Independent Power Projects in Sub-Saharan Africa – Lessons from Five Key Countries

Authors are: Anton Eberhard, Katharine Gratwick, Elvira Morella, and Pedro Antmann

The track record of Sub-Saharan Africa’s power sector is dismal. Two out of three households in Sub-Saharan Africa, close to 600 million people, have no electricity connection. Most countries in the region have pitifully low access rates, including rural areas that are the world’s most underserved. In some countries, less than 5 percent of the rural population has access to electricity.
Chronic power shortages are a primary reason. The region simply does not generate enough electricity. The Republic of Korea alone generates as much electricity as all of Sub-Saharan Africa. Across the region, per capita installed generation capacity is barely one-tenth that of Latin America.
The need for large investments in power generation capacity is obvious, especially in the face of robust economic growth on the continent, which has been the key driver of electricity demand over the last decade. The International Energy Agency predicts that the demand for electricity in Sub-Saharan Africa will increase at a compound average annual growth rate of 4.6 percent, and by 2030 it will be more than double the current electricity production. The World Bank estimated in 2011 that Sub-Saharan Africa needed to add approximately 8
gigawatts (GW) of new generation capacity each year through 2015. But, in fact, over the last decade an average of only 1–2 GW has been added annually.
The cost of addressing the needs of Sub-Saharan Africa’s power sector has been estimated at US$40.8 billion a year, which is equivalent to 6.35 percent of Africa’s gross domestic product (GDP). The existing funding is far below what is needed. This large funding gap cannot be bridged by the public sector alone. Private participation is critical. Historically, most private sector financing has been channeled through independent power projects (IPPs). IPPs are defined as power projects that mainly are privately developed, constructed, operated, and owned; have a significant proportion of private finance; and have long-term power purchase agreements (PPAs) with a utility or another off-taker.
Like any other private investment, IPPs will not materialize in the absence of a suitable enabling environment. The primary objective of this study is to evaluate the experience of IPPs and see what is necessary to maximize their contribution to mitigating Sub-Saharan Africa’s electric power woes.


Author:

International Bank for Reconstruction and Development / The World Bank

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