Africa's Energy Developments

AFRICA’S ENERGY DEVELOPMENTS

COMPLIMENTARY UPDATES AND INTELLIGENCE BRIEFINGS

MAY 2020 1 TABLE OF CONTENTS

Africa INSIGHTS P. 03

NEW TECHNOLOGY AND WEAK FOSSIL FUEL INVESTMENT PAVE WAY FOR RENEWABLES AND GREATER INTERCONNECTION OF REGIONAL POWER POOLS

Improvements and innovations: progress made in the energy transition ...... 03

Priorities and opportunities leading up to 2030 ...... 04

Key considerations ...... 07

Africa’s top 10 stories P. 08

1. Vodacom, Safaricom partner in purchase of Kenyan fintech brand M-pesa ...... 08

2. Nigeria’s leading bank implements voice operated banking service ...... 08

3. West Africa embarks on solar power electrification scheme...... 09

4. Bannerman tests nano filtration technique at Etango uranium project...... 09

5. Fintech app Chippercash partners with Visa for expansion drive ...... 10

6. Nigerian genomics company secures additional funding for scaling research ...... 10

7. Innovation hubs launch in South Africa and Morocco ...... 10

8. Locally manufactured modular chips revolutionising IoT ...... 11

9. Iron Capital announces partnership with Australian government ...... 11

10. AfDB and Others Pledge US$160 Million to Improve Africa’s Energy Access ...... 11

Other notable stories ...... 11 Africa INSIGHTS

NEW TECHNOLOGY AND WEAK FOSSIL FUEL INVESTMENT PAVE WAY FOR RENEWABLES AND GREATER INTERCONNECTION OF REGIONAL POWER POOLS

The trajectory of Africa’s energy developments can broadly be categorised under two main strategies. The first is grid intensification in contributing to the electrification of growing urban centres in covering roughly 45% of Africa’s projected energy needs by the middle of the century. This type of grid intensification has traditionally been buoyed by coal, natural gas and large-scale hydropower, but a confluence of factors, including environmental concerns, are throwing into question the future viability of this model. The second is the fast-tracking and rollout of micro-grids primarily based on renewable sources in stimulating rural electrification - here solar home systems will alleviate pressures on central grids while simultaneously paving the way for sustainable electrification.

Though over a hundred coal-fired power plants are scheduled to be built in Africa by 2040, the funding for these may not materialise. Investor interest in coal-fired power has dropped dramatically, and the African Development Bank (AfDB) echoed the sentiment when it announced in June 2019 that it would not be financing any further projects of this type. Natural gas is becoming a preferred baseload power source particularly in Southern Africa, but also in pockets within West Africa like Cote d’Ivoire, Ghana, Nigeria and Senegal. Hydropower is a preferred alternative renewable baseload power source to both coal and gas, however the considerable initial build- investment required, long-lead time to completion, and overt reliance on water availability in what can be water scarce regions, have placed a limit on its future utility. Instead renewable energy installations tapping into wind, solar (both photovoltaic and concentrated solar power) and geothermal energy will play an increasing role going forward.

Improvements and innovations: progress made in the energy transition

Wind and solar technologies have proved the biggest winners of foreign financing and technical assistance thanks to lower costs, with their use spreading beyond their dominant presence in North and Southern Africa. Once reliant on oil and gas for their energy requirements, North African countries have made strides toward incorporating solar into their energy mixes, initialising a host of plants including the 1.8GW Bembam park in Egypt, the 4.5GW Tunur project in Tunisia, 150MW worth of projects in Algeria, and the 2GW Ouarzazate Noor solar project in Morocco. South Africa gained a boost to its renewables sector when it was announced in early 2020 that regulators would loosen restrictions on independent power producers (IPPs) in allowing additional support to ailing national utility Eskom.

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The biggest new growth in renewables has emerged from the West and East African regions respectively. ECOWAS nations have seen the renewable portion of their energy mix expand dramatically over the past two years, with five new solar plants built in Senegal since 2018 and similar projects underway in Mali. The AfDB has additionally launched a financial support mechanism for rural electrification projects in Cote d’Ivoire, Guinea and São Tomé and Príncipe. East Africa has seen the proliferation of a variety of renewables including geothermal projects in the Rift Valley, wind farm projects in Ethiopia, Kenya, Tanzania and Uganda, and planned ‘run of river’ hydropower projects across Burundi, Kenya and the DRC.

In addition to the shifting focus toward renewables the past two years have seen committed efforts by regional partners to further advance energy trade in and between regional power pools. The Maghreb Electricity Committee (COMELEC) is the continental leader in this regard with Morocco and Tunisia both intending to sell power to European nations via undersea transmission cables. Members of the East African Power Pool (EAPP) have been trading power amongst each other since 2018 following the construction of six major transmission lines between member states. In the same year Tanzania received a US$455 million funding package for the construction of a transmission project which links the EAPP and the Southern African Power Pool (SAPP), while in September 2019 the World Bank helped fund the Malawi-Mozambique interconnector, with additional projects for linkages between the DRC and Zambia also underway. The West African Power Pool (WAPP) will begin trading energy across borders by the end of 2020 through an active IPP market in Ghana and privatised transmission infrastructure in Nigeria.

Source: PIDA, Ketraco, ESI-Africa, Prime Investment Limited; 2018-2020

Priorities and opportunities leading up to 2030

Thanks to reductions in cost and newfound ease of scalability the notion of renewables playing an integral role in powering national and regional grids is becoming increasingly palatable to international investors. Development priorities have shifted towards making the energy mix of renewables and non-renewables more efficient and easy to manage, providing a conducive platform for building an efficient and digitised renewable energy grid from the ground up. Opportunities over the coming years are likely to focus on aspects such as better utilising Big 4 AFRICA INSIGHTS

Data and the internet of things (IoT), improving battery storage capacity, implementing smart grid development through artificial intelligence (AI), and streamlining the transfer and sale of electricity through blockchain technology.

Advancements in battery storage are the key avenue by which renewables have managed to compete with oil, gas and coal for utility scale applications. These instances have been generally confined to developed countries including Japan, Germany, UK, US and other EU member states, however analysts predict that their application will drive growth of at least 45% percent year-on-year in emerging markets between now and 2025. Battery-storage systems including lithium-ion, sodium-ion, sodium sulphur and vanadium redox, can serve as vital components in the interplay between renewables and fossil fuels as they remove inefficiencies and manage output by storing energy during peak production and releasing during peak demand. In smaller contexts they can drive down costs for individual consumers in micro-grid operations through the use of ‘behind-the-meter-systems’. In a grid intensification context they remove inefficiencies by harmonising the intermittent supply of renewable energy with peaking and troughing demand of central grids. Such systems are in demand in countries like Burkina Faso, South Africa and Zimbabwe, where aging centralised grids suffer from frequent failures. In February 2020 the International Finance Corporation signed a deal with the Burkinabe government to begin rolling out such systems before the end of the year. The South African government has similarly adopted the Battery Energy Storage System (BESS) which has already been deployed in small scale at the Sere wind energy facility. Across the border in Zimbabwe, Distributed Power Africa has employed Tesla battery systems in its cell towers and sold units to local firms to mitigate against rolling blackouts.

Shepherding a mixed generation and supply of renewable and non-renewable sources to cyclically coincide with demand and generation peaks across national and regional boundaries, will quickly become too complex to do efficiently, and this is where the deployment of AI systems will come to the fore. The development of 5G technology will also allow IoT systems to rapidly analyse and share information about the state and usage of electricity, and when coupled with AI can provide an analytical element with the capacity to gauge and predict future demand needs and preemptively inform energy operators of supply requirements and maintenance. When combined with blockchain technology it will allow for the tabling of secure databases on billing and tariffs, allowing for dynamic energy trading across regions in keeping with demand at the lowest cost to producers and consumers. Smart meters will also greatly aid national power utilities in revenue collection, which has historically been an obstacle in practically all African countries. The EAPP, SAPP and WAPP will have a particular need for such systems in the near future as more and more renewable energy is fed into the grid and increasingly changes hands across borders. Africa’s two biggest economies, Nigeria and South Africa, have already begun to deploy these in a limited capacity, with 2015-startup The Sun Exchange launching the peer-2-peer solar leasing market for photovoltaics in South Africa and RA365 employing the use of AI to plot the best locations for deployment of solar tech in Nigeria.

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TOP POWER PRODUCERS IN AFRICA: KEY DATA BY MARKET GENERATION RENEWABLE CAPACITY MARKET ENERGY PRIORITIES ENERGY AND % OF MAIN PLAYERS IN THE MARKET PROMINENT IPPS FOCUS POPULATION WITH ACCESS • Biogas • RCL Foods • Cost reduction, • Solar 51.3 GW Sugar & Milling South Africa • Rural electrification Eskom Ltd • Wave (94%) • Kelvin Power • Grid reliability • Wind • Mondi

• Biomass • Ras Ghareb • Energy security 21.0 GW • Egyptian Electricity Holding Co. Egypt • Hydro Wind Energy • Cost reductions (99.9%) • Egyptian Electricity Transmission Co. • Solar S.A.E

• The Power Holding Company of • Biogas • Egbin Power • Energy security Nigeria • Hydro 12.5 GW • Sapele Power Nigeria • Cost reduction • Niger Delta Power Holding • Solar (60%) • Afam Power • Rural electrification company • Wind • Ughelli Power • Transmission Company of Nigeria • Volta River Authority • Cost reduction • Solar 4.0 GW • Ghana Grid Company Limited Ghana • Rural electrification • Hydro Genser Power (84%) • Electricity Company of Ghana • Grid reliability • Wind Limited

• Generation capacity, • Solar 3.7 GW • Ethiopian Electric Power Ethiopia • Transmission & Distribution • Hydro (45%) Corporation infrastructure • Wind

• Electricidade de Moçambique • Generation capacity • Hydro Central Termica 2.8 GW • Hidroeléctrica de Cahora Bassa Mozambique • Transmission & Distribution • Solar de Ressano (29%) • Mozambique Transmission infrastructure • Wind Garcia (CTRG) Company

• Kenya Electricity Generating • Geothermal Company • Grid reliability 2.3 GW Kenya • Solar • Kenya Power and Lighting Tembo Power • Cost reduction (75%) • Wind Company • Kenya Transmission Company

• Biogas The Democratic • Generation capacity • Geothermal 2.0 GW Republic of • Transmission & Distribution Société nationale d’électricité Tembo Power • Hydro (8.7%) Congo infrastructure • Solar • Generation capacity • Biogas • Transmission & Distribution • Geothermal 1.5 GW Tanzania infrastructure • Hydro Tanzania electric Supply Company Songas (36%) • Grid reliability • Solar • Rural electrification • Wind • Generation capacity • Energy security • Solar 0.8 GW • Senergy Senegal • Transmission & Distribution SENELEC • Wind (68%) • Wärtsilä infrastructure • Rural electrification Source: IRENA, US AID, IEA, Various; 2016-2020

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Key considerations

Effective policy-making by African governments remains the biggest challenge to the greater integration of IPPs going forward. Local content laws, which new industrial and infrastructure projects generally require, have been implemented in Ghana and South Africa and have increased the cost of investment. Furthermore, the fiscal challenges faced by African governments in general, and their national power utilities in particular, have raised political appetites to change the “pay or take model” which guarantees IPPs tariffs regardless of their usage on the national grid. The model risks raising costs substantially and would contravene with EU free trade policy, which increases the potential of Africa’s biggest renewable energy partners withholding investments. Furthermore, at this stage in time achieving profitability with microgrids remains a challenge, especially for early market entrants in untapped rural areas due to the limited buying power of local customers and lack of supporting infrastructure.

It’s important to note that renewables are still in their infancy concerning utilisation in Africa compared to mature markets like the EU. Utility scale implementation in Africa is still some years away with subsidies still incentivising small scale plants. Motivations for their implementation also differ. Whereas renewables represent ecologically friendly alternatives to energy security in the EU, in Africa the impetus still lies on generative capacity, cost- saving and job creation, which in the eyes of African heads of state require a differing approach to project implementation in local markets.

7 Africa’s top 10 stories

VODACOM, SAFARICOM PARTNER IN PURCHASE OF KENYAN FINTECH BRAND M-PESA 1 Kenya’s two largest telecommunications companies, Vodacom and Safaricom, have successfully acquired fintech platform M-Pesa from UK-based telecoms provider, Vodafone. The US$13.4 million deal enables these two African-based firms to eliminate the need to pay 5% and 2% respectively for every transaction completed by their users on M-Pesa. With full brand rights, the new owners are free to devise their own strategy for the platform, expanding it into new markets. M-Pesa has 40 million users across the continent with Kenya alone accounting for close to two-thirds. Outside of Kenya, M-Pesa has a presence in the Democratic Republic of Congo, Egypt, Lesotho, Ghana, Mozambique and Tanzania. Mobile money is one of Africa’s fastest growing industries, with the GSMA estimating a sector entry of 500 million new customers before the end of the year.

NIGERIA’S LEADING BANK IMPLEMENTS VOICE-OPERATED BANKING SERVICE Zenith Bank, Nigeria’s leader in customer service, has become the first bank in the country to 2 implement voice-operated banking services. The self-service product offers quick response to customers, in addition to security entrenched by a multilayer authentication mechanism. This offering has come at a critical time, with physical distancing regulations and lockdowns in some of Nigeria’s states preventing customers from accessing banking services in more conventional ways. The country’s top banks have made service automation a priority over the last two years, streamlining their services to enable agile responses to more complex, higher priority customer needs. Nigerian banks such as Zenith are well positioned to remain competitive as the local market consolidates operations and the Central Bank of Nigeria mulls over industry recapitalisation plans.

Financial services automation processes

Source: Finovate, Automation Academy; 2020

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WEST AFRICA EMBARKS ON SOLAR POWER ELECTRIFICATION SCHEME A Finnish research team confirmed in a report early this month that solar grids, 3 assisted by battery storage technology, will take a leading role in West Africa’s energy mix by 2050. This has come amid an intensive campaign by the African Development Bank to roll out micro-grid solar electrification schemes for rural communities in ECOWAS countries, where half of all citizens do not have regular, stable access to electricity. Côte d’Ivoire received a EU62 million grant for electrification, Sao Tome and Principe EU12 million, and Guinea EU630 000. In early 2019, ECOWAS nations announced that they would be allowing for the purchase and sale of energy across borders in contribution to the West African Power Pool by the end of 2020.

BANNERMAN TESTS NANO FILTRATION TECHNIQUE AT ETANGO URANIUM PROJECT Bannerman, which operates the Etango uranium project in Namibia, is in the process of rolling 4 out a new nano-filtration technique which, in collaboration with an ion exchange process, will more efficiently filter out iron ore to achieve purified uranium ore. This is one of the more recent measures by the company, aimed at cost-cutting amid subdued global demand. The price of uranium has however rebounded by 33% since January 2020 due to Covid-19-related supply chain disruptions and innovations in the sector have begun to revive. 2030 global nuclear energy production is expected to rise to 462 GW and by 2040, to 569 GW. Key African uranium mining projects currently in operation include: the Kayelekera uranium mine in Malawi, the Madaoela uranium project in Niger, and the Rossing and Husab mines in Namibia.

Top producers - % share of Global nuclear energy demand global production scenario projections - Gigawatts

Source: World Nuclear Organisation, 2019

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FINTECH APP CHIPPERCASH PARTNERS WITH VISA FOR EXPANSION DRIVE 5 Visa has partnered with mobile money service Chippercash for its expansion plans within and outside the continent. The company raised funding of US$8 million in late 2019 for an ambitious Southern Africa expansion plan, after penetrating the major economies in West and East Africa including: Ghana, Kenya, Nigeria, Rwanda, Tanzania and Uganda, procuring over a million customers along the way. Chipper finds its competitive advantage over other mobile money products in cross-border usability, allowing for peer-to-peer transactions between countries when many of its competitors only allow transactions over limited geographical locations. This functionality will greatly benefit from its partnership with Visa, whose infrastructure allows for such services.

NIGERIAN GENOMICS COMPANY SECURES ADDITIONAL FUNDING FOR SCALING RESEARCH 6 54gene, a Nigerian based pharmaceutical company, has secured Series A funding worth US$15 million. The funding is led by Adjuvant Capital, a life sciences fund backed by the IFC, Novartis, and the Bill & Melinda Gates Foundation. Launched in January 2019, 54gene seeks to use the untapped potential of African genomic data in therapeutic interventions. Up until 2018, only 3% of genetic material used by Genome-wide Association Studies (GWAS) was of African descent, placing people of African heritage at a distinct disadvantage in terms of pharmaceutical interventions. As part of its next stage of growth, the company will further explore partnerships and opportunities for the co-development of drug targets and therapeutics, expecting to partner with pharmaceutical, medical device and diagnostic companies for clinical programmes in Africa.

R&D spending as a percentage of Development Goal recommendation of 1% of GDP

Source: UNESCO Institute for Statistics, 2016-2017

INNOVATION HUBS LAUNCH IN SOUTH AFRICA AND MOROCCO Separate innovation hubs were launched earlier this month in two of Africa’s most advanced 7 economies, South Africa and Morocco. South Africa’s financial regulators have launched the Intergovernmental Fintech Working Group (IFWG), hoping to ensure greater regulatory responsibility and consumer safety amid the recent explosion in the fintech market. The hub has cited the recent digitisation drive due to the Covid-19 pandemic as a key driver, highlighting the importance of their work in mitigating risks of spreading the virus. In Morocco, the Moroccan Employers’ Association (CGEM) and the International Finance Corporation (IFC) have teamed up to provide finance to digital start-ups. They have similarly cited that greater digitisation amid the Covid-19 epidemic will offer impetus to their operations and be something the organisation would be willing to support.

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LOCALLY MANUFACTURED MODULAR CHIPS REVOLUTIONISING IOT South African technology start-up Xinabox, is attempting to revolutionise the 8 IoT industry through the development of modular components used for data collection in industrial, educational and recreational contexts. Their range of xChip modules encompasses processor boards, cores, sensors, power, communication, output, control and storage devices assembled and used without the addition of expensive tools that prove dangerous if used incorrectly, like soldering irons. xChip products have already been rolled out to schools in South Africa and the US, where the firm hopes they will assist in encouraging youngsters to embark on STEM careers. RS components, an international electronic components supplier, has been selling Xchip products globally since 2018 and the chips have seen various real-world applications including Antarctic research stations and satellites.

IRON CAPITAL ANNOUNCES PARTNERSHIP WITH AUSTRALIAN GOVERNMENT African-based investment bank Iron Capital has announced a partnership with the investment 9 arm of the Australian government, Austrade. Austrade will assist in leveraging Iron Capital’s extensive network of local business contacts and vast expertise in financial advisory, corporate finance, project finance, market penetration strategies and regulatory advisory services, to source potential destinations for investment, with a special focus on Nigeria, Ghana, Kenya and Zambia. Australia’s share of investments in Africa has grown since 2015 and its companies are some of the major players in the West African mining space. Africa is also Australia’s main source of imported crude oil, mineral ores and motor vehicles.

AFDB AND OTHERS PLEDGE US$160 MILLION TO IMPROVE AFRICA’S ENERGY ACCESS The African Development Bank (AfDB), the European Union (KfW), the Clean Technology Fund 10 (Norfund) and others have pledged US$160 million to the Facility of Energy Inclusion (FEI). This programme has been created to foster the development of small-scale energy networks and mini grids across the continent, with the aim of providing energy to rural communities. The facility is managed by the London based LHGP asset management group and has over US$400 million at its disposal. The fund specifically provides finance for independent power producers making use of renewable energy, including solar and wind technologies, to power their mini grids. Thus far the fund has aided ongoing electrification projects in Burundi, Cape Verde, Madagascar, Malawi and Mozambique.