Independent Power Projects in Sub-Saharan Projects Africa Independent Power Public Disclosure Authorized Public Disclosure Authorized DIRECTIONS IN DEVELOPMENT Energy and Mining Eberhard, Gratwick, and Antmann Morella, Eberhard, Independent Power Projects in Public Disclosure Authorized Sub-Saharan Africa Lessons from Five Key Countries Anton Eberhard, Katharine Gratwick, Elvira Morella, and Pedro Antmann Public Disclosure Authorized Independent Power Projects in Sub-Saharan Africa DIRECTIONS IN DEVELOPMENT Energy and Mining Independent Power Projects in Sub-Saharan Africa Lessons from Five Key Countries Anton Eberhard, Katharine Gratwick, Elvira Morella, and Pedro Antmann © 2016 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 19 18 17 16 This work is a product of the staff of The World Bank with external contributions. 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Independent Power Projects in Sub-Saharan Africa • http://dx.doi.org/10.1596/978-1-4648-0800-5 Contents Foreword xvii Acknowledgments xix About the Authors xxi Executive Summary xxiii Abbreviations xlix PART 1 Power Generation in Sub-Saharan Africa 1 Chapter 1 Introduction 3 The Challenges Faced by Sub-Saharan Africa’s Power Sector 3 Importance of Private Sector Participation and the Role of Independent Power Projects 6 Importance of Investment Flows from Development Partners and Emerging Financiers 7 Scope of This Study 8 Methodology 8 Data Limitations 9 Notes 10 References 10 Chapter 2 Investment in Power Generation in Sub-Saharan Africa: An Overview 11 Current Power Generation Systems in Sub-Saharan Africa 11 Power Generation Capacity Additions over the Past 20 Years 11 Independent Power Projects 14 Chinese-Supported Power Generation Projects 18 Who Has Funded What? 18 Notes 28 References 29 Chapter 3 Factors that Support Independent Power Projects and Their Success 31 Introduction 31 Independent Power Projects in Sub-Saharan Africa • http://dx.doi.org/10.1596/978-1-4648-0800-5 v vi Contents Power Sector Reforms and Independent Power Projects 32 The Importance of Independent Regulation 36 The Importance of Planning, Procurement, and Financial Sustainability 38 A Framework for Understanding the Enabling Environment for IPPs 41 The Performance of Five Countries 43 Notes 45 References 45 Chapter 4 Independent Power Projects: An Analysis of Types and Outcomes 47 Introduction 47 Ownership and Financing Structures 48 The Role of Development Finance Institutions 53 Risk and Ways to Mitigate It 53 Technology Options: A Rise in Independent Power Projects Using Solar and Wind Energy 63 Procurement and Contracting Mechanisms 68 Notes 86 References 87 Chapter 5 Conclusions 89 Introduction 89 Five Main Conclusions 90 PART 2 Five Country Case Studies 97 Chapter 6 Case Study 1: Kenya’s Electric Power Promise 99 Introduction 99 Kenya’s Electricity Sector: An Overview 100 Independent Power Projects, Emergency Power Projects, and Publicly Sponsored Power Plants 109 Emerging Renewable Technologies in Kenya 112 Independent Power Plants: Risk Mitigation Mechanisms and Other Contingencies 115 The Public Sector Making Way for the Private Sector, or a Contested Playing Field? 116 Conclusions and Recommendations 117 Annex 6A The Initial 5,000+ MW Program: An Overview of Targets and Timelines 119 Notes 120 References 123 Independent Power Projects in Sub-Saharan Africa • http://dx.doi.org/10.1596/978-1-4648-0800-5 Contents vii Chapter 7 Case Study 2: Independent Power Projects and Power Sector Reform in Nigeria 127 Introduction 127 Nigeria’s Electricity Sector: An Overview 128 State Investment in Power Projects in Nigeria 142 Independent Power Project Investments in Nigeria 143 Chinese-Funded Projects 149 A New Role for Renewable Energy 151 Conclusions 152 Notes 155 References 156 Chapter 8 Case Study 3: Investment in Power Generation in South Africa 159 Introduction 159 South Africa’s Electricity Sector: An Overview 160 Eskom 164 Other Electricity Generation Providers in South Africa 171 Public versus IPP Investment, Direct Negotiations versus Competitive Bids, and Thermal versus Renewables 184 Conclusions 186 Notes 189 References 190 Chapter 9 Case Study 4: Power Generation Results Now, Tanzania! 193 Introduction 193 Tanzania’s Electricity Sector: An Overview 194 IPTL and Songas, and the Next Generation of Independent Power Projects 205 Future Projects, Public and Private 212 Conclusions 216 Annex 9A Cost Comparison, TANESCO and Independent Power Projects 218 Annex 9B IPTL and Songas Project Costs, Tanzania 219 Annex 9C ICSID Tribunal, IPTL 220 Annex 9D Production-Sharing Agreement, TPDC and PanAfrican Energy 221 Notes 222 References 226 Chapter 10 Case Study 5: Power Generation Developments in Uganda 227 Introduction 227 The History and Structure of Uganda’s Electricity Sector 228 Independent Power Projects in Sub-Saharan Africa • http://dx.doi.org/10.1596/978-1-4648-0800-5 viii Contents Current Attributes and Recent Performance of the Electricity Sector 240 Measuring the Outcomes 256 Notes 261 References 264 Appendix A Total Investments in Electric Power Generation in Sub-Saharan Africa 265 Appendix B Government Investments in Electric Power Generation in Sub-Saharan Africa 271 Appendix C Investments in Electric Power Generation in Sub-Saharan Africa Financed by Official Development Assistance and Development Finance Institutions 273 Appendix D Investments in Electric Power Generation in Sub-Saharan Africa Financed by Chinese Sources 279 Appendix E Independent Power Projects in Sub-Saharan Africa 283 Boxes 1.1 Definition of Independent Power Projects 6 3.1 Legislation to Promote Sector Competition: Examples from Five Countries 37 4.1 Mitigating the Risk of an Independent Power Project: The Case of Azura, Nigeria 57 4.2 Independent Power Projects Using Hydropower, Geothermal, and Biomass 65 4.3 The South African Experiment with Renewable Energy Feed-in Tariffs 66 4.4 Direct Negotiations and Competitive Procurement in Uganda 73 4.5 A Comparison of Competitive Tenders and Direct Negotiations in Kenya and Tanzania 74 4.6 How the Brazilian Energy Auction Works 83 10.1 Major Institutions in Uganda’s Power Sector 229 Figures ES.1 Grid-Connected Generation Capacity: Sub-Saharan Africa, 1990–2013 xxv ES.2 Investments in Power Generation, Five-Year Moving