Siemens and Ethiopia collaborate to address urgent energy and infrastructure challenges
Siemens is currently helping to increase the reliability of energy supply through an interconnector being built between Kenya and Ethiopia
ADDIS ABABA, Ethiopia, April, 2019 — Siemens today announced it has signed a Memorandum of Understanding (MOU) with the Federal Democratic Republic of Ethiopia to support the government’s objective of becoming a low middle-income country by 2025.
The Memorandum of Understanding (MoU) addresses the country’s energy and infrastructure sectors. Other key aspects of the agreement include financing concepts that will ensure the long-term sustainability of these infrastructure initiatives; and creating opportunities for local upskilling and job creation during construction and operation.
Ethiopia’s Growth and Transformation Plan serves as a catalyst towards realizing its national vision of accelerated and sustained economic growth in order to eradicate poverty and increase prosperity. “Siemens can make a significant contribution to Ethiopia’s development. We will apply our vast experience and proven technologies as well as training and education capabilities to help shape the future of Ethiopia and its people. One of the starting projects affirming our strong commitment in the region is the East Africa Interconnector,” said Joe Kaeser, CEO for Siemens AG.
Siemens is currently helping to increase the reliability of energy supply through an interconnector being built between Kenya and Ethiopia. The roughly 1,000 kilometres-long transmission line will transmit environmentally friendly hydroelectricity from Ethiopia to Kenya. The project currently supports 200 direct jobs in Ethiopia alone and is one of the largest infrastructure projects in Africa.
The primary goal of this agreement is to commit to a long-term partnership between Siemens and the people of Ethiopia to develop, fast track solutions that will enable government to stabilise and expand existing grid infrastructure, explore solutions for industrial parks and co-develop microgrid solutions for remote villages.
Sabine Dall’Omo, Siemens CEO for Southern and Eastern Africa says, “This milestone agreement is another step in demonstrating our strong commitment to the people and government of Ethiopia. We are here today as we have been since 1927, to help achieve affordable and reliable power supply, create jobs, increase access to training and develop local skills alongside local partners.”
Energy transition policies and regulatory developments light up across Africa
Energy transition is a key topic of discussion at the African Mining Indaba, currently underway in Cape Town, South Africa. Across the continent, countries in Africa are gearing up for energy transition by implementing policy and legislative frameworks that take into account the energy crisis and the need for a renewable, decarbonized, decentralized energy supply that addresses climate change and the commitments made under the Paris Agreement. Lawyers in Egypt, Ghana, Morocco, Namibia, Nigeria, South Africa, Tanzania and Uganda outline the efforts taken by the governments in their countries to address this urgent need to harness renewable power.
Lamyaa Gadelhak, Baker McKenzie Cairo Partner & Co-Head of Banking and Projects:
“In Egypt, article 20 of the Investment Law No. 72 of 2017 (Investment Law) provides that companies that are established to develop a strategic or national project that contributes to achieving development, or projects in partnership with the private sector and the State, the public sector or the public business sector, in the area of public utilities, infrastructure, new or renewable energy, roads, transportation or ports, may, by a cabinet decree, be granted a “single license” (commonly referred to as the “golden license”) for the establishment, operation and management of the project, which will include a construction permit and an allocation of real estate property required for the project (License).
Such a License will be effective without the need for any further procedures and may include other additional incentives for the project provided in the Investment Law. The aforementioned was further developed through Cabinet Decree No. 56 of 2022, which specified a series of requirements to be met for a project to be considered a strategic and/or national project. In addition to meeting a set of conditions, said projects must be a development in one of the fields specified in the cabinet decree, which include, but are not limited to, green hydrogen projects, green corridor projects, renewable energy projects aimed at supplying desalination projects and green hydrogen production projects with energy, and carbon capture, utilisation and storage (CCUS) projects.
The conditions, set out in the cabinet decree, will be subject to a yearly review in light of any changes to the State’s economic development plan. Said conditions were reiterated and detailed in the “Guidelines for Issuance of the Golden License” issued by the General Authority for Investment and Free Zones (GAFI), which sets out the eligibility requirements, terms and conditions, procedures and required documentation for obtaining the License.
Among the other incentives provided under the Investment Law, and which can be included in the License, Article 11 provides that companies set up before 28 October 2023 to operate in certain industry groups, could obtain a deduction from their taxable income. This incentive is limited to seven years from the date of commencement of the project and is not perpetual. Furthermore, the Investment Law provides that additional incentives around, for example, utilities connection costs, land allocation costs and technical training may be made available to a project by a cabinet decision.
The Government of Egypt has now also expressly recognized the production, storage and export of green hydrogen and green ammonia among the areas falling within the State’s economic development strategy. It has passed a decree that would allow green hydrogen and green ammonia projects to benefit from a wide range of State support under the country’s existing Investment Law, including tax incentives. This is a key development for Egypt’s hydrogen economy and we expect that it will stimulate private investment and the development of new green hydrogen and ammonia projects in the country.”
Sefakor Kuenyehia, Solicitor & Barrister, Kimathi & Partners in Ghana:
“A recent legal development in Ghana was the amendment of the Renewable Energy Act, 2011 (Act 832) by the Renewable Energy (Amendment) Act, 2020 (Act 1045) (amended Act). The amended Act was passed on 29 December 2020 and establishes a procurement scheme to deliver a competitive market rate for electricity generated from a renewable source.
The Government of Ghana, through the Energy Commission, has also produced the Renewable Energy Master Plan 2019, and the Sustainable Use of Natural Resources and Energy Financing (SUNREF) 2021. Under the Renewable Energy Master Plan, the government proposes incentives in the form of substantial tax reductions. It also proposes exemptions of import duties and VAT on materials, components, equipment, and machinery (that cannot be obtained locally) for manufacturing or assembling renewable energy resources. Also, under the Sustainable Use of Natural Resources and Energy Financing (SUNREF) Programme, the government, in collaboration with other agencies, is offering businesses, organizations and households an opportunity to access financing for sustainable energy projects, and technical assistance in structuring green investment.”
Keltoum Boudribila, Partner, and Saad Khaldi, Associate, Nasrollah & Associés Baker McKenzie in Morocco:
“In May 2022, the House of Representatives of the Moroccan Parliament unanimously adopted Bill 40-19 amending Law 13-09 on renewable energies and Law 48-15 on the regulation of the electricity sector and the creation of the national electricity regulatory authority. The Bill will aim to simplify the authorization procedures, to strengthen the attractiveness of the renewable energy sector for national and international investors, as well as to safeguard the economic and social balance of public actors in the electricity sector. In January 2023, the other chamber of the Moroccan Parliament, the Chamber of Councillors, adopted these texts unanimously.
The new legal framework will allow industries to produce their own renewable energy for their operating needs and supply it to other consumers. Morocco has been liberalizing the renewable energy sector for several years, and is continuing on this path with these legislative amendments.”
Oludare Senbore, Partner at Aluko & Oyebode in Nigeria:
“Following the decisions taken during COP 26, the President of Nigeria announced the intention for Nigeria to achieve a net zero emission target by 2060. In order to achieve this objective, the Federal Government of Nigeria on 24 August 2022, launched its Energy Transition Plan (ETP). The ETP, which was launched by the Vice President on behalf of the Federal Government of Nigeria, has a double-pronged objective of achieving universal access to energy by 2030 and a net-zero emission target by 2060.
The foregoing actions support Nigeria’s energy transition drive, which includes an updated Nationally Determined Contribution (NDC) under the Paris Agreement that was submitted in May 2021, and which highlights the country’s commitment to reduce greenhouse gas emissions by 20% unconditionally, and a conditional reduction target of 47% by 2030. This was followed up with the enactment of the Climate Change Act 2021 in November 2021, which provides a framework for achieving low greenhouse gas emissions (GHG), inclusive green growth and sustainable economic development in Nigeria.
An additional legislative action by the Federal Government of Nigeria is the Petroleum Industry Act of 2021, that empowers the Nigerian National Petroleum Limited (a state-owned oil company) to engage in the business of renewables. This further confirms the country’s drive for energy transition, as do proposed amendments to the Electric Power Sector Reform Act, which provide that distribution companies must ensure that a portion of the electric power that they purchase must be from renewable sources. This is supposed to provide support for the growth of renewable power projects.”
Kieran Whyte, Partner and Head of the Energy, Mining & Infrastructure Industry Group at Baker McKenzie in Johannesburg:
South African President Cyril Ramaphosa launched the new Just Energy Transition Investment Plan (JET IP) for South Africa at COP 27 in November 2022. The JET IP is aligned with the Cabinet-approved National Just Transition Framework. The South African government has noted the plan outlined the investments required to achieve the country’s decarbonization commitments, while promoting sustainable development, and ensuring a just transition for affected workers and communities – in other words, a whole society approach.
The JET IP covers electricity, new energy vehicles (NEVs) and green hydrogen and identifies USD 98 billion in financial requirements over the next five years, to come from both the public and private sectors. The goal of the JET IP is to decarbonize the South African economy to within the NDC target range of 350-420 MtCO2 by 2030, in a just manner. The JET IP is centred on decarbonization, social justice, economic growth and inclusivity, and governance. The investment criteria for the Plan include projects that deliver on greenhouse gas emissions reduction and just transition outcomes, and are catalytic in nature and ready to implement.
Key investments under the JET IP will include:
Electricity – Decommissioning (repowering and repurposing with clean technologies), transmitter grid strengthening and expansion, and renewable energy.
New Energy Vehicles – Decarbonizing the automotive sector and supporting supply chain transition towards green sustainable manufacturing.
Gaseous Hydrogen (GH2) – Essential planning and feasibilities including port investment to enhance exports and boost employment and GDP.
Cross-cutting – Investment in skills development and municipalities.
At COP 27 Masopha Moshoeshoe, a green economy specialist in the Presidency’s Investment and Infrastructure Office, said that the country was seeking to attract investment worth USD 250 billion for the development of its green hydrogen energy economy by 2050. Moshoeshoe said the industry could create around 1.4 million jobs and USD 30 billion in annual revenue by 2050, but that renewable-power generation capacity of between 140,000 MW and 300,000 MW was needed to supply the green hydrogen sector. The country currently has renewable energy capacity of around 40,000 MW.
In late January 2023, Team Europe (the European Union and its member states) launched the Just and Green Recovery Team Europe Initiative for South Africa, as part of its Global Gateway programme. The initiative includes funding of more than EUR 280 million in the form of grants, which will be directed towards supporting policy reforms on green recovery, unlocking green investments and building a knowledge-based transition in South Africa.
In South Africa, there is a requirement to build economic and social resilience to meet the NDC targets, and to manage transition risks and ensure social preparedness as the country diversifies its energy mix and grows new industries. A just transition takes into account the requirement to balance the reduction of carbon emissions with the impact of this transition on employment and the need to develop long-term green energy jobs, especially in respect of impacted communities that have a current heavy reliance on fossil fuels. There is also a need to recognize location and sector-specific vulnerabilities (such as care, preparation and social infrastructure) and intergenerational effects.
Coal remains the primary source of energy for the country, but in order for South Africa to reach its reduction in carbon emission targets, this must change. Reskilling the existing workforce and educating the future workforce is also essential. South Africa updated its NDC under the Paris Agreement in 2021 and now has a proposed revised target range of 398 to 510 Mt CO2-eq for 2025, and 398 to 440 Mt CO2-eq for 2030.
There have been a number of policy developments to assist South Africa with its energy transition. The National Development Plan (NDP), the draft Integrated Energy Plan (IEP), the Renewable Energy White Paper, the Nationally Determined Contribution (NDC), the Just Transition Framework, and enabling policies under development and in implementation, outline the policy foundation for energy transition in South Africa and the move away from carbon-fueled energy. The Integrated Resource Plan (IRP) 2019 covers the government’s plans for power until 2030 and outlines a decreased reliance on coal-powered energy and an increased focus on a diversified energy mix that includes renewable energy, distributed generation and battery storage.
The Renewable Energy Independent Power Producer Procurement Program (REIPPPP), introduced in 2011, outlined the procurement of renewable energy in the country. The sixth round of the REIPPP kicked off in 2022 and this round aims to procure 2.6 GW of solar and wind power. To incentivize the self-generation of renewable energy, the South African government has also indicated that it proposes to scrap the threshold for distributed energy generation of 100 MW, meaning that large-scale power plants in excess of 100 MW could be built without a license, to meet their own demand and to sell to the grid.
Trading in carbon offsets in the carbon market, where companies can pay other entities to offset their emissions for them, is also growing in popularity in emerging markets. In August 2022, the Johannesburg Stock Exchange announced that it was investigating the possibility of introducing a carbon trading market in South Africa.
Further, recent amendments to the Electricity Regulation Act proposed by the Department of Minerals Resources and Energy are likely to address, inter alia, the electricity supply deficit, the vertical structure of the market and the lack of competition, the introduction of a multi-market including independent power producers (IPPs), and the formation of a central purchasing agency.
The amendments will also address the introduction of a day-ahead market to accommodate hourly supply and demand, the direct procurement of power by municipalities, the increase in the threshold pertaining to self-generation, the need to accommodate low carbon-emitting generation technologies, the timing of licensing applications, changes in transmission system operation including power trading, and the creation of additional regulatory capability. The strategy aims to accelerate affordable, decentralized, diversely owned renewable energy systems.
Shemane Amin, Partner at A&K Tanzania:
“Tanzania has refocused its attention on the energy future, with the Ministry of Energy actively pursuing investment opportunities in renewables to improve the country’s energy mix. This is specifically in relation to solar, wind and geothermal opportunities – and to add more renewable energy sources to the national grid to meet the country’s growing demand for power.
The Government of Tanzania is targeting an electrification rate for the entire country of 75% by 2035 and in the next six to seven years is striving to add 2 GW of renewables to the grid. In order to attract these investments, the government is striving to create a more conducive business environment in which such power projects can be sustainable, this includes providing investment incentives. In the 2022 budget speech, the Ministry of Energy highlighted, among other things, the establishment of the Renewable Energy Strategy and Roadmap. In a nutshell, the refocus on the energy future and the momentum behind renewables in Tanzania make this a key area to watch for investors.”
Arnold Lule Sekiwano, Partner at Engoru, Mutebi Advocates in Uganda:
“There are a number of policy initiatives which have been passed purposely to facilitate energy transition in Uganda. Such policies include the Climate Change Policy 2015, which focuses on the use of alternative renewable energy sources such as solar, biomass, mini-hydro, geothermal and wind; and the Renewable Energy Policy (2007), which forms the basis of the underlying framework for renewable energy.
Furthermore, Uganda’s Vision 2040 has also emphasized clean sources of energy to avert climate change. These policy initiatives have culminated into the recent enactment of the Climate Change Act, 2021. The Act governs the national response to climate change. One of the stated purposes of the Act is to give effect to the UN Framework Convention on Climate Change, the Kyoto Protocol, and the Paris Agreement. Generally, there is an increased focus on the utilization of renewable energy resources and technologies in Uganda and a regulatory focus that supports energy transition.”
ENERGY: Senegal faces key technology decisions in its search for the optimal gas-to-power strategy
Senegal’s domestic gas reserves will be mainly used to produce electricity. Authorities expect that domestic gas infrastructure projects will come online between 2025 and 2026, provided there is no delay. The monetization of these significant energy resources is at the basis of the government’s new gas-to-power ambitions. In this context, the global technology group Wärtsilä conducted in-depth studies that analyse the economic impact of the various gas-to-power strategies available to Senegal. Two very different technologies are competing to meet the country’s gas-to-power ambitions: Combined-cycle gas turbines (CCGT) and Gas engines (ICE).
These studies have revealed very significant system cost differences between the two main gas-to-power technologies the country is currently considering. Contrary to prevailing beliefs, gas engines are in fact much better suited than combined cycle gas turbines to harness power from Senegal’s new gas resources cost-effectively, the study reveals. Total cost differences between the two technologies could reach as much as 480 million USD until 2035 depending on scenarios.
Two competing and very different technologies
The state-of-the-art energy mix models developed by Wärtsilä, which builds customised energy scenarios to identify the cost optimal way to deliver new generation capacity for a specific country, shows that ICE and CCGT technologies present significant cost differences for the gas-to-power newbuild program running to 2035.
Although these two technologies are equally proven and reliable, they are very different in terms of the profiles in which they can operate. CCGT is a technology that has been developed for the interconnected European electricity markets, where it can function at 90% load factor at all times. On the other hand, flexible ICE technology can operate efficiently in all operating profiles, and seamlessly adapt itself to any other generation technologies that will make up the country’s energy mix. In particular our study reveals that when operating in an electricity network of limited size such as Senegal’s 1GW national grid, relying on CCGTs to significantly expand the network capacity would be extremely costly in all possible scenarios.
Cost differences between the technologies are explained by a number of factors. First of all, hot climates negatively impact the output of gas turbines more than it does that of gas engines.
Secondly, thanks to Senegal’s anticipated access to cheap domestic gas, the operating costs become less impactful than the investment costs. In other words, because low gas prices decrease operating costs, it is financially sound for the country to rely on ICE power plants, which are less expensive to build.
Technology modularity also plays a key role. Senegal is expected to require an extra 60-80 MW of generation capacity each year to be able to meet the increasing demand. This is much lower than the capacity of typical CCGTs plants which averages 300-400 MW that must be built in one go, leading to unnecessary expenditure. Engine power plants, on the other hand, are modular, which means they can be built exactly as and when the country needs them, and further extended when required.
The numbers at play are significant. The model shows that If Senegal chooses to favour CCGT plants at the expense of ICE-gas, it will lead to as much as 240 million dollars of extra cost for the system by 2035. The cost difference between the technologies can even increase to 350 million USD in favor of ICE technology if Senegal also chooses to build new renewable energy capacity within the next decade.
Risk-managing potential gas infrastructure delays
The development of gas infrastructure is a complex and lengthy endeavour. Program delays are not uncommon, causing gas supply disruptions that will have a huge financial impact on the operation of CCGT plants. Nigeria knows something about that. Only last year, significant gas supply issues have caused shutdowns at some of the country’s largest gas turbine power plants. Because Gas turbines operate on a continuous combustion process, they require a constant supply of gas and a stable dispatched load to generate consistent power output. If the supply is disrupted, shutdowns occur, putting a great strain on the overall system. ICE-Gas plants on the other hand, are designed to adjust their operational profile over time and increase system flexibility. Because of their flexible operating profile, they were able to maintain a much higher level of availability.
The study took a deep dive to analyse the financial impact of 2 years delay in the gas infrastructure program. It demonstrates that if the country decides to invest into gas engines, the cost of gas delay would be 550 million dollars, whereas a system dominated by CCGTs would lead to a staggering 770 million dollars in extra cost. Whichever way you look at it, new ICE-Gas generation capacity will minimize the total cost of electricity in Senegal in all possible scenarios. If Senegal is to meet electricity demand growth in a cost-optimal way, at least 300 MW of new ICE-Gas capacity will be required by 2026.
Nicolas Mathon: Unlocking successful independent power projects in Nigeria
Nicolas Mathon, Director, Project Development, Africa and Europe, Wärtsilä Energy (Article & Image: Nicolas Mathon)
The successful completion of the Azura Edo 450 MW gas-fired power project in 2016 was hailed at the time as setting the blueprint for future independent power projects in Nigeria. The $900 million plant, which gathered 20 international banks and equity financing partners from more than nine countries, took over six years of project development and construction. It was intended to provide a pathway for others to enter into similar agreements and unlock financing for power sector investment. But five years on, no new independent power projects have come to fruition.
Today, grid generating potential is just over 12 GW in Nigeria. More than 40% of the population lack access to electricity, and those with access, suffer regular power cuts and outages. This is not due to a lack of projects or ambition. With its Vision 30:30:30 the government is committed to deliver 30GW of electricity with 30% renewable energy mix by 2030.
As the largest economy in Africa, with huge gas reserves and high solar energy potential, Nigeria has all the natural resources necessary to meet these targets. However, there are three major and interconnected challenges to overcome to complete successful IPP projects, namely the fragile energy transportation and distribution infrastructures, the ambitious yet incomplete energy reforms, and finally, securing access to long-term international project financing.
The fragility of the existing energy infrastructures, the relative immaturity of the power sector reforms, combined with security and currency risks, create enormous barriers to entry for IPP projects in Nigeria. While there is no simple answer to resolve this, our experience is that an holistic approach to cover all project parameters is crucial and that demonstrating flexibility and resilience over the long term is of paramount importance.
An improving, but still complex regulatory environment
Nigeria’s power sector reforms began around ten years ago when the government launched an ambitious privatization and unbundling of the vertically integrated historical utility. Power generation plants were transferred to privately held GENCOs, the distribution network went to partially privately owned DISCOs, while the transmission network was kept under government ownership, managed for some time by the private sector.
The resulting regulatory environment is complex and still evolving today, creating significant uncertainty for project developers. Despite a strong legal framework and the many government efforts to implement reforms, project developers and sponsors need to navigate multiple agencies and government organizations with sometimes conflicting or unaligned processes.
To cope with this uncertainty, information must be checked and rechecked at various levels to safeguard a project ecosystem that requires constant monitoring and validation. Keeping abreast of developments requires continuous contact and resilience, mobilizing full time resources to stay in the game.
Mitigating project development risk with a 360° approach
Major energy infrastructure projects are multi-million-dollar transactions that require long cycles to develop and even longer to payback. Having a reliable turnkey solution provider, with the experience of international project development, can make a significant difference for future IPP projects.
Independent Power Producers must also beyond the capability to mobilize technical resources, such as engineering, engine manufacturing, construction, and service teams, work with consultants and advisors to bring expertise on environmental and social topics, on connecting infrastructures, primary fuel supply legal matters and accordingly to contribute to internal and external project development costs.
From engineering, procurement and construction (EPC) through to operation and maintenance (O&M), successful project finance relies upon complex back-to-back contractual agreement structures to secure access to the gas, the grid, and the offtake of the generated power. Once a bankable model has been designed, only then can projects raise finance from international development finance institutions (DFIs), international and local commercial banks and other accessible funds.
In addition to coordinating project finance, and to mobilizing internal and external resources, the ability of the IPP to share the development risk by taking minority equity stakes in projects is also paramount.
Selecting the right technologies in a challenging environment
Gas fuels more than 80% of the nation’s power generation capacity in Nigeria. But in order to generate reliable power from gas in a challenging environment, not all technologies are equal.
For instance, the challenging conditions of gas transportation and distribution, combined with the fluctuating electricity loads, makes it difficult for traditional large gas-turbine based power plant projects to operate efficiently.
Gas turbines operate on a continuous combustion process, requiring a constant supply of gas and a stable dispatched load to generate consistent power output. Supply from the Escravos-Lagos Pipeline System (ELPS), which forms the backbone of Nigeria’s gas transportation system, is subject to disruptions due to a number of upstream constraints and its own operational challenges. This makes it challenging to respond to the daily variations in customer demand. The result is stranded generation assets and transmission bottlenecks causing shutdowns at some of the country’s largest power plants.
Power plants with reciprocating gas engines, however, can run with lower gas pressures and provide high efficiency at Nigerian site conditions with high temperatures and humidity. Medium-sized projects of 250 MW can make a significant contribution to meeting the country’s energy demand as they are able to operate with a large spectrum of gas qualities and other liquid fuels provided through other supply infrastructures. More importantly, they can provide the flexibility and resilience required to accommodate varying loads either due to consumption patterns or to challenged transmission and distribution infrastructures. As renewable projects are progressively integrated into the mix of Nigerian grid connected power plants, the need for flexibility and agility to adapt to intermittent sources of electricity such as solar and wind will increase.
Enabling the “Decade of Gas” vision
Whilst there is no single solution or quick fix to solve the challenges of Nigeria’s power sector, the ability to deploy the appropriate power production technologies combined with proven project management know-how will go a long way to overcome these barriers and take advantage of the government’s “Decade of Gas” vision. High-quality IPP projects based on gas engine technology will contribute to meeting the country’s unserved energy demand, whilst reducing dependence on expensive diesel generators and drastically reducing CO2 emissions.
OPINION: Nicolas Mathon, Director, Project Development, Africa and Europe, Wärtsilä Energy
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