Africa, specifically sub-Saharan Africa, remains a hot spot for Independent Power Producer (IPP) investments due to the region’s growing demand for electricity and the governments’ inability to enhance capacity through public investment. Private power has thus been increasingly sought after in countries such as Ghana and Nigeria.
Mr. Stephen Hayes, President of The Corporate Council on Africa said at the breakfast meeting between the Council and a delegation from Ghana and South Africa,
“There is big interest from a lot of American companies on the Council. We have ten companies who build power plants, operate as IPP’s and they are all looking at Africa.”
The meeting was held to officially bring to the Council’s attention the new South African Airways’ service between Accra and Washington, DC.
Power shortages, tight reserve margins, power utilities and lack of cash reserves are driving the liberalization of power markets.
Power utilities find it increasingly costly and inefficient to remain as the sole power producer and this has presented a significant opportunity for IPPs investing in sub-Saharan Africa.
Ghana currently has a total installed capacity of approximately 2443MW and independent power producing companies in the country contribute a high portion of the installed capacity.
“Land acquisition costs, increasing pressure on profit margins, rising competition, lack of domestic finance and absence of government guarantees are key challenges facing power producers (IPP’s) in the region.
IPP’s are then tasked to find appropriate solutions to better manage risk, procure lands and equipment, and secure financial support so as to deliver large-scale projects on time without compromising quality,” disclosed Wu Guangwen, CEO, BXC speaking at the 4th WACEE Conference held in Accra.
Major challenges for new IPPs entering the market include the ability to gain market share in the face of stiff competition from government linked IPPs/utilities and incumbent (usually local) IPPs.
Local IPPs are known for reliable power supply, knowledge of the local market, and strong business relationships with local stakeholders. The single-buyer model is being practiced in most countries, where the incumbent utility (in Ghana’s case the Electricity Company of Ghana) is the sole offtaker of electricity generated.
This ensures stability and certainty for the IPPs, even though the financial situation of the state’s off-taker has become questionable over the years.
Despite apparent liberalization of the power sector, it has been evident that domestic conglomerates with strong government relationships often win the bids to develop projects and enter into power purchase agreements (PPA).
Foreign investors and developers usually create special purpose partnerships with these local conglomerates to put in a bid.
The government has a major role to play in ensuring that IPP’s come on stream faster and operate in a favorable environment through efforts such as that of the Volta River Authority where lands are purchased to mitigate land acquisition issues for Investors in the Power Sector.