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Potential Markets for Renewables in Sub-Saharan Africa

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Abstract

Six of the ten fastest growing countries reside in the sub-Saharan African region, and of

these countries, 76 percent of the population does not have access to a central grid system.

As a result, students can’t study after sunset, there is an inability to refrigerate medicines,

hospitals are forced to operate with no lighting or equipment, all factors of economic

stagnation across the region. There is an obvious shortage in supply of energy, but an ever

so fast increasing demand. In 2040, the sub-Saharan is expected to consume a total of 1,600

terawatts, a fourfold increase from 2010. The current infrastructure for energy generation

and distribution is not at the standard necessary to foster the growing population and

energy demands. Analyzing trends in population, geographic distribution, and economic

growth, we conduct a holistic evaluation of the status of the energy market in the sub-

Saharan region. Through this evaluation we are able to identify risks and opportunities in

the energy market, and provide reasoning as to why and why not companies should be

entering the race for energy ownership in the region. Following this we quantify the

demand for energy through the lenses of: reliability, price, and limited access and supply.

With this we are able to outline the different alternatives and capacities of each renewable

energy source and create a theoretical plan which will optimize each source’s potential, and

thus solve the issue of generation in sub-Saharan Africa. Lastly, we conclude with the

connection E.ON and afforded opportunities in the sub-Saharan energy market, using the

Rafiki Power project as a precedent for future investments.

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Table of Contents

ABSTRACT 0

ECONOMY 4

DEMOGRAPHICS 9

POLITICS 12

EDUCATION 14

HEALTH CARE 14

SUB-SAHARAN AFRICAN ENERGY SECTOR 17

SUB-SAHARAN AFRICA ENERGY TRILEMMA 18

LIMITED ACCESS AND SUPPLY 18

RELIABILITY 19

PRICE 19

IDENTIFYING ENERGY INFRASTRUCTURE NEED 20

SUMMARY OF DEMAND 20

ENERGY FRAMEWORK PROJECTION 22

FOSSIL FUELS 24

SOLAR 24

WIND 26

NATURAL GAS 27

GEOTHERMAL 28

HYDROELECTRIC 29

AFRICAN ENERGY IMPLICATIONS TO E.ON 30

FURTHER READING 31

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Background of Sub-Saharan Africa

Sub-Saharan Africa in 2020

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Economy

Africa – the world’s second-largest and second most populous continent – covers 20.4

percent of Earth’s total land mass, and is home to 15 percent of the world’s population. It is

home to fifty-four recognized sovereign states. Unfortunately, the average GNI (Gross

National Income) is $1,638 as recorded by the World Bank in 2014. More specifically, in

2010, 414 million people were living in extreme poverty in Sub-Saharan Africa. However,

this region is one of the richest in terms of natural resources. The natural capital has made

Sub-Saharan Africa a hot-topic over the past twenty years amongst foreign investors. Some

of these resources include: crude oil, diamonds, gold, cooper, iron, and various other rare

metals which all in all have an estimated worth of about €56 million to countries such as

China, Switzerland, India, United States and the Netherlands.1

As seen above, the Sub-Saharan Africa employment to population ratio, compared to the

rest of the world is staggeringly low. In addition, the share of industrial employment is also

the lowest out of all regions in the world. This is due to the geographical spread of the

1 https://www.imf.org/external/pubs/ft/reo/2015/afr/eng/pdf/sreo0415.pdf

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population, as most people live and work in rural areas rather than industrial centers, like

you would find in East Asia, or North America. However, these are the statistics of the past.

Sub-Saharan Africa is the fastest growing region in the world. In 2015, six of the ten fastest

growing countries in the world are found in this region, with an average percent GDP

growth of 9 percent, according to the World Bank. As seen below, the average GDP per

capita in Sub-Saharan Africa has more than doubled from 2002 to 2015.

Sub-Saharan Africa has cemented its place in the world as an emerging market; some

economists claim the region will overtake the BRICS countries in terms of global financial

power by 2050, purely because of the plethora of natural resources and increasing

population.

In the last fifteen years, private capital flow began to exceed normal rates of developmental

assistance, primarily sourced from private-sector investment portfolios. In effect, the

economic growth rate in the region rose from 4.7 percent in 2013 to 5.2 percent in 2014,

caused by the increasing investment in infrastructure and increased expenditure per

household. Ajen Sita, Chief Executive Officer of Ernst Young Africa, states, “Africa’s share of

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global FDI projects has grown steadily over the past decade and it is a promising sign that

investors are now looking across the continent to new sectors. Further regional integration

and infrastructure development will continue to entice investors to the exciting investment

opportunities that Africa can offer.”2

The Sub-Saharan African economy has doubled in size from 2000, reaching €2.4 trillion in

2013. As of 2014, agriculture was the largest sector in most Sub-Saharan African countries,

accounting for 20 percent of the region’s GDP, but is quite inefficient in comparison with

Western agriculture systems due to a lack of applied modern energy. In addition to

agriculture, energy exports play a large role in more resource-rich countries; yet, the

economy of the entire region is still smaller than many Western and Eastern economies.

This is due to a lag in development, infrastructure, and technology, accompanied by political

disarray and cemented cultural boundaries. In saying this, private investors are beginning to

2 http://www.ey.com/GL/en/Newsroom/News-releases/News-foreign-direct-investment-in-sub-saharan-africa-on-the-rise

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put the money and work in to invest in this region, and they are reaping profits, and seeing a

type of hyper-developmental progress. 3

The United Kingdom leads in investment in the region, implementing 104 projects in 2013,

while the United States falls second with 78 projects. Other investors include, but are not

limited to, South Africa, Spain, Japan, and China. In saying this, China has been the major

driving factor of growth. The total trade between the sub-Saharan region and China has

increased from €5 billion in 2000, to €150 billion in 2013, as seen above. However, not only

are foreign countries noticing the emerging market; intra-African investment has tripled

their FDI projects over the last decade, moving from 8 percent to 22.8 percent. A large part

of this is due to regional, political, and cultural integration which will be discussed later in

this paper. Michael Lalor, Lead Partner Africa Business Center, comments, “External

investors supply long term capital, skills, and technology, and intra-African investment

creates a virtuous circle that encourages greater foreign investment.” This harmony

between intra-continent and foreign investment is a sustainable structure of investment

that fuels itself.

On the contrary, there are many reasons to be skeptical about this newfound enthusiasm

for Africa. Looking at the past 200 years, you can see why investors have chosen not to bury

3 http://www.ey.com/Publication/vwLUAssets/EY-africa-attractiveness-survey-2015-making-choices/$FILE/EY-africa-attractiveness-survey-2015-making-choices.pdf

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their money in African soil. Corruption, disease, violence, lack of uniform language, and

cultural boundaries are just a few of the factors that have warded off potential investors,

and it’s naïve to only look through a lens of optimism and enthusiasm, when in reality there

are high monetary risks, as well as dangers when investing in Africa. The culture of doing

business in Africa, like the Indian market, and East Asian market, is far different than the

culture of business in the Western world, which makes it difficult to enter in with

confidence. Most wealthy investors look for businesses worth more than €100 million, but

half the firms bought in 2014 were valued at under €10 million. Therefore, investment in

Africa is different than what large corporate entities are used to. As Hurley Doddy of ECP

says, “There are not many €100 million deals for sale, but plenty of €10 million

opportunities to bolt together.” Doing business in Sub-Saharan Africa requires more time

and work, investors should not expect to fly their private jet in, make a deal, then fly back

home. The most successful investments have been ones in which investors understood local

conditions and culture of their target country.4

4 http://www.catalystprincipal.com/category/catalyst-principal-news/

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Demographics

Sub Saharan Africa makes up a majority of the continent’s population with about 800 million

people in the region – made up of 48 countries – as of 2009. The United Nations believes

that the population will reach 1.5 billion by 2020 based upon a growth rate of a little over

two percent. As seen in the chart, the population is expected to double by 2050 and then

triple by the year of 2100.

Africa has the youngest median age across all countries at 19.5 years, as estimated by the

United Nations in 2016, while the world median is 30.4 years. From 2015 to 2016, the

population growth change was 2.58 percent, moving from 1.19 billion to 1.22 billion, one of

the fastest growing populations in the world due to the rapid development and urbanization

due to foreign investment from countries such as: China, India, and Australia; increasing

flows into the country by 4 percent to $23 billion, helping increase Sub-Saharan’ Africa’s

share of world FDI. These Sub-Saharan families usually begin to have children at an average

age of about twenty years old. Unfortunately, the life expectancy currently is only about 45

years old, compared with India’s 66 years and China’s 75 years. This is in part to political and

cultural conflicts that have occurred within the region, which has kept conditions of: poor

health care, scarcity of medical centers, lower standard of living, and diseases such as

HIV/AIDS, malaria, pneumonia, and chronic diarrhea, in the past.5

5 https://www.newsecuritybeat.org/2013/08/demographic-transition-stalled-sub-saharan-africa/

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The Sub-Saharan region is the most linguistically diverse region in the world with over 1,000

languages spoken across 48 countries, making up approximately 16 percent of all languages

spoken across the world. In this region you will find languages under the groups of: Niger-

Congo, Nilo-Saharan, some Indo-European as you travel further south, Afroasiatic,

Ausornesian, and many other smaller groups; a map of these languages is displayed below.

Within these larger groups you find the different languages spoken across each country,

within each cultural group, such as the Kenyan Kikuyus, Nigerian Igbos, and the Rwanda

Hutus and Tutsis. With this rich diversity in language comes a foundation for political

dissension amongst the different cultural groups. Imagine the problem of cultural

segregation in India because of the different languages spoken, and spread it across 48

countries. One could walk two hours from their home, and not be able to understand the

Source: Library of Congress Geography and

Map Division, 1996. U5

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language in the next town because of such diversity. There is a lack of uniform language

which makes it difficult to communicate cross-country, and in turn makes it difficult to

conduct business.

Take the reason for the introduction of money into society: a medium of exchange and unit

of account, a way to uniformly communicate value in order to avoid the issue of

remembering the value of your good or service in relation to every other good or service on

the market. Now apply this idea to languages; without a uniform language – money in this

case – we need multiple translators for every language that we come in contact with –

goods or services in a market. From this you can see why it has been difficult to conduct

business in Africa from a foreign and even local perspective. Consequently, in correlation, as

the rate of urbanization increases, the number of schools teaching English and French also

increases. This is good news for foreign investors in the future, as today’s Gen Y’s and

Millennials will be able to efficiently conduct business without the presence of a language

barrier.6

6 http://data.worldbank.org/region/SSA

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Politics

As discussed earlier, it is naïve to only analyze the African market through and lens of

optimism. The biggest risk that investors have, whether small or big, is the political unrest in

the region. Despite the pro-democratic movement across the region, over 70 percent of

people in this region lack basic civil liberties and human rights. The region is plagued by

corruption, civil conflict, and social inequality. As result of: European colonial rule, post-

colonial authoritarian states, and military rule, the political system is now defined as a

system in which power sis concentrated within the polity. Decisions are often made by just a

few elite individuals; rarely are decisions delegated to local or regional governments,

however there has been an increase in these delegations over the past ten years.7 In hand

with this system comes relatively extreme levels of corruption. Six of the ten most corrupt

countries in the world reside in the Sub-Saharan region. A study by the African Union found

that corruption costed the continent €150 billion per year. There is corruption at almost

every level, from high profile politicians to small bribers to police officers. There is an

undermining of public trust in the government which has arisen from the political and

cultural segregation between different ethnic groups in the region. This corruption is

holding back the development of the countries’ economies. Take Kenya for example, public

papers show ballpoint pens being bought for €85. The government is running at a fiscal

deficit of 9 percent of the GDP. 8 Although levels of corruption have been documented as

decreasing in the past years, it is still something to keep in mind when evaluating the risks of

entering the Sub-Saharan market.

7 https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/7527.pdf 8 http://www.cfr.org/africa-sub-saharan/corruption-sub-saharan-africa/p19984

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Source: Transparency International

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Education

Education, specifically primary education, has been a primary issue in Sub-Saharan Africa as

identified by UNESCO. However, the region has made significant progress over the past

twenty years. There has been a net enrollment increase from 58 percent in 1999 to 87

percent in 2010. In some Sub-Saharan countries like Burundi the enrollment rate has grown

to 96 percent as of 2011. However, there is a disparity across the different countries with 99

percent of children being enrolled in primary school in Madagascar, but only 37 percent of

children enrolled in Eritrea.9 This is due to the inability of parents to pay for primary schools,

or the lack of number of schools in close proximity. The mission now, as aligned with the

millennium development goals, is to provide universal primary education. Participation in

secondary education in many Sub-Saharan countries were below 20 percent, while

countries such as Mauritius, Seychelles, and South Africa had a secondary enrollment of 90

percent or above. Tertiary education has the lowest enrollment rate with only 4.5 million

students enrolled in 2008, however a 115 percent increase from 1999. These increasing

rates of enrollment in primary, secondary, and tertiary education represent a future with

increased numbers of skilled workers, a stronger concentration on entrepreneurship, and a

larger shift towards urbanization; yet another study showing that the Sub-Saharan market is

emerging. 10

Health Care

Sub-Saharan Africans rate their health care among lowest in the entire world. But, the

people of Sub-Saharan Africa sometimes have trouble focusing on the health of its citizens

when other problems such as unemployment, corruption, and chronic poverty are also dire

concerns. But, other countries around the globe have been providing aid for this region and

it has caused some remarkable developments and improvements. For example, in Tanzania,

malaria death rates have dropped a substantial amount and in Uganda, infant mortality

rates have been cut in half. But, life expectancy statistics have not been improved

9 http://en.unesco.org/gem-report/sites/gem-report/files/157229E.pdf 10 http://www.aaionline.org/wp-content/uploads/2015/09/AAI-SOE-report-2015-final.pdf

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dramatically and many of the diseases that the Sub-Saharan people are dying from are, in

fact, preventable. With the Ebola outbreak occurring in this region, about 11,000 people

died. Some say the number is that large because of the fast-spreading nature and low

chance of survival of the disease, but a lot had to do with the weak health care systems. The

graph below shows the percentage of total money that the government spends on health

care compared to how much money it has to spend.

As seen above, many countries in this region do in fact have the ability to spend more of

their money on health insurance. As seen in the chart below, the majority of people in the

region, believe that this money should be spent more on the health of its citizens than

infrastructure or the supply of energy. 11

11 http://www.ibtimes.com/sub-saharan-africa-lags-other-regions-healthcare-world-bank-world-

health-organization-1963503

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Even though a lot of the countries in the Sub-Saharan region are not spending much money

on the health care of their citizens as seen in the first graph, and do have some capacity to

spend more, many citizens believe that in order to achieve better health for their citizens,

these regions must rely on foreign aid. Only three percent of the doctors in the entire world

reside in this region and it contains 25 percent of the world’s diseases. This is a risk to take

into consideration when evaluating the region in it’s potential as an energy market.12

12 http://wws.princeton.edu/news-and-events/news/item/sub-saharan-africans-rate-their-health-

and-health-care-among-lowest-world

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Sub-Saharan African Energy Sector

Source: African Development Bank Group

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Sub-Saharan Africa Energy Trilemma

Limited Access and Supply

In the Sub-Saharan region today, 32 countries are facing an energy crisis, according to the

World Bank, that sees rolling blackouts, inability to refrigerate medicines, difficulty reading

after dusk for students, and idled economic growth, livelihoods, and jobs. Energy

infrastructure is at the core of any developing country; a man can sit on a bike, but without

expending energy he will go nowhere. In the case of Sub-Saharan Africa, they have built the

bike, but they are missing the pedals. The energy infrastructure in Sub-Saharan Africa is

amongst the poorest in the world. There is a trilemma in the region’s energy sector, the

three issues are: price, reliability, and limited access and capacity. Three cogs which are

halting the progress of the region’s economy. The region has an average electrification rate

of only 24 percent, 12 percent less than other low income countries. Taking South Africa out

of the picture, the entire Sub-Saharan region only produces a whopping 28 Gigawatts, which

is equivalent to that of Argentina; 47 countries producing the same amount of energy as

one semi-developed country.13 Although the region is well endowed with access to fossil

fuels, hydro-power, geothermal, and solar, the infrastructure to harness this energy is

missing. As seen

below, the maximum

electricity generating

capacity for the region

is significantly lower

than Latin America and

Asia. In addition to

this, the lack of

substantial energy

transmission makes it

so only urbanized

wealthy individuals

13 World Bank, Fact Sheet: The World Bank and Energy in Africa

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and the commercial sector have access. There is a need for an intensive restructuring of the

energy infrastructure across the region in order to match its projected growth over the next

few decades. 14

Reliability

The next issue is reliability; African enterprises experience power outages 56 days per year

on average. This has caused a 6 percent loss of sales revenue in the informal sector. These

statistics are for substantial, developed companies with expensive back-up generators. For

places without back-up generators, like most small businesses, losses can be as high as 20

percent due to the unreliability of energy in the region. Although not large, this unreliability,

has the largest effect on the manufacturing sector in Africa, as every time the energy is cut,

and the back-up generator is used up, the factory must shut down, which is astronomically

expensive to start up again. As a result of the unreliable energy, many small businesses, and

some residential housing units, use diesel generators to operate, meaning that they are

operating at two to three times the cost, while also polluting the air. The percentage of the

population with access is low enough, but coupling that, the electricity is intermittent due to

governmental failures at developing a feasible national energy plan. The energy sources are

not diversified, the grids are poorly maintained, and in all, the supply is miniscule in

comparison to the demand for energy. 15

Price

In all this, the price of energy is still higher than the world average, which brings us to our

last dilemma: high costs. The range in which power tariffs in most developing countries is:

€0.03 to €0.07 per kilowatt-hour. Sub-Saharan Africa, on the other hand, has an average

tariff which is double the price, at €0.13 per kilowatt-hour. This is down to a lack of

generation and transmission of energy.

14 World Bank, Energy in Africa: Overview 15 http://allafrica.com/stories/201604180150.html

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Identifying Energy Infrastructure Need

If energy is such an integral part in growing the economy, why aren’t governmental entities

prioritizing the generation and transmission of diverse energy sources across the region?

Keeping in mind the IEA projects that if the region can meet energy demands, the economy

would grow by a further 30 percent than what is already projected for 2040.16 The

paradoxical though-process is that employment, water supply, agriculture and farming,

education, and effective healthcare are more pressing problems than electricity.

Recognizing that these are problems of utmost importance, as it relates to survival and

health, but passing the fact that an increase in electrification would solve many of the

deeper rooted problems within each of these larger scale issues. Electricity is a prerequisite

for water management, advancements in health care, efficient agriculture practices, and

modern education. In all of this, an increased emphasis on energy infrastructure would

create thousands of jobs, both for skilled and unskilled workers. Energy infrastructure is of

utmost importance; government agendas must play a part in this, in hand with private and

foreign investment.

Summary of Demand

There is a strong positive relationship between electricity consumption and GDP as seen

below. As mentioned previously, Africa has 13 percent of the world’s population but less

than half that population has access to electricity. Looking more specifically at Sub-Saharan

Africa, the percentage of the population who has access to the grid is even less. Looking at

the energy consumption of the region holistically, the consumption rates are far below

other emerging markets. Looking at the figure below we see that the Sub-Saharan African

countries occupy most spaces in the bottom third of both GDP and electricity consumption.

Excluding South-Africa, consumption is approximately 150 kilowatt-hours per capita. To put

that into context, the average consumption of electricity per capita in Germany is 7,019kWh

as of 2015. This is more than 46 times the average consumption in Sub-Saharan Africa.17

16 https://www.iea.org/newsroomandevents/pressreleases/2014/october/energy-sector-is-key-to-powering-prosperity-in-sub-saharan-africa.html 17 http://data.worldbank.org/indicator/EG.USE.ELEC.KH.PC

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There is an obvious lack of supply of electricity in Sub-Saharan Africa which is driven by an

ever so fast growing demand as the region’s economy propels itself forward. In the next

thirty years, Sub-Saharan Africa is projected to consume 1,600 terawatt hours by 2040, a

four-fold increase from 2010. This forecast is based on a five-fold increase in GDP,

electrification reaching more than 70 percent, an increase in urbanization, and a doubling of

the region’s population. By 2040, Sub-Saharan Africa is projected to consume the same

amount of energy as all of Latin America and India combined in 2010. Excluding solar, there

is an estimated 1.2 terawatts of capacity; including solar, there is an incredible 10 terawatts

of potential capacity across the region. Looking at gas, there is a potential for about 400-

gigawatts, with Mozambique, Tanzania, and Nigeria accounting for 60 percent of the total

capacity; 350 gigawatts of hydro; 300 gigawatts of coal capacity; 109 gigawatts of wind

capacity, and an identified potential of only 15 gigawatts of geothermal energy.18 Taking a

step back and looking at the current energy demand split, bioenergy accounts for more than

60 percent. At the moment, renewables only account for 2 percent, but there has been

significant growth in recent years. 19

18 http://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/powering-africa 19 https://www.iea.org/media/news/2014/press/141013_WEO_Africa_Energy_OutlookFactsheet1.pdf

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Energy Framework Projection

Looking at the capacity of all sources of energy, both renewable and non-renewable, Sub-

Sharan Africa has the potential for electricity to reach every town and city across the region,

a complete rate of electrification. The energy capacity that Africa holds between solar,

hydro, gas, and coal, would exceed the projected demand over the next twenty years by a

factor of ten. To do this, McKinsey & Co estimates that the Sub-Saharan region would

require about €440 billion for generation alone, with an extra €300 billion for transmission

and distribution. In this section we will identify the different sources of energy, and show

their potential role in total electricity production over the next twenty years in Sub-Saharan

Africa.20

20 Brighter Africa: The growth potential of the sub-Saharan electricity sector

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Case Study: South Africa’s Renewable Energy Independent Power

Producer Procurement Programme

he Renewable Energy Independent Power Producer Procurement

Programme (REIPPP) was started to promote and stimulate the renewable

energy industry in South Africa. Since August, 2011, the program has

attracted a multitude of private investors, accelerating the progress towards

a widespread grid-connected renewable energy system in South Africa. In

three years, REIPPP has fostered the growth of 64 independent power

projects, amounting to €12.5 billion in investment, constructing grid-

connected wind, solar, hydro, and biomass technologies with a capacity of

3922 MW.

South Africa started with a feed-in tariff system to cover generation

costs, however, after two years, there was a risen level of uncertainty, calling

for lower tariffs. The Department of Energy quickly called for the termination

of REFIT, and subsequently launched the REIPPP – a system where bidders

bid on tariff and socio-economic development objectives. The bidding

process has attracted domestic and international project developers as well

as equity shareholders. Over three bidding bidding phases in under two and

a half years, average solar photovoltaic tariffs has decreased by 68 percent

and wind tariffs by 42 percent. In turn, economic development commitments

have been significantly strengthened, benefiting rural communities.

One investor described REIPPPP as “the most successful public-private

partnership in Africa in the last 20 years.” Owing to: complete transparency

within the Department of Energy and Independent Power Producer

institutions, a problem solving approach rather than administrative

enforcement, and a management team with credibility to rid mistrust in the

public-private dialogue. In addition, the design of the programme was built

on previous failures, with an efficient bidding process that allowed for

multiple bid winners, an incentive for the private sector to participate and

compete. With organized management and efficient design, the programme

has proven to be extremely successful.

T

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Fossil Fuels

Fossil fuels are expected to amount for approximately 67 percent of energy supplied in

2040, a declining percentage from 2010. A recorded 75 percent of Sub-Saharan African gas

sources have yet to be tapped into. Mozambique and Tanzania amount for 50 percent of

this potential capacity while the remaining capacity is held by South Africa, Mauritania, and

Nigeria. Currently the government subsidies for gas are very high, with a gas capacity cost of

€40 to €58 per megawatt-hour. This is acting as a disincentive for both foreign investors and

local investors to produce as they are not willing to sell at such low prices. In addition,

almost 30% of oil discoveries over the past five years have been concentrated within the

Sub-Saharan region. However, due to political unrest, militant activity, and regulatory

disorganization, there has been a stagnation in extracting the discovered oil. Each day,

about 150 thousand barrels are stolen each day, amounting to €4.5 billion per year.

Production of gas in most countries, with the exception of Nigeria, is in decline, in sight of

implementing more cost efficient renewable energy technologies.21 Switching to the next

largest source of fossil fuels: coal; three countries: South Africa, Botswana, and

Mozambique account for 94 percent of the resource capacity. The levelized cost in 2040 is

projected to be between €51 and €55 per megawatt-hour, with expected increases in

mining costs, decreasing subsidies, which correlates with the decline of its role in the future

amongst increasing capacities of renewable technologies in 2040.22

Solar

Sub-Saharan countries are currently going through their respective industrial revolutions,

rapid growth over short time periods seeing a movement of populations to cities, as well as

the movement from agriculture economies to a more industrial and service based economy.

Solar energy has a staggering potential capacity of more than 8.8 terawatts, more than

seven times the potential of all other energy sources combined. The sub-Saharan region

estimates 3,3000 hours of sunshine per year, with high intensity radiation, making it the

21 https://www.iea.org/publications/freepublications/publication/AEO_ES_English.pdf 22 Brighter Africa: The growth potential of the sub-Saharan electricity sector

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perfect environment for the implementation of solar power. In the past few years, the price

of solar panels has cut in half due to the increased production in China along with low-cost

technology breakthroughs.23 With these falling costs, there has been a correlated fall in the

levelized costs of electricity of utility-scale projects in Africa. The LCOE for photovoltaic

projects in 2014 ranged between €0.11 and €0.22, making it one of the most competitive PV

projects in its year. Thus, solar can be applicable at both the household level, as well as the

industrial and national level. Photovoltaics can be used for household systems, while

concentrated solar power (CSP) can be used for national scale projects. With the

combination of these two generation technologies, the potential capacity outweighs the

demand in the next thirty years by orders of magnitude.

Concentrated Solar Power is a method of using mirrors to focus solar thermal energy into a

singular point and convert it into high temperature heat, which is then used to drive a steam

turbine to generate electricity. This method of generation increases in efficiency when

temperatures are higher. The average temperature in the sub-Saharan region is 33.9

degrees Celsius, making it the best region for CSP. As high temperatures correspond with

the demand for air conditioning, the problem of peak capacity would be reduced with CSP.

However, these projects are capital intensive, as thermal storage units incur higher costs

than conventional photovoltaics, but they allow for a far larger capacity than photovoltaics,

with current technology. Six projects were commissioned in 2015 by Algeria, Egypt,

Morocco, and South Africa, and cost approximately 7,000 €/kW, which is higher than

conventional solar PV projects, but the gap is closing with rapidly advancing technologies.24

The sub-Saharan region has a low population density, meaning that CSP is a viable solution

for larger cities, but not for the population who don’t have access to power grids. As

mention before in this paper, the electrification of the region is low, with 62 percent of the

population living in rural areas.25 Thus, off-grid power systems are key in increasing

electrification across the region and meeting the electricity demands for the growing

population. The market for off-grid solar PV has seen dynamic growth in the region over the

past ten years. Although the case of reliability is not fully solved by this solution, basic

23 http://solektra-international.com/energy-revolution-sub-saharan-africa/ 24 http://www.irena.org/DocumentDownloads/Publications/IRENA_Africa_2030_REmap_2015_low-res.pdf 25 http://data.worldbank.org/topic/agriculture-and-rural-development

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services such as lighting and powering electric appliances can be covered by these systems.

Kenya and Tanzania have estimated approximately 6 MW, solely sourced from household

solar PV systems. They can be used for individual households, mini-grids for community

services such as pumping water or telecom towers, which are now being run using a less

cost efficient diesel fuel. The versatility of using solar PV is the most appealing factor for

foreign and local investors, as it matches the current demographic of the sub-Saharan

region perfectly. 26

Wind

Wind energy, a more expensive alternative than others, has the most potential on the

southern and eastern coast of Africa, in the Rift Valley, where wind speeds peak at 9.0

meters per second. The levelized cost is approximately 95 €/MWh, but is expected to drop

as capital costs for wind turbines fall. It is projected that the levelized costs in 2040 fall

between €79 and €104 per megawatt-hour. McKinsey & Co does not expect to see a large

increase in volume for wind turbines by 2040 as it is a more expensive alternative to base-

load technologies. The potential capacity is far smaller than solar, which is far better suited,

as well as cheaper, for countries in this region. There is the benefit of carbon emission

reduction, as the reliance on oil and gas would decrease, if there was more interest in wind

energy, but with current technology and corresponding high costs, it doesn’t seem to be a

viable option for the region in sight of better alternatives.

26 http://www.irena.org/DocumentDownloads/Publications/IRENA_Africa_2030_REmap_2015_low-res.pdf

27

Natural Gas

Sub-Saharan Africa produced about 1.69 trillion cubic feet of natural gas in 2011, about one

percent of the total natural gas production in the globe. From this reserve, the region

exported approximately 1.22 trillion cubic feet of this natural gas, making it a significant

portion of energy exports for the year.

Based upon the graph below, the production of natural gas in Sub-Saharan Africa is

projected to grow around five percent from 2012 until 2040 and expected to outpace Russia

as a global gas supplier by the year 2040. This is due to many different unknown regions

holding natural gas such as Nigeria as well as maybe a potential partnership with the

European Union. One of these Unknown regions is the African Presalt under Gabon, Angola

and Namibia. This being said, the Natural gas industry in Sub-Saharan Africa is doing very

well and will continue to thrive as long as natural gas remains a popular energy source. But,

the region may be interested in looking more towards other energy resources due to the

changing renewable energy sources.27

27 http://www.eia.gov/pressroom/presentations/howard_08012013.pdf

28

Geothermal

Sub-Saharan Africa is a great source of oil and gas for the rest of the world, but it is also

perfect for renewable energy. Along the Great Rift Valley that stretches from Syria to

Mozambique, a large amount of geothermal energy can be found and used. Kenya also

announced that it would install 1,700 megawatts of geothermal energy.

To put this into perspective, that is 150 percent of the country’s total energy capacity.

Djibouti plans to support the entire country with geothermal energy as well. In addition,

projects in Ethiopia, Rwanada, Ghana, and Nigeria are catching attention. In Ethiopia there

was a recent €3.6 million plant project which would set a precedent for the rest of the

region along the lines of geothermal energy. The downside of this energy source is that

exploratory costs are extremely high, so in less developed countries, alternative, more

economic sources such as solar and wind are a more sensible option.28 There is potential for

geothermal in the future of the region, but in the next forty years we expect to see a

nominal increase in investment in this area.

28 http://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/powering-africa

29

Hydroelectric

In sub-Saharan Africa there is a huge potential for certain types of renewable energy

sources, as we discussed. But, one of these sources with a large amount of potential is

hydro-electric power. This is due to the Nile river and many other major waterways with

rivers such as the Congo, Niger, Orange and Senegal. Although the Nile is located above the

Sahara, it could be an even larger contributor to energy throughout Africa. Scientists are

realizing though, that they must act fast in order to preserve the Nile for energy and

irrigation based on the reservoir filling times.29

Building of plants on waterways other than the Nile have started but have not had steady

increases since 2010, but are expected to reach peak output by 2020. It is hoped that if

Africa focuses more on hydro plants and is careful about the environment then energy

output will increase dramatically and therefore improve the poor living conditions in Africa,

more specifically, energy and people. It is estimated that currently Africa is only using about

5-10 percent of its Hydro Power potential and even with the plans for 2020 this is only a

small increase. The challenge is getting investors though. Only 5 percent of the worlds

investors are willing to explore Africa and even less have any idea of Hydropower or are

willing to spend the time learning about it. A solution to this is to focus within Congo with

only 2,400 MW being used and a potential of 100,000 and then finding a smaller project to

start with. This being said, there is a lot of opportunities within Sub-Saharan Africa for Hydro

Electric energy, but there is also a lot of work to be done.30

29 http://www.scidev.net/global/energy/data-visualisation/africa-hydropower-future-interactive.html# 30 http://www.hydroworld.com/articles/print/volume-21/issue-6/articles/african-hydropower/hydro-in-africa-navigating-a-continent.html

30

African Energy Implications to E.ON

E.ON prides itself on ”Building tomorrow’s smart energy networks,” as it spans across

Europe, Russia, and North America. The company acknowledges that a new world of

decentralized, green energy is emerging, and they are doing what it takes to not only adapt,

but propel this movement. The market outlined in this paper seems to match up perfectly

with the goals which E.ON are seeking to accomplish: a growth of renewables,

transformation into smart energy networks, and innovative customer solutions.

Part of the Agile E.ON program, is a project: Rafiki Power, aimed at improving lives of

hundreds in rural Africa by providing clean and affordable energy to businesses and people

without access to a central national grid. The project started in 2013 in Tanzania, and has

installed seven mini grids since. The idea behind the company is to build decentralized,

container-based energy solutions where basic means of living are not met. The 220V mini-

grids allow customers to power simple appliances to get through the day, with all grids

reaching over a thousand individuals. The idea of using a container design not only acts as a

safe place for storage of equipment, but also a place for community members to meet and

shop. In addition, the areas provide night lights and sitting areas for community members to

congregate, leading to community integration. With this project we see an increase in

energy supply, an increase in community

productivity, and overall economic growth.

Currently, the primary focus is East Africa,

but the company is growing rapidly and

may seek to expand into other countries in

the future.31

31 http://www.rafikipower.com/

31

Further Reading

Brighter Africa: The Growth Potential of the sub-Saharan

Electricity Sector – McKinsey & Company

Renewables 2016 Global Status Report – REN21

EY’s Attractiveness Survey Africa 2015 – Ernst Young

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End.