PricewaterhouseCoopers (PwC) Africa released its power and utilities sector survey 2015 recently. The survey, which looked at the future of electricity in Africa, involved 51 senior power and utility sector participants from 15 countries on the continent - Botswana, Ghana, Kenya, Lesotho, Malawi, Mozambique, Namibia, Nigeria, Rwanda, South Africa, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.
According to the study, Africa faces a huge electricity demand challenge, and the existing infrastructure is insufficient to meet current requirements, or of the coming decades. Ageing or badly maintained infrastructure and this was an issue of high concern to 67 per cent of those interviewed. This is despite estimates made that the availability of generation by ten percentage points could add significantly to a country’s GDP.
Insufficient generation and creaking infrastructure has meant that planned power outages and load shedding is now a well-established feature of life for many African power consumers. It is a challenge we are also facing in Rwanda with recent power outages. However, most participants were optimistic that by 2025, the challenge of finding a market design that balances investment, affordability and access issues will have been resolved.
A range of technologies are now being employed to move power systems away from being top down centralised systems to more decentralised and fragmented systems. 75 per cent of the survey respondents were confident that advances and costs reductions in green renewable off grid technology will deliver an exponential increase in rural electrification levels by 2025.
The prospect of future local mini grids and off grid distributed generation being an important feature of the African power mix, alongside centralised generation, is an energy market vision that is viewed as likely by 83 per cent of the survey participants. But the majority of the survey participants (54 per cent) continue to see centralised generation and interconnections being the main future energy provision to meet demand growth in urban areas.
The vast majority of participants said that power utility business models would be transformed in the future. Rwanda has not been left behind in transforming its business model.
The split of the former Energy Water and Sanitation Corporation (EWSA) Limited in 2014 into four separate entities that focus on power and water is the beginning of the transformation process in Rwanda.
The local power utility recently increased tariffs in order to cover a more reasonable proportion of the cost of generating electricity. Two thirds of the participants interviewed pinpointed the inability to recover the cost of generating electricity and this was a major barrier to investing in new large scale generation and transmission projects. This has been a recurrent theme in all our surveys and heads the list of energy policy measures needed to address the key problems of expanding power provision and making existing assets more reliable.
About 83 per cent of the respondents said that moving to cost reflective tariffs would have a high impact in increasing electrification and improving reliability.
Seventy per cent of survey respondents indicated that they expect cross-border electricity flows to be significant by 2025, accounting for a third or more of electricity generated. This means that importing power to increase a country’s power capacity is a strategy that Africa countries are now considering in bridging current power gaps as countries put in place more long term solutions. Closer home, Kenya will start supplying power to Rwanda in the next three months. According to Kenya Power officials, they will start selling 30MW of electricity to Rwanda in the next three months.
While policy reforms are a key requirement, many African power utility companies are conscious of the need to reform their own organisations and making limited resources go further is an essential part of maximising power availability and adding to investor confidence. The vast majority of participants reported that cost base savings and efficiency improvements of more than 10 per cent are possible and several participants indicated that there is scope for African power and utility companies to achieve savings in excess of 20 per cent.
The majority of the participants see scope for performance improvement through asset risk management, customer service and capital project management. There is also a big scope for improvement in loss reduction and the development of local skills.
Many of the essential pre requisites are in place for an increase in private investment and participation in the sector but there is still a considerable way to go due to the need for cost reflective tariffs and access to funding due to the capacity of local commercial banks to finance new power projects without some form of credit enhancement.
The future of the power sector is positive but it will require a hard look at the key challenges the sector faces today and how the companies in the sector, governments and policy makers address the many pressing challenges that constrain existing power systems.
The writer is a director at PwC Rwanda