A lack of electricity is arguably the single biggest factor inhibiting sub-Saharan Africa’s economic growth – and fulfilling the continent’s economic and social promises depends upon our ability to develop its electricity capability.
This is the overarching finding from a new McKinsey report, Brighter Africa: The growth potential of the sub-Saharan Africa electricity sector, which was released yesterday evening.
Report co-author Adam Kendall from McKinsey’s electricity practice in Africa, believes there is phenomenal opportunity for both private and public sector, with a capex (capital expenditure) potential of $830-billion over the next 25 years.
By 2040, electricity demand on the continent is forecast to increase four-fold to 1 570TWh (terawatt hours), with more than 70% of the population connected to the grid.
To achieve this, McKinsey believes there is potential generating capacity in the same timeframe of 1,2TW – rising to 10TW if solar energy is included.
Today, sub-Saharan Africa is poorly served with electricity, with the average annual consumption per person coming in at a paltry 150kWh. There are about 600-million people in the region without access to electricity, and only seven countries that have achieved 50% electrification, with the others at just a 20% average grid access rate. And even where this is access to electricity, in many instances there isn’t enough to go around.
McKinsey estimates that it will take 25 years to reach an 80% electrification rate in sub-Saharan Africa, but by then sub-Saharan Africa will consume as much electricity as India and Latin America combined.
To reach this connectivity potential is not without challenges, but McKinsey argues that the continent is rich in potential power generation capacity.
The study indicates that there is potential for about 400 gigawatts of gas-generated power, 60% of which could be contributed by Mozambique, Nigeria and Tanzania alone.
There is also the possibility of 350 gigawatts from hydro, about 50% of it from the Democratic Republic of Congo (DRC); about 300 gigawatts of coal capacity, with South Africa, Botswana and Mozambique supplying about 95% of this; and 109 gigawatts from wind – although this more expensive than other sources. The potential capacity from geothermal energy is just 15 gigawatts, but this could be significant for Ethiopia and Kenya where about 80% of the capacity lies.
In addition, the report estimates that as much as 40%of the electricity generated from 2020 onwards could come from gas. Solar is expected to take off only after 2030, to represent about 8% of the total capacity by 2040.
The contribution of renewable energy is expected to increase to 25% of the total capacity by 2040, compared to 21% today, and most of this will be from hydroelectric plants.
Although southern Africa will continue to build coal capacity, it will diminish as a percentage of the total generating mix from todays 51% to 23% over the next 25 years.
The McKinsey report concludes that, to build the capacity needed over the next 25 years, will require an investment of $490-billion for building and 45-billion for transmission and distribution networks.
Importantly, this build programme could result in 2,5-million new jobs in the region.
McKinsey believes that, to succeed in unleashing sub-Saharan Africa’s potential, governments need to take the initiative in ensuring the financial viability of the power sector, that electricity tariffs reflect the true costs, that costs are transparent, that the country makes the most of what it already has in the sector, and that official pursue least-cost options in investments.
It is also important to create an environment that will attract investment, as public-private co-operation will be key. This means there have to be clear regulations and guidelines, risks should be allocated to those best able to carry them, a credible buyer needs to exist, and support from external institutions will be vital.
Governments also need to demonstrate political will, the McKinsey report concludes.
