BII's Leslie Maasdorp outlines some of the steps that could help bring the benefits of electricity to 300 million more Africans by the end of the decade
Energy is the foundation of development – in Africa, and globally. Sustainable prosperity involves many things – good healthcare, digital technologies, efficient transportation, decent jobs and more – and they in turn need reliable, affordable and sustainable electricity. People also want comfortable homes, with electric lighting, a refrigerator and a clean means of cooking, yet this remains a distant aspiration for too many.
Next week, over 20 African heads of state will gather in Dar es Salaam at a summit convened by the African Development Bank and the World Bank, to put "Mission 300" into action. That mission is to bring the benefits of electricity to 300 million more Africans, by the end of the decade.
Doing so will require a lot of money, of course, but that is not all. Expanding the supply of sustainable and affordable electricity is a challenge with several moving parts. It requires many different actors to work in partnership with each other, including governments, state-owned enterprises, private energy companies and regulators. There is also a whole host of investors that are active in the power sector, who must each play to their strengths.
British International Investment (BII), the UK's development finance institution and impact investor, will be one of the smaller institutions taking its place round the table in Dar es Salaam, but organisations like ours are vital, and effective, elements of the overall ecosystem.
Private investment in transmission and distribution can alleviate crucial bottlenecks to extending access to more reliable power
Before energy projects can be financed, they must first be conceived and then developed. That's a role BII takes on. We are better suited to playing that creative role than our larger cousins for a couple of reasons. First, we have the backing of our shareholder, the UK Government, to take elevated risks for the sake of development. Second, we are not a bank that has a credit rating to protect or regulatory risk limits. These attributes mean we can supply the patient and risk-bearing capital which is critical for the uncertain and lengthy process of energy project development.
One example of that is our work with Globeleq, Africa's largest private power company, which is a platform we own alongside the Norwegian DFI, Norfund. We support the company to allocate its resources and expertise to project development in more challenging markets that are beyond the appetites of purely commercial developers.
We have also established new energy companies from scratch. Transmission and distribution are an important part of enabling energy access, bringing reliable electricity to more people. That's why we created Gridworks to meet the urgent need for investment and expertise in this area on the African continent.
The importance of this approach to Mission 300 is already evident. One example is Moyi Power, a Gridworks company that will build mini-grids in three cities in northern DRC with a combined population of 700,000. These cities currently have no grid connection, and largely rely on private diesel generators.
In Burundi, a country where only around 12% of the population has access to electricity, a Gridworks company, Weza Power, is planning to change that. An initial five-year pilot will expand the existing grid to add 300,000 connections. If successful, it will convert into a long-term electricity distribution concession. The ambition is to connect 9 million people, which is around 65% of the population. Doing that in a financially, environmentally and politically sustainable way will be incredibly challenging – but these are exactly the sorts of challenges we must take on. The project will make a significant contribution to the goals of Mission 300.
The Burundi project also exemplifies the need for collaboration. Gridworks can take the lead, but 'viability gap financing' will be needed to keep tariffs affordable, and debt will be needed to finance construction. Various potential partners, including the World Bank and the US International Development Finance Corporation (DFC), are already involved.
Gridworks is also mobilising other capital for investment in long-distance transmission projects in countries such as Uganda and Mozambique. In Mozambique, Gridworks is working with the state energy company to deliver a transmission line that will strengthen the power system and provide transmission capacity and connectivity. The project is supported by DFC, with several other Mission 300 partners expected to join later.
During the summit, African leaders are expected to endorse an Africa-wide communiqué as well as country-specific compacts, outlining their commitment to key principles and reforms. While the private route is not always and everywhere the right one, private investment is a critical part of achieving the goals Mission 300 has set. And there are things that governments can do to enable private enterprises to contribute to bringing reliable and affordable electricity to the people of Africa.
Private investment in transmission and distribution can alleviate crucial bottlenecks to extending access to more reliable power – that's why we founded Gridworks.
We think African governments could do more to open up their networks to private investment in this area. That does not mean wholesale privatisations. It is perfectly possible to have a private company focus on one aspect that needs tackling – like building a transmission line that connects a wind farm to the grid or upgrading electricity substations – while the state plays other roles.
Investment in electricity transmission doesn't just enable a country to strengthen its own grid. It also establishes better connections between countries and helps regional power pools work better for Africa. In turn that helps improve reliability, because for example, if the wind is not blowing in one country, it might be in a neighbouring country.
Alongside physical infrastructure, we also need new business models, accommodated by modernised regulations. We're already seeing this in South Africa, where we've recently invested, in partnership with GuarantCo, in Etana Energy. Recent regulatory changes in South Africa enable private power producers to sell electricity to business customers. Etana is accelerating this opportunity by supplying electricity generated by renewable energy projects to business customers. Allowing private power producers to do this gives them options and reduces risk, which means they are more willing to invest without a sovereign guarantee, avoiding the creation of contingent liabilities for governments. More countries could allow that.
Finally, Africa needs to take greater advantage of decentralized energy models. Solar home systems and mini-grids are often a cost-effective way to expand access to electricity. But business models premised on collecting revenue from the lowest-income sections of society are hard to get off the ground. And despite the need, we lack consensus about how much support to provide and how. Currently, the support received by different players in the system – utilities who supply grid power, mini-grid operators, solar home system vendors and so on – is often hidden. As a result, this makes it hard to see what delivers results and to develop coherent policies to allocate subsidies. Bringing greater transparency will help governments make effective decisions about how and where to allocate subsidy to increase energy access for lower-income households and businesses.
These are just some of the steps that could take Africa closer to the goal of universal access to electricity. At BII we want to use our distinctive position and track record, to create more early-stage solutions that help expand access for more Africans. We welcome the partnership of African governments, as well as other institutions like the African Development Bank, in making that ambition a reality.
Leslie Maasdorp is Chief Executive Officer at British International Investment.
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