Here the Keynote Address on the Role of Hydropower in Africa's Energy Mix I presented last week in Hamburg, Germany

1. Hamburg, April 26, 2017
The Role of Hydro-Power in Africa’s Energy Mix
Keynote Address
AH Africa Forum
Hydropower in Africa
Prof. Jamal Saghir
Professor of Practice
Institute for the Study of International Development
McGill University
Montreal
&
Senior Associate
Center for Strategic and International Studies
Washington D.C.

2. • Africa Economic Situation
• Africa Current Energy Scorecard, Affordability
and Energy Development Challenges
• Energy Resource Potential
• Private Power
• Hydropower a Major Driver and Game
Changer
• Hydropower Development and Financing
• Take Away
Contents

3. Sub Saharan Growth slowed to lowest level in over two-decades
& resources for development have declined
- Low commodity prices, weak external demand, and domestic headwinds (such as policy uncertainty,
drought, and security conditions) pulled , Sub Saharan Africa (SSA) growth down to an estimated 1.3% in
2016. This is the lowest rate in over two decades.
- With population growth at around 2.7 percent SSA will experience a decline in GDP per capita in real terms.
- The slowdown in growth reflects weak performance the SSA’s three largest economies.
- Capital inflows to the region declined in 2016. Eurobond issuance slowed markedly due to weak investor
demand.
- cross-border bank lending and equity inflows also slowed. FDI was sharply lower, reflecting low commodity
prices and weakening investor confidence.
- Government finances remained under pressure across Africa, pushing debt levels higher. For several
countries government debt is well above 40 percent of GDP.
Real GDP Growth Capital flows Debt to GDP in Sub-SaharanAfrica

4. - Although according to the World Bank, commodity prices are projected to rise, they are not expected to
return to previous highs in the foreseeable future.
- SSA growth is forecast to rebound to 2.6% in 2017, an average of 2,9% in 2018/19 ( World Bank), as
commodity exporters adjust to a low commodity price environment.
- Future growth in African countries will increasingly need to come from higher total factor productivity. This
represents a shift from the growth pattern of the past two decades, where growth came from an
accumulation of capital and other inputs.
- There are signs of economic resilience: 41% of Africans live in countries with average GDP growth rates of
over 5.5%. The countries have better quality of policies and institutions and more diversified export
structures.
Trends and forecast ofcommodity prices Growth performance by countrygroups
Africa’s Growth Outlook remains subdued but there are signs
of resilience

5. ….Within this Overall Economic Context ,
the Energy Sector in SSA is at the
Cross Roads

6. • Total installed generation capacity for 48 African countries (800mn. population) is 90 GW
• 40 GW of this 90 GW capacity is in South Africa alone
• Only seven countries—Cameroon, Côte d’Ivoire, Gabon, Ghana,
• Namibia, Senegal and South Africa—have electricity
access rates exceeding 50 percent. The rest of the region has
an average grid access rate of just 20 percent.
• Outside South Africa, power consumption of 124kwh pc pa
or about 10% of OECD levels
• Only 38 percent of SSA have access to electricity and under
business as usual, most countries will fail to fully
electrify by 2040
• Demand growing rapidly
• 30 countries face regular interruption of services
• Sales lost due to interruptions: 6% formal,16% informal sector
• Subsidies of US$2 Billion p.a. (0.4% of GDP) not benefitting the poor
• Africa’s power very costly at US$0.18/kWh or twice levels in other LDCs (back-up
generation costs twice as much).
Energy Need
Sub Saharan Africa’s Current Energy Scorecard

7. • 82% of households rely on solid biomass for cooking
• ~500,000 deaths a year are attributed to indoor pollution
• SSA needs to grow generation capacity by 7% pa or double it each decade to
– Keep pace with projections for economic growth
– Make progress towards universal household electrification
• SSA needs an annual 6-7 GW of new capacity yet
– SSA ( excluding South Africa) is building 1GW of new capacity every year.
– In contrast, until recently, China was building 1GW of new capacity every other
week
– SSA will consume nearly 1,600 terawatt hours by 2040, four times what was
used in 2010.
– Although SSA consumes less electricity than Brazil, by 2040 its demand will
reach a level equal to 2010 consumption in Latin America and India combined.
It takes on average 25 years to progress from a 20 percent electrification rate to
80 percent electrification rate
Sub Saharan Africa’s Current Energy Scorecard

8. q Historic cost of generation in Africa are exceptionally high compared to other
regions
q Consequently, the tariffs are also high; few poor unconnected households can
afford a connection
q Yet, utilities are struggling to recover costs and rely on government subsidies
q Lowering cost will require changing the energy mix to more Hydropower and
renewable energies
0.18
0.07
0.09
0.05 0.05
0.14
0.08
0.07
0.12
0.14
0.00
0.05
0.10
0.15
0.20
Africa South
Asia
East Asia USA OECD
Average historic
cost
Source: OECD and World Bank studies
Average cost and residential tariffs (in USS/kWh)
Africa’s Energy Affordability Challenge

9. 9
Source: Bloomburg energy Climatescope 2015
Average power generation cost and energy mix in selected SSA countries
(in US$/MWh)
Reducing Power Cost requires Changing the Energy Mix

10. Growing energy demand, yet low supply
ü Energy demand in SSA grew by around 45% from
2000 to 2015, but still accounts only 4% of the world
total (13 % of global population).
ü Under current performance and business as usual
approach, according to the UN, International Energy
Agency and World Bank around 500 million people
remain without access to electricity in 2040.
10
Population without electricity in Africa
Transmission and distribution losses and loss rates
Source : IEA Africa Energy Outlook 2014
Source: EU and World Bank Estimates
High inefficiency increases cost of supply
üTransmission and distribution losses average 18%
across the region (more than double than the world
average)
üT&D losses can add US$ 50-80 per MWh to the
average cost to the consumer
üReducing the operational inefficiencies of power
utilities through institutional reforms would save
US$3.3 billion a year
In Sum ... Africa’s Energy Development Challenges

11. Africa’s Energy Resource Potential
11 Source: Africa Energy Outlook and World Bank Estimates
§ 350 GW of economically feasible
potential in HYDROPOWER. Can hydro
be properly planned and prepared
sustainably in a timely manner so that
it becomes a game-changer in SSA?
§ Major new NATURAL GAS finds in
Mozambique, new reserves in Tanzania,
Senegal, Mauritania, Egypt and current
production in Nigeria and Gulf of
Guinea. Can challenges along value-
chain (e.g. infrastructure, pricing,
governance, revenue-sharing) be met
so that gas is optimized for power
production
§ GEOTHERMAL potential in the Rift
Valley can provide more than 15 GW
Can resources be proven through test
drilling and exploited?
§ WIND and SOLAR potential can be over
1000 GW, but needs to be exploited at
scale. Can these variable resources be
dispatched economically on the grid?

12. Private Power in Africa
• Private capital and management have played a much more limited role
in Sub Saharan Africa’s power sector than in other regions in the World
– share of generation assets <10%
– New IPPs reaching financial close <2 p.a. in all SSA, 1992-2015
• Large share encountered post-financing problems
– 5 distribution companies with even partial private ownership in all
SSA
• Sector reforms slow, perceived risks high
• Sharp pick up last 5 years
• South Africa: largest RE program globally launched 2011
• Multiple countries with few IPPs: Togo, Rwanda, Egypt, Nigeria
Tunisia
• Larger scale private generation in Kenya, Ivory Coast, Morocco
• Nigeria could be one of world’s 10 largest IPP markets
12

13. Greater Investment Needed to Harness Resource
13
African
Power Pool
Regions
Avg. Yearly
Investment
($B)
Cumulative
Till 2020 ($B)
CAPP 6.5 52.0
EAPP 14.5 116.0
SAPP 18.5 148.0
WAPP 10.5 84.0
Total 50.0 400.0
Investment Needed Current Investment Trend
Financiers
Avg. Yearly
Investment
($B)
Cumulative
Till 2020 ($B)
World Bank Group 1.5 12.0
Other Multilaterals 1.5 12.0
Emerging financiers 2.0 15.0
Private sector 5.0 41.0
Total 10.0 80.0
Financing
shortfall of
80%
Potential Investment Gap
Africa needs up to $40-50 billion (in G,T&D) yearly for universal access by 2030
BUT
q Currently, $9-10 billion invested yearly to provide first access to modern energy

14. Increasing generation will require crowding in
Private money
Current challenges
q SSA Private sector investments in
energy is 1% of all such
investments in developing
regions (vs. 34% for South Asia,
26% for LAC, or 25% for ECA)
q Six SSA countries concentrate
80% of these investments
(Nigeria, Uganda, Cameroon,
Ghana, Kenya, and Tanzania)
q Leveraging private sector
partnerships with innovative
mechanisms/increased focus on
instruments such as Guarantee
Instruments critical
q Private sector is not systematically
engaged
ü Mainly through IPPs : total $6B
investments in 5 GW of installed
capacity
ü Basel III implementation is increasing the
cost of long-term funding
Multilateral Development Banks
Solutions
§ Integrated system planning
for Fuel to Power value
chain;
§ Prepare bankable deals
§ Contract standardization/one
stop shop to obtain cost
reduction
§ Select professional
developers and drive down
cost through competitive
tenders
§ Improve creditworthiness of
the power sector

15. BUT….
Sub Saharan Africa’s hydropower Capacity set to
Expand Considerably
• Massive expansion looks economic potentially
doubling share in generation portfolio
– Currently around 20 GW and 24% share
– Without further trade, 48 GW and 36% share
– With optimal trade, 68 GW and 48% share
• Regional trade displaces 20 GW of thermal
power saving 70mn. tones CO2 emissions pa

16. Africa Exploits than less then 10% of its Major
Hydropower Potential
Regional
trade needed
to link-up
hydro rich
countries
with load
centers

17. Africa’s Existing Hydropower Capacity Amounts
to 20 GW or 24% of Portfolio
16 African
countries
depend
mainly on
hydro-power

18. Power costs on average US$0.04/kWh less
in hydro-dominated systems
0
10
20
30
40
50
60
70
80
90
South Africa
DRC
Zambia
Nigeria
Ethiopia
Mozambique
Malawi
Lesotho
Uganda
Ghana
Benin
Kenya
Cameroon
Tanzania
Madagascar
Namibia
Cape Verde
Burkina Faso
Senegal
Rwanda
Niger
Chad
Average cost for thermal systems US$0.27/kWh
Average cost for hydro systems US$0.14/kWh

19. – Government funding dominated by Ethiopia (52%) with
Grand Renaissance ($ 4.4b)
– China EXIM Bank funding equivalent to multilateral IFI
+ bilateral (non-China) + private funding combined
– Multiple funding partners (average 5,7 per project)
sometimes resulting in a long time to reach financial
close
– Bujagali is a large scale privately financed greenfield
hydroproject in SSA in past decade
Location of all developed hydropower projects across Sub-Saharan Africa –
country-level (2004-2014)
0 developed hydropower projects
2 – 4 developed hydropower
projects
≥ 5 developed
hydropower projects
1 developed hydropower project
Number and locations of
developed hydropower projects
Rusumo Falls located over the Rwanda, Tanzania and Burundi border is placed in
Rwanda. Ruzizi III located over the Congo DR, Burundi and Rwanda is placed in Burundi.
Nangbeto project located in Togo and Benin, is placed in Togo
8
5
5
Funding source
Total investment
(US M)
number of
projects
Average
investment per
project (US M)
Government 14 000 (39%) 50 280
Multi-lateral IFI 3 700 (10%) 24 150
China (EXIM Bank & others) 11 100 (31%) 24 460
Bilateral IFIs/ECAs (non-China) 5 200 (14%) 28 190
Private 2 400 (6%) 13 180
Total 36 400 (100%) 65 560
Some Hydropower Projects Developed
2004-2016

20. Major Benefits to Power Exporters in form
of Net Revenues
Country
Net export
potential
Net
revenues
Required
investment
TWh pa US$m pa % GDP US$m pa % GDP
DRC 51.9 519 6.1 749 8.8
Ethiopia 26.3 263 2.0 1,003 7.5
Guinea 17.4 174 5.2 786 23.7
Sudan 13.1 131 0.3 1,032 2.7
Cameroon 6.8 68 0.4 267 1.5
Mozambique 5.9 59 0.8 216 2.8
Total 121.4 1,214 - 4,053 -

21. 0
1
2
3
4
5
6
7
8
Guinea-Bissau
Liberia
Niger
Angola
Chad
Burundi
Senegal
Mali
Congo
EquatorialGuinea
Mozambique
SierraLeone
Lesotho
Namibia
SouthAfrica
Gabon
Kenya
Savingsfrompowerimport(UScentsperkWh)
Major Benefits to Power Importers in
Terms of Reduced Cost of Power

22. So….. What to Do?

23. Rate of Construction of Hydropower needs
to Accelerate Considerably
Country Hydro developed
in last decade (MW)
Hydro potential
in next decade (GW)
Ethiopia 2.8 8.2
Guinea 0.8 4.3
DRC 1.3 4.0
Sudan 1.4 3.7
Mozambique 0 3.2
Cameroon 0.2 2.4
Zambia 0.5 2.0
Uganda 1.1 1.2
Ghana 0.4 1.0
TOTAL 8.5 30.0

24. Issue is that at present Hydro Export
Potential only Partially Financed

25. But…Good News… Growing Interest of
External Financiers in Hydro-Projects

26. Around 1.5GW of Hydropower completed
in last few years mainly by China and
Arab Funds
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
China Arab EU WBG AfDB PPI India Others
MW of hydro-power completed

27. A further 6-7 GW being built
mainly by China, EU, Governments
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
China WBG EU Arab PPI Others India AfDB
MW of hydro-power
Completed Construction

28. 0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
WBG China EU Arab PPI Others AfDB India
MW of hydro-power
Complete Construction Planned
Multilateral Financiers planning to
support a further 10GW of Hydro-Power

29. 29
Power pool development needs multilateral effort and strong intergovernmental institutions
Power
Pool
Yearly Cost
Saving
(US$B)
CO2
Emission
Reduced
(mtpa)
CAPP 0.2 4
EAPP 1.0 20
SAPP 1.0 41
WAPP 0.5 5
Total 2.7 70
Ø Mega-scale clean energy
resources are
concentrated in few
countries
Ø Massive export
potential can change
energy supply costs
Ø Cost of supply
(aggregate) can be
reduced while also
reducing overall GHG
emissions
Ø Promotes overall
economic growth
Ø Tens of thousands of
kilometers of power
transmission lines needed
Ø Bilateral and regional
interconnections can
reduce reliance on
thermal
Development of African Power Pools can be
Game-Changer

30. But…the reality is that Sub Saharan Africa’s
energy future depends critically on progress in
some dozen main countries…

31. Take Away
• Hydro and solar will loom larger in generation in absolute terms.
Output from hydro will almost triple, from 92 terawatt-hours to 256
• terawatt-hours, by 2040
• Projects are geo-politically challenging, and often require multi-
country cooperation
• Developmental risks are considered too high to be borne by individual
parties (private or public)
• Upfront developmental costs often staggeringly high as are long-term
payment risks
• Sponsoring institutions lack the capacity to develop, prepare and
finance such projects
• Weak sectors and non-creditworthy public utilities
• Financing and Risks Instruments limited and thus should be leveraged
• Huge opportunities: More involvement of Private Sector in
development, construction and financing is critical to harness
potential. But need to go beyond traditional project finance schemes

32. THANK YOU
DANKE
Jamal.saghir@mcgill.ca
jamalsaghir@hotmail.com
https://www.linkedin.com/in/jamal-saghir-96453097/