By, Varun Khanna, Data scientist and Consultant in Electrical Engineering, Canada.
This is the third of a multi-part series examining alternative methods for electricity utilities and governments in debt-distressed countries to uncover the investment financing required to rebuild critical infrastructure to improve efficiency, modernize, and continue to serve to population with cost-reflective tariffs. Renewable mini-grids are seen as the key to improving electricity access feeder sectionalizing and fault location and isolation – the keys to reliability and resilience. All of these infrastructure projects require funding – funding that is often directed towards debt servicing or other essential services. We are not discussing overnight solutions but rather long-term sustainable practices that are firmly grounded in the principles of sustainability and circular economy. Independence, self-reliance, and strong frameworks are some of the key requirements to starting this journey.
Part 3: Examples of Successful PPPs
PPPs are often used for large projects that require significant investments and ultimately benefit the public. Examples of projects tackled using PPPs include airports, railways, power plants, roads, transit systems, and others. Many African countries have been using PPPs to meet investment needs for many years. Countries such as Uganda, Kenya, Tanzania, and Nigeria have been using such vehicles for a number of years, whereas Gabon, Namibia, and Senegal are starting their ventures into using this mechanism. The success of using PPPs is often rooted in the balancing and equitable protection of participants from the risks of the project along with a willingness to strive for regional goals above profiteering. Several examples of PPPs for renewable energy projects in sub-Saharan Africa already exist.
In Kenya, the Lake Turkana Wind Power project is a successful PPP that has helped the country achieve energy independence. The project is a collaboration between the Kenyan government, the African Development Bank, and private investors. It consists of 365 wind turbines with a capacity of 850MW, providing electricity to over 1 million households. Conceptualized in 2005, construction did not begin until 2014 and lasted until commercial operation in 2019. The overall investment was approximately USD$670 Million or KSH 75 Billion. The power is sold to Kenya Power and Lighting under a long-term PPA at a rate of USD $ 0.081/kWh. Tariff rates for 2023 for residential use are forecasted to be between USD$0.078/kWh (KSH 10) and USD$0.12/kWh (KSH 15) depending on usage. While there were some delays with respect to the interconnection of the facility to the grid, overall the project was able to provide power to the population at a reasonable cost.
In South Africa, the Renewable Energy Independent Power Producer Procurement (REIPPP) program is another successful example of a PPP for renewable energy projects. The program has attracted over $14 billion in private-sector investment, resulting in the development of over 6,000MW of renewable energy capacity. Currently, the program has completed its sixth bid window and evaluates most generation sources including wind, Solar PV, CSP, biogas, landfill gas, and small hydro. The IPP program combines a set of requirements, legislated regulations, and prescribed tariffs thus satisfying the requirements of protecting both the government and the private partner while aligning the goals of all participants involved.
In Uganda, the Bujagali Hydropower Project is an example of the risks of executing projects with PPPs. Located across the Victoria Nile, harnessing the energy of Bujagali Falls, it was inaugurated in 2012. As a 250 MW facility, it was the largest hydroelectric power source in Uganda at the time. With fluctuating ownership and changing shareholders on multiple occasions throughout its history, the estimated costs were about USD$862 Million with Bujagali Energy Limited investing USD$190 Million and the balance coming in the form of debt from a variety of international lenders and development banks. The cost of generation was approximately USD$0.11/kWh resulting in an increase in tariffs in 2015 to USD$0.185, one of the highest tariffs in the region. The project, which received the most official complaints apparently failed to compensate local communities, had poor labor conditions including unpaid wages and health and safety violations. Consequently, the projects requested a refinancing package to address the outstanding issues although the environmental impacts of this project and others combined with the biodiversity offsets still remain in question.
In Tanzania, the Songas Project is another example of a PPP project. Tanzania is rich with natural gas reserves and this project was originally conceived in the 1991 Power System Master Plan. The project was a collaboration between Globeleq and the Tanzanian government and was completed in 2004. Songas sells electricity to TANESCO at USD$0.06/kWh as per the PPA and TANESCO is able to sell it at the public tariff of approximately USD$0.11/kWh. The project makes a significant year-over-year contribution to both the electrical capacity of the system, but also to the coffers of the government through dividends, taxes, and VAT. The majority of the staff are Tanzanian thereby showcasing the transfer of technology and knowledge. Songas makes significant contributions to community programs including education, health, and environment. Perhaps, equally important is that the project set the stage and established the reputation of the country, instilling a feeling of confidence that Tanzania is a stable platform for investment.
In 2019, the AfDB signed a letter of intent to finance two hydropower plants to be constructed in Gabon. The Ngoulmendjim site will be built on the Nkomo River approximately 125km from Libreville whereas the Dibwangui facility will be on the Louétsi River approximately 450km from Libreville. These projects are part of the Emerging Gabon 2020 Vision whose objective is to satisfy the energy needs of Libreville and the surrounding area. The government intends to accelerate the execution of public-private partnerships in the areas of electricity access, drinking water, and housing in an attempt to stimulate the economy. In addition to the direct benefits the government also hopes to develop small and medium-sized enterprises to provide additional and longer term and more deeply rooted transformation.
Lake Kivu is one of the African Great Lakes and is found on the border between Rwanda and the DRC. It was discovered to have deposits of dissolved biogas, in the form of methane, at a depth of approximately 300m. Adjacent to an active volcano, Lake Kivu also contains pockets of dissolved CO2. If released, either the methane or the CO2 has the ability to decimate the surrounding population. Partnering with a US Energy company, Contour Global, the Government of Rwanda decided to tap the potential of the submerged resource and KivuWatt was conceptualized. With limited options for fuel and a desire to lower the reliance on imported diesel, the partnership worked to develop a safe methodology for extraction. Harvesting gas-laden waters from the depths and then bringing it to the surface, degassing as it rises, the extraction process allows the gas to be harvested and the water to be returned to the lake. The facility generates more than 25 MW of power in the first of three phases. The cost of the first phase is about $130 Million with approximately 1/3 in equity and 2/3 in debt.
These are examples of where PPPs have been used within the sub-Saharan African landscape to overcome the challenges of investment capital to develop projects with greater benefits. It is clear from these examples that care must be taken in understanding the needs of the project and structuring the risk allocation. Planners and managers of PPP projects must ensure that there is an appropriate balance of risk and reward allocated in the contract. These projects also provide a set of lessons learned to be carried forward for future PPP projects.
Varun is a data scientist and consultant with an electrical engineering background. With over 20 years of experience in the power generation industry, he has traveled the world and has extensively designed and implemented power generation facilities and utility capital and asset management programs including the implementation of a number of renewable-based microgrids and automation in the energy sector for Solar, Wind, Hydro, wastewater, and energy from waste. He likes to explore the relationships between numbers while uncovering and revealing the stories contained within the data. In the age of big data, these stories become realistic and valuable solutions and strategies for businesses. His data science knowledge has contributed to enhanced utilities and smart grid efforts through system modeling, outage detection and prediction, and fraud detection. Varun has been involved with the development of machine learning-based solutions and believes that this holds the key to the optimization required for the energy transition. He sees a future that contains bidirectional power grids operating on a transactive platform. Varun has written a number of articles on transactive energy, decentralization of the grid, and data-driven decision-making.
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