No Water, No Light!

MAKING HYDROPOWER BANKABLE IN AFRICA

A bit ironic, the title that is, especially as Nigerians experience power outage even when it rains. But, technically speaking, Africa has the potential for hydropower. The current demand for power in sub-Saharan Africa is about 100GW of which 22% is supplied by hydro, with future demand predicted at 385GW by 2040 of which 26% is projected to be provided by hydro. These projections imply that about 80GW of hydropower is to be added in the next 24 years, which amounts to about 3GW per year. This is a substantial rate of development, which will require significant investment to achieve; such as listed below; 

//Power Plants 

The five major power plants on the continent are Central Africa (established 2003), Southern Africa 

(established 1995), West Africa (established 2001), East Africa (established 2005) and COMELEC (North 

Africa; established 1989). Generation in these power plants are predominantly thermal (oil and coal) 

based and remains undeveloped. 

//Old infrastructure

Some of the power plants in existence were built by ex-colonial powers and minimal upgrades have been 

conducted since then, reducing the effective power output to well below the potential initially installed.  

//Financial viability

The technical potential to satisfy future development prospects are limited by the financial viability of 

the projects. Many of Africa’s cash strapped governments turn to the private sector for some form of 

Public-Private Partnership (PPP) arrangements for investment yet, many do not have robust PPP 

frameworks in place. The private sector, however, makes decisions based on factors such as political stability, supportive legal 

framework and return on investment (ROI) and their implications for costs and tariffs. The private 

sector’s expectation of an acceptable ROI is often in conflict with governments’ desire to keep tariffs as 

low as possible. 

 // Bankable feasibility studies

Financiers require bankable feasibility studies, including social impact and economic and financial 

viability of projects. Investors want the confidence that if they finance an expensive plant, there will be an acceptable return 

on their investment. This often means they need guarantee that they will be able to sell power 

generated by the plant for at least a 20-year period. Funders want assurance that the body signing the 

power purchase agreement is financially capable.  

// Social impact

The production of hydropower has a social impact, as dam building can mean inundating large areas 

with water and displacing communities, which has to be carefully handled to ensure sustainability of 

both the project and the displaced community. 

// Political stability

Political stability plays a role as financiers do not want their ability to sell power to be compromised by 

damage to transmission systems through theft or as a result of conflict. High initial costs against low 

certainty of sustainability means many projects that are identified as having technical potential may 

never come to fruition.  

Source: http://www.bizcommunity.com/ 

An international protocol to assess sustainability  

Working together, representatives from the hydropower industry in developing and developed countries, 

civil society and the finance sector (both public and private banks), have designed a tool to assess and 

improve performance in the sector; the Hydropower Sustainability Assessment Protocol. This tool seeks 

to bridge the gap between investors and hydropower project managers by assessing hydropower 

projects for good practice and identifying potential gaps. 

As a formal assessment process with accredited assessors at each stage, it works for projects at any stage 

of development and of any size. To date, the protocol has been used for projects from 3 to 14,000 MW, a 

testament to its flexibility. An increasing number of organisations are using the protocol to manage risk, 

and IHA (what is IHA?) is helping to disseminate information about its use and benefits. The recent 

workshop in Beijing presented our experiences and feedback to the Chinese finance and hydropower 

communities. 

In partnership with the China Banking Association, the Nature Conservancy and the China Society for 

Hydropower Engineering, the workshop was held on 29 March and welcomed around 100 professionals 

from the financial and project development fields. The workshop explored the increasing role of the 

protocol in mitigating societal and environmental risk. 

So, here lies the real question, is hydropower feasible in Africa? 

Development banks with core energy and hydropower advancement policies and structures can be 

established to take the load off, in terms of financial support and viability, alongside a local conglomerate 

of concerned sectors and have meetings to design tools and plans to ease the production of hydropower.  

Furthermore, seeing that other dams just like our kainji dam would still be in use, alternative safe and 

habitable settlements should be made for possible displaced persons in affected regions.