Managing Sustainability in Power Generation Projects in Africa

MANAGING SUSTAINABILITY IN POWER GENERATION
PROJECTS IN AFRICA
By
ERIK WANDRAG
A dissertation submitted in partial fulfilment of
the requirements for the Degree of
MAGISTER PHILOSOPHIAE
In
Engineering Management
At the
FACULTY OF ENGINEERING AND THE BUILT ENVIRONMENT
UNIVERSITY OF JOHANNESBURG
SUPERVISOR: DR. A. MARNEVICK
NOVEMBER 2018
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Chapter 1: Introduction
“It’s up to us to use our platform to be a good citizen. Because not only is it a nice thing to do,
it’s a business imperative. If this wasn’t good for business, we probably wouldn’t do it.”
Jeffrey Immelt, Past CEO, General Electric
1.1 Introduction
Historically, the successful completion of grid scale power generation projects in Sub-Saharan
Africa (outside of South Africa) has significantly lagged the ever growing demand for electricity
(Cervigni et al. 2015). As a result of constraints on public funds as well as performance
challenges of state-owned utilities, new power generation projects increasingly have been
developed by independent power producers. These projects are typically financed on a project
finance basis through a combination of limited-recourse long term loans from development
finance institutions (DFI’s) and commercial lenders as well as equity contributions from private
and public entities (Linger and Owen 2012). The electricity produced from these projects is then
sold to national utilities under long term power purchase agreements (PPA’s).
Demierre et al. (2015) stated that sustainability is defined as meeting needs of present without
compromising the capability of future generations to meet with their needs. It is consisted of
three main pillars such as economic, social and environmental. According to Nygaard and
Dafrallah (2016), environmental pillar means the power generation companies are focused to
reduce carbon footprints, usage of waste and entire effect on environmnet. Reduction of amount
of materials utilized reduces spending on the materials. Under the social pillar, it is tried back to
other poorly defined concept like social license. The sustainable business should support as well
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as approval of the employees and stakeholders it operates in. The business is focused on
engagement strageies to provide maternity plus paternity benefits. As per economic pillar, in
order to become sustainable, the business should be profitable. The activities under economic
pillar are governance, risk management, compliance and others.
In line with the principles of project finance, the various risks in such a project are allocated to
the project party most suited to bear that risk. Each of these risks needs to be managed
throughout the lifecycle of the project to ensure the success of the project. Many projects never
see the light of day or face significant delays, cost overruns and/or compromised quality as a
result of risks associated with sustainability not being adequately mitigated and/ or managed at
an early stage in the project life cycle (Marnewick and Langerman 2018). In light of the dire and
growing need for electricity in Africa, these delays and failures cannot be afforded. The primary
objective of this research study is to encourage project managers to consider sustainability a bit
more broadly and diligently during the development of power generation projects in Africa,
particularly during the early stage development phases of projects.
Only [135] independent power projects totalling 10020 MW have reached financial close in the
Sub-Saharan Africa (excluding South Africa) in the period from 1996 – 2018. This is in stark
contrast to an environment where roughly two out of three households in Africa (an estimated
600 million people) have no access to electricity. Linger and Owen (2012) found that in some
countries less than 5% of the rural population has access to electricity. The African Development
Bank estimates that there is an annual funding gap of between USD 87 billion to USD 112
billion for the development of infrastructure across the continent. A large portion of this is
required for the development of new power generation, transmission and distribution
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infrastructure. Okland (2015) viewed that there is a need for increased investment in power
generation capacity as a result of robust economic growth on the continent.
According to Marcelino-Sadaba, González-Jaenand Perez-Ezcurdiastated (2015), sustainable
energy provides accessible as well as reliable energy services that meet economic and
environmental requirements within the developmental context of a society. Africa’s renewable
energy power potential is larger than projected consumption of power of continent. The growth
of renewable based energy is desirable to three major sectors like electricity, heat plus transport.
Many projects are developed to minimum sustainability standards or legal compliance levels.
Marnewick and Langerman (2018) stated that if a different approach to standards could be taken,
issues causing delays, cost overruns and quality compromises could be avoided in future
projects. Some of the most widely used and comprehensive standards related to sustainability
reporting are those developed by the Global Reporting Initiative (GRI) .
ISO standards support three pillars of the sustainable development. In the economic pillar, ISO
international standards promote of economic sustainability by facilitating of the international
trade, improving over quality infrastructure and supporting the sustainable business practices. In
social pillar, the ISO standard promotes social sustainable by helping the communities in
improvement of citizens health. It is covered of social aspects related to products towards social
inclusion. Within environmental pillar, ISO standards promote of environmental sustainability by
helping the business to manage environmental impacts. Environmental management system
measures and reduces emissions of greenhouse gas (Visser and Tolhurst 2017). The sustainable
development goals achieve sustainable future for the power generation projects in South Africa.
It addresses challenges like poverty, environmental and climate.
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1.2 Background
In 2012, there were a total of approximately 83 gigawatts (GW) of grid connected power
generation capacity in 48 countries across Africa. South Africa accounted for roughly 45GW of
this, predominantly from coal fired facilities. Liquid fossil fuels, natural gas as well as hydro-
electricity made up the bulk of the installed capacity in other regions of Africa. Only 1% of
installed capacity comprised renewable energy sources such as biomass, wind and solar. In
recent decades, due to the poor financial as well as technical performance of the public power
sector, developing countries have been encouraged to unbundle their electricity utilities and to
create independent regulators. Almost all economic activities require the use of energy in one
form or another.
Over the past decades, issues related to energy supply, access, issues related to the impact of
consumption as well as production patterns of energy on sustainability are discussed in the
report. Africa is a diverse continent with large energy potential. In addition, the continent is
experiencing rapid population growth and sustained economic growth. In order to overcome
those issues, sustainability criteria and standards, as well as project management knowledge
areas need to be applied.
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Figure 1: Evolution of electrification rate in Africa
(Source: Calvin et al. 2016, pp-112)
Figure 2: Electricity consumption in all over the world
(Source: Saidi and Hammami 2015, pp-65)
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From the above figure, it is analyzed that most of the population as compared to all over the
world is in Africa which is forcasted for the year 2030. The consumption of electricty in Sub-
Saharan Africa 2040 is estimated to be 1,570 and now in Sub-Saharan Africa is 423. The
economic developmnet of Sub-Saharan is focused on consumption of energy. The country is rich
in the energy resources (Saidi and Hammami 2015). In the past five years, 30 percent of the
world’s oil as well as gas discoveries are made within Sub-Saharan Africa, while challenge to
turn the oil and gas discoveries in production and the outcoming revenue in public benefits is
being formidable.
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Figure 3: Evolution of electrification rate through the world
(Source: Nygaard and Dafrallah 2016, pp-162)
Access to electricity, an accepted indicator of a country and region’s socio-economic
development, is low within most countries in Africa. To put it into context, in 2015, electricity
consumption in Africa was 9%, 14% and 50% of consumption in North America, Europe and
Latin America respectively, whilst the African population is at least double than of each of these
regions.
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North America
Sub-Saharan Africa
Latin America
High income countries
European Union
Eastern Asia and Pacific
Arabian world
0% 20% 40% 60% 80% 100% 120%
2011
2001
1991