Africa – Renewable energy frontier
India – Africa collaboration has been until now been overshadowed by Chinese investments and initiatives. As India over takes China in economic growth rate, the ongoing third edition of India African Forum Summit 2015 at New Delhi presents an excellent opportunity for Indian and participating 54 African heads of states to provide new thrust to our age-old partnership at highest political level.
Although, relatively recent O&G discoveries and leaps in renewable deployment projects have put Africa staunchly in the world energy map, ‘African Energy’, as it may be called, was earlier limited to Oil & Gas (O&G); however, now it includes Renewables.
Indian companies should collaborate with African and global organizations to overcome the energy challenge of fulfilling energy needs of 1 billion people spread over 30 million Sq. Km as compared to India where 1.2 billion people are spread over 3 million Sq. Km. This is a blessing in disguise both for Conventional and Renewable parts of ‘African energy’, since it offers large virgin fields with prospective O&G for E&P and at same time provides large land area necessary for Solar/ Wind power farms.
While it remains an important EPC destination, the focus is changing to opportunities such as BOO infrastructure, commodity & commercial market. It is also gradually emerging as a buyer of services & technical expertise in the area of Energy trading, Licensing, Insurance, Banking, Hospitality, Agro industries and precious metals processing.
Strategic Segmentation
Africa, for most of times has been seen as essentially backward, tribal, warring, natural resource rich continent with pockets of development. Strategically, the continent may be segregated into three parts- Alpha, Beta & Gamma, as per their economic and energy status. The Alpha Africa economies (Algeria, Angola, Nigeria, Libya and Egypt) are primarily driven by O&G exports and contribute close to 65 percent to the continent’s GDP. Secondly, Beta Africa (South Africa), the only non- oil producing country contributing 28 percent to continent’s GDP. It is the most developed country in the continent. Thirdly, Gamma nations, which include rest 50 African countries with 72% aggregated land area but add only 4 percent to the continent’s GDP; remarkably, most of them are the fastest growing economies of the world like Ghana, Ethiopia, Kenya registering 14.4 per cent, 7.5 per cent, 5 per cent CAGR respectively and are far lower on the pedestal of development. They lack basic Infrastructure (roads, railways, telecommunication, IT, health et al.) and are yet to integrate with the world economic & trade system.
Growing attraction of Renewables
African continent has several demographic, geographic and economic advantages making Renewables economically viable. The continent has roughly 80% of India’s population and more than 900% its land, meaning that large area of land necessary for Solar and Wind Farms, is available. Moreover, due to absence of electricity infrastructure and grid connectivity, Renewables are often juxtaposed with standalone diesel sets; the later translates to $1 per Unit of Energy (KWH) as compared to 20 cent per unit for the Solar or Wind power which can work well for local/decentralized consumption.
Moreover, the conventional resource (O&G) distribution among African countries has been skewed in favor of less than 45% countries including Nigeria, Libya, Angola, Algeria, Egypt and Sudan among others. Also, many of the Gamma African countries are with near zero O&G assets or, are like Kenya, Tanzania, Mozambique, which have recently found O&G and will take another 6-10 year to operationalize convention resource based power generation capacity.
Reflection of this realization may be seen in their commitment to Renewables. Out of 148 member states for International Renewable Energy Agency (IRENA) 48 are African countries. 66% of all new electricity generated has come from Renewables in Sub-Sahara.
Solar
Of the numbers of projects in various phases of execution, some are for Electricity export and others for satisfying captive demand. However, all are primarily made feasible by favourable factors listed above and additional trends/characteristics more specific to Solar.
Long term trend of reducing solar module prices since 1980, accelerated by fierce competition & economies of scale from Chinese manufactures (resulting in 40 per cent price drop over last 2 years), have supported solar capacity deployment in the continent which irradiation levels of over 2,300 Kwh per sq. m per year.
Solar generating facility covering just 0.3 percent of the area comprising Saharan-Africa could supply all of the energy required by the European Union.
Saharan-African (predominantly Alpha Africa with an exception of Morocco) is in close geographical proximity to huge EU market, therefore a large number of projects have been initiated here. Some of the biggest of these are in Egypt and Morocco by Desertec Industrial Initiative, a 12 member Germany led consortium, which is looking to fund a series of solar energy projects to supply as much as 17% of Europe’s energy demand by 2050. UK based firm would commence Nzema, a $400 million, 155 MW Africa’s biggest Photovoltaic project based in Ghana; it shall provide electricity to 100,000 homes in the West African Gamma country.
The current challenges for Solar are evolutionary in nature, typical of a developing economy with evolving regulatory environment. For example, the absence of single regulatory and legal framework like Power Purchase Agreements (PPA) or guaranteed feed-in tariff. Also, cost per unit of power is currently high, however is envisaged to come down considerably because of more plants and newer technology. Technical expertise is one of the major bottle necks even in countries like South Africa, as observed by state department of Energy in one of their reports.
Responding to a South African request at the July 2011 Renewable Energy conference, organized by Indian High commission and CII, Tata Power and Moser Baer indicated their willingness to assist in transfer of technology.
Undoubtedly, feasibility of African Energy’s Solar version provide an opportunity to the world to tread the learning curve of contemporary technologies like Solar PV and Concentrating Solar Power by large scale deployment, investing in efficiency improvement and R&D of newer technologies to harness the power of most abundant form of energy available to human race. Indian Companies, like Punj Lyod Infra, Tata BP Solar, Moser Baer, Reliance Power, Sun Edison, Lanco Solar, Adani enterprise, GMR Gujarat solar power may participate with foreign Renewable majors to assimilate the technological & management know how. After all, India’s renewable energy production at 3000 MW is equivalent to Gamma Africa’s total power generation capacity of which close to a quarter is unavailable for production because of inadequate maintenance & repair!
Wind
In-spite of wind based power plant being feasible, even as smaller projects, in Africa, Wind is proving out to be the second best choice due to far less uniform wind distribution compared to solar energy (optimal locations are near special topographical funneling features like mountain ranges & coast) and expensive import cost of wind-towers in comparison to solar panels. However, the availability of wind on the western coast of Africa is substantial, exceeding 3,750 KWh, and will accommodate the future prospect for energy demands. In good locations the energy price from Wind can cost as low as $ 69 per MWh as compared to $ 67 per MWh from coal.
The largest Sub Sahara Wind farm set up is Kenya’s Lake Turkana Wind Power Project (LTWP). With an installed capacity of 300 MW; equivalent to 20% of country’s total power generation capacity. The project is a JV of a Dutch, English, South Africa, Norway and Denmark. Other projects exist in Egypt, Morocco and under implementation in Ethiopia.
Despite great wind energy potential in most of the countries apart from Central Africa, 97 percent of the projects are in North. Few new projects are coming up in the rest of the regions.
Exposure of Indian companies, like Suzlon is small as compared to their potential. It has recently won a significant portion of the 630 MW wind projects awarded in South Africa.
Assuming moderate CAGR of 30 percent (38% CAGR in 05-09 periods) the wind power generation capacity in Africa would reach 6000 MW by 2017. Considering, for calculation sake, Indian equity participation at 20%, would alone yield in carbon credit worth millions of dollars over the operating life, excluding usual ROI, technology understanding and experience up-gradation of the Indian companies.
Hydropower + Geothermal
Africa has a huge Hydropower potential; only 10% of the continent’s water power has been harnessed. Developing the large river system can open a world of energy.
An example in this context is the Grand Inga Dam in Democratic republic of Congo. It is one of the largest projects where two Dams are already operational & third one is in design phase. According to World Energy Council it has the potential of producing 40,000 MW. The 3rd phase calls for an $ 80 billion investment. South Africa is its current consumer; however Egypt, Nigeria & Europe can be prospective markets too.
Rift valley, from Ethiopia to Mozambique in Eastern Africa, has the potential to produce 7GW of Geo-thermal energy. African Rift Geothermal Development Facility was launched in 2010 to promote its use – supported by World Bank (risk mitigation fund) and UNEP (technical assistance). The valley spans 6000 Km including Djibouti, Ethiopia, Eritrea, Kenya, Uganda and Zambia.
The utilization of this energy source has yet to pick up. For instance, Kenya’s Olkaria field project, currently at 105 MW, is the only project in the country and was developed approximately 20 years back, whereas according to UNEP, the total potential for Geothermal in the state is close to 7000 MW.
Indian EPC companies have tremendous opportunity for participating in the projects that would be able to provide energy at most competitive prices. Development of the large dam system would definitely entail installing transmission infrastructure for power evacuation. These hydro power projects may be executed on BOO or BOT, India companies have successfully demonstrated their capability in both models.
Building a foundation which is 'Indiafrican'
India shares common legacy with majority of African nations and henceforth, has similar laws & legal frame work which are at the genesis of the important contracts like PPA, concessionaire agreements et al. ‘Indiafrica' have worked closely on several world issues like Kyoto Protocol, Non Align Movement, undue subsidies to farmers by developed nations among others.
Most importantly, in the contemporary and long term context, India is one of the fastest growing economy, is energy deficient, highly service sector orientated and traversing an exceptional learning curve on infrastructural development (IT, Health, Judiciary, Urban development, Environment, Democracy, Insurance, Banking, Education). African countries can utilize Indian experience in these multiple dimensions.
This compatibility is further exponentially enhanced by the geographical proximity of almost African nations on the Eastern, Mediterranean & Red Sea Coasts.
African O&G is the playfield of more than 10 major IOCs (NOCs from China, Russia, Malaysia et al. have made considerable gains in the last five years for ensuring energy security), whereas, African Renewable landscape is overshadowed by European private and government firms. It is time for Indian Government owned & private firms to collaborate with these technologically superior majors both in conventional & non-conventional energy.
The ‘Indiafrica Fit’ can prove to be a strong foundation for a symbiotic synergy. Something that would give India unobstructed economic acceleration, by meeting its short/ mid-term energy needs with O&G and bolstering Renewable technologies for captive implementation and in the process, would help Africa to unlock its true potential of being a major contributor to world energy. ‘Indiafrica’ trade has already breached $ 60 billion in 2011, however seeing the current growth rate; the potential is to at-least double this figure over the next couple of years.
Millions of years ago, a land mass traveled thousands of kilometer from the South Pole, split into two and landed at Asia & Europe to become India & Africa respectively. Millions of years later, while one peninsula (India) spewed enough toxic volcanic gases to wipe out Dinosaurs, the other continent gave birth to the first Homo-sapiens. May be these two separate entities need to look again at their common destiny.
While the world is focusing on emerging markets like BRICS, it is time to invest in newer frontiers like Africa, for which it can be truly said that the future is here!
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