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East Africa Emerging As a Hotbed of Energy Investments – Report

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A recent study by Frost and Sullivan, a consulting firm that provides market research and analysis, growth strategy consulting, and corporate training services across multiple industries, has found that despite numerous hurdles, east Africa is increasingly becoming a hotbed of energy related investments.

Countries like Tanzania, Kenya, Ethiopia, and Rwanda – which have traditionally depended on biomass to meet most of their energy requirements – are gradually shifting to modern energy sources to meet the growing demands of the expanding urban population and the rising per capita income levels.

The East Africa Energy report notes that east Africa will possess more than 50,000 megawatts of generation potential by 2030, dominated by hydro, coal, wind, geothermal and natural gas.

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More than 80 per cent of the potential gas reserves in east Africa are concentrated around Mozambique and Tanzania. While LNG exports from these countries are expected no earlier than 2020, rapid development of gas power projects would provide a short-term response to growing electricity demand in the region. The region will, therefore, provide immense opportunities for companies specialising in oil and natural gas exploration and production, power generation and associated infrastructure, as well as renewable energy technology commercialization.

“Energy development is gaining priority as east African economies look to attain middle income status over the next decade,” says Frost and Sullivan Energy and Environment Senior Research Analyst Neeraj Sanjay Mense. “In view of this objective, governments in the region are adopting strategies to diversify the energy mix as well as encourage private sector participation.”

Investment from private sector is critical as the East Africa energy reserves require substantial funding in order to reach full potential, which cannot be met by government subsidy alone. Issues pertaining to finance, political stability, and security, according to the report, could limit private sector participation within the region, and private players will, therefore, need to align investment strategies with the developmental plans of the respective regions in order to be successful.

Furthermore, the lack of adequate infrastructure and skilled resources escalates the costs of operation and stalls energy projects. Mense argues that training local workers will ultimately aid the long-term sustainability of energy businesses in east Africa.

“An adoption of mechanisms to share technical knowledge through international cooperation will ensure steady growth,” he observes. “Collaboration with experienced project developers will also be imperative to accelerate technological advancements and implement the respective plans within the east African energy sector.”

Tackling energy related challenges

Although a number of independent power producers (IPP) have made a foray into the region’s energy market, they still face challenges that governments in the region need to address to ensure the fast deployment of clean energy technologies.

“For instance, access to investment capital is a major challenge for renewable energy project developers because the cost of money in east Africa is very high,” says Izael Pereira Da Silva, acting deputy vice chancellor for research and innovation at Strathmore University.

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“The private sector investors in this this market also experience financial loss and much frustration when pursuing PPAs, licensing to be an IPP, and the approval from local authorities, the offtaker and energy regulatory agencies,” says Da Silva.

According to Da Silva, the east Africa renewable energy market is also characterized by lack of knowledge about renewable energy technologies by potential clients with “many educated people, for example, still thinking that solar energy is not reliable, not a major electricity source and is only for charging cell phones and calculators.”

He says scaling up renewable energy technologies in east Africa has been hampered by acute shortage of suitable professionals trained in renewable energy.

“There are very few institutions in the country able to train technicians and engineers in renewable energy sector and even those trained and licensed are mainly based in Nairobi,” he says.

Da Silva adds that governments in east Africa should commit themselves “to match the speed of investors” by ensuring “reduction of real and perceived risks for lenders willing to fund renewable energy projects.”

“Let us get some successful stories on renewable energy project investments in east Africa and more financing institutions would feel more inclined to bring their funds into this region,” he said.

He blamed the bureaucratic processes in getting approval for the renewable energy projects as a hindrance to IPPs willing to bet their money in the region’s market.

“We probably need to embrace the use of information technology in facilitating the licensing processes so that one could pay all the required fees at some point without having to pass through many officers, some who demand bribes,” says Da Silva.

Availability of land is another major hurdle for energy projects, especially in Kenya, according to Da Silva.

“For instance, when word goes out that some foreigners want to set up a mini-hydro or a wind farm in a place, communities gang up and ask for exorbitant land prices which makes the project unviable,” he says. “It also happens that some people have an enormous attachment to the land because of cultural or religious reasons, thus completely frustrating private investors who want to take advantage of the available natural resources to generate electricity.”

Addressing these challenges will go a long way in unlocking east Africa’s potentials in producing energy and meeting the region’s energy demand for economic prosperity.

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