Industry Trend Analysis - What Our Clients Want To Know: SSA Power Landscape - DEC 2017

In November, BMI attended the Sub-Saharan African Power Summit in Lusaka, Zambia, engaging with key stakeholders from across the Sub-Saharan African (SSA) power market - ranging from utilities, government ministries, development agencies and consultancies. BMI also undertook a series of meetings in South Africa with companies operating within the region's energy sector, discussing the most pertinent themes in the market, including distributed energy solutions, renewable energy, regional interconnectivity, grid digitalisation and the availability of bankable projects.

Key themes that emerged from the meetings and summit:

  • The lack of bankable projects on offer to investors

Despite the high demand for power infrastructure in SSA, we note that there is lack of bankable projects on offer to both commercial and institutional investors - as too often the return on investment is questionable. This is a key reason underpinning the region's slow sector expansion and limited installed power capacity up to now, particularly when compared to other regions around the world. Access to feedstock supply, the reliability of the off-taker, access to finance and grid infrastructure maturity are all important factors determining the bankability of power projects in SSA.

SSA Trailing In Terms Of Capacity Additions
Total Power Capacity By Region, 2006/2016e
e = BMI estimate. Source: EIA, BMI
  • Digital energy and the digitalisation of the grid

The digitalisation of SSA's grid network has the potential to significantly boost efficiency, manage unplanned outages more effectively and align supply and demand patterns more evenly across the region's power sectors. These dynamics can benefit both utilities, by reducing operating costs, and consumers, by improving power supply and reliability. However, this represents a shift away from the traditional business model for utilities, towards a greater focus on energy services, and will result in increased competition from non-traditional technology players entering the market.

  • The rise of distributed energy solutions across the SSA region

The deployment of distributed energy is on the rise in the region, primarily the use of microgrids, which is helping to boost electrification rates in rural and remote regions. By by-passing centralised grids, microgrid developers are able to reduce the risk of grid infrastructure bottlenecks and locate the capacity close to the source of consumption. While there is much debate over the economic feasibility of these projects without financial support from donors, the use of such systems will continue to rise, in conjunction with growing partnerships between telecoms providers and microgrid companies in the form of mobile payment plans. The rising penetration of such systems will have implications for state-owned utilities in the region as they are faced with waning power demand from centralised sources, and energy regulators will have to weigh up the decision to regulate tariffs for microgrid developers.

DES To Drive Electrification
Electricity Consumption Per Capita By Region
f = BMI forecast. Source: EIA, BMI
  • Regulatory frameworks mobilising investment into renewable energy

The prospect for renewable energy in SSA is positive, in line with the growing investor interest and strengthening government commitment towards the industry. We have seen increasing numbers of governments adopt regulatory frameworks to encourage developers into domestic renewables industries - for example, South Africa's REIPPP programme and Zambia's 'Scaling Solar' and REFiT initiatives. Given ongoing policy uncertainty in South Africa, Zambia has emerged as a renewable energy bright spot, with international firms rushing to gain a foothold in the market. We expect non-hydro renewables capacity in SSA to total just under 12GW by 2026.

Renewables To Gain Traction
SSA Renewables Capacity By Technology
e/f = BMI estimate/forecast. Source: EIA, BMI
  • Interconnectivity projects rising up the political agenda

We see growing investment into grid infrastructure to boost regional interconnectivity and improve energy security, and we expect this to continue as governments in the region look to increase efficiency and energy security, and reduce electricity costs. As inter-state power trading is prioritised and rises up the political agenda, this creates increased opportunities for those companies operating in the transmission and distribution space and developers building projects for cross-border consumption. Despite these aims, regional integration will be hindered by logistical challenges and bureaucratic barriers.