Turning to IPP to create much needed generation capacity West Africa

Power is one of the biggest hurdles to stronger growth in the sub-Saharan African region says a recent energy report by the Oxford Business Group, noting that factors such as lack of grid access mean that industrial firms face inconsistent and unreliable electricity supply.

While a number of solutions are being rolled out to address this, from off-grid networks to improved metering systems to new transmission infrastructure, one of the most fundamental and necessary solutions is new generation supply.

The report indicates that West Africa needs far more power than its governments can afford to build: it is estimated that sub-Saharan Africa requires $490bn in new projects to meet a projected four-fold surge in demand.

As a result, there has been a major push across the continent to incentivise private sector participation in the power sector.

In its latest report that focuses on Africa, there were indications that although countries are taking a variety of approaches including privatisation in Nigeria to tackling this problem, one of the most common is through Independent Power Producers.

The report further shows that building a power plant and selling it to a state-run distributor presents risks but governments are having some success in mitigating the risks with a range of tools. This situation is pertinent in Côte d’Ivoire, where more than half of its 1600-MW total capacity was provided by IPPs in 2015.

According to the report, “Significant diversity exists in project structuring across West Africa’s IPP landscape. Early investors received risk protection in the form of generous power purchase agreements (PPAs), government guarantees and escrow accounts that could be tapped in case of problems with receivables”.

It is no longer as easy to receive those sorts of assurances now, but as the market evolves, similar tools are available from an increasing number of multilateral and bilateral actors.

IPPs are hardly new to the region. The first was the Ciprel power plant, built in 1994 in Cote d’Ivoire, and it was followed by others in Senegal and Ghana by the end of the decade.

In all other sub-Saharan countries combined there are now a total of 59 IPPs either operational or fully financed and under construction. They are spread across 17 jurisdictions and with a total capacity of 6.8 GW. The list counts power projects that have been developed, financed, built, owned and operated mostly by private interests, and hold a long-term PPA with a major utility or other off-taker.

In terms of generation capacity, however, Nigeria had the most, at 1500 MW, followed by Côte d’Ivoire and Ghana, each with about 1000 MW.

“Some of the largest IPPs on the continent have been in West Africa, such as the 459-MW Azura-Edo IPP in Nigeria, which reached its financial close at the end of 2015, the 543-MW Ciprel IPP in Côte d’Ivoire, and the 430-MW Azito IPP, also in Côte d’Ivoire”, the report indicated.

The rise of IPPs is crucial in part because of the challenges existing legacy power companies face in amassing capital and financing new projects. Many of the state-owned companies particularly those who are also involved in distribution and transmission have long struggled to keep up with funding demands, which is one of the factors driving the trend of unbundling activities, privatising state assets and seeking outside investment.

KELECHI EWUZIE