Adams Adams Advisory Insights - May 2020

AFRICA’S ENERGY DEVELOPMENTS
COMPLIMENTARY UPDATES
AND INTELLIGENCE BRIEFINGS
MAY 2020
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TABLE OF CONTENTS
Africa INSIGHTS
P. 03
NEW TECHNOLOGY AND WEAK FOSSIL FUEL INVESTMENT
PAVE WAY FOR RENEWABLES AND GREATER
INTERCONNECTION OF REGIONAL POWER POOLS
Improvements and innovations: progress made in the energy transition ................................. 03
Priorities and opportunities leading up to 2030 ............................................................................ 04
Key considerations .......................................................................................................................... 07
Africa’s top 10 stories
P. 08
1. Vodacom, Safaricom partner in purchase of Kenyan fintech brand M-pesa ................... 08
2. Nigeria’s leading bank implements voice operated banking service ............................... 08
3. West Africa embarks on solar power electrification scheme .............................................. 09
4. Bannerman tests nano filtration technique at Etango uranium project .............................. 09
5. Fintech app Chippercash partners with Visa for expansion drive ....................................... 10
6. Nigerian genomics company secures additional funding for scaling research ............... 10
7. Innovation hubs launch in South Africa and Morocco ......................................................... 10
8. Locally manufactured modular chips revolutionising IoT ..................................................... 11
9. Iron Capital announces partnership with Australian government ....................................... 11
10. AfDB and Others Pledge US$160 Million to Improve Africa’s Energy Access ..................... 11
Other notable stories ....................................................................................................................... 11

Africa INSIGHTS
NEW TECHNOLOGY AND WEAK FOSSIL FUEL INVESTMENT PAVE WAY FOR RENEWABLES
AND GREATER INTERCONNECTION OF REGIONAL POWER POOLS
The trajectory of Africa’s energy developments can broadly be categorised under two main strategies. The first
is grid intensification in contributing to the electrification of growing urban centres in covering roughly 45% of
Africa’s projected energy needs by the middle of the century. This type of grid intensification has traditionally been
buoyed by coal, natural gas and large-scale hydropower, but a confluence of factors, including environmental
concerns, are throwing into question the future viability of this model. The second is the fast-tracking and rollout
of micro-grids primarily based on renewable sources in stimulating rural electrification - here solar home systems
will alleviate pressures on central grids while simultaneously paving the way for sustainable electrification.
Though over a hundred coal-fired power plants are scheduled to be built in Africa by 2040, the funding for these
may not materialise. Investor interest in coal-fired power has dropped dramatically, and the African Development
Bank (AfDB) echoed the sentiment when it announced in June 2019 that it would not be financing any further
projects of this type. Natural gas is becoming a preferred baseload power source particularly in Southern Africa,
but also in pockets within West Africa like Cote d’Ivoire, Ghana, Nigeria and Senegal. Hydropower is a preferred
alternative renewable baseload power source to both coal and gas, however the considerable initial buildinvestment
required, long-lead time to completion, and overt reliance on water availability in what can be water
scarce regions, have placed a limit on its future utility. Instead renewable energy installations tapping into wind,
solar (both photovoltaic and concentrated solar power) and geothermal energy will play an increasing role
going forward.
Improvements and innovations: progress made in the energy transition
Wind and solar technologies have proved the biggest winners of foreign financing and technical assistance
thanks to lower costs, with their use spreading beyond their dominant presence in North and Southern Africa.
Once reliant on oil and gas for their energy requirements, North African countries have made strides toward
incorporating solar into their energy mixes, initialising a host of plants including the 1.8GW Bembam park in Egypt,
the 4.5GW Tunur project in Tunisia, 150MW worth of projects in Algeria, and the 2GW Ouarzazate Noor solar
project in Morocco. South Africa gained a boost to its renewables sector when it was announced in early 2020
that regulators would loosen restrictions on independent power producers (IPPs) in allowing additional support
to ailing national utility Eskom.
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AFRICA INSIGHTS
The biggest new growth in renewables has emerged from the West and East African regions
respectively. ECOWAS nations have seen the renewable portion of their energy mix expand
dramatically over the past two years, with five new solar plants built in Senegal since 2018
and similar projects underway in Mali. The AfDB has additionally launched a financial support
mechanism for rural electrification projects in Cote d’Ivoire, Guinea and São Tomé and Príncipe.
East Africa has seen the proliferation of a variety of renewables including geothermal projects in the Rift Valley,
wind farm projects in Ethiopia, Kenya, Tanzania and Uganda, and planned ‘run of river’ hydropower projects
across Burundi, Kenya and the DRC.
In addition to the shifting focus toward renewables the past two years have seen committed efforts by regional
partners to further advance energy trade in and between regional power pools. The Maghreb Electricity
Committee (COMELEC) is the continental leader in this regard with Morocco and Tunisia both intending to sell
power to European nations via undersea transmission cables. Members of the East African Power Pool (EAPP)
have been trading power amongst each other since 2018 following the construction of six major transmission
lines between member states. In the same year Tanzania received a US$455 million funding package for the
construction of a transmission project which links the EAPP and the Southern African Power Pool (SAPP), while in
September 2019 the World Bank helped fund the Malawi-Mozambique interconnector, with additional projects
for linkages between the DRC and Zambia also underway. The West African Power Pool (WAPP) will begin trading
energy across borders by the end of 2020 through an active IPP market in Ghana and privatised transmission
infrastructure in Nigeria.
Source: PIDA, Ketraco, ESI-Africa, Prime Investment Limited; 2018-2020
Priorities and opportunities leading up to 2030
Thanks to reductions in cost and newfound ease of scalability the notion of renewables playing an integral role in
powering national and regional grids is becoming increasingly palatable to international investors. Development
priorities have shifted towards making the energy mix of renewables and non-renewables more efficient and
easy to manage, providing a conducive platform for building an efficient and digitised renewable energy grid
from the ground up. Opportunities over the coming years are likely to focus on aspects such as better utilising Big
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AFRICA INSIGHTS
Data and the internet of things (IoT), improving battery storage capacity, implementing smart
grid development through artificial intelligence (AI), and streamlining the transfer and sale of
electricity through blockchain technology.
Advancements in battery storage are the key avenue by which renewables have managed
to compete with oil, gas and coal for utility scale applications. These instances have been
generally confined to developed countries including Japan, Germany, UK, US and other EU member states,
however analysts predict that their application will drive growth of at least 45% percent year-on-year in emerging
markets between now and 2025. Battery-storage systems including lithium-ion, sodium-ion, sodium sulphur and
vanadium redox, can serve as vital components in the interplay between renewables and fossil fuels as they
remove inefficiencies and manage output by storing energy during peak production and releasing during peak
demand. In smaller contexts they can drive down costs for individual consumers in micro-grid operations through
the use of ‘behind-the-meter-systems’. In a grid intensification context they remove inefficiencies by harmonising
the intermittent supply of renewable energy with peaking and troughing demand of central grids. Such systems
are in demand in countries like Burkina Faso, South Africa and Zimbabwe, where aging centralised grids suffer
from frequent failures. In February 2020 the International Finance Corporation signed a deal with the Burkinabe
government to begin rolling out such systems before the end of the year. The South African government has
similarly adopted the Battery Energy Storage System (BESS) which has already been deployed in small scale
at the Sere wind energy facility. Across the border in Zimbabwe, Distributed Power Africa has employed Tesla
battery systems in its cell towers and sold units to local firms to mitigate against rolling blackouts.
Shepherding a mixed generation and supply of renewable and non-renewable sources to cyclically coincide
with demand and generation peaks across national and regional boundaries, will quickly become too complex
to do efficiently, and this is where the deployment of AI systems will come to the fore. The development of 5G
technology will also allow IoT systems to rapidly analyse and share information about the state and usage of
electricity, and when coupled with AI can provide an analytical element with the capacity to gauge and predict
future demand needs and preemptively inform energy operators of supply requirements and maintenance.
When combined with blockchain technology it will allow for the tabling of secure databases on billing and tariffs,
allowing for dynamic energy trading across regions in keeping with demand at the lowest cost to producers and
consumers. Smart meters will also greatly aid national power utilities in revenue collection, which has historically
been an obstacle in practically all African countries. The EAPP, SAPP and WAPP will have a particular need for
such systems in the near future as more and more renewable energy is fed into the grid and increasingly changes
hands across borders. Africa’s two biggest economies, Nigeria and South Africa, have already begun to deploy
these in a limited capacity, with 2015-startup The Sun Exchange launching the peer-2-peer solar leasing market
for photovoltaics in South Africa and RA365 employing the use of AI to plot the best locations for deployment of
solar tech in Nigeria.
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AFRICA INSIGHTS
TOP POWER PRODUCERS IN AFRICA: KEY DATA BY MARKET
MARKET
ENERGY PRIORITIES
RENEWABLE
ENERGY
FOCUS
GENERATION
CAPACITY
AND % OF
POPULATION
WITH ACCESS
MAIN PLAYERS IN THE MARKET
PROMINENT IPPS
South Africa
• Cost reduction,
• Rural electrification
• Grid reliability
• Biogas
• Solar
• Wave
• Wind
51.3 GW
(94%)
Eskom Ltd
• RCL Foods
Sugar & Milling
• Kelvin Power
• Mondi
Egypt
• Energy security
• Cost reductions
• Biomass
• Hydro
• Solar
21.0 GW
(99.9%)
• Egyptian Electricity Holding Co.
• Egyptian Electricity Transmission Co.
• Ras Ghareb
Wind Energy
S.A.E
Nigeria
• Energy security
• Cost reduction
• Rural electrification
• Biogas
• Hydro
• Solar
• Wind
12.5 GW
(60%)
• The Power Holding Company of
Nigeria
• Niger Delta Power Holding
company
• Transmission Company of Nigeria
• Egbin Power
• Sapele Power
• Afam Power
• Ughelli Power
Ghana
• Cost reduction
• Rural electrification
• Grid reliability
• Solar
• Hydro
• Wind
4.0 GW
(84%)
• Volta River Authority
• Ghana Grid Company Limited
• Electricity Company of Ghana
Limited
Genser Power
Ethiopia
• Generation capacity,
• Transmission & Distribution
infrastructure
• Solar
• Hydro
• Wind
3.7 GW
(45%)
• Ethiopian Electric Power
Corporation
Mozambique
• Generation capacity
• Transmission & Distribution
infrastructure
• Hydro
• Solar
• Wind
2.8 GW
(29%)
• Electricidade de Moçambique
• Hidroeléctrica de Cahora Bassa
• Mozambique Transmission
Company
Central Termica
de Ressano
Garcia (CTRG)
Kenya
• Grid reliability
• Cost reduction
• Geothermal
• Solar
• Wind
2.3 GW
(75%)
• Kenya Electricity Generating
Company
• Kenya Power and Lighting
Company
• Kenya Transmission Company
Tembo Power
The Democratic
Republic of
Congo
• Generation capacity
• Transmission & Distribution
infrastructure
• Biogas
• Geothermal
• Hydro
• Solar
2.0 GW
(8.7%)
Société nationale d’électricité
Tembo Power
Tanzania
• Generation capacity
• Transmission & Distribution
infrastructure
• Grid reliability
• Rural electrification
• Biogas
• Geothermal
• Hydro
• Solar
• Wind
1.5 GW
(36%)
Tanzania electric Supply Company
Songas
Senegal
• Generation capacity
• Energy security
• Transmission & Distribution
infrastructure
• Rural electrification
• Solar
• Wind
0.8 GW
(68%)
SENELEC
• Senergy
• Wärtsilä
Source: IRENA, US AID, IEA, Various; 2016-2020
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AFRICA INSIGHTS
Key considerations
Effective policy-making by African governments remains the biggest challenge to the greater
integration of IPPs going forward. Local content laws, which new industrial and infrastructure
projects generally require, have been implemented in Ghana and South Africa and have
increased the cost of investment. Furthermore, the fiscal challenges faced by African governments in general,
and their national power utilities in particular, have raised political appetites to change the “pay or take
model” which guarantees IPPs tariffs regardless of their usage on the national grid. The model risks raising costs
substantially and would contravene with EU free trade policy, which increases the potential of Africa’s biggest
renewable energy partners withholding investments. Furthermore, at this stage in time achieving profitability with
microgrids remains a challenge, especially for early market entrants in untapped rural areas due to the limited
buying power of local customers and lack of supporting infrastructure.
It’s important to note that renewables are still in their infancy concerning utilisation in Africa compared to mature
markets like the EU. Utility scale implementation in Africa is still some years away with subsidies still incentivising
small scale plants. Motivations for their implementation also differ. Whereas renewables represent ecologically
friendly alternatives to energy security in the EU, in Africa the impetus still lies on generative capacity, costsaving
and job creation, which in the eyes of African heads of state require a differing approach to project
implementation in local markets.
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Africa’s top 10 stories
1
VODACOM, SAFARICOM PARTNER IN PURCHASE OF KENYAN FINTECH BRAND
M-PESA
Kenya’s two largest telecommunications companies, Vodacom and Safaricom, have
successfully acquired fintech platform M-Pesa from UK-based telecoms provider, Vodafone. The
US$13.4 million deal enables these two African-based firms to eliminate the need to pay 5% and
2% respectively for every transaction completed by their users on M-Pesa. With full brand rights,
the new owners are free to devise their own strategy for the platform, expanding it into new
markets. M-Pesa has 40 million users across the continent with Kenya alone accounting for close
to two-thirds. Outside of Kenya, M-Pesa has a presence in the Democratic Republic of Congo,
Egypt, Lesotho, Ghana, Mozambique and Tanzania. Mobile money is one of Africa’s fastest
growing industries, with the GSMA estimating a sector entry of 500 million new customers before
the end of the year.
2
NIGERIA’S LEADING BANK IMPLEMENTS VOICE-OPERATED BANKING SERVICE
Zenith Bank, Nigeria’s leader in customer service, has become the first bank in the country to
implement voice-operated banking services. The self-service product offers quick response to
customers, in addition to security entrenched by a multilayer authentication mechanism. This
offering has come at a critical time, with physical distancing regulations and lockdowns in some
of Nigeria’s states preventing customers from accessing banking services in more conventional
ways. The country’s top banks have made service automation a priority over the last two
years, streamlining their services to enable agile responses to more complex, higher priority
customer needs. Nigerian banks such as Zenith are well positioned to remain competitive as
the local market consolidates operations and the Central Bank of Nigeria mulls over industry
recapitalisation plans.
Financial services automation processes
Source: Finovate, Automation Academy; 2020
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AFRICA’S TOP 10 STORIES
3
WEST AFRICA EMBARKS ON SOLAR POWER ELECTRIFICATION SCHEME
A Finnish research team confirmed in a report early this month that solar grids,
assisted by battery storage technology, will take a leading role in West Africa’s
energy mix by 2050. This has come amid an intensive campaign by the African
Development Bank to roll out micro-grid solar electrification schemes for rural
communities in ECOWAS countries, where half of all citizens do not have regular, stable access to
electricity. Côte d’Ivoire received a EU62 million grant for electrification, Sao Tome and Principe
EU12 million, and Guinea EU630 000. In early 2019, ECOWAS nations announced that they would
be allowing for the purchase and sale of energy across borders in contribution to the West
African Power Pool by the end of 2020.
4
BANNERMAN TESTS NANO FILTRATION TECHNIQUE AT ETANGO URANIUM PROJECT
Bannerman, which operates the Etango uranium project in Namibia, is in the process of rolling
out a new nano-filtration technique which, in collaboration with an ion exchange process, will
more efficiently filter out iron ore to achieve purified uranium ore. This is one of the more recent
measures by the company, aimed at cost-cutting amid subdued global demand. The price of
uranium has however rebounded by 33% since January 2020 due to Covid-19-related supply
chain disruptions and innovations in the sector have begun to revive. 2030 global nuclear energy
production is expected to rise to 462 GW and by 2040, to 569 GW. Key African uranium mining
projects currently in operation include: the Kayelekera uranium mine in Malawi, the Madaoela
uranium project in Niger, and the Rossing and Husab mines in Namibia.
Top producers - % share of
global production
Global nuclear energy demand
scenario projections - Gigawatts
Source: World Nuclear Organisation, 2019
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AFRICA’S TOP 10 STORIES
5
FINTECH
APP CHIPPERCASH PARTNERS WITH VISA FOR EXPANSION
DRIVE
Visa has partnered with mobile money service Chippercash for its expansion
plans within and outside the continent. The company raised funding of US$8
million in late 2019 for an ambitious Southern Africa expansion plan, after
penetrating the major economies in West and East Africa including: Ghana, Kenya, Nigeria,
Rwanda, Tanzania and Uganda, procuring over a million customers along the way. Chipper
finds its competitive advantage over other mobile money products in cross-border usability,
allowing for peer-to-peer transactions between countries when many of its competitors only
allow transactions over limited geographical locations. This functionality will greatly benefit from
its partnership with Visa, whose infrastructure allows for such services.
6
NIGERIAN
GENOMICS COMPANY SECURES ADDITIONAL FUNDING FOR SCALING
RESEARCH
54gene, a Nigerian based pharmaceutical company, has secured Series A funding worth US$15
million. The funding is led by Adjuvant Capital, a life sciences fund backed by the IFC, Novartis,
and the Bill & Melinda Gates Foundation. Launched in January 2019, 54gene seeks to use the
untapped potential of African genomic data in therapeutic interventions. Up until 2018, only 3%
of genetic material used by Genome-wide Association Studies (GWAS) was of African descent,
placing people of African heritage at a distinct disadvantage in terms of pharmaceutical
interventions. As part of its next stage of growth, the company will further explore partnerships
and opportunities for the co-development of drug targets and therapeutics, expecting
to partner with pharmaceutical, medical device and diagnostic companies for clinical
programmes in Africa.
R&D spending as a percentage of Development Goal
recommendation of 1% of GDP
Source: UNESCO Institute for Statistics, 2016-2017
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INNOVATION
HUBS LAUNCH IN SOUTH AFRICA AND MOROCCO
Separate innovation hubs were launched earlier this month in two of Africa’s most advanced
economies, South Africa and Morocco. South Africa’s financial regulators have launched
the Intergovernmental Fintech Working Group (IFWG), hoping to ensure greater regulatory
responsibility and consumer safety amid the recent explosion in the fintech market. The hub has
cited the recent digitisation drive due to the Covid-19 pandemic as a key driver, highlighting
the importance of their work in mitigating risks of spreading the virus. In Morocco, the Moroccan
Employers’ Association (CGEM) and the International Finance Corporation (IFC) have teamed
up to provide finance to digital start-ups. They have similarly cited that greater digitisation amid
the Covid-19 epidemic will offer impetus to their operations and be something the organisation
would be willing to support.
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AFRICA’S TOP 10 STORIES
8
LOCALLY MANUFACTURED MODULAR CHIPS REVOLUTIONISING IOT
South African technology start-up Xinabox, is attempting to revolutionise the
IoT industry through the development of modular components used for data
collection in industrial, educational and recreational contexts. Their range
of xChip modules encompasses processor boards, cores, sensors, power,
communication, output, control and storage devices assembled and used without the addition
of expensive tools that prove dangerous if used incorrectly, like soldering irons. xChip products
have already been rolled out to schools in South Africa and the US, where the firm hopes they
will assist in encouraging youngsters to embark on STEM careers. RS components, an international
electronic components supplier, has been selling Xchip products globally since 2018 and the chips
have seen various real-world applications including Antarctic research stations and satellites.
9
IRON CAPITAL ANNOUNCES PARTNERSHIP WITH AUSTRALIAN GOVERNMENT
African-based investment bank Iron Capital has announced a partnership with the investment
arm of the Australian government, Austrade. Austrade will assist in leveraging Iron Capital’s
extensive network of local business contacts and vast expertise in financial advisory, corporate
finance, project finance, market penetration strategies and regulatory advisory services, to
source potential destinations for investment, with a special focus on Nigeria, Ghana, Kenya and
Zambia. Australia’s share of investments in Africa has grown since 2015 and its companies are
some of the major players in the West African mining space. Africa is also Australia’s main source
of imported crude oil, mineral ores and motor vehicles.
10
AFDB AND OTHERS PLEDGE US$160 MILLION TO IMPROVE AFRICA’S ENERGY
ACCESS
The African Development Bank (AfDB), the European Union (KfW), the Clean Technology Fund
(Norfund) and others have pledged US$160 million to the Facility of Energy Inclusion (FEI). This
programme has been created to foster the development of small-scale energy networks and
mini grids across the continent, with the aim of providing energy to rural communities. The facility
is managed by the London based LHGP asset management group and has over US$400 million
at its disposal. The fund specifically provides finance for independent power producers making
use of renewable energy, including solar and wind technologies, to power their mini grids. Thus
far the fund has aided ongoing electrification projects in Burundi, Cape Verde, Madagascar,
Malawi and Mozambique.
OTHER NOTABLE STORIES
IMF PROVIDES FINANCIAL SUPPORT TO DEVELOPING COUNTRIES FIGHTING COVID-19
The IMF has approved immediate financial support for 25 developing countries, 19 of which are African.
Most are Least Developed Countrie’s from West and Central Africa, including Benin, Burkina Faso,
Central African Republic, Guinea, Liberia, Madagascar and Togo.
GLENCORE AND ZAMBIA REACH COMPROMISE OVER MINE CLOSURE
International mining conglomerate Glencore has reached an agreement with the Zambian government
to keep its mines open in the country following a protracted dispute which saw the local head of the
firm arrested. Zambia is teetering on the edge of a debt crisis and any significant disruptions of copper
exports could prove fatal to its national revenues.
REPORT REVEALS THAT KENYANS SPEND MORE ON AIRTIME THAN ANYTHING ELSE
A Kenya National Bureau of Statistics (KNBS) Consumer Price Index (CPI) survey has revealed that
Kenyans spend more of their budgets on airtime than on any other expense, accounting for 5% of all
spending. This new report has also shown the growing wealth of the middle class, with kerosene stoves
and cassette players phased out in favour of mobile money transfers and university fees.
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