October 20, 2014

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October 20, 2014

U.S. Pledges Support for Investments in Sub-Saharan African Power Projects

Last week President Obama announced a package of programs that aim to increase electricity generation and transmission in Ghana, Kenya, Liberia, Nigeria and Tanzania. Headlined by $7 billion in U.S. government support and $9 billion in commitments from the private sector to invest in new generation projects, Obama’s initiative aims to “double access to power in Sub-Saharan Africa.” Although details are still forthcoming, the initiative is evidence of the enormous demand in Sub-Saharan Africa for new generation.  New supply supported by the President’s initiative is likely to primarily be large-scale natural gas-fired and hydro generation, and it iss not clear how such projects will “double access.”    

Less than a third of people living in Sub-Saharan Africa have access to electricity.  Excluding South Africa, Sub-Saharan Africa has only 28 gigawatts (GW) of generation capacity for a population of approximately 850 million people.  (For context, the Netherlands has 26 GW of capacity for a population of less than 17 million).  With the exception of Nigeria, the five target countries have very low population densities and lower than average urban populations as a percent of the total population.  In other words, dispersed populations either have no electric grid at all or have access to a grid with only meager capacity.

New large-scale generation located near urban centers and industrial zones can be helpful in supplying stressed grids, and such projects are also likely to be the most feasible.  The more daunting task, however, is to provide electricity to dispersed rural populations, 85 percent of whom in Sub-Saharan Africa have no access to electricity.  Obama’s initiative includes $2 million in grants to African-owned and operated enterprises “to develop or expand the use of proven technologies for off-grid electricity benefitting rural and marginal populations.” The initiative’s private sector commitments also include “installation of 200 decentralized biomass-based mini power plants in Tanzania.”  Such small-scale projects demonstrate that sub-Saharan Africa presents a range of opportunities, but that Obama’s initiative is focused on large-scale projects rather than reaching rural populations with decentralized alternatives.

Of the $9 billion in private sector commitments, just over $1 billion is for wind generation; fuel source for the balance has yet to be specified.  Natural gas and hydro projects, however, are well-positioned to receive the bulk of the support.   According to the mostrecent statistics (which are a bit out of date and incomplete), the five target countries currently get the majority of their power from natural gas and hydro, and oil is the third most common fuel, providing almost twenty percent of the countries’ electricity.  New investments may include some oil-fired generation, but that fuel is generally more valuable for transportation than power generation.

Coal-fired generation is also unlikely to see major support from Obama’s initiative.  Coal is used for electricity generation only in Tanzania, which is otherwise dominated by hydro and natural gas generation.  Furthermore, in his recent Climate Action Plan, Obama committed to “end to U.S. government support for public financing of new coal plants overseas.”  That commitment, however, includes an exception for “the world’s poorest countries in cases where no other economically feasible alternative exists.” 

The target countries all have economically feasible alternatives to coal.  Nigeria is a major oil and natural gas producer.  Ghana has significant domestic sources of natural gas and also imports natural gas from nearby Nigeria through the West Africa Gas Pipeline.  Kenya already produces significant geothermal power, and Obama’s initiative includes private sector commitments to build substantial wind capacity there.  The imitative also includes commitments to build wind capacity in Tanzania, and although that country has significant coal reserves, it also recently announced that it has offshore natural gas deposits as well. Liberia has almost no electricity infrastructure and is currently focused on reconstructing a 64-megawatt hydropower facility that fell into disrepair in 1990 during the country’s civil war. 

Obama’s initiative also includes commitments that U.S. government agencies will work with the target countries to “implement the policy, regulatory, and other reforms necessary to attract private sector investment in the energy and power sectors.” 

© 2014 McDermott Will & Emery

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