POWER POOL INTERVIEW: “Unequalled opportunity for investors exists in the power sector including low electrification rates, low manufacturing indices, load shedding as well as lack of distribution, transmission and generation infrastructure”

Omar Vajeth - Southern African Power Pool African Utility WeekLet's start with some background on the Southern African Power Pool’s activities in Africa – there is a proud history there.
The Southern African Power Pool (SAPP) is the oldest and most developed power pool in Africa. With over 22 years of history there is a deep understanding and an associated knowledge base within the SAPP environment. SAPP has 17 members with the latest member joining in the last six months.

There are expansion hopes for the pool and with incoming independent power producers (IPPs) this will allow SAPP to grow into a more inclusive organisation. The founding 12 national utilities are still the core members and they are mandated by the SADC energy ministers to developed and operate the pool. With one of the objectives being to develop projects, SAPP had to grow. Now there is capacity in SAPP for project development work.

Throughout the history of SAPP there has been strong donor support. This has been provided historically as grant funding for the creation, development and subsequent operationalisation of the Pool. This, with the utility contributions, continues to provide SAPP with excellent growth prospects. The donor funds are now being accessed for project development work with key contributors being World Bank, AfDB, KfW (managed by DBSA), NorFund and Sida.

Can you tell us more about your current projects in sub-Saharan Africa?
In the Project Advisory Unit, we are mandated on key projects that have regional impact. These include one regional hydro power plant project made up of multiple cascading dams and seven regional interconnector projects. The hydro power plant is a joint development shared by Zambia and the Democratic Republic of Congo (DRC). SAPP through its Project Advisory Unit acts as a implementing agent for the utilities viz. SNEL and ZESCO.

Our transmission interconnector projects include connections for Zambia to Namibia, DRC, Mozambique and Zimbabwe. Other interconnectors connect South Africa to Zimbabwe and Botswana. Additional priority projects include connecting Tanzania, Angola and Malawi to the SAPP grid.

What are the main challenges to working in this region?
There are numerous challenges. Creditworthiness of utilities is a critical challenge for the raising of funds in a capital intensive industry. Unfortunately a number of the utilities fall short of this requirement. A further issue is the lack of experience in development of assets in the region from both a local and an international perspective. This will be addressed as more projects are rolled out in time.

Interest in funding these projects does not seem to be a problem area. There is a great deal of funding available from the various sources, such as; development financiers, commercial banks, Economic Consulting Agencies and private equity. All are interested, however, they are looking for projects that are de-risked and are bankable. We, as SAPP and the utilities, need to address this satisfactorily in order to move projects forward. In order to achieve this more emphasis needs to be placed on legal and financial structuring work at an earlier stage of projects.

The speed at which the entire value chain operates is also a challenge. There are numerous bureaucratic hurdles that make project development slow. We have to come up with more innovative solutions to address these hurdles and speed up the public sector side of the project development exercise.

What in your view are the current opportunities in the power sector?
There is a great deal of opportunity in the power sector: low electrification rates, low manufacturing indices, load shedding as well as lack of distribution, transmission and generation infrastructure create an unequalled opportunity for investors. This creates space for lenders, equity investors and suppliers to the sector.

In generation, there is a long pipeline of projects in many countries. Many of these are in the public sector but as we move towards greater participation of the IPP market there will be more opportunity for investors.

In transmission, it has been more of a challenge to attract private investors. There is a lot of work needed to evolve into an Independent Transmission Company model. The World Bank has issued a report on this opportunity in the long term but this will need structural change in the sector. (Visit the Transmission and Distribution track at AUW 2018 to hear more about unlocking private sector participation in the T&D sector.)

What surprises you about this sector?
There is strong desire in the sector to drive projects forward but what surprises me is that the speed at which the sector moves. It still takes a lot of effort and perseverance to get any project going and any endeavour moving forward. We do need change in order to make the sector work faster in the region.

What are the current barriers to entry for renewable energy in sub-Saharan Africa? What is being done to remove these barriers?
The balance between base-load and variable renewable power needs to be understood. There are various studies underway in an attempt to understand this. This is a technical challenge that can be solved through understanding and analysis. This will lead to projects that allow to grid stability if needed.

The challenge of cost has largely been addressed. Renewables are now seen as cost effective in terms of a solution to the region’s needs.

Procurement procedures have also been largely improved across the region. This will continue in countries that see the opportunity to attract large investments.

The impact of these investments on governments’ balance sheets due to credit support arrangements must also be fully understood. There is still apprehension in terms of providing support for utility offtakers as they seek to ensure that government commitments are managed across sectors.

What is the right energy mix for Africa to achieve its sustainable development goals?
The right energy mix is one that meets demand requirements at all times. This means that peaking, mid merit and base load stations needs to be optimised for lowest cost and availability.

Where do you see the renewable energy market going within the upcoming year?
Renewable energy will continue to grow. This is driven by the availability of funding and the declining cost of the renewable energy sector.

The battle between utilities and off-grid: Should we let the off-grid industry take over those which are not viable for the grid to reach given the high connection costs?
Off-grid solutions are a possible answer for remote locations with low energy consumption. With load growth these do become viable but this requires economic activity to be stimulated. A grid solution does have benefits and regional grid integration allows for further benefits for reducing cost and stimulating economic activity between countries. Both grid and off-grid solutions need to work together with the goal of providing access to electricity.

How is generation different from last year?
Generation across the region has stabilised largely because of excess power available in the region at the moment. There still is uncertainty as to how long this will last but it has been two years of stability already and new plants continue to be implemented by utilities.

There is desire for independence to ensure security of supply. This is been countered by cheap exports from countries with excess power. Countries do see the benefit of trading power on a market basis as prices reduce with excess power in the region. We have seen a greater shift towards the market in the last year when compared to previous years.

What are your professional ambitions?
I will continue to focus on developing project in the region. I have been fortunate to work on some excellent projects that are now operational, and I intend to continue to do my small part in these projects. I believe there is still a great deal of work to be done.

What are your ambitions in relation to SAPP?
SAPP is an excellent platform that works. With the appointment of a new SAPP Coordination Centre Manager in Harare, the pool has the opportunity to grow in leaps and bounds in a rapid way by utilising the platform.

Why did you decide to partner with African Utility Week?
The African Utility Week provides SAPP an opportunity to meet key stakeholders that service the utility sector. As SAPP is in the project development environment it is important for us to maintain constant engagement with key stakeholders. This includes lenders, donors, consultants (technical, legal, financial and environmental) private sector developers and private equity houses.

What will be SAPP’s main message at the event?
The power pool has strong planning, markets and project development capabilities. We will also present our projects in terms of status and challenges.

About Omar Vajeth:
Previously Mr Vajeth was Head of Power, Utilities and Infrastructure at Barclays Africa/Absa where he lead the team’s expansion into Africa and the approach to the South African Power market. During this time, he concluded transactions across Africa in technologies such as renewable energy, coal, hydro, gas, HFO in addition to various advisory roles.