Africa's gas-to-power challenge: New approaches to financing

The need for new power provision in Africa is enormous. Although installed grid-based generation capacity has been steadily increasing across the continent in recent years – reaching 158 GW in 2012 – more than 620 million Africans live without access to electricity, according to the International Energy Agency.

Finding the finance to build this new power capacity will be a major challenge. Consultants McKinsey & Co. estimate it will cost $835 billion to connect all of Africa's population to electricity by 2030. As governments cannot support this spending – especially after the oil price crash has weakened many state balance sheets – major private sector and commercial funding will need to be mobilised.

Global foreign direct investment in African infrastructure has steadily increased over the past decade, although the recent commodity price drop has slowed these developments. International financial institutions (IFIs) have had to increase their lending to African power projects to help plug this gap, but the energy challenges Africa faces cannot be addressed using IFIs and donor funding alone.

In this Interfax Natural Gas Daily special report, we look at how governments are financing new gas-fired power capacity and the instruments states can use to mobilise the private sector funding needed to meet Africa's energy challenge.

Table of contents

• Cash upfront: EPC contracts and credit options
  Countries with ready cash can award EPC contracts to build new power plants quickly, but bonds are also an option for those with a good-enough credit rating.
• Spreading the cost: PPAs, guarantees and loans
  States that do not have the cash to pay for infrastructure upfront can make use of power-purchase agreements, but some form of guarantee is essential.
• Case study
  South Africa's gas-fired IPP programme
• Case study
  IPPs in Egypt
• Case study
  Nigeria's Azura-Edo IPP
• Africa's floating regas fleet
  Floating regasification vessels are planned for all over Africa, offering a flexible and quick way for countries to start importing LNG.
• The integrated LNG-to-power option
  Countries without sufficient domestic gas production can pursue LNG-to-power projects, which are quick and easy both to set up and dismantle.
• Case study
  Ghana's planned FSRU-to-power plant
• Case study
  Morocco's first LNG-to-power project
• Power pools and electricity imports
  Power trading is on the rise in Africa and is becoming increasingly important for countries to meet short-term needs. Meanwhile, Tunisia is eyeing a connection to Italy's grid.
• Henry Hub linkage could stabilise gas-to-power
  The advent of LNG exports from the United States offers a window of opportunity for African countries looking for a stable gas price.

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