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Solving Sub-Saharan Africa's Energy Deficit with Private Capital

Some ideas on how the energy deficit in Sub-Saharan Africa can be solved by incentivising private investors to develop new infrastructure across the power supply chain. Keen to hear your feedback! Thanks. Andrew.
by

Andrew McCusker

on 23 June 2015

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Transcript of Solving Sub-Saharan Africa's Energy Deficit with Private Capital

Solving Sub-Saharan Africa's Energy Deficit with Private Capital
Is the energy deficit worth solving?
Can all stakeholder's benefit?
Citizens
What needs to be done?
Would supplying power be financially viable to private investors?
What options do we have to solve the energy deficit?
Public Private Partnerships Could Work!
Given a sufficiently long concession period, levels of privatisation of Government owned electricity infrastructure, and a stable regulatory framework; returns could be sufficient to attract private capital.
Develop Stable Regulatory Structure for the Electricity Supply Chain
In order to attract maximum private capital, potential investors need to be confident in the regulation of the electricity supply chain in order to assess risk.
Establish a Regional PPP Authority
Provide it with the authority to solicit private sector innovations to solve the electricity shortage in the region.
620 million people without power impacts provision of basic needs like healthcare and education (2).
Power capacity shortage of 82,000 MW results in frequent outages, which costs businesses up to 20% of sales, disincentivising further investment (3, 4).
Yes. The public benefit is likely to exceed the public cost. Solving the power shortage can assist in the provision of basic human rights and improvements in wealth to some of the poorest people in the world (1).
Ultimately, the power shortage weighs against productivity, which shaves up to 2% off potential GDP every year (5).
Option 1
Wait for increases in public spending from fiscally constrained governments.
Option 2
Create a framework to incentivise private investors to solve the energy deficit.
Possibly!
Payoffs to private investors could include:
Earnings from Privatised Assets
If government owned generation (87,000MW) and transmission/distribution lines are privatised (6).
Earnings from Constructed Assets
Market tariffs earned by new generation capacity and transmission/distribution infrastructure.
Subsidies
Higher income from individuals, businesses and exporters due to more reliable power supply will increase tax revenues, and may allow for the payment of any required subsidies.
Solicit Innovative Solutions from the Private Sector
Allow private sector consortiums to develop innovative solutions which may include privatisations, new asset development, subsidies, and further regulatory reforms.
Establish PPP Contracts with Parties which Offer Best Solutions
Focus on the division of risk between parties and ultimately reassess the likely public benefit or cost of the project proceeding.
Benefit from more reliable basic services and higher incomes
Governments
Benefit from provision of services with lower draw on public finances.
Private Investors
Benefit by earning commercial returns on investment in the sector.
Case Study
Nigeria's Power Industry
References
1. The World Bank, "Poverty & Equity" database, http://povertydata.worldbank.org/poverty/region/SSA
2. International Energy Agency, "Africa Energy Outlook", http://www.worldenergyoutlook.org/africa/
3. Africa Infrastructure Country Diagnostics, "Powering Up: Costing Power Infrastructure Spending Needs in Sub-Saharan Africa", http://www.infrastructureafrica.org/system/files/bp5_power_spending_summary.pdf
4. Llewellyn Consulting, "Foundations for Growth - Infrastructure Investment in Emerging Markets", http://www.trafigura.com/media/2142/traf2429_14_llewellyn_infrastructure_paper_sp_lr.pdf
5. Llewellyn Consulting, "Foundations for Growth - Infrastructure Investment in Emerging Markets", http://www.trafigura.com/media/2142/traf2429_14_llewellyn_infrastructure_paper_sp_lr.pdf
6. Africa Infrastructure Country Diagnostics, "Powering Up: Costing Power Infrastructure Spending Needs in Sub-Saharan Africa", http://www.infrastructureafrica.org/system/files/bp5_power_spending_summary.pdf
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