How not to get caught up in the power generation story

Bronwyn Nielsen spoke to Thiago Almeida, Sector Lead Power and Infrastructure at Nedbank Corporate and Investment Banking, about the tendency to get caught up in the power generation story to the detriment of focusing on distribution and transmission. Almeida stated that while the continued focus on power generation is a significant challenge, especially in the race to decarbonise our energy matrix, the lack of attention currently being paid to transmission and distribution of power is also important.

On power generation being a significant challenge ahead of us

We keep focusing on power generation and it’s definitely a significant challenge ahead of us, especially in the race to decarbonize our energy matrix. And we so dearly need that. But what we’re seeing more and more is that we are unable to connect some of these magnificent engineering generating projects to deliver electricity where they need to be, if we don’t have investment in infrastructure. These investments are both on the transmission grids and also on the distribution grids, all the way down to household levels and to industrial consumers. So, that’s a key area of focus and one that has a phenomenal amount of investments to be done and for the private sector to participate in. 

On whether enough attention is being paid to transmission and distribution

No, absolutely not. There is an estimate by the International Energy Agency. We require about $40 billion per year for the next five years for investment in this space. And most of that is actually on transmission. So these are high voltage lines to get power across multiple borders. We’re not giving enough attention to this. It’s a problem we’ve known was around for many, many years now. We have the resources to do it. There is a framework, but we need better legislation. We need better integration between the various power pools in the continent. We need the public sector to work with the private sector. We need DFIs to work with commercial banks in order to unlock this significant challenge.

On the role of DFIs

DFI is especially important in the current scenario that we find many of our utilities. Over half of our utilities are very close to insolvency in the continent. So, restructuring tariffs at a government level, you know, associated with lending is very key. We need to be able to make sure that these utilities are able to recover their costs through adequate tariffs, through adequate mechanisms, so that their balance sheet is healthy enough that they can deploy projects and really improve the sector. So, DFIs have a very important role in de-risking the sector.  It is about building capacity, de-risking and getting the African utilities to where they should be, helping them to unbundle when that’s necessary, and setting the road for private sector participation throughout the ecosystem. 

On shifting attention to transmission and distribution

We have some cases like, for example, Kenya, that has over 10% of its energy generated from renewables. It almost has an energy surplus and is unable to sell the electricity to its neighbours because of the lack of transmission systems. We also have the growth of countries like Angola, for example, in the SADC region, which has increased the amount of energy it generates. But it’s starting to get to a point where it is unable to deploy some of its electricity out into the system. It goes hand in hand. You can’t consider one without considering the other. However, I also think we need to focus a lot on the distribution space, and that’s very much associated with collection of revenue from clients that are paying for subsidies for tariffs; commercial industrial clients. That also needs a lot of interest and investments. 

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