SSA’s electricity shortage questions China’s $13bn 5-year power sector investments

A recent International Energy Association (IEA) report notes that China accounted for 30 percent of new capacity additions in sub-Saharan Africa (SSA) power sector projects over the last five years, spending about $13 billion on 200 projects purported to deliver 17 gigawatts (gw) of power, yet over 600 million people in SSA, according to the World Bank, have no electricity.

In West Africa, most Chinese-built capacity is in gas-fired power plants, especially in Nigeria, which has enormous natural gas resources. There are also projects based on coal and hydro. Chinese companies are working on three projects totalling 1.5gw in Nigeria, with some advanced technologies provided by original equipment manufacturers (OEMs) such as General Electric.

In 2013, Chinese consortium – HTG-Pacific Energy – signed a memorandum of understanding with the Nigerian government for the exploitation and mining of the Ezinmo Coal Bricks in the country’s coal-rich eastern state of Enugu. A Power Purchase Agreement (PPA) that authorised the investors to build a 1000 megawatts coal power generating plant at the cost of $3.7 billion followed it.

Other projects include a 3,050mw hydropower plant in eastern Mambila Plateau and 700mw hydro stations in Zungeru, to be built by Chinese firms Electricity Equipment Corporation (CNEEC) and Sinohydro Consortium. But experts say some of these projects are way past their execution dates, and completed ones have added little value as gas-fired plants still have modicum access to gas, and failing distribution systems stunt progress.

“Nigeria’s transmission system is potentially the weakest link in its entire power value chain and inadequate transmission infrastructure has stranded capacity,” KPMG 2016 sub-Saharan Power Sector Outlook report, notes.
Acknowledging massive investments in power generation, the report faults the lack of investments in improving electricity transmission and distribution.

“There is also the need for considerable expansion of the distribution network to accommodate the demand for power from consumers. The current Aggregate Technical, Commercial and Collection losses (ATC&C) are well above acceptable limits and adequate investment must be made to improve the level of efficiencies in the distribution system.”

The IEA report, titled, ‘Boosting the Power sector in Sub-Saharan Africa: China’s involvement, provides a comprehensive analysis of these projects, mostly hydro, which China has technical expertise, and financed largely through public lending from the country.

“African countries have relied heavily on China to support the expansion of their electricity systems, to enable growth and improve living standards,” Paul Simons, IEA’s deputy executive director, said.

According to the report, greenfield power projects contracted to Chinese companies have become widespread in the region. Renewable sources account for 56% of total capacity added by Chinese projects between 2010 and 2020, including 49% from hydropower. Major projects include biomass and waste-to-energy in Ethiopia, hydropower dams in Gabon and Zambia, and solar projects in Senegal and South Africa.

It says the goal of China’s involvement in Africa, as in other regions around the world, is to bolsters the internationalisation of Chinese companies as well as the government’s “going abroad” strategy.

Western analysts have gone from suspicion of the motive of Chinese foray into Africa to analysing the economic imperative of the engagement. They say Chinese stakeholders see Africa’s industrialisation and economic development as important for Chinese exports of manufactured goods in the region.

“China’s labour intensive manufacturing competitiveness is, however, now on the wane. The inevitable result will be the relocation of Chinese low-end manufacturing to lesser-cost developing economy destinations,” Martyn Davies,  CEO at Frontier Advisory, said.

The current economic slowdown in China and overcapacity in various sectors, the IEA says, is impelling Chinese companies to search for new markets overseas. Over 90% of Chinese-built power projects in the region are contracted by Chinese state-owned enterprises (SOEs). Africa is the largest overseas market for some major Chinese energy infrastructure SOEs, which provide integrated services centred on turnkey projects.

It is estimated that over the period 2010 to 2020, a total of 120 million people will gain access to electricity through the power grid, enabled by grid development and increasing power generation capacity, of which Chinese contractors are responsible for 30%.