes, or to create small solar generating capacity to feed into mini-grids.
As previously noted, Africa has a grid-connected power capacity of about 236 GW. The majority of the capacity is generated from non-renewable energy sources (coal, liquid fuels, nuclear, and gas). However, renewable energy is becoming a bigger contributor to the energy generation mix.
In 2018, renewable energy sources accounted for circa 19% of the grid-installed generation capacity across the continent. While wind and solar photovoltaic facilities have received a lot of attention from international donors and non-governmental organizations, these technologies represent a small component of the overall renewable energy generation mix. Hydropower, however, accounts for roughly 34 GW of installed capacity in Africa.
Large-Scale Hydro Solves Regional Problems
Hydropower, on a large scale, has the ability to produce a lot of electricity, and it can be produced fairly reliably and predictably. The International Hydropower Association (IHA) estimated in 2012 that 78% of global renewable energy came from hydropower, and AIIM estimates it’s still in the region of 70% today. According to the IHA, Africa could see growth to 300 GW of renewable energy capacity by 2030, more than two-thirds of which will be from wind or solar sources. However, at least 100 GW is expected to come from hydropower by 2030.
In 2018, almost 1,000 MW of new hydropower was added to Africa’s installed capacity, 668 MW of which was installed in Angola. By the end of 2018, Angola’s government was expecting about 64% of the country’s energy mix (or about 4 GW) to come from hydropower.
Hydro is an abundant source of potential power, which is important for countries with limited alternatives. Hydropower can assist African countries in achieving sustainable development goals, generating power as one of the lowest-cost sources of renewable energy globally.
Another reason for optimism for large-scale hydropower plants, according to the IHA, is the role played by the regional power pools on the continent, such as the East African Power Pool (EAPP). Governments have realized that if they plan their power production regionally, they can all benefit from lower costs of production and greater connectivity.
The EAPP was set up to increase power system connectivity in East Africa in 2005. It gives neighboring countries the ability to produce and sell electricity regionally, and this delivers economies of scale. Under the EAPP, Rwanda will import 400 MW from Ethiopia and 30 MW from Kenya. Research from the African Development Bank estimates that about $26 billion has been invested in regional transmission infrastructure.
1. In 2014, ANDRITZ HYDRO received a contract to supply the electro-mechanical equipment for the new Lauca hydropower plant. The company designed, supplied, provided installation supervision, and commissioning of the Francis turbines, generators, main transformers, isolated bus ducts, as well as control and protection systems. Courtesy: ANDRITZ HYDRO
There are many large hydro projects currently under construction. For example, Angola’s Lauca plant on the Cuanza River (Figure 1) will be the country’s largest renewable energy source. When all six of its turbine generator units are operational, it will produce about 2,070 MW, which will help meet the country’s short- and long-term energy needs. The facility is absolutely central to Angola’s social and economic development.
Another example is the 420-MW Nachtigal hydropower project in Cameroon. The project has a 35-year concession agreement with Republic of Cameroon and power purchase agreement with ENEO, a privately-owned electricity distribution company. The project has also garnered support from a number of international development finance institutions, and should become operational in 2023.
One of the largest hydropower projects driving grid expansion is Ethiopia’s 6,000-MW Grand Ethiopian Renaissance Dam. The country also has the 1,870-MW Gilgel Gibe III project. Mozambique is expected to have 5,400 MW of hydropower by 2025.
Large Hydro Comes with Challenges
While hydropower is a sustainable power source and ultimately has less of an impact on the environment than coal or liquid fuel power stations, it must be noted that large hydropower plants come with their own set of significant challenges—namely environmental and social challenges, lengthy development periods, and long construction periods, among others.
Often the construction of large hydropower dams involves resettling communities due to the inundation of the dam basin. This can result in communities being affected through disruption to livelihoods and community cohesion. Furthermore, the flooding of large dam basins can also result in significant disturbance to local fauna and flora, which is often pristine or endangered, given the remote locations chosen for large hydropower plants. Environmental impacts on the riverine environment downstream of the dam are also a key concern, and environmental flows must be built into the operations of the power plant. Lastly, the use of the water and its impacts on downstream users, particularly when a hydropower plant is located close to a country border, is another challenge that has to be carefully planned and executed.
These issues inevitably take time and considerable intergovernmental cooperation to resolve, and as such, between the project concept and first power generated, there are typically many years of painstaking development, planning, and negotiations. As a result of the long gestation period and complexities of large hydropower developments, many private sector investors are looking toward small- and medium-sized hydropower projects as a means to deploy capital and generate power in a far shorter period of time.
Small-Scale Projects Make Sense
AIIM adopted this approach, and after considering a number of large-scale hydropower investment opportunities, embarked on the development of smaller-scale, run-of-river hydropower plants in Africa. AIIM Hydroneo, the company’s hydropower development platform, which is a partnership with Mecamidi, a French turbine manufacturer, was established in 2015, and is currently developing a number of small- to medium-size projects of less than 10 MW each in West Africa, with a current focus on Cameroon and Guinea. The rationale for developing run-of-river projects is to reduce the need for large embankments, thereby reducing the environmental and social impacts, and consequently bringing projects to financial close far quicker than would be possible with a large hydropower plant.
Furthermore, small hydropower provides other benefits, such as the ability to geographically diversify risk and spread the generation capacity within a country to be closer to the centers of demand. This brings the added advantage of potentially reducing the amount of transmission required, and a reduction in associated transmission losses. Having a number of geographically dispersed small hydro plants can provide a level of protection against drought conditions, when compared to one or multiple large hydropower plants located in the same area.
Lastly, small hydropower plants are considerably less capital-intensive and typically cost less than $5 million per MW to build, which means they can often be more easily financed with greater flexibility on the capital structure and sources of funding (fully equity funded and refinanced later, for example).
2. ANDRITZ HYDRO was awarded a contract in 2012 to deliver four tubular-type Kaplan turbines with a runner diameter of 2,850 millimeters for the 40-MW Kashimbila hydropower plant in Nigeria. Courtesy: ANDRITZ HYDRO
There is also a lot of international financial support for small hydropower in Africa (Figure 2). One of the larger investors is the European Union’s Energy for Growth and Sustainable Development program. It, for example, is funding Tanzania with about $200 million of capital to construct small-scale hydropower plants and other types of renewable energy. Similarly, the Global Energy Transfer Feed-in Tariff (GET FiT) program—implemented in Uganda—supported 14 small-scale hydropower projects, many of which are operational today. The GET FiT program is also being rolled out in Zambia to support hydropower projects.
Africa is one of the world’s most rapidly growing regions, and if the continent continues on its expected growth path, its power generation capacity will need to be significantly increased. Hydropower projects, both large and small, have enormous potential to provide the African population with a reliable, renewable energy source, and will be even more essential to the energy mix as fossil fuels are replaced. ■
—Ashwin West is an investment director with African Infrastructure Investment Managers (AIIM), and represents the AIIM funds on the board of AIIM Hydroneo, a hydropower development joint venture.