Power Africa: Laying the Grid to Electrify a Continent
Every day, local residents of the area surrounding the Corbetti Caldera travel long distances to gather water from the natural steam rising from the ground of the collapsed volcano. Underneath their feet lies one of the world’s most significant sources of geothermal energy. The land that provides their water may also provide the key to expanding access to electricity in Ethiopia and sub-Saharan Africa.
Reykjavik Geothermal, a US-Icelandic company, is looking to capitalize on this untapped source of energy, and is currently developing the Corbetti Geothermal Power Plant, which will harness the 1000 megawatt geothermal capacity of the caldera. As Ethiopia’s largest foreign direct investment and its first independent power project, the geothermal plant will hopefully deliver clean, reliable, and sustainable energy to the local population. The project has received strong support from local and national political actors in Ethiopia, which hopes to become carbon neutral by 2025.
If we look closely at the specifics of Reykjavik Geothermal’s project, we see the beginnings of a new model of development that is taking hold across many parts of Africa.
Currently, 600 million people lack access to electricity in sub-Saharan Africa. This lack of electricity restricts their access to adequate medical treatment and hinders African countries’ entry into the global economic market.
Power Africa, a program announced on June 30, 2013 by President Obama, seeks to address these problems through what Don Niss, Power Africa Deputy Coordinator for USAID calls “a new model of development.” The program aims to add 60 million additional households or businesses to the electrical grid – double the current amount – in Ethiopia, Ghana, Kenya, Liberia, Nigeria, and Tanzania. Its goal is to increase electrical capacity by 30,000 megawatts.
Power Africa is more than just an attempt to increase access to electricity throughout Africa. It is the most potent manifestation of a new trend in how the United States engages with the idea of international development. The program doesn’t provide monetary aid towards a single goal. Nor does it cater to an organization’s donors. Instead, according to Andrew Herscowitz, the US Agency for International Development’s (USAID) director of Power Africa, it brings together multiple US government organizations, international actors, private investors, and domestic governments to align “our many public and private sector partners’ interests to achieve sustainable development through job creation and economic reform.”
Niss explained that, unlike previous US government aid initiatives which focused primarily on public funding, Power Africa aims to leverage outside financial sources that incentivize and facilitate private corporate investments – in government parlance, “public-private partnerships.” According to Niss, the question was: “How do we as the US government, with all [our] tools and sourcing, come together as one to work with the private sector, the countries themselves, and donors?”
On paper, Power Africa is a consortium of twelve different US agencies coordinated by USAID. It is designed to facilitate private corporations’ entry into individual countries’ energy markets. The government’s primary role is to address a company’s specific needs and resources or help them find the tools that they need to enter a new region. The program acts as what Niss and Adi Raval, Communications Spokesperson for Power Africa at USAID, called a “one-stop shop” that allows companies interested in infrastructure investment to find the right contact for a specific need. Its goal is to provide a “structure so that private lenders are attracted to put money towards projects in Africa,” said Daniel Esty, Hillhouse Professor of Environmental Law and Policy at Yale University.
Staff members at USAID work directly with corporations to identify roadblocks to specific transactions, help countries put in place favorable economic frameworks to encourage investment, and coordinate donors on a single project. According to several sources interviewed, this transactional method is designed to increase public accountability and private investment, while decreasing the need for continued foreign involvement and intervention. As Niss explained, “We may have someone who has a wind project in Kenya and there are different steps in the process, so he needs to help make the banks feel more comfortable with lending to a wind project.” On a more technical level, “USAID may also bring in technical assistance to work with the regulator and utility to make sure the grid is managed properly.”
Thus far, the private sector has eagerly engaged with the project. To date, it has committed $4 for every $1 from the US government. With a total of $28 billion donated or contributed by the private sector, Power Africa’s model appears to be working, at least from a monetary perspective.
Public-private partnerships, and their large-scale implementation in a program like Power Africa, represent a paradigm shift in the flexibility and adaptability of foreign development projects. According to Esty, this was a matter of necessity. “There is no question that the past development model that relied on government assistance needs to be restructured and reframed.” Niss agreed. “Each country is different and each project has different needs. Power Africa allows us to tap into that very flexibly and quickly. It creates a framework where we can mobilize resources in a quicker time span than we might have otherwise.”
Moreover, in Niss’s opinion, private sector investment is simply the only possible model for growth that is capable of achieving near-universal access to electricity in the region. “When you look at the scale of the problem, with estimates from 300 billion to a trillion dollars of investment needed to bring about universal access in sub-Saharan Africa, looking at a 25-35 year time frame. As you look at that level of investment, it is beyond the resources of those countries and donors themselves. The only way to bridge the divide of the needed investment is to not only bring projects on board, but also to create the environment where investors are attracted to putting money into the energy sector.” Raval agreed, saying, “Energy poverty is so extreme that it needs to be private sector- led.”
Most sources interviewed agreed that, from a purely economic perspective, infrastructure investment of this kind is essential to jumpstart economic growth in key countries identified in Power Africa’s framework. According to Christopher Udry, professor of economics at Yale University, the dearth of reliable energy sources is one of the crucial sources of higher manufacturing costs in Africa. “The availability and reliability of electricity supplies is one of the key constraints on firm growth in the region,” he explained. “Firms have to invest heavily in alternative power supplies, and smaller, less well-capitalized firms suffer from frequent outages and face heavy losses associated with equipment damage from power fluctuations.” By Niss’ account, the US government’s involvement can help eliminate precisely these issues, ultimately creating an environment for businesses to cost-effectively invest in sustainable and profitable enterprises. In terms of the Corbetti Geothermal Power Plant and Ethiopia’s hope to diversify its power resources, he explained that, “You do this initial project, the government builds the capacity and understanding, and then they want to do that again. That sets the stage, context, and framework for additional projects in that space.”
Esty refers to this process as “de-risking.” Rather than relying upon the US government to step in with taxpayer money to fund projects overseas, Niss explained that USAID’s plays a holistic role within the process. “Our job is to deal with some of those issues or risks that are difficult to address.” He explained that “we also partner with the World Bank and African Development Bank, who bring large resources to the table. We work with them to identify what the policy issues are and how we can structure a project more effectively to mitigate risk.” Esty echoed this claim, explaining that, “The key to success in Africa for development is using limited government resources to leverage private capital.” Importantly, this implies “de-risking” projects to the greatest extent possible. “In short, local governments gain knowledge and expertise; companies gain confidence and can take advantage of previous strides made in regulations and institutions.”
Given the extraordinary developmental circumstances of sub-Saharan Africa, Power Africa represents a serious attempt to creatively deal with unusual situations. More than just cultivating increased access to potential African energy markets, the program is also implicitly designed to look beyond large-scale grid-based energy projects. Much of this emphasis is a matter of necessity: according to Udry, “Africa’s relatively low population density and dispersed population centers, coupled with severe deficiencies in complementary infrastructure and a relative lack of sources of hydroelectric power present difficult challenges.”
In this way, Power Africa’s plan for Sub-Saharan Africa is essentially the first test of the economic viability of investing in clean energy on a massive scale as a means toward holistic development. The idea proposed by many policy makers is that companies and governments can stop “aiding” and start investing if renewable energy is given the opportunity to compete in the marketplace. This, according to Daniel Esty, represents the transition from what he called the “20th century model of economic development that relied on governments doing projects to a 21st century approach where governments help steer where projects go, but the goal is not for them to do the project, but rather to make it attractive to private developers and private capital.” The Corbetti geothermal plant serves as a good example. According to Niss, if successful, “Corbetti sets the stage for the government of Ethiopia to replicate that and do another geothermal transaction.”
Renewable energy can then act as an economic incentive: many international companies are increasingly investing in sub-Saharan Africa not for humanitarian purposes, but purely economic ones. According to Niss, “Whenever you can help a country and a private-sector partner identify and mitigate risks associated with a projects, that helps build credibility and reduces costs. I think there is a huge amount of interest and potential.”
African communications essentially skipped landlines and moved straight to cell phones. The hope is that a similar move might happen in the field of energy. Power Africa has been viewed as an opportunity for many countries in Africa to bypass an inefficiency inherited from the developed world, skipping over the age of expansive and expensive power lines, supplied by dirty coal fired plants and diesel generators. “I think you have this opportunity, you are seeing it across the world, in Asia, India, Bangladesh: interesting models with respect to small-scale renewables,” said Niss. Nevertheless, Esty expressed only cautious optimism: “The key to success in that regard is to ensure that renewable energy projects are being done in a cost-effective way that competes ever more closely with the fossil fuel alternative.”
On a practical level, both Niss and Raval pointed to an example of how the program’s public-private partnership model has yielded surprising successes.
One of the first recipients of a grant, Mibawa Suppliers, came up with a competitive solution to a local problem. By selling their solar system of two lights and a cell phone charger for an initial $14 and an additional charge of $1.60 a week until consumers fully owns the charging system, Mibawa Suppliers drives down costs and makes a profit. Residents in the area used to spend an average of $4 per week on kerosene lighting.
In the program as a whole, fourteen solar, six biogas, one wind turbine and one small hydro project have been built. Collectively, they will contribute 3.4 megawatts to the continental power grid, a minimal portion of the overall initial 10,000, but a start nonetheless. To date, Power Africa has contributed to adding 2,800 megawatts to the grid, marking 28% progress over the course of a year. Another 5,000 megawatts have been identified, and deals are pending.
Using Mibawa as an example, Niss highlighted the important potential ability of Power Africa to serve as a test case for new technologies. He explained that, “one of the things Power Africa is doing with respect to renewables is not so much looking at new technologies, which is obviously helpful, but we look at how we can scale up some of these models which have already proven themselves.” The question of scale is incredibly important, given the size of the project. Niss went on to explain some of the questions officials are trying to address: “how do you scale [these projects up to a scale that has broader geographic coverage? What kind of financing is needed, how can we channel them?”
The sources I interviewed hope that African developers can learn from the mistakes and experiences of those who came before them. Market share can go directly to renewables and off-grid solutions. If these products are in fact able to compete effectively, local regions can serve as incubation spaces for companies to expand their production and interact with a large base of consumers. With each new wind farm, solar product, or geothermal plant, corporations may learn more and eventually provide the same or better products for a cheaper price. Small energy projects have the potential to provide cheaper and more reliable energy to individual villages and areas that are far from major cities. However, Esty provided a note of caution, explaining that “much more important than piloting new technology is bringing innovation to bear in the financing of power projects in Africa.” Udry agreed, explaining that “small-scale decentralized power sources for light domestic use, often reliant on solar energy, are spreading and will be important sources for many, but I am skeptical that these will turn out to be cost-effective alternatives to developing a networked grid.” Only time will tell whether this kind of decentralization will be effective or merely a drop in the barrel of the desired increase in electrical capacity.
“Innovation” is one of the words that was continually used to describe Power Africa. Raval and Niss pointed to a government collaboration with GE to begin the Off Grid Challenge – a program that has already provided 22 project grants worth up to $100,000 to African owned and managed projects. Adi Reval, the communications spokesperson, explained that in the run up to the project announcement, “we went to Silicon Valley, had meetings at Stanford University and brought investors over to the White House. It is unusual for the government to be so forward-leaning in terms of being at the forefront, but we are certainly at the tip of the spear.”
Nevertheless, according to Molly Offer-Westort, a PhD candidate in political science at Yale University, there are concerns associated with the “innovative” financing models put forward by USAID. “There are concerns that a lot of financing will go to foreign companies, such as G.E., and so will not directly benefit local economies. There is always a tradeoff in financing large companies that are able to do things very efficiently, but that might not have much investment in local economies.” However, Esty and Udry seemed to put a large amount of stock in the model.
The program certainly faces challenges in scale, ideology, and ambition. Offer-Westort explained that “to improve sustainable access to electricity for a larger share of Africa’s population, there will have to be a lot of hard work done to develop infrastructure – and then cost and effort expended to maintain it.” She also highlighted some of the challenges faced by ambitious development programs in the past. “Sometimes aid programs focus on stop-gap solutions to achieve short term impact, but here there will need to be a lot of local buy-in to ensure infrastructure is maintained.” Questions remain about the feasibility of the model, its true commitment to renewable energy and “off the grid” solutions, and the US government’s commitment to it after President Obama leaves office, but it does represent a start. Power Africa’s ambitious aims will be difficult to accomplish, but if done right, the payoffs in economic development on the continent will be massive.