What is constraining development of Africa s hydropower potential key ingredients in a recipe for success

Transcription

1 What is constraining development of Africa s hydropower potential key ingredients in a recipe for success Hydro Power Africa conference, 20 September 2011 Sandton Convention Centre, Johannesburg, South Africa Tore Horvei, Head of Africa Region / Managing Director, Norconsult Africa (Pty) Ltd

2 Presentation Outline Norconsult in brief Africa s energy challenge.can be met by Africa s hydropower promise.but we need to resolve Africa s constraints.and manage risks involved in hydropower development What is required key ingredients for success Norconsult Africa Region_Meeting with Arcus GIBB 11 March

3 This is Norconsult Leading multidisciplinary engineering and design consultancy in Norway in Power, Construction, Water and Environment, Transportation, Industrial Services and ICT USD400m revenue (2010), >15% growth p.a. 100% 80 years of operations in more than 150 countries employees, employee owned 60 offices in 11 countries Since 1957 in Africa, mainly East and Southern Africa 100% 100% 100% 100% 100% Lysenor Technogarden Norconsult Information Systems (NOIS) Norconsult AS Norconsult Sweden Norconsult Denmark 100% 100% 100% 100% 100% 24,5% 100% 100% Norconsult Africa (100%) & Norconsult Iyanda (60%), South Africa Norconsult Botswana Norconsult Mozambique Norconsult Philippines Norconsult Laos NorCiv Engineering (Thailand) Norconsult Chile Norconsult Peru Strategy to expand in (Southern) Africa, South America and South East Asia 3 3

4 International priority areas Sectorial / regional planning Institutional development Project management / planning Design engineering Construction supervision POWER AND ENERGY UNDERGROUND FACILITIES TRANSPORATION ENVIRONMENT AND WATER Norconsult Africa Region_Meeting with Arcus GIBB 11 March

5 International turnover by market 2010 (turnover outside Nordic countries approx. US$50 mill) Introduction to Norconsult Group & Norconsult Africa July

6 Norconsult Africa Region Energy in Focus Norconsult Africa Region s current business focus is primarily on provision of engineering and consulting services to the energy industry, in support of environmentally sound and sustainable energy solutions for Africa Norconsult Africa Region offers a comprehensive range of energy sector services: Hydropower Development: Design & planning of hydropower plants (all aspects) Rock & soil engineering Condition assessment, maintenance and rehabilitation Construction management Power System Engineering / Transmission & Distribution: HVAC & HVDC Substation design and development Distribution system design and development, incl. rural electrification Project and construction management & supervision Maintenance and rehabilitation Energy Sector Management Consulting: Power market analysis (domestic & regional) and sector reform Master plans Regional power markets, electricity trading and tariff analysis Economic & financial project analysis Power utility restructuring, management & technology transfer

7 Africa s energy challenges

8 Africa is huge, and so are the challenges While Africa s geographic size and rapidly growing population is huge, its economic size remain limited.. Sub-Saharan Africa s GDP is comparable to that of one medium sized OECD country, the Netherlands Norconsult Africa Region_Meeting with Arcus GIBB 11 March

9 A global energy outlier. (although noting major disparities within SSA) Generation capacity (MW per million population) SSA South Asia East Asia Electricity consumption (kwh per capita per year) SSA South Asia East Asia Electrification rate (Percentage of households) SSA SSA South South Asia Asia East East Asia Power prices (US$ per kilowatt-hour) Asia Source: Africa Infrastructure Country Diagnostic

10 Africa s energy challenges Economic growth rates are high, but electricity supply shortfalls are constraining growth and development Power infrastructure is underdeveloped Insufficient installed capacity and problems with availability/reliability Financial and other constraints facing national utilities Frameworks are needed to stimulate and sustain private sector involvement Electricity supply is unreliable Investments are urgently needed in maintenance & rehabilitation Financial, human resources and skills constraints Power costs are high Economies of scale are not realised no regional integrated power grids with capacity Too much costly thermal power generation (despite proven hydropower potential) Access to electricity is low and unequal Both an urban and rural challenge Grid extension, local mini-grids (based on hydropower supply) and stand-alone renewable energy solutions (mini-hydro, solar, wind) Norconsult presentation to Angola - Norway Energy Seminar in Luanda 7 December

11 Power infrastructure is underdeveloped Installed SSA power capacity is 68 GW Comparable to Spain Without South Africa installed capacity falls to 28 GW Up to a quarter of capacity is unavailable Growth in capacity has until recently been stagnant Installed capacity per capita is low Consumption per capita is barely 1% of high-income countries Large known energy resources remain unexploited, distant from main centers of demand e.g. large hydro potential in DRC & Ethiopia Africa has few economies of scale 33 countries - demand <500MW 11 countries - demand <100MW

12 Supply is unreliable. (days in year with power interruptions, average 56 days) Insufficient investment in maintenance and new capacity WB Enterprise surveys reveal average of 56 days per annum with power interruptions Losses in forgone sales and damaged equipment More than half of large firms have back-up generators Own-generation is now a significant proportion of installed capacity Norconsult Africa Region_Meeting with Arcus GIBB 11 March

13 And short-term solutions are very expensive (although sometimes necessary) Hydropower has an undisputable role to play to minimise costly, short-term solutions

14 Changing the past - Africa s hydropower promise

15 Some examples of Africa s untapped technical hydropower potential DRC >50 GW / ~250 TWh/yr potential Only 5% developed, with Inga being the sleeping giant Ethiopia >15 GW / 88 TWh/yr potential Only 10% developed (but more projects under implementation) Angola 18 GW / 80 TWh/yr potential Only 4% developed (but plans to develop 7GW over next 10 yrs) Mozambique 14 GW potential Only 20% developed (but plans to develop >4GW over next 10 years) Zambia 30 TWh/yr potential Only 20% developed (but another 19 TWh/yr under consideration) and the list goes on.. Total hydro power potential of GW, of which only <20 GW (8%) developed Norconsult Africa Region_Meeting with Arcus GIBB 11 March

16 And hydropower comes in many sizes (but one size does not fit all ) Mini-hydro (<1 MW) Localised solutions, far from power grid Many opportunities throughout Africa Standardised, simple and robust solutions Small (1 MW to 10 MW) Key generation source in decentralised grids Many opportunities throughout Africa Need simplified regulatory frameworks Medium (10 MW to 100 MW) Grid-connected, part of national power system Significant investment, need strong sponsors Require fully fledged regulatory frameworks Large (>100 MW) Often export oriented (in full or part), with added complexity and long time-frames Alternatively, option to supply large energy-intensive industries How do we pick the right hydro opportunities from the menu? Norconsult Africa Region_Meeting with Arcus GIBB 11 March

17 Key drivers for current African hydropower development Supply shortfalls, including in key South Africa market High levels of economic growth Push for diversification of energy supply Mitigant against fuel price volatility for thermal generation (oil, gas, coal) Climate change focus with market pull for clean, renewable energy South Africa s IRP includes plans to import ~2,600MW of hydro from neighbouring countries over next 10 years Threat of carbon taxes Scope for CDM credits Entry of renewable / clean energy funds Entry of new investors with financial muscle and appetite for Africa risk (Chinese, Indian, etc) We are entering the hydropower era Norconsult Africa Region_Meeting with Arcus GIBB 11 March

18 Key hydropower challenges

19 Why has Africa not realised its hydropower potential? Reasons are many and diverse and include: Project cost viz. electricity tariffs (not reflecting through cost of supply) and political emphasis on electricity benefiting the poor Project size viz. local market size (implying need for cross-border solution for many of the most promising projects) Too heavy dependence on public utilities as project sponsors and developers, with these utilities generally being financially constrained Is the project focus right (too much on largest and most prestigious projects)? Insufficient power evacuation capacity Lack of conducive Independent Power Producer (IPP) frameworks Underdeveloped and/or non-existent regulatory frameworks Unclear allocation of risks for major hydropower projects (in particular hydrological, geotechnical, cost overruns and completion, as well as management of forex risks) Norconsult Africa Region_Meeting with Arcus GIBB 11 March

20 Financial and technical challenges Size of the game Large hydropower projects may require >USD1.0bn in investments Investment size is large compared to state budgets for many African countries Few investors can manage such project size (and long project development timeframes) Critical to identify technically and financially strong partners Quality offtaker(s) is key to large projects Small and medium sized hydro are more aligned to capacity of investors (local and foreign) and to local financial markets Mini-hydro projects often struggle with access to technical skills and finance (in particular for up-front development work) Norconsult Africa Region_Meeting with Arcus GIBB 11 March

21 Accessing the market Power evacuation solution is key and needs early and priority attention Upgrade of existing infrastructure or creation of new For large projects located far from the market, transmission solution may cost as much as hydropower development Alignment of project timelines (generation + transmission solution) Political commitment is crucial to cross-border projects, including aligning regulatory frameworks Willingness to embrace unconventional structuring of transmission solution, e.g. as SPV (i.e. deviating from traditional utility monopoly model) Transmission infrastructure for export projects must be fully funded by users of the infrastructure Tariff framework should make provision for treatment of latecomers Norconsult Africa Region_Meeting with Arcus GIBB 11 March

22 Other challenges Hydro is long-term and require predictable policy, legal and regulatory frameworks Strong host-country support is paramount Market organisation is key (who are the offtakers today and tomorrow?) Who is the offtaker? Quality of offtaker / size of market Tariffs and PPA terms Future market restructuring risks Handling foreign exchange exposure Matching investment (returns) to local currency revenue stream Ensuring good environmental and social solutions and local acceptability of such Political risks (stability, economic policy, laws & regulations, expropriation, dispute resolution) remember that perception is reality Norconsult Africa Region_Meeting with Arcus GIBB 11 March

23 Key ingredients to successful hydropower development

24 Contributing elements to successful hydropower development At country level Creation of favourable investment climate Clear policy and legal framework Coherent power sector planning Active government engagement (for crossborder projects) Transparent and credible regulatory oversight Competitive bidding practices

25 Contributing elements to successful hydropower development Project level Quality project preparations Clear and transparent project structuring, packaged for bankability Sponsor(s) with proven track record Committed equity partners Favourable debt arrangements Secure and adequate revenue stream Credit worthiness of off-taker(s) PPA terms and risk allocations Appropriate security & credit enhancement measures Positive technical performance (construction and operations) Strong transaction advisors Ongoing strategic and risk management

26 A good risk management solution is key Identification and allocation of risks: Developers will commonly not take hydrology risk Geotechnical risk should stay with developer / EPC contractor Engineering design risks should be minimised, focus on proven technology Developer must take completion risk, with recourse to EPC contractor as far as possible Foreign exchange risk management needs early attention Political risks need to be managed, by use of Partial Risk Guarantees, ECA cover or similar instruments as required Norconsult Africa Region_Meeting with Arcus GIBB 11 March

27 Water is Power! Water is power.. and hydropower is clean Power unlocks economic and social development Africa has abundant water resources these should be used to power a prosperous future! Picture: Capanda Hydropower Plant, Kwanza River, Angola Norconsult presentation to Angola - Norway Energy Seminar in Luanda 7 December

28 Let there be light in Africa.the dawn of the hydropower era is here! Norconsult Africa Region_Meeting with Arcus GIBB 11 March

29 Thank you for your attention! Norconsult is ready to assist with sustainable hydropower development for Africa s future! Tore Horvei, Norconsult Africa (Pty) Ltd tore.o.horvei@norconsultafrica.com /