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;
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.
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.
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.
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
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.