Amy.Offord_111 Aug 13

East Africa Policy Developments: PUSHING BOUNDARIES

East Africa Policy Developments: PUSHING BOUNDARIES image

There has been a remarkable level of innovation in East African power-sector development, says Neil Ford in his overview of policy and investment in the region.

There have been numerous examples of progressive policy development in the region over the past year. For example, Uganda has adopted a pricing strategy for electricity from both the Isimba and Karuma hydro projects that offers low-cost electricity while enabling debt repayment. Residential tariffs on Karuma have been set at $0.497kWh for the first 10 years, followed by $0.27kWh for the next five years and $0.117kWh thereafter. Those on Isimba will be $0.416kWh for the first 15 years, followed by $0.101Kwh thereafter.

It has been reported within the country that the current average cost of power is $0.8-$0.9kWh, so these are very low figures indeed. However, the Uganda Electricity Generation Company Limited still calculates that the Isimba plant will generate USh-150bn (US$41.6m) a year in revenue at the lowest projected rate, which it believes will be sufficient to service the debt on the project, meet operational and maintenance costs, and generate a small profit. The government also wants to refinance outstanding debts on the Bujagali hydro scheme, which was completed in 2012.

Kampala is financing the development of the transmission grid in such a way as to enable plentiful supplies in areas where it plans to develop 25 industrial parks. In addition, the grid is to carry electricity to all parts of the country as soon as possible, with 300,000 new properties connected every year. According to the Uganda Bureau of Statistics, the country’s electrification rate currently stands at 20%. In the longer term, the government is also keen to export electricity to the rest of East Africa, including the Democratic Republic of Congo and South Sudan. However, domestic power demand is growing by 9% a year, which means that new capacity needs to be brought on stream regularly if domestic supplies are to be maintained.

THE KENYAN APPROACH

Nairobi’s electrification success has been partly driven by wide-ranging innovation. Its decision to create a new independent regulator in 2006 – the Energy Regulatory Commission (ERC) – is often cited as a contributing factor to its success. While the Ministry of Energy focused on attracting new investors, the ERC was able to concentrate on sector regulation, licensing projects and setting tariffs.

Kenya has also innovated by offering lower tariffs to manufacturers that operate at night when power demand is low. The lack of access to affordable, reliable electricity is one of the main reasons why most African countries lack substantial manufacturing sectors.

According to the World Bank, Nairobi approached it not for direct funding but for advice and to allow the use of its own security instruments “to attract investors, including commercial banks that had not provided support to earlier rounds of in-dependent power producers [IPPs]”, including partial risk guarantees that gave private-sector investors more confidence. A total of 13 IPPs now operate in the country.

By contrast, the Tanzanian government went down the traditional route of securing a big loan from the World Bank’s International Development Assistance (IDA) in June 2018 to help fund power-sector projects, comprising just over half of the $880m the government has sought in concessional loans in 2018 and 2019. In a statement, the World Bank said: “The $455m credit will finance construction of critical, high-voltage transmission infrastructure that will support the electrification of the southern and north-western regions of Tanzania.” According to Power Africa, the big-gest obstacles to the development of a stronger power sector in Kenya are inadequate access to project financing; uncertain land tenure for both generation and transmission projects; long procedures and inconsistency in the approval of power purchase agreements; and the lack of a clear, off -grid regulatory framework.

COAL DOUBT

The Kenyan government is under pressure to end its support for the 1GW coal-fi red plant proposed for Lamu. The planned development consortium for the Amu Power project comprises GE, the Investment and Power Construction Corporation of China, Gulf Energy and Centum.

A new port is being developed in the coastal city. The government hopes it will become the hub of a new industrial area, which is why it wants power supplies in the area. The plant would be supplied with coal from South Africa and possibly Mozambique. However, opposition to the scheme has been strong because of the carbon emissions and air pollution the plant would produce. The Kenya National Electrification Strategy, which was published in December 2018, stated that the project would not be developed soon, hinting at government doubts over the scheme. A spokesperson for the Ministry of Energy said: “A power purchasing agreement between Amu Power and Kenya Power has already been signed. The commissioning of this power plant is, however, unlikely to materialise before 2022.”

There is a growing feeling that Kenya has been too successful in securing new generation projects. In January, the ERC said that power-generation capacity would soon outstrip demand, resulting in unused capacity and higher prices for consumers. This is unusual for Africa, where the re-verse usually applies, but it provides added motivation for the government to cancel the Amu Power project.

Given that sub-Saharan Africa – with the exception of South African coal and Nigerian off shore gas flaring – has made little contribution to global warming, it is unreasonable to expect African countries to reject coal when so many other parts of the world have achieved economic development on the back of it. There are, however, sound environmental rea-sons to reject the project, not least the health of the people of Lamu.

Kenya also intends to import electricity to top-up its own production. A 1,045km transmission line is being developed to carry Ethiopian electricity to Kenya, with 433km on the Ethiopian side of the border and 612km on Kenyan territory. It will carry electricity from up to 2GW of Ethiopian capacity to Kenya, making it perhaps the highest capacity cross-border interconnector in Africa. The $1.2bn project is being funded by the World Bank and African Development Bank; China Electric Power Equipment and Technology is already working on the Ethiopian section of the line.

This article is an extract from the Africa Energy Yearbook 2019, a partnership between African Business and EnergyNet.