Africa’s demand for energy is steadily increasing and solutions to meet this growth have become a major concern amongst the energy sector leaders within the continent. Key factors contributing to this soaring energy demand are both Africa’s ever-growing population and the continent’s accelerating economic growth.
According to projections published by the United Nations Population Division, Africa’s population has grown by 30 million people in the past year and by 2050, annual increases are expected to exceed 42 million people per year meaning that the total population will have doubled to 2.4 billion. This translates to 3.5 million additional people per month or 80 more people per minute. The vast increase in the number of people in Africa along with increased standards of living puts significant pressure on the demand for affordable energy.
The past few decades have seen significant improvements and growth in the African economy. Africa’s per capita energy consumption is growing faster than that of any other continent, owed largely to increased infrastructure, investment and political stability. Africa’s population is characterised by young people and a growing labour force, together proving to be a considerable strength in this aged world. With 1.1 billion workers and rising, the continent is expected to boast the world’s largest working-age population by 2034. A progressive economy requires substantial energy for increased scale of manufacturing, provision of services and transport. Energy remains an essential input to stimulate and ensure uninhibited economic development, driving economic productivity and industrial growth. In fact, energy remains fundamental to the functioning of any modern-day economy.
Furthermore, Africa is still undergoing rapid urbanisation transitions, further contributing to its economic development and energy consumption demands. More economic activity translates into higher levels of income earned and, as wealth increases, so does the demand for energy. Productivity in cities is cited as three times higher than in rural regions and the United Nations predict that over the next decade, 187 million more Africans will reside in cities. This increase in urbanisation will see a surge in the consumption of energy by households and businesses alike as it was reported that between 2010 and 2015, household energy consumption increased at a rate of 4.2% compounded annually.
African economies are set to profit from rapidly advancing technological devices and as the advancement of such devices unfolds, there is an increase in availability across the continent. The use of these electronic devices places further demand on the energy equation. As people become wealthier, they naturally desire more consumer goods which subsequently utilise energy in both their manufacture and usage.
It remains suffice to say that there are many positive factors at play, creating a sharp increase in the demand for energy in Africa. The continent’s expanding population numbers, together with a growing economy on account of improved infrastructure, a young, sizeable workforce, inward investment and increased political stability, all contribute to the energy system demand. Growing communities require additional energy to accommodate their rising numbers, as does a developing economy to support its growth through manufacturing and consumption activities.
Increasing opportunity for PPAs
Solar power generation continues to gain traction in South Africa, and an increasing number of businesses in the country are showing interest in acquiring solar photovoltaic (PV) systems for private power generation. Over the past year, it has also become evident that power purchase agreements (PPA) offer some of the best models for utilising solar generation for private use.
This is according to Manie de Waal, CEO at Energy Partners Solar—a division of Energy Partners and part of the PSG group of companies—who says that, following regulation changes by the Department of Energy in November of 2017, businesses are able to enter into PPAs with service providers in the private sector, which has helped to solve a number of challenges associated with private power generation.
“Embedded generation (electrical power consumed on the premises where it is generated) is automatically allowed for projects under 1MW by the National Energy Regulator of South Africa (Nersa). Organisations requiring more power are still severely limited, as applications need to be made to Nersa for a generation license once projects exceed 1MW. In addition to this, embedded generation projects still require approval from Eskom and local municipalities. As a result, we continue to see companies whose renewable projects are delayed, sometimes by months, because they do not receive this approval.”
De Waal explains that PPAs overcome these challenges by allowing businesses to buy electricity from solar power providers at reduced rates, without the need to own or maintain the associated infrastructure. “This means that the responsibility of gaining approval from Eskom and local municipalities, as well as registering large renewable projects, is taken on by expert service providers with extensive experience in making these types of processes go through seamlessly and within the required time frames. It is in the service provider’s interest to gain all necessary approvals (as well as roof structural approval from a professional structural engineer), as the service provider will ultimately be investing the capital for the project.”
Another important factor to take into account, is that owning a PV system has its own set of challenges. “The most important thing about owning a PV system is to make sure that it provides optimal return on investment throughout its entire life cycle. This means that it needs to be actively monitored and maintained to ensure maximum efficiency at all times. In the case of a PPA the client does not need to worry about any of this, as the service provider has put its own capital at risk and is well-incentivised to generate the optimal return – for all parties concerned.”
“A PPA service provider is contractually bound to deliver electricity at an agreed (should be below national grid tariffs) rate, leaving the responsibility of maintaining and optimising the system up to them. This allows the client to achieve optimal savings at all times, while not diverting any time or resources away from the company’s core functions.”
As a market leader in alternative payment structures for renewable energy generation, De Waal states that Energy Partners Solar has extensive experience in devising and implementing flexibleenergy solutions for private sector clients. “Flexibility is crucial for any operation, since no two companies are alike in their energy requirements. Partnering with a service provider that can structure a PPA to the needs of the client is crucial,” De Waal concludes.
Small thermal plants hold promise for African economies
Small-scale power generation plants driven by hydrocarbon sources and biomass are still likely to play a valuable part in rolling out electricity in regions of Africa unserved by grid power and where renewable resources are insufficient to sustain a reliable energy supply.
According to Chris Dalgliesh, partner and principal environmental consultant at SRK Consulting’s Cape Town office, the lack of a secure baseload energysupply in certain areas can be a key inhibitor to local or regional investment and economic development – and many countries, especially those not on a grid, are looking beyond the traditional large-grid model to create broader access to electricity.
“In some cases, a small thermal plant generating 25-100 MW of power can be a more affordable developmental intervention for a local area, especially if it does not incur the often prohibitive costs of transmission infrastructure across long distances,” said Dalgliesh. “Our experience in various parts of the world suggests that countries well-endowed with coal, gas or oil as well as surplus biomass and combustible waste can benefit from these options while responsibly managing the environmental impacts.”
Though the trend is undoubtedly to renewables, thermal plants also have the potential to augment supply from renewable energy sources in localised power generation projects, ensuring continuous electricity supply. While extensively involved in environmental impact assessments (EIAs) for renewable energy ventures, SRK has also provided EIAs and compliance reviews for projects like small thermal power stations and closed-circuit gas turbine power plants.
While gas is a relatively clean source of power compared to hydrocarbons such as Heavy Fuel Oil (HFO) and coal, the most common environmental impacts of thermal plants—such as carbon emissions, high water consumption, noise and vibrations—can now be suitably managed to meet the relevant legal compliance requirements. Emissions can by reduced by improved scrubbing technologies as well as by selecting lower-sulphur hydrocarbon sources, though cannot match renewable sources in this respect.
“These impacts are much more manageable today than they were in the past,” said SRK Consulting principal environmental consultant Sue Reuther. “Closed-circuit water systems have substantially reduced the hydrological impact of these plants, and there are well-understood mitigation measures to insulate noise and vibration where plants are close to residential areas.”
Even in regions where traditional fossil fuel sources are not easily available, there is scope for using agricultural waste as a biomass source to feed a thermal power plant. Considerable success has been achieved, for instance, in the recycling of bagasse from sugar cane in co-generation plants in various parts of Africa.
“Turbine technology is readily available to leverage the value of biomass sources, an option which could link constructively to agricultural production in Africa’s rural areas,” said Dalgliesh.
Waste-to-energy power plants are also attractive propositions as they meet the dual purpose of treating waste and generating power. Maintaining high temperature in furnaces is key to ensuring effective and safer incineration of these waste streams. “On some remote sites we often notice that waste is simply incinerated, with no attempt to use the calorific value of the waste to generate energy”, said Dalgliesh.
He concluded that, while renewable energy is set to play a larger—and more environmentally sustainable—role in the global energy mix, a pragmatic and responsible approach to the potential of small-scale thermal power plants could contribute substantially to improving conditions and supporting development in marginalised areas of Africa.
Disruptive forces set to change power utility business models
It appears that several disruptive forces are set to threaten the traditional power utility business model as we know it. Distributed power generation, technological advances and changing customer perspectives are amongst some of the major influencers responsible for this transformative change. Inlight of these forces, many industry players predict the prevailing power utility business model to transform drastically between now and 2030, to a point that it may even be unrecognisable.
Technological changes predicted to have the most significant impact on the power sector are energy efficiency, declining solar prices, demand-side management and decentralised smart grids. The precipitous advances in technology, coupled with the decline in associated prices, means that utilities could be adversely affected as demand from sectors carrying cross subsidies are reduced.
Restructuring of technology and electricity policies will be significant determining factors of potential business models. Interestingly, deregulation in South Africa could result in a considerable rise in the number of IPPs in the sector. As already seen in developed nations, decentralised utilities have cut into the revenues of traditional power utilities, thereby relegating conventional power generation. Injudicious power utilities could therefore stand the chance of being reduced to the role of back-up infrastructure operators where savings and performance improvements will only take them so far.
Customers will have a major bearing on future power utilities as businesses will be significantly influenced by the digitalisation of the customer relationship. This ultimately means that the demands of customers will need to be addressed more efficiently and speedily.
Demand-side management will become increasingly utilised and the integration of renewables and increased decentralised generation will govern future business models. In nations with emergent energy systems, decentralised generation could be even more significant.
Competition between companies will peak as utilities attempt to become distributed generation service providers to customers, thereby harnessing the situation as an opportunity rather than a threat, to survive in this ever-increasing decentralised power model. In addition, companies will be required to develop innovative strategies to maintain a competitive position for customers in the market.
However, although the business models of utilities are expected to change, they will remain an important component of the energy landscape. “The functions of utilities will remain critical but complementary solutions will be provided by a more diverse set of actors. Thus, we will not get rid of traditional utilities but a lot of the system pieces, be that supply, storage or rural energy systems, will be brought by new players and new entities.” explained Dr Christoph Frei, Secretary General and CEO of the World Energy Council.
A seamless transition entails that policies and frameworks be established to cautiously manage social and employment impacts as to prevent social and economic complications. People tend to maintain the status quo when their jobs are on the line, thereby hindering potential progress. Open communication, frugal planning for change and social protection policies are elements to ensure a just transition process. In addition, policy-makers have the task of facing issues of supply availability, affordability and environmental impact. These factors, if perceived innovatively, could lead to massive opportunities for those vested in the power market and the economy in its entirety.
Existing market players must capitalise on these changes, so they prevent being surpassed by other entrants. It’s imperative that companies respond appropriately to these transformations to convert them into opportunities or they stand a good chance of being overshadowed by technological and market change.
They will need to be discerning with regards to exploiting revenue opportunities, reducing costs, improving customer service as well as attracting a modified, more informed and empowered customer profile.
Sources: African Energy Indaba / Energy Partners / SKR
