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African Utility Week Intelligence Report

This Frost & Sullivan market intelligence report is a high-level summary of current and future trends shaping the African landscape presented at the 2015 African Utility Week conference held in South Africa in May 2015. The conference covered key trends and insights in various vertical segments, including power generation, transmission and distribution, metering, large power users, renewable power (wind and solar), hydropower, and water utilities as well as related investment challenges and opportunities within the African utility space.

Executive Summary
CEO’s Corner
The following are the top things a CEO should know about the current African utility landscape:
- The government’s involvement in projects is inevitable. Projects in countries with strong levels of government support (through either policy master plans or legislation) have a strong chance of success, compared to projects that do not have this support.
- Projects need an experienced project team that often consists of international advisors in instances where proverbial new ground is broken, which could include the introduction of new technology types and policy design, specifically in matters concerning deregulation.
o Projects in Africa are dependent on international funding. The access to financing in Africa is not adequate to address the infrastructure demand on the continent.
- Power purchase agreements (PPA) in the energy environment are receiving increased attention because of the long negotiation process involved. The private sector is often risk averse, and the subsequent expectations from the relevant government result in time delays.
- Skill levels in Africa are collectively increasing with each project, based on localisation requirements often built into the procurement process. The current legal, financial, and operational problems will decrease as the broader energy and water sectors are upskilled and become more sophisticated, which will result in a commercial environment with lower risk and projects reaching the bankable stage in an expedited manner.
- Africa has the ability to leapfrog various technology stages (and challenges) experienced in developed countries. Governments and the private sector must jointly understand where improvements and advances are optimal, given global best practices and lessons learned, while ensuring that Africa is protected from becoming a dumping ground for developed countries’ dated technology types and processes.

Overview
The AUW 2015, held in May 2015 in Cape Town, South Africa, was an excellent showcase of the direction in which African utilities are moving and the challenges faced by the respective role participants active in the utility sector. With various economies in the developed world facing low economic growth figures, the focus on the African landscape has increased, where governments and economic role participants cite high growth numbers often above % to attract investors. One of the biggest impediments to economic growth in Africa is reliable access to affordable power, which was one of the major themes at the AUW 2015.
Except for South Africa with an % access to power rate and selected Northern African countries with higher rates, most countries in Africa fall in the % range.

At the AUW 2015 conference, several presenters emphasized during the panel discussions that Africa has an abundance of resources. This statement is not under dispute, and there is an urgent need to gain access and beneficiate these resources. The challenge lies in finding ways to finance these projects in an environment that often has high levels of policy uncertainty; lack of government drive; lack of skills; and lack of utilities with strong balance sheets, bankable projects, and logistical challenges. This position, however, is changing rapidly. The general sentiment among panellists and presenters was that projects can be developed and financed; however, the approach to projects is unique to Africa, based on the continent’s unique challenges, of which project developers, governments, financiers, and service providers are well aware.

As the number of projects on the continent increases, so does the ease of doing business, with a shift towards more standardised PPAs, standardised process and procurement models, transparency on the project front, and governments providing fiscal backing to policy initiatives and projects because they sense the unlocking of the economic benefit once these projects come to fruition. The future of the utility landscape in Africa does seem brighter than a year ago.

Table Of Contents

Annual Africa Energy Landscape (2015)—Current and Future Trends Shaping the Continent
Contents
Executive Summary ..4
CEO's Corner ..4
Overview.5
Industry Topics 6
Project Aim and Objectives.13
Report Structure and Scope14
Report Structure ..14
Report Scope.14
Methodology ..14
Assumptions ..15
Introduction .15
About AUW 2015.15
Summary of the Opening Session..16
African Utilities: Key Challenges to Effective Growth19
African Utilities: Key Trends Anticipated to Facilitate Development..21
Finance and Investment Forum 24
Introduction.24
Key Insights 24
Generation ..31
Overview..31
The Importance of the PPA and the Rise of Gas as a Generation Feedstock.32
Distributed Generation (DG49
Key Trends and Insights..53
Large Power Users .54
Overview..54
Mines and Large Industrials and the Human Element .55
Drivers and Challenges 68
Key Trends and Insights..70
Metering 71
Introduction.71
Smart Metering and Tariffs .71
Key Trends and Insights..80
TandD and Smart Grids.80
Overview..80
Smart Grids.80
Smart Grid Components..81
Segment Drivers and Challenges84
Smart Grids and Regional Integration ..87
Rural Electrification.92
Key Trends and Insights..99
Renewables .100
Overview100
Solar 106
Wind.117
Hydropower..119
Introduction..119
The Role of Initiatives Such as Special Economic Zones (SEZ) within the RE Sector.123
Innovative Hydropower Solutions.124
Key Trends and Insights126
Water Utilities ..127
Overview127
Water Utilities..130
Key Trends and Insights135
Conclusion 136
Abbreviations ..138
Legal Disclaimer.141
The Frost and Sullivan Story 142

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