Power shortages may yet weigh on African growth in 2016

By Rafiq Raji, PhD

Published by BusinessDay Nigeria Newspaper on 29 Dec 2015. See link viz. http://businessdayonline.com/2015/12/power-shortages-may-yet-weigh-on-african-growth-in-2016/ 

Sub-Saharan Africa (SSA) is expected to grow by 4% in 2016, based on International Monetary Fund (IMF) projections in October 2015. Yet again, the sub-continent would be pulling below its weight. And a downward revision is still likely. A persistent power deficit remains a significant constraint. Some of it is due to poor planning. Inadequate investment – in some cases due to misplaced priorities as opposed to a paucity of funds – is also why. The influence of its development partners who favour supposedly environment-friendly power sources may also be a factor. Some of the incremental power shortages in 2015 were weather-related; with much of the sub-continent’s hydropower generation capacity unraveling in the year. Drought-hit countries in southern Africa – Zambia, Namibia, and Botswana – had to resort to expensive electricity imports to bridge the gap. In South Africa, a belated maintenance programme for its ageing coal-fired power plants forced power rationing (“load-shedding”) that likely cut economic growth by at least 1 percent in 2015. For an economy already beset by persistent labour unrest, high interest rates, weak demand from China – its largest trading partner – and negative political events, it did not need this additional headwind. Similarly, Nigeria – which constitutes one-third of SSA’s Gross Domestic Product (GDP) and is Africa’s largest economy – needs to generate 10-13GW of power by the end of the first half of 2016 to meet current needs and incremental demand from new development initiatives. Even the most optimistic scenarios do not see it having that level of generation capacity by end-2016. It currently has less than 4GW functional power generation capacity. Gas and transmission infrastructure are major constraints.

During the course of 2015, about a quarter of South Africa’s 45GW power generation capacity was offline due to compulsory maintenance and repairs. Almost half of the outages were unplanned, a symptom of its ageing power plants. While the state power utility provider has indicated there would be no power cuts until April 2016, load shedding is expected to continue into the first quarter of 2017. Two new coal-fired power stations are expected to add almost 10GW to the country’s grid by 2018. Long-term plans include a 9.6GW nuclear power plant and at least 20GW to be sourced from renewable sources. The country’s coal-dominated energy mix may remain for another 20 years, however. In the Nigerian case, authorities envisage emergency repairs and construction of identified critical gas infrastructure should enable the addition of 2GW generation capacity by the first quarter of 2017. Still, this would be below what the country needs. Additional capacity is planned. With Nigeria and South Africa accounting for more than half of SSA’s US$ 1.7 trillion economy, at least 0.5 percent would again likely be shaved off growth in 2016 on the back of power shortages alone.

An increasingly dogged market-driven approach by African authorities is good reason to be optimistic. South Africa, Ghana, Zambia, and Nigeria increased electricity tariffs in 2015. Upward revisions of hitherto subsidized tariff regimes have been forced by burgeoning revenue gaps, as commodity prices remain low. In Nigeria, workers’ unions are already resisting the move. With the opportunity costs so high, consumers might actually not mind the higher tariffs if stable and reliable power supply can be guaranteed. The alternative – use of standby generators – is prohibitively expensive and inconvenient. In some African countries, tariff hikes have been due to expensive emergency electricity imports to meet supply shortfalls. For instance, emergency power supply measures are expected to cost Zambian authorities at least US$ 1 billion (4% of GDP) in 2016-17. Low water levels at its Kariba dam – which produces almost half of its 2.3GW generation capacity – fell to 21% of capacity in November 2015. Consequently, its power deficit widened to above 40% as the shortfall increased to 1GW from 700MW previously. Authorities of drought-hit Namibia have also sought short-term solutions, as its 1GW Kudu gas-fired power plant is not expected to come on stream before 2019. In the Ghanaian case, ship-mounted power plants berthed off its shores are expected to bridge a current supply deficit of almost 500MW. An additional 1.25GW capacity is also planned for 2016 by Ghanaian authorities.

As the world becomes more environmentally sensitive, there is pressure on African authorities to focus more on renewable power sources as they seek to close their countries’ power supply gaps. Nuclear power has not enjoyed similar endorsements. Safety concerns and skill gaps are popular arguments, weak in one’s view. China plans to build – or has under construction – more than eighty nuclear power reactors. This would be in addition to about twenty it already has operational. At 75%, France has the highest nuclear power share of total power production in the world. French nuclear power stations source uranium from Niger, a country that imports electricity from neighbouring and underpowered Nigeria. There is a heated debate ongoing in South Africa around a circa 10GW nuclear power plant planned by its authorities. Apart from the potential fiscal consequences if not well and transparently planned, a major part of the debate is safety and environment-related. A curious angle in the debate also revolves around technological know-how. This is needless. South Africa already sources 4% of its power needs from nuclear sources, based on International Energy Agency (IEA) data. In any case, automation has reduced the amount of skilled manpower needed for day-to-day operations of new power plants, regardless of the source. With nuclear power plants now so much safer, an accident would practically require an Act of God. And in that case, no amount of caution would matter. With the costs of a longstanding power deficit already so high, it would be unwise for African authorities not to consider all options.

Also published on my company’s website on 30 Dec 2015. See link viz. http://macroafricaintelligence.com/2015/12/30/thematic-power-shortages-may-yet-weigh-on-african-growth-in-2016/ 

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