Power trading to drive southern African electricity landscape

Most countries in southern Africa face power shortages requiring imports from those with excess capacity.
Published: Wed 22 Jun 2016

The Southern African Power Pool (SAPP) has played a key role in ensuring power flows in the southern African region in the last few years. [SAPP Is Building Africa’s Energy Security]

And with power supply shortages still prevalent in the region, power trading agreements with countries that possess excess capacity will continue to be a dominant theme of the electricity sector for at least the next three to five years, according to Standard Bank.

“Power will increasingly become one of the most tradable commodities across the region in the coming years given the electricity shortage we are seeing across southern Africa,” says Cody Aduloju, executive in Standard Bank’s Power and Infrastructure division. “Almost every aspect of a modern economy relies on electricity to function so the countries that emerge as the ones with excess supply will have significant negotiating power, so to speak.”

Mozambique to dominate supply side

Mozambique, which currently has the potential to produce more electricity than its economy requires, is likely to dominate the supply-side of this trading market, with Namibia, Zambia and Botswana expected be the main purchasers in the region, after South Africa.

Mozambique’s supply glut is due to the hydro power available from the Cahora Bassa dam, which has an installed capacity of 2,075MW or almost three-quarters of the country’s total installed capacity. If the necessary investment can be attracted there is potential to expand this capacity by up to 60%.

Sasol’s CTRG 175MW gas fired project also has recently been commissioned in Mozambique. While small by international comparison, in a regional context the value of such projects is significant. With a strong pipeline of projects under development, the country is seeking to add over the next five years approximately 600MW of generating capacity from sources including coal, solar and gas and to reach 5GW of capacity by 2025.

However, the main challenge to take advantage of this generation capacity is the weak transmission infrastructure, which needs to be improved in order to boost the power exports. Mozambique already supplies approximately 1,349MW to South Africa, 100MW to Zimbabwe and 50MW to Botswana each year, and recently begun supplying 100MW to Zambia where there is a shortage of power due to low water levels at Kariba Dam. 

Namibia an opportunity on demand side

According to Standard Bank, Namibia represents a huge opportunity for countries with potential oversupply in the region as it currently imports about 61% of its electricity needs.

Given Namibia’s total power demand of 534MW, that would leave an estimated 320MW in possible supply deals up for grabs based on current peak usage of 508MW. Namibia however, has several plans under way to boost its power generating capacity. These include 800MW from the Kudu combined gas and steam plant, 44MW in onshore wind potential and 120MW in solar PV potential.

“The lack of its own sizeable power generating capacity means that it is absolutely imperative for Namibia to start entering into Power Purchase Agreements (PPAs) with other partners in the region, which is currently happening,” said Mr Aduloju. “From a financial perspective, NamPower is probably one of the strongest utilities on the continent so it has a lot in its favour in terms of entering into these PPAs.” Current agreements are being negotiated and finalized with South Africa and Mozambique.

Botswana is another country in the region that is likely to remain reliant on its neighbours for the foreseeable future given that the country already imports over two-thirds of its power needs. 

Transmission is key

Plans are also afoot to determine the viability of building a multi-billion power transmission network linking the power grids of South Africa, Mozambique, Namibia, the DRC and Angola. Hydro power has already been identified as a possible opportunity for Angola via the proposed 2067MW Luaca and 300MW Baynes plants. That will go some way towards enabling Angola to achieve its goal of almost tripling its installed generating capacity 9,000MW by 2025. 

“It is unlikely that any country in Africa will have sufficient power generating capacity in the foreseeable future so it is absolutely imperative that the continent consider an adequate power trading mechanism in addition to investments in generating infrastructure,” concludes Aduloju. “The bottom line is that for as long as the electricity shortage in Africa persists, the negotiating power will remain in the hands of countries that have the capacity to produce.”

Check out our 'Power in Africa' In Focus series for more insights into this fasting evolving sector...