Prime
Closing gap on Africa’s energy challenges
Bhavtik Vallabhjee
What you need to know:
Better returns for Africa. The political and economic climate across Africa has steadily improved over the last two decades, and despite the frustratingly long lead times for infrastructure projects, on a risk-return adjusted basis, Africa boasts of better returns than developed markets.
Africa is a continent blessed with an abundance of natural resources – water, wind, thermal coal, natural gas, and of course, plenty of sunshine – but the electrification rate across the continent remains extremely poor.
Of the 1.2 billion people who live in Africa, it is estimated that more than 650 million have no access to energy, relying instead on fossil fuels like diesel for electricity generation and harmful cooking fuels like wood, charcoal, and kerosene.
This sets Africa back on meeting energy access goals and diminishes the continent’s economic growth by between 2 per cent to 4 per cent every year. We have much to learn from developing countries across Asia that are making significant progress, with many on track to reach universal energy access by 2030.
India, with a 1.34 billion population, will reach universal access by the early 2020s. We believe Africa presents a compelling energy investment case for our long-standing Indian trade partners, for many reasons.
Developing economies across Africa are in a unique position to leapfrog more developed nations by investing in cleaner, environmentally friendlier sources of power at a lower cost - key factors contributing to improved use of renewable energy power across the continent.
Countries like Morocco, Tanzania, Mozambique, Kenya, Mauritius, South Africa, Uganda and Ghana have taken initiatives in the development of renewable and clean energy projects, particularly solar and gas to power. With the current low cost of gas compared to several years ago (through the shale gas revolution in the USA), gas power plants have increasingly become more competitive compared to clean coal technologies and are an affordable solution.
Although renewable energy resources hold great promise and can provide energy while overcoming Africa’s infrastructural challenges, this form of energy would still need to be stored, that is why lithium-ion batteries could be a game changer for Africa. There have been massive investments in the field of battery storage research and development by leading global companies like Samsung, Tesla, and Total over the past five years.
As the costs of Li-Fe battery storage falls, coupled with the already low cost of solar photovoltaic modules, the future of the electricity market could be solar photovoltaic plants.
South Africa alone holds almost 80 per cent of the world’s known reserves of manganese (producing 5.3 million MT per annum3) – an important component of the Li-Fe battery. A growing market will justify the creation of a local battery production plant, but the serious investment is first needed for a large-scale facility.
Mozambique has the ninth largest gas reserves in the world while Tanzania shares the same gas-rich Rovuma Basin. One of the region’s largest project financing transactions (Coral LNG) closed recently in Mozambique with a deal value in excess of $30 billion, with two more similar deals imminent.
Many other countries in Africa like Nigeria, Ghana, Angola, and South Sudan have impressive oil and gas reserves. The spin-off effects from this will be huge for local economies with the possibilities of cracker plants; fertiliser and petrochemical plants, pipelines, gas-to-power plants, and LNG export terminals posing sizeable opportunities for Indian corporates.
The political and economic climate across Africa has steadily improved over the last two decades, and despite the frustratingly long lead times for infrastructure projects, on a risk-return adjusted basis, Africa boasts of better returns than developed markets. With the right investment in the right infrastructure, and with the right partners, Africa is well poised for solid socio-economic growth and sustainable development.
Mr Vallabhjee is a director at Absa Corporate and Investment Banking.
