4 Lessons from Power Africa

This month, dozens of African heads of state and CEOs from the United States and Africa gathered in New York for the U.S.-Africa Business Forum — three years after President Obama launched Power Africa, a U.S. government-led partnership that aims to double access to electricity in sub-Saharan Africa. Here are four key lessons we’ve learned since the launch of the initiative:

1. Renewable energy is cost competitive with fossil fuels.
Solar power is being offered at 3 and 4 U.S. cents per kilowatt hour throughout the world, but countries in Africa continue debating whether to prioritize the development of their sometimes vast fossil fuels or to focus on renewables to generate power. These vibrant domestic debates regarding countries’ proposed power development paths are good because there’s no easy answer today. Usually, the answer is that the country should develop both.
It’s true that the economics of renewables are becoming more compelling as technology improves and prices come down. As countries link to one another through transmission lines, they are better able to balance the power load shifts often associated with renewables, and the interconnections allow even small countries to harness indigenous renewable resources at scale by creating a larger market. As battery storage improves and comes down in price, the case for renewables that can offer baseload power becomes even more compelling.
One study has suggested that more coal plants in Africa will be decommissioned than commissioned starting in 2025 — less than 10 years from now, while gas and renewable generation will continue to grow. Today, solar power projects already can be up and running in less than two years, compared to the five- to 10-year timeframe for other large fossil fuel and large hydropower projects. And very large projects — fossil fuels or renewables — often are delayed and can have significant cost overruns. What’s clear, though, is that the era of renewables has arrived, and everyone should be looking seriously at these projects.

2. The best price isn’t always the best value.
When developing power, quality is important. The same government officials making procurement decisions do not buy the least expensive computers, mobile phones, etc. for themselves. They buy the best products. No one should saddle a country with poor quality power projects that are not dependable and that will require expensive, unpredictable maintenance. The U.S. Trade & Development Agency (USTDA)’s Global Procurement Initiative helps policymakers make procurement decisions based on life-cycle costs and best value.
While every country should work towards competitive procurements, fairly negotiated and transparent bilaterally negotiated deals also can offer countries the opportunity to familiarize themselves with new technologies and test the waters. Showing that a project can get across the finish line in a country will make the country more attractive to investment — driving down the cost of capital and making future projects even less expensive. Prices also will come down through competitive procurements and improvements in technology.

3. Energy is a commodity, and people will pay what it’s worth.
Nearly every utility in sub-Saharan Africa is in dire financial straits. Raising electricity prices is politically unpopular, but what can be worse is when politicians heavily subsidize or even give away electricity to people who can afford to pay for it. Once someone gets something for free, they rarely want to pay for it again.
Poor people in rural areas are already gladly paying for off-grid power at sometimes several times the cost of equivalent grid power. Hundreds of millions of people in Africa pay for mobile phone services and sometimes even satellite television without subsidies. What people want is dependability. Nobody wants to pay for inexpensive power that gets cut off for hours, days, or weeks at a time. If the utilities were to charge the actual cost of power, they would have the resources available to develop a dependable power system.

4. Investments must be predictable.
Over the last year, we have seen commodity prices plummet and currencies in sub-Saharan Africa fluctuate greatly, making the investment climate more unfriendly than usual. But these macroeconomic factors can be priced into a deal. Unpredictability however, cannot.
When a government official suddenly cancels a negotiated agreement after a project developer has invested millions of dollars or when the government insists on new requirements that will scare off investors, governments only hurt themselves. The African market comprises more than 50 countries, and investors will place their bets on countries where they have a dependable and predictable government counterpart. Among the most successful markets in sub-Saharan Africa for power investments is Kenya. Why? Because the rules of the game are clear and because investors get paid on time.

During the 2016 African Development Bank Annual Meetings, Rwandan President Paul Kagame urged everyone to take action because there is no good reason why everyone cannot have access to power. Africa has the natural resources and willing investors to help bring universal electricity access to the continent. We should all feel a sense of urgency to overcome the many unnecessary obstacles to moving deals forward and to lighting and powering Africa.
Power Africa’s goals are achievable. Success requires strong, coordinated, and continued partnership. We all have a role to play to ensure that millions of people will not unnecessarily remain in the dark for decades to come. The countries that emerge from the dark will be those that offer a predictable, forward-leaning, open and fair investment climate. The Power Africa Tracking Tool (PATT), which is available for download on your Apple device, shows that there’s real deal flow and real money willing to invest.

Andrew Herscowitz is the Coordinator for Power Africa.



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