Will Captive Industrial Power Act as the Much-Needed Accelerant to Africa’s Industrial Growth?

Over the next two years, EnergyNet Ltd will be providing key insights that will focus on how industry will assist in growing the economies of Africa nations and the investment opportunities available. The first of which is titled “Chain Effect: Industrial Energy Policy in Africa in an Era of Captive Power”, which will be released in Mid-November.

The research and consultation for this report was conducted and managed by IPPG, led by Seth Owusu-Mante, IPPG Co-Director and Research Fellow who doubled as the author for the publication. EnergyNet recently caught up with him ahead of the release of the report where he shared his thoughts on some of his findings.

Do you think captive industrial power will act as a much-needed accelerant to Africa’s industrial growth? Or are there bigger opportunities out there?

“Captive industrial power can play a key role in the acceleration of Africa’s industrial growth. Of course, the number one objective to pursue captive generation is for the reliable supply of power. With captive solar or other forms of renewable energy, there is an additional benefit of lower electricity cost in addition to the reliability of supply. And one of the major factors that determine the success and competitiveness of industries across the world is the reliability of supply and lower electricity expenditure. So yes, reliable, and cheap electricity costs can accelerate industrial growth in Africa, and if captive renewables can provide that, then we can safely argue that captive industrial power that provides cheap and reliable electricity to industrial consumers can turn the industrial fortunes of the continent around. This explains why captive power is gradually growing as an alternative source of power for industries”.

“However, the issue with captive renewables is not the technology risk, or unwillingness of commercial and industrial (C&I) entities to opt for that, but the initial financing cost which for most commercial and industrial entities, must come from an external source including bank loans. The banking system in many African countries does not have the ability to technically assess these projects and offer any form of financial support”.

“Governments may also be unwilling to support or help fund captive generation due to the negative financial impact it may likely have on the utilities, given that some utilities are tied to long term take or pay PPAs and are also financially stressed due to technical losses and default in payments. These among others provide the basis why the Chain Effect report recommends that both the Ghanaian and Kenyan governments and by extension, African governments must commit to assessing the implications of the growth of captive generation on their respective energy markets. This will be a useful exercise to strategize for industrial energy access and the long-term sustainability of the utilities”.

You note that service industries are growing at speed in Ghana, but manufacturing, and industry more broadly, aren’t keeping pace. Is the affordability and supply of power holding back industry more so than services?

“Certainly, the services sector is not an energy-intensive sector compared to the industrial sector. Industries require electricity to be able to operate even marginally, so certainly if the supply of power is not affordable and reliable, industries can in no way be competitive to make substantive contributions to the economy”.

What are the challenges of combining ambitions for household access to electricity and an energy market that can support industrial growth?

“An obvious challenge will be the planning processes (getting the strategy and implementation right) and the financial investments needed to drive that ambition, but of course, that has been done in developed economies and ought to be the case for developing countries alike. Empirical studies abound on the positive impact of household electrification in poverty alleviation. The potential of industrialization to transform economies is widely known. So, I would not say one depends on the other, but they support each other in the quest for economic growth”.

“The challenge we identified in this study, however, is the current metric for measuring energy access which largely focuses on households, and this in practice has meant that electrification efforts by governments focus mostly on household electricity expansion to the detriment of the energy needs of industries. And so, what this study recommends is that global conversations about energy access and how it is measured should be reviewed to place industries and other productive sectors in parallel to household electrification. This will redirect national policies for the expansion of energy access for both households and industries”.

What can other countries in Africa learn from Ghana and Kenya?

“The ambitious industrial goals by both the Ghanaian and Kenyan governments is instructive. Both governments have a clear understanding of the pathway to grow their economies through industrialization. This study has however revealed the disconnect between industrial goals and energy plans in both countries, and the impact of high costs and unreliable power supply on the competitiveness of industries to achieve industrial goals. If the next phase of energy planning in both countries prioritizes industrial energy access which has the potential to accelerate industrial development targets, Ghana and Kenya can become icons of industrialization not only to African countries but to all developing economies”.

What are the questions leaders in Africa should be asking about the alignment of energy and industrial policies?

 “I think a key concern or answer African leaders must seek regarding aligning energy development to industrial policies is how to plan for the short-, medium-, and long-term power supply to meet industrial development goals within the context of the 4Ds (Decarbonization, Decentralization, Digitalization, and Deregulation) driving the global energy market. Once African leaders come to terms with the unparalleled opportunities the energy transition offers the continent, and also understand the critical factors shaping the future of energy markets, the appropriate policy instruments and strategy will be adopted to align energy planning to industrial development goals”.

The full report will be ready later in November.

Sign up here to receive a copy of the report.

Source: www.energynet.co.uk