The African energy opportunity Abidjan, March 21 st , 2016
Africa’s energy gap: The costs of the divide 89 93 621 60% 60% 4/5 BILLION MILLION MILLION US dollars of Of SSA’s energy Africans do not Nigerians lack petroleum have access to is consumed by access to exported by OF THE POPULATION (727 MILLION) electricity South Africa electricity Nigerian in 2013 Rely on solid biomass, mainly fuel 600,000 wood and charcoal, for cooking In 9 African countries, more than 80% In Africa, the poorest households spend AFRICANS ARE KILLED EVERY YEAR By air pollution caused by the use of OF PRIMARY SCHOOLS HAVE NO ELECTRICITY solid biomass for cooking X20 On current trends, it will take Africa until 2080 MORE PER UNIT OF ENERGY THAN THE WEALTHIEST HOUSEHOLDS with connection to the grid TO ACHIEVE UNIVERSAL ACCESS TO ELECTRICITY 2 SOURCE: Africa Progress Panel
Key messages for you today We are already seeing a seismic shift in the energy landscape in Africa The investment gap is massive and is a central priority for change – also, it is a key driver of innovation The fundamentals driving these shifts are expected to continue to accelerate As a result, new energy solutions are already emerging and some are delivering at surprisingly large scale There is still lots of work to do, but Africa is beyond the point of no return 3
Current energy per capita varies significantly across the world Average per capita primary energy consumption XX GJ/capita 2014, World average: 79GJ/capita 219 Russia China European 130 93 Union 290 United States Saudi Arabia 294 Japan 144 India 63 Mexico 28 Nigeria 31 Indonesia 22 1 37 31 Ethiopia Colombia 62 Brazil 113 South Africa 81 229 Argentina Australia 1 2013 due to limited data SOURCE: Enerdata (2015), Historic actuals; UN Population Division (2015), World Population Prospects: The 2015 Revision. 4
After a 15 year drought, Africa is building new capacity, this time with more private sector engagement MW installed Private sector 4 166 Public sector 3 720 3 461 3 249 3 232 3 014 2 964 2 765 2 700 2 691 2 279 2 199 2 123 1 629 1 547 1 544 1 256 1 200 1 094 766 739 748 719 634 536 521 504 427 318 191 1985 1990 1995 2000 2005 2010 2014 SOURCE: Africa Power Plants Database - UDI 5
Gas and solar are likely to play the biggest Solar Imported fuels 2 role in the future African energy sector Wind Coal Geothermal Gas Hydro Nuclear Evolution of energy supplied – “aggressive solar” Implied incremental capacity additions TWh of energy 1 GW of capacity 2 1,616 161 Commodity slump 1,079 725 68 50 444 2010 2020 2030 2040 2020 2030 2040 1 2010 values are actual; 2020 to 2040 are forecasts. Figures may not add up due to rounding 2 Based on differentiated load factors by technology: coal = 80%; gas = 85%; geothermal = 80%; wind = 25%; hydroelectric = 45%; solar = 20% SOURCE: Bloomberg; World Development Indicators; IHS Global Insight; Global Terrorism database 6
Depending on who you ask, the power sector investment requirement ranges from $30 billion to $80 billion per year 77 60 55 Investment in Current 33 power sector p.a. annual spend USD billion 8 Brighter Africa report Africa Progress Panel IEA new policies scenario IEA African century case Capital investment 2014-2040 1430 3 845 1624 2084 USD billion Target electrification rate 71 100 73 85 % 1 2010 values are actual; 2020 to 2040 are forecasts. Figures may not add up due to rounding; 2 IEA Africa Energy Outlook 2014 estimates; 3 Africa Progress Panel numbers are for 2015-2030 SOURCE: McKinsey African Regional Electricity Model (AREM); WEO IEA Africa Energy Outlook 2014; Africa Progress Panel 2015; Brighter Africa 2014 7
A number of other fundamentals are driving revolution in the African energy sector Increased emergence of micro scale Seismic shifts in delivered electrification projects, which are easier to finance New connections per year in Kenya 845 000s VS. 437 286 291 50 MW 50 x 1 MW 2012 13 14 15 Electricity increasingly becoming top Pay-Go models increasingly becoming priority for donor organizations financially viable 8
And we expect to see rapid cost reduction in storage development costs as well Material and component cost reductions Manufacturing and overhead improvements Storage costs 1 Pack price evolution at 70% depth of discharge Technology improvements USD/kWh USD/kWh 940 Horizon 2 (2021-2025) Horizon 3 (2026-2030) Horizon 1 (2015-2020) Technology matures 50 Continued Improvements Innovative technologies 108 381 Other Material 12 5 34 Al foil 11 17 Cu foil 145 30 18 Electrolyte Separator 28 Anode Cathode 67 122 Cells 256 Cell manufacturing 195 40 11 161 22 88 ~50 Cell overhead 100-125 32 Full system BMS 381 Full system 63 Pack 2015 price Horizon 1: ca. 2020 Horizon 2: ca. 2025 Horizon 3: ca. 2030 2015 – 2020 2 2021 – 25 3 2026 – 30 4 Storage installation 1 Remaining cost components refer to power control system (PCS), communication & control, ancilliary activities and service costs (bottom to top) SOURCE: McKinsey 9
Five big challenges to increasing electricity access in Africa Domestic policy/ • Support cost-reflectivity & transparency in cross-subsidy reform regulatory environment • Stable tariff path will bring in long term financiers – pension funds etc. • State should only finance “social equity” type investments e.g., Financing distribution grid Role of the private • Utility provides stable environment and credible off-taker sector and role of • Private sector to bring in new financing, technology innovation and skills the utility • Ensure that the intersection between off-grid and on-grid is effectively Rural electrification managed and delivered • Commit to ensuring the necessary reforms are implemented through the Political will political cycle 10
The opportunity is now It is time to take decisive action and turn around the narrative: to light up and power Africa – and accelerate the pace of economic transformation, unlock the potential of businesses, and drive much needed industrialization to create jobs AfDB President - Akinwumi Adesina 11
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