The African energy opportunity - Abidjan, March 21st, 2016 - Tralac

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The African energy opportunity - Abidjan, March 21st, 2016 - Tralac
The African energy
opportunity

Abidjan, March 21st, 2016
The African energy opportunity - Abidjan, March 21st, 2016 - Tralac
Africa’s energy gap: The costs of the divide

                                                 621                      60%                         89                   93
                                                                                                                           60%
        4/5                                         MILLION

                                                 Africans do not
                                                 have access to
                                                                     Of SSA’s energy
                                                                     is consumed by
                                                                                                      BILLION
                                                                                                    US dollars of
                                                                                                      petroleum
                                                                                                                           MILLION

                                                                                                                        Nigerians lack
                                                                                                                          access to
     OF THE POPULATION (727 MILLION)                                                                 exported by
                                                 electricity           South Africa                Nigerian in 2013       electricity
      Rely on solid biomass, mainly fuel

                                                    600,000
      wood and charcoal, for cooking                                                               In 9 African countries, more than

       In Africa, the poorest households spend     AFRICANS ARE KILLED EVERY YEAR                             80%
                                                  By air pollution caused by the use of               OF PRIMARY SCHOOLS HAVE NO
                                                  solid biomass for cooking                                   ELECTRICITY

                                X20
                                                                       On current trends, it will take Africa until
       MORE PER UNIT OF ENERGY THAN THE
       WEALTHIEST HOUSEHOLDS
                with connection to the grid
                                                                                  2080
                                                                   TO ACHIEVE UNIVERSAL ACCESS TO ELECTRICITY
                                                                                                                                         2
SOURCE: Africa Progress Panel
The African energy opportunity - Abidjan, March 21st, 2016 - Tralac
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
The African energy opportunity - Abidjan, March 21st, 2016 - Tralac
Current energy per capita varies significantly across the
                              world                                                                                                               XX   Average per capita primary energy consumption
                                                                                                                                                       GJ/capita

          2014, World average: 79GJ/capita

                                                                                                                                     219 Russia

                                                                                                                                          China
                                                                                                                  European
                                                                                                              130 Union                    93
                             United States                   290
                                                                                                                  294 Saudi Arabia                     144         Japan
                                                                                                                                India
                                             Mexico              63                                                        28
                                                                                                         31 Nigeria
                                                                                                                                                       Indonesia
                                                  Colombia                31                                               221 Ethiopia           37

                                                         Brazil                62
                                                                                                                      113
                                                                                                                           South Africa
                                                    Argentina                  81                                                          Australia       229
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
                                  2 964                                                                                                                             3 014
                    2 765 2 691                                                                                                        2 700

                                                                                                                                                         2 279
       2 199                              2 123

                                                                                         1 629 1 547 1 544

                                                                                                                     1 200                                      1 256
                                                                               1 094
                                                  739 748                766           719               634
                                                                                                                             536 504           521
                                                                  318                                          427
                                                            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 fuels2

                             role in the future African energy sector                                                                                      Wind
                                                                                                                                                           Geothermal
                                                                                                                                                                          Coal
                                                                                                                                                                          Gas
                                                                                                                                                           Hydro          Nuclear
  Evolution of energy supplied – “aggressive solar”                                                               Implied incremental capacity additions
  TWh of energy1                                                                                                  GW of capacity2
                                                                                      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
 power sector p.a.                                            33                                                                                                                              annual
 USD billion                                                                                                                                                                                  spend
                                                                                                                                                                                                 8

                                               Brighter Africa report                   Africa Progress Panel                 IEA new policies scenario IEA African century case

 Capital investment
 2014-2040                                                  845                                     14303                                    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
000s                                       845
                                                                        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 costs1                                                               Pack price evolution at 70% depth of discharge
  USD/kWh                                                                      USD/kWh                                                                                 Technology improvements

               940
                                                                                                                                              Horizon 2 (2021-2025)        Horizon 3 (2026-2030)
                50                                                                Horizon 1 (2015-2020) Technology matures
                                                                                                                                              Continued Improvements       Innovative technologies
               108                                                                381
                                                       Other Material                       12
                                                       Al foil                    11           5          34
                                                       Cu foil                              17
               145                                     Electrolyte                18                      30
                                                       Separator                       28
                                                       Anode
                                                       Cathode                         67                 122
               256                        Cells
                                                       Cell manufacturing              40                                     195
                                                                                                                                                     11
                                                                                                                                                22             161

                                                       Cell overhead                   88                                                                                      ~50               100-125

                                          BMS          Full system                     32
               381
                                                       Full system                     63
                                          Pack

                                                                                2015 price           Horizon 1:          ca. 2020             Horizon 2:    ca. 2025      Horizon 3:         ca. 2030
                                                                                                     2015–20202                               2021–253                    2026–304
      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/
regulatory                  • Support cost-reflectivity & transparency in cross-subsidy reform
environment
                            • Stable tariff path will bring in long term financiers – pension funds etc.
Financing                   • State should only finance “social equity” type investments e.g.,
                             distribution grid
Role of the private
sector and role of
                            • Utility provides stable environment and credible off-taker
the utility
                            • Private sector to bring in new financing, technology innovation and skills

Rural                       • Ensure that the intersection between off-grid and on-grid is effectively
electrification              managed and delivered

Political will
                            • Commit to ensuring the necessary reforms are implemented through the
                             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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