Infrastructure development is of the utmost importance to fuel sub-Saharan Africa’s economic growth. Nowhere is the need for expanded infrastructural capacity more important or more visible than in the area of power production, particularly in generation and distribution. The hum of diesel generators from Lagos to Nairobi is a constant reminder of the poor state of the continent’s electricity networks.


For the entirety of sub-Saharan Africa’s 48 countries (with a total population of approximately 800m) there are 68 GW of installed generation capacity, roughly equivalent to that of Spain (with a population of around 47m). Of the current installed capacity, more than 40% is accounted for by South Africa, leaving the rest of the continent significantly under-powered. Nigeria, for example, with a population of roughly 170m, has an installed capacity of under 5000 MW, which is less than a large US city – and only 10% of that of South Africa, which has approximately one-third the population.

The low level of production stems from a variety of reasons, including high installation costs, poor maintenance, historical underfunding, a large informal market and market-distorting subsidies that limit cost-recovery. As a result, diesel generators are prevalent throughout West Africa, and the reliance of large corporate consumers on diesel can lead to significant increases in annual overhead costs.

To address this issue, a number of countries have rolled out reform programmes to target the electricity sector, with initiatives that aim to overhaul tariff schedules, attract capital into generating assets, and privatise transmission and distribution companies. Perhaps among the most visible reform projects, however, is a large multinational programme, initiated by the US, known as Power Africa, which aims to expand US private sector investment in Africa’s generation, distribution and transmission sectors.

The Initiative

US President Barack Obama announced the Power Africa Initiative during a six-day tour of Senegal, South Africa and Tanzania in July 2013. Recognising that deficient power supply is the greatest obstacle to achieving the region’s potential, the initiative’s goal is to add 10,000 MW of power generation and increase access to power to 20m businesses and households. Its pledge of $7bn will be spread out over three to five years. Its longer-term target is to double the number of people in sub-Saharan Africa with access to electricity that is “cleaner, reliable and efficient”. The programme targets six focus countries – Ethiopia, Ghana, Kenya, Liberia, Nigeria and Tanzania – that together account for 40% of the 240m people who do not have access to electricity in sub-Saharan Africa, according to figures from the International Energy Agency.


The organisational structure of the project is complex. Twelve US government agencies are engaged under the coordination of the US Agency for International Development (USAID). US foreign aid agency Millennium Challenge Corporation is playing a vital role in Power Africa as well. It is developing compacts with three of the initiative’s six focus countries – Ghana, Liberia and Tanzania – and is planning to invest around $1bn to support the plan. USAID also aims to bring together the focus country governments alongside multilateral institutions, international donors and, crucially, the private sector. The African Development Bank (AfDB) is an “anchor partner” in the five-year initiative and has so far committed more the $600m, on top of $1.65bn that it has already committed to the target countries previously. The AfDB expects to allocate up to $3bn over the first five years, with the main source of its funding being the African Development Fund.

The World Bank has also committed a total of $5bn in technical and financial support, including risk and investment guarantees, for the focus countries under the Power Africa umbrella, on top of around $3.3bn worth of funds that have already been channelled to the power sectors in those countries.

The initiative will play a major part alongside a number of other regional-level energy development and economic support programmes. As part of the first phase of the Eastern Africa Power Integration Programme underwritten by the Regional Eastern Africa Power Pool Project First Adaptable Programme Loan, the Eastern Electricity Highway Project will boost the electricity supply in Kenya while reducing cost, export electricity from Ethiopia to Kenya, and supply power to Uganda, Burundi and Rwanda.

In addition to these regional power initiatives, the West African Power Pool, an initiative of the 16-member Economic Community of West African States established by a decision of the summit of the heads of states back in 1999, is also working to establish a reliable power grid for the region, as well as a common market for electricity.

Electricity Deficits

There is little doubt of the need for large-scale projects. Africa’s energy infrastructure capacity falls well short of what is found in other developing markets. According to the World Bank, half of the 1.2bn people worldwide who live without access to electricity are in sub-Saharan Africa. Access rates average 30% and 12 of the 20 countries with the greatest deficits are in sub-Saharan Africa. Power shortages and disruptions are common, presenting the biggest barrier to market entry for many potential investors. In South Africa, for example, load-shedding in 2008 slowed manufacturing output, while in Ghana an incident along the West African Gas Pipeline (WAGP) resulted in a drop in feedstock for the country’s thermal plants.

Cost Burden

Costly back-up generation is required for business continuity and the functioning of basic public services. Leased generating plants are used as stop gaps, with the added generation cost estimated by the AfDB at 6% of turnover for average formal enterprises, and 16% for informal enterprises that are not able to supply their own back-up power source. In some countries, such as Nigeria, surveys conducted by OBG of large corporate consumers, including manufacturers and telecoms companies, indicate that figure can reach as high as 30%.

Speaking to OBG in 2013, Chinedu Nebo, Nigeria’s minister of power, noted that this created even more outsized problems for households, particularly for income-sensitive demographics. “When I am home, I spend a minimum of N8000 ($50) to buy a day’s supply of diesel; in a month, I spend N240,000 ($1520); in a year, N2.88m ($18,144). No amount of energy coming from the mains will approach 20% of that cost,” Nebo told OBG.

Feedstock Accessibility

Even in cases where the generating infrastructure is broadly in line with demand, or close to it, problems with feedstock can hamper production. Ghana has struggled to meet demand for electricity at peak periods over the past few years, for example – including most recently during the 2014 World Cup, when a push to maintain uninterrupted coverage prompted requests for reduced consumption by industry and the purchase of extra electricity from neighbouring Côte d’Ivoire.

The issue has been exacerbated by uneven rainfall, which in recent years has left reservoirs at key facilities short, including the dams at Bui and Akosombo. Commissioned in 2013, Bui Dam, which has a capacity of 400 MW, has seen two of its three turbines rendered inactive for parts of the year as a result of the lack of water.

In mid-August 2014 officials said water shortages at the Akosombo Dam, the largest hydro installation in Ghana with a generation capacity of 1020 MW, could result in a total shutdown of the power station. Similar problems in 2006 and 2007 led the World Bank to suggest that the resultant power cuts cost the country up to 1% in lost GDP growth.

The low water supply has not been the only hurdle the country has had to clear. Delays in finalising gas infrastructure for the planned 500-MW Atuabo gas plant and a decision by Nigeria to reduce gas exports for the WAGP – following a year in which WAGP exports fell due to damage to the pipeline by an errant Togolese ship – as a result of growing domestic consumption have also strained the country’s generating facilities.

As a result, Ghana – which luckily has flexible thermal plants that allow generation from either natural gas or heavier fuels – has shifted some of its generating assets to run on more expensive light crude, which can cost up to three times as much as gas. In a bid to stabilise supply, the government has also commissioned two emergency power barges with a capacity of 225 MW each.

The first barge, constructed by Turkey’s Karadeniz Energy Group (Karpower International), has been completed and its arrival is expected by the first quarter of 2015. The second barge is scheduled for the second quarter of 2015.

These types of urgent expenditures and similar actions that have been taken in other economies around the continent have dented the region’s GDP and current accounts. In Ghana, the high costs of generation have contributed to the country’s challenging fiscal situation, but it is far from the only one to suffer. According to the AfDB, power shortages alone can cost more than 2% of GDP across the continent and cut up to a quarter of a percentage point from annual per capita GDP growth rates. In Nigeria, where the energy shortfall has long been one of the economy’s biggest constraints, the World Bank estimates it shaves as much as four percentage points off of GDP growth. All of this adds to the challenges facing investors who seek to harness the region’s potential in terms of economic activity and expanding consumer markets.

The Bigger Picture

As a result of the scope and scale of work that is needed, however, the opportunities for financing and investment are immense. Of the $860bn that the World Bank estimates is needed to finance access to electricity across the globe by 2030, more than 30% of this is expected to be required for sub-Saharan Africa alone. There are dozens of projects going on throughout the continent already that when completed should add more than 30,000 MW to total capacity in the coming years. And while not all of them are under the aegis of the financing push led by Power Africa, a number of them will nonetheless benefit. For example, the privatisation of Nigeria’s generating and distribution assets in 2013 – a long-awaited programme that it is hoped will provide a major step forward in addressing the country’s long-standing electricity deficit – had been in the works long before the Power Africa initiative was launched.

While it did garner the attention of some US firms, such as Symbion Power, Nigeria’s privatisation programme will nonetheless benefit more broadly from Power Africa, which is providing technical and financial support, including risk guarantees and loans, and advisory services, to both the Nigerian government and private investors.

The amount of direct funding provided through the Power Africa initiative at $7bn may appear modest, when considering that a full $300bn is needed to bring electricity to those in Africa currently without, but the significance of the initiative extends beyond the total financial contribution. Instead, the programme highlights the role of the private sector and seeks to provide a framework for long-term commercial involvement in Africa’s power sector.

Private Sector Partnerships

At the core of the initiative’s potential for investors is its inherent linkage with the private sector. More than 30 firms took part in the US-Africa Energy Ministerial meeting in Addis Ababa in June 2014.

Approximately $14bn had been raised by that time from the private sector, and a total of $1bn pledged at the meeting from other partners, including those from the finance and renewables sectors. Deals with the private sector should result in 2800 MW of new generation capacity, according to USAID. The response has meant that in the initiative’s first year it has achieved 25% of its overall goal with almost 3:1 leveraging of funds – that is, $7bn of US government funds compared to $18bn coming from the private sector. According to the initiative’s first year report, the “results represent projects with a potential to power more than 5m connections to African homes, businesses, schools and clinics”.

Currently, there are several projects that are benefitting from the initiative and which, if realised, would bring the total to at least 7800 MW. Examples include wind power generation in Kenya, which is receiving support from Power Africa to help secure agreements on funding and construction, and to help utility firms manage “the intermittency of wind and solar generated power and avoid grid stability issues that would adversely impact the financial viability of the projects”. The Lake Turkana Wind Power Project (the largest such project on the continent) is being supported by a loan from the US government’s Overseas Private Investment Corporation (OPIC). It is expected to bring millions of people in Kenya more than 310 MW of green energy.

In addition to these projects, the first year of the initiative also saw the beginning of negotiations for the first phase of a possible 1000-MW independent power project (IPP) in Ethiopia with the Corbetti geothermal power project, as well as support for the privatisation programme in Nigeria – including investment guarantees – and 15 MW of hydro and solar projects in Tanzania.

There have also been some noticeable spin-offs of the main Power Africa Initiative that have strengthened bilateral cooperation. In May 2014, the US Department of Commerce led an energy trade mission to Ghana and Nigeria, which resulted in the inking of $175m worth of deals. In August 2014, the US Export-Import Bank approved a loan guarantee worth $17m for the planned 290-MW expansion of the Azito power project in Côte d’Ivoire, while OPIC cleared $50m in financing for the Azura-Edo power plant, a planned 460-MW IPP in Nigeria.

To target off-grid activity – a must for many countries with large rural populations or more challenging terrain, such as Nigeria or Kenya – the Power Africa programme also includes a sub-initiative known as Beyond the Grid, which aims to partner with 35 US investors to attract $1bn in small-scale and off-grid energy generation over the next five years.

A Focus On Renewables

The development of renewable and clean energy sources is an integral part of the investment opportunities brought about by the initiative and its surrounding partnerships, and this is meant to support the overall sustainability of Africa’s electricity expansion.

Power Africa promotes growth with a “mix of generation sources… while environmental factors [are] key to ensuring the sustainability of the sector”, according to USAID’s 2014 report on the initiative. It aims to advance longer-term benefits outside of the immediate project as well, namely “the adoption of cleaner energy generation sources… [and] supporting policy reforms and improved governance in the power sector”. In addition, it will also support new technologies – especially sustainable and renewable ones – for small-scale, off-grid supply.

OPIC and other US agencies will help early stage off-grid development by way of the US-Africa Clean Energy Finance Initiative, which is a partnership between OPIC and the US Department of State, the US Trade and Development Agency, and USAID.

Centrality Of Reforms

Consistent and evenly applied policy reform will be a critical requirement for success. This will be the case in the short term as the ball gets rolling, and also for the long-term sustainability of projects and service delivery.

The crucial involvement of the private sector will be important for more than just investment. As noted by USAID, it is required for “strengthening technical and managerial expertise in key power sector institutions”. The lack of technical expertise and the presence of cumbersome regulatory and legal environments (often in unstable political contexts) have long been among the core challenges facing private investors in the region.

According to Andrew Herscowitz, coordinator for Power Africa at USAID, significant progress has already been made, including a number of “tough reforms” that were pivotal to attracting private sector investment in the initiative’s first year. These reforms include Nigeria’s privatisation efforts, as well as a reduction in Ghana’s subsidy programme and the roll-out of a new capital spending campaign in South Africa. Because of this commitment to reform, Herscowitz adds, inflows “continue to rise”.