Deloitte Report Points Technology, Others Disrupting SSA Power Trends

Deloitte a global brand under which tens of thousands of dedicated professionals in independent firms throughout the world collaborate to provide audit, consulting, financial advisory, risk management, tax and related services, recently released summary of the consolidated point of view of its power leaders across Africa, backed by research.

The inaugural annual Sub-Saharan Africa power trends report to the market took a snapshot view of several Sub-Saharan African (SSA) markets and share some of the developments specifically relating to the trends that Deloitte sees as emerging ‘disruptors’ in the SSA power sector, presenting new opportunities for power companies in today’s challenging economic climate.

Speaking on the report, Shamal Sivasanker, Africa Infrastructure & Power leader Deloitte, said the report identified that low levels of infrastructure and power supply are a deterrent for many wanting to invest across various sectors in Africa.

According to Sivasanker “Despite a significant oil price drop in recent months signalling renewed headwinds in the global economy, the SSA economy is forecast to grow at a combined rate of 5% over the next few years. To support this level of growth, large investments into infrastructure and sustainable power supply need to be made”.

He said that the development of large capital projects needed to support the growth of the African economy and attract the required investment relies on robust planning, reliable funding, resilient operating structures and skills development.

“In light of the main challenges facing the SSA power industry, such as inadequate generation capacity, poor transmission infrastructure, unskilled or low numbers in the skilled workforce, poor maintenance of existing power stations, as well as poor metering and billing systems resulting in unreliable supply, countries will need to innovate to achieve financially viable growth in the sector.

“These challenges, coupled with a changing landscape in terms of technologies and the costs thereof, are giving rise to a number of ‘disruptors’ in the sector, inspiring a shift away from traditional generation practices and mixes, modes of business, methods of operations and systems, funding channels and models, as well as the landscape of players and stakeholders, towards the application of new and innovative technologies and dynamics in Africa’s power infrastructure,” Sivasanker explained.

Mapping Disruptors in SSA’s Power Sector

Deloitte said in the report that “Unreliable, insufficient and costly power generation and distribution across the African continent has arguably been the Achilles heel to higher and more inclusive growth and socio-economic development of the region. Infrastructure stock levels have impeded rather than facilitated growth and development. This is changing rapidly, as, in order for Sub-Saharan Africa (SSA) to develop and industrialise in a viable manner, a revolution in the power and related infrastructure sector is inevitable”.

The research identifies a number of emerging ‘disruptors’ already visible and will continue to disturb power landscapes in the region, including existing models of business, methods and systems of operations, as well as the blend of players in the region’s power and electricity subsectors.

Although the change that is underway is a gradual one, stakeholders in the sector are cautioned not to fall subject to a ‘boiling frog syndrome’ − although incremental, this change will result in a signifi cant shift in Africa’s power sector, which requires adaptation strategies.

Some of these emerging disruptors can be summarised to include the following:

Disruptor 1: African Economic Growth, Transformation And Rising Demand

The report acknowledged that SSA is one of the fastest-growing regions, averaging 6% growth over the past 15 years.

With continued high growth rates expected for the region, in excess of 5% over the years to 2019, reducing the current power infrastructure shortcomings will be crucial in supporting the next chapter of Africa’s growth model − one that pursues economic diversification and industrial development.

This is in order to make a dent in unemployment, poverty levels and rising inequality amidst a population that is expected to more than double to 2.7 billion people by 2050.

Disruptor 2: A Shifting Energy Mix Gives Rise To New Capital And Players

Thus, SSA’s changing energy mix trend is in part driven by the fact that the region’s energy woes have been underpinned by the reliance on a single source of electricity production. This overreliance is waning and energy generation sources are diversifying.

While power generation from coal will still account for an important share of the energy mix in the foreseeable future, SSA countries are reducing their dependence on coal and oil-based energy sources.

The report contains that countries are diversifying into more sustainable solutions including non-hydro renewables and natural gas, as the fast-dropping cost of these technologies makes them increasingly more viable.

By 2022, non-hydro renewables are expected to increase their share in the energy mix by a factor of five from 2011 values. With 90% of the continent’s hydropower potential still unexploited, hydro-generation is expected to double in output, and increase its contribution in the energy mix from one-fifth to one-quarter by 2022.

Another solution to SSA’s energy security challenges is decentralised renewable energy capacity in the form of off-grid and mini-grid solutions, particularly for remote and rural communities who have lagged access to electricity, given costly grid expansion to less densely populated areas.

Disruptor 3: Changing Role And Type Of Customers

The refocused energy generation mix in SSA also includes a changing structural makeup of players and stakeholders that will complement traditional utilities in producing electricity. The role of consumers is changing.

Deloitte found that consumers are increasingly complementing the role of producers through self-generation, co-generation and new generation structures.

Despite the high urban growth rate in SSA of 3.6%, double the world average in 2014, the type of consumer is also changing, increasingly including more remote and rural consumers with localised requirements and funding abilities.

New industries are emerging, such as ‘consumer-established’ industries ranging from small-scale cottage food processing to commercial businesses in manufacturing and private power generation, amongst others.

Furthermore, through cleaner technologies for off-grid or mini-grid solutions, consumers have and will be shifting away from uneconomical and environmentally unfriendly energy options in the SSA region.

Disruptor 4: Renewable Technologies

The economics of and business case for renewable technologies is evolving. For example, the lower cost structures of more reliable, affordable and greener solutions, underpinned by increasingly energy-efficient, sustainability focused and climate-conscious trends globally

Disruptor 5: Changing Market Structures And Dynamics

A shift from currently centralised monopolies to unbundled structures and more decentralised power generation systems and models is becoming evident and intensifying.

Structural reforms through vertical unbundling, which is the process of ‘unpacking’ integrated utilities into separate generation, transmission and distribution companies, have been the preferred option for countries including Ghana, Kenya, Namibia, South Africa, Uganda and Zimbabwe. Other notable reform options ‘disrupting’ the power sector in the region include management contracts, commercialisation, IPPs, and electricity regulatory and legislative amendments.

These reforms have had the most signifi cant impact on renewable energy and energy effi ciency in the region. In Nigeria, for example, regulators have moved towards cost-refl ective tariffs, thereby providing sustainable returns for market participants.

Transparent bidding processes and tariff incentives have also been aimed at boosting private sector involvement in the power sector in Nigeria. Other successful private sector projects have included Ghana’s Takoradi II project; Kenya’s Iberafrica, Orpower4, Tsavo and Westmont Power projects; and Nigeria’s AES Barge and Okpai projects. Compared to the rest of the world, however, SSA’s reform process is by far the slowest.

Disruptor 6: Smarter Grids And Systems, Smarter Utilities

Linked to the changing market structures and dynamics are smarter energy systems supporting better energy management and pricing structures, which are changing the relationship between producers and consumers, particularly given new applications of technologies.

Smart grids − electricity supply networks that use digital communications technology to analyse, detect and react to local changes – are increasingly being incorporated into African power utilities’ action plans, including countries such as Kenya, Nigeria and South Africa, amongst others.

In addition to other power utility management objectives across the SSA region, optimising asset utilisation and operational efficiency will be one of the major benefits of smart grid solutions.

On revenue management, most countries in SSA have adopted numerous payment methods for electricity, ranging from the old-school walk-in cash transactions to mobile and Internet payments.

In South Africa for instance, the introduction of pre-funded metering will improve the revenue management system in the country’s power sector. This is also the case in areas where pilot off-grid renewable energy is being implemented, the Deloitte report contains and available at www2.deloitte.com.