The document discusses challenges for developing energy projects in Africa. It identifies key challenges as: 1) rapidly growing energy demand driven by high GDP growth in some African nations, 2) assessing available fuel resources such as fossil fuels, hydro, wind, and solar, and 3) developing reliable transmission infrastructure to transport energy to demand centers. Additional challenges include securing financing, obtaining government support and addressing regulatory/environmental policies, and ensuring sufficient non-transmission infrastructure and labor. The document provides detailed analysis of different energy resources and considerations for assessment and development.

1. Manuscript Title: “African Energy Project
Development Challenges”
POWER-GEN Africa Conference,
Johannesburg, South Africa
6 November 2012
Author Name: Ronald L. Miller
Author Company: Newmont Mining
Corporation
Author Country: United States of America

2. “African Energy Project Development Challenges”
Introduction
African nations are blessed with an abundance of natural resources whose responsible
development holds the key to the continent’s growth and prosperity. Those resources include
gold, silver, copper, bauxite, oil, gas, renewable energy sources such as solar, wind, hydro, and
biomass, and agricultural products such as cocoa and palm oil. They have the potential to be the
revenue engine of growth in standard of living and increased economic opportunities.
Several of the continent’s nations are currently growing their economies at a rapid pace, much
higher than many parts of the developed world. Gross Domestic Product (GDP) projections for
the next 5-10 years indicate several African nations will lead the world in GDP growth, and the
key driver for this is the presence of adequate and cost-efficient energy supplies, and reliable
energy delivery systems. For the economic growth to be sustained, new energy development
projects will be needed in the near to mid-term future, and this paper will identify the key
challenges of that development process including the following:
1. Energy Demand Growth
2. Resource Assessment / Fuel
3. Transmission / Reliability
4. Financing / Project Economics
5. Government Support, Environmental & Regulatory Policy
6. Non-transmission Infrastructure
7. Labor
Energy Demand Growth
The growth of a nation’s GDP is very closely aligned with its ability to access ample supplies of
reliable and cost-effective power. In his opening speech outline for the Africa Partnership Forum
OECD in Paris on Wednesday, April 25, 2012, the U. S. Assistant Secretary of State for the
Bureau of African Affairs, Mr. Johnnie Carson stated, “The key to sustained economic growth in
sub-Saharan Africa is access to energy.” Moreover, the BP Energy Outlook 2030 Report
provides analysis supporting a 70% ratio of global electricity growth to GDP growth in its recent
release.
Due to the close alignment of electricity demand to GDP, the high growth in population and
economy, seven African nations are projected to be among the ten fastest growing economies in
the world for 2011-2015, indicating energy development projects will be critical. For these seven
African nations listed in Figure 1, the annual GDP growth rate ranges between 6.8 and 8.1
percent, translating to annual electricity demand growth of between 4.8% and 5.7%.

3. Figure 1 – World’s 10 Fastest-Growing Economies
The future challenge for Africa will be to stay ahead of this tremendous power growth curve,
while maintaining supply from existing power generation facilities. Complicating this challenge
is the current low power reserve ratio and spinning reserve that is common in many African
nations. In South Africa, the power reserve margin is just above 10 percent, and less than its
minimum target of 15 percent. The margin is the measure of available capacity over and above
the capacity needed to meet normal peak demand levels, and unfortunately, power supply maybe
barely adequate or already behind demand in some African nations. In contrast, Ethiopia is the
only eastern African country with sufficient power supply backed by a reserve margin of more
than 30 per cent. Due to this favorable position, Kenya is negotiating with Ethiopia for a share of
its hydro-power via a new power interconnector.
The challenge of increasing demand is often met in the short term with emergency backup
generation fueled by high-cost diesel fuel. In several countries, the percentage of this backup
generation relative to the grid’s capacity is approaching 50% or more.
While developing an energy project, the developer will need to consider the type of demand to
be met, whether it is a continuous 24/7 operation, variable, or daytime-only power demand.

4. Resource Assessment / Fuel
The primary challenge and driver for a power generation facility is the availability and selection
of the correct fuel. All potential fuels should be considered, including: 1) fossil (crude oil, diesel,
cracked fuel oil, heavy fuel oil, natural gas, LNG, coal), 2) renewables (solar, wind, biomass,
hydro, geothermal), and 3) nuclear (small modular reactor). The selection process should also
factor in other key fuel selection determinants.
Demand type is another consideration as daytime or variable demand with a ready power storage
capability will open the opportunity for variable and intermittent renewable energy resources
such as wind and solar, respectively. Should the demand be more continuous, as in a 24/7
manufacturing operation, more reliable resources such as biomass or petroleum options need to
be more seriously evaluated.
The logistics in transporting fuel from its source to the generator will greatly influence the cost,
timing, and liability of a particular fuel selection for the subject country. Generators with close
proximity to their fuel source with good logistics are both more economical, but will also provide
greater power production reliability. For many developing countries in Africa, the power
generating facilities are located near the coast with access to import infrastructure that can be
critical in reducing logistics costs. Although generators may be placed close to their load demand
centers and provide improved grid reliability, the road infrastructure in developing countries
usually dictate that it is easier and less expensive to transport electrons than fuel.
In addition to the fuel logistics, the reliability of supply and the product pricing are key
considerations. Best practices for generation in developing countries dictate that a new generator
seriously consider if not mandate a dual fuel system to assure generation when the primary fuel
incurs a pricing, logistics, or availability problem. Preparation of a fuel market analysis and
identification of alternative fuel sources for the selected fuel is paramount, as well as hedging the
project with a contingency plan for fuel acquisition.
In assessing fuels and location, developers need to evaluate the energy storage capability that is
available, especially if solar or wind as intermittent and variable resources respectively, are to be
considered. The dependability of a developing grid to return power to a load center, may lead to
alternatives such as hydro pumped storage for energy storage.
The regulations and incentives mandated by an African government to achieve specific goals
should also be considered for fuel selection. Countries requiring renewable portfolio standards of
10-20% of all energy to be from renewable sources by a target date may also incent fuel
selection behavior with various production tax credits, investment tax credits, and/or accelerated
depreciation schedules. Conversely, countries imposing a carbon tax will financially discourage
coal as a fuel source.

5. At the conclusion of this segment, the project planner should feel confident the proper power
generation resource has been selected to meet the local demand for which the facility is designed.
The key will be determining the amount of energy each alternative can generate based on its
“fuel” (solar irradiance, wind speeds, biomass tons/calorific value, hydro reservoir depth/flow
rate, geothermal heat/pressure).
First, a look at renewable resources and their key considerations.
Hydro Resources
Key considerations in determining the applicability of hydro are the following: 1) flow rate of
the water source to be impounded, and 2) potential dam height which drive the size of the power
generation facility. Additional considerations include: 1) the impacted land area of the drainage
basin that will be flooded with a dam and the attendant village resettlement / social responsibility
/ public communication concerns, 2) potential for a relatively-low capacity factor, 3) seasonality
and cyclical nature of power generation. Figure 2 displays hydro resource data for Africa from
the U.S. Department of Energy (DOE), National Renewable Energy Lab (NREL).
Figure 2 – Africa’s Hydroelectric Generation Resources
Wind Resources
Key considerations in determining the applicability of wind are the following: 1) consistent wind
speeds, and 2) road infrastructure for transportation of wind towers and turbine components for
construction ease. A one-year minimum meteorological tower wind speed history is vitally
important to justify the investment. Wind resources contribute toward variable power generators

6. and offer capacity factors in the 20-35% range. Figure 3 displays wind resource data for Africa
from NREL.
Figure 3 – Africa’s Wind Energy Generation Resources
Solar Resources
Key considerations in determining the applicability of solar are the following: 1) intermittency of
the resource to only daytime hours, 2) relatively-low capacity factors in the 17-23% range, and
3) less site specific of the application due to relative portability of generators. Figure 4 displays
solar resource data for Africa from NREL.
Figure 4 – Africa’s Solar Energy Generation Resources

7. Biomass Resources
Key considerations in determining the applicability of biomass are the following: 1) need to
contractually control a long-term access to biomass resources, 2) logistics of gathering the waste
and transporting over roads / infrastructure that may not be designed for this sustained use over
20-years, 3) a relatively-high capacity factor nearing 80-90%, and 4) potential for tax incentives.
Figure 5 displays biomass resource data for Africa from NREL.
Figure 5 – Africa’s Biomass Energy Generation Resources
Due to the variability and intermittency of some renewable resources, project planners should
evaluate combining complementary energy generation technologies and energy storage
technologies to achieve desired energy generation requirement.
Fossil Fuels
Fossil fuels offer different advantages than renewables for power generation, especially for those
power demand conditions that demand 1) more predictability in power production, and 2) higher
capacity factors. As with renewables, an alternative fuel supply plan as a contingency should be
investigated and planned so that a dual fuel that can be accessed due to a primary fuel supply
shortfall, logistics issues, or pricing changes. Additionally, alternatives for the primary fuel
should be thoroughly investigated to ensure different geographical source locations and logistics
to transport fuel to the generation facility. Pricing of the fuel should focus on a price mechanism
with a clear and easily-administered pricing formula, and one that is tied to an industry index or
marker price. Additionally, different hedging strategies should be studied and evaluated to its
applicability for the fuel source market.
If fuel is not domestically-available and it must be imported, the attendant import and storage
facilities along the coast of the host country need to be accessed or built to accommodate fuel

8. access. For many large scale power generation projects, considerable capital and project time is
expended to create the missing import infrastructure.
For liquid fuels in many developing countries in Africa, product pipelines for crude, diesel, and
LPGs are sometimes unavailable, therefore, key considerations become truck logistics, cost,
supply line, time of delivery, and liability due potential in-transit vehicular accidents.
The different petroleum fuels are briefly reviewed below with key considerations for their
application for a power generation project in Africa.
Natural Gas
Natural gas requires a domestic gas pipeline system and its attendant issues with right-of-way,
potential vandalism, and the required gas processing infrastructure to remove the liquids prior to
combustion. It offers very low power production costs and very clean burning with low
emissions.
LNG
LNG requires capital for new or improved import facilities and for regasification of the LNG to
natural gas specs. Although it incurs the added cost of liquefaction at the source country,
overseas transportation, and in transit fuel allowances, LNG offers relatively-low power
production costs and very clean burning with low emissions.
Coal
Coal requires capital for new or improved import facilities, air emissions equipment required for
requisite air permits. While its power production cost is lower, it has potential for a future carbon
tax levy, similar to that currently underway in Australia.
Heavy Fuel Oil
Heavy fuel oil requires product heating for its transport to the generation facility, and storage at
site. Additional air emissions equipment is required, while its power production cost is in the
mid-range.

9. Light Crude Oil
Light crude oil (LCO) may require capital for new or improved import facilities unless the
country has an existing refinery with import facilities. LCO offers better power production cost
economy than diesel, however, it is still more expensive than natural gas, LNG, coal, and HFO.
Diesel
Diesel is used typically as an emergency backup generation fuel due to quick start, use of
common fuel storage facilities for diesel as a power and transportation fuel. However, cost of
power generation is at the very high end of the range.
The world economies are growing with new petroleum demand from both large developing
countries (China and India) and African nations. This growth has heightened world demand for
petroleum products, and can fuel future price inflation that must be factored into the fuel
selection and power production technology employed. Figure 6 displays the Average Annual
World Oil Prices 1980-2035 in 2009 US$ per barrel.
Figure 6 – Average Annual World Oil Prices 1980-2035 (2009 US$ per barrel)
Source: U.S. DOE Energy Information Administration (EIA)

10. Figure 7 displays the OPEC Crude Basket Price History 1999 to Present.
Figure 7 – OPEC Crude Basket Price History 1999 to Present
Source: http://www.opec.org/ope
Since liquid fuels are ultimately related to world crude pricing, they will be subject to both the high
volatility and price escalations. A key consideration for diesel engines as a source of power generation, is
the 20-year life cycle, the diesel fuel amounts to about 90% of the life cycle costs.
Transmission / Reliability
It is not enough to generate power efficiently and cost-effectively, it must be connected to the ultimate
destination, its load center, by a reliable and efficient transmission system. Africa has many resources that
can be developed for power generation such as the outstanding hydro renewable energy resources
estimated at over 100,000 megawatts (MW) in potential capacity in just the Democratic Republic of the
Congo, and oil and gas discoveries in Kenya, Ghana, Côte d’Ivoire, Angola, and Equatorial Guinea that
can provide local fuel supplies. The key questions that power generation facilities will face in the coming
decades will be:
1. How does industry and government encourage the responsible and efficient development of these
resources for power generation and export that product reliably to other African nations?
2. How will industry gain the economies of scale from larger megawatt generation facilities to
supply needed power, while producing that power at a competitive and acceptable low price?
3. How can developers use the stranded associated natural gas resources to produce low-priced,
environmentally-friendly power and move it the African market?
The challenge for the African power industry and power developers will be to improve both the intra-
country and inter-country transmission system for the mutual benefit of power suppliers and power off-
takers. For this to occur, the overall African transmission grid will need a huge increase in reliability that

11. will reduce grid outages which adversely affect generation and load centers. Meeting this challenge will
require close cooperation of the public and private sectors, good business acumen to make solid long term
business decisions regarding investment, and methodical execution. The advantages of this
accomplishment are varied as follows:
1. Gain economies of scale in generation to utilize immense resources efficiently
2. Reduce need for high-cost, emergency diesel generators that drive up actual power costs and
congest an already heavily-burdened road system
3. Leverage the entire Africa portfolio of different energy resources
Key ideas for increasing the growth and performance of the transmission system are:
1. Effective, standardized, and transparent power wheeling framework
2. Pricing and risk sharing to facilitate wheeling
3. Certainty in future tariffs
4. Cross-border PPAs
Figure 8 presents the existing Africa power transmission infrastructure, effective in late 2009.
Figure 8 – Africa’s Transmission Infrastructure
Source: African Energy, Atlas 2009

12. Figure 9 presents Africa’s existing and planned power transmission infrastructure.
Figure 9 – Africa’s Existing and Planned Transmission Infrastructure
Source: Global Energy Network Institute
On-grid, additional backup power generation can range from 20% in Ghana to over 50% in Nigeria
Financing / Project Economics
In recent years, the ability of African banks to raise US dollars has been dramatically affected, thus
placing a cap to power generation project sizes. Additionally, a focus has been on lower risk markets, but
reduced bank financing capacity remains the larger issue. Power projects, as any other developmental
project, must have sufficient rates of return to attract investment capital on the world market and a
bankable Power Purchase Agreement (PPA).
A key challenge for a power project is obtaining adequate funding with fair terms and conditions,
reasonable interest rate, and well-conceived processes to deal with unexpected market changes. Legal
structuring of the project entity as either a 1) 100% equity-owned, 2) independent power producer (IPP),

13. or 3) public private partnership (PPP) are key just as are the amount of equity and debt in the capital
structure.
Several funding sources are available:
1. African Development Bank Group
2. World Bank
3. International Monetary Fund
4. Emerging Africa Infrastructure Fund
5. InfraCo Africa
Important considerations for PPA include the following:
1. Balanced liability
2. Protections for risks not within operator’s control
3. A stabilization clause for changes of law
4. Fair termination events for buyer and seller
5. Appropriate termination compensation
Although power projects may typically be built to supply power to a national utility in the public domain,
opportunities to diversify the risk and improve the project’s financial viability include attracting private
sector off-takers as quality creditors for power projects. In many parts of Africa that are rich in mineral
resources, these private off-takers may be integrated mining / power projects, and new mining investment
needs power supply and is key to growing national economies.
In some cases, there may not be enough private sector power demand to solely support a power project
and consequently some government support may be required in the form of a PPP to stand behind the
power buyer over the contract term. This can also provide needed assurance to the private sector
(developers, equity participants, and lenders).
Project Economics
Developing the project cash flow model requires close attention to capital, operating/maintenance, and
fuel costs issues. These estimates are one of the most important challenges as the variability around each
one could provide varying differences in the levelized cost of energy and project rate of return.
Capital costs for generation facilities are very sensitive to host country productivity rates, existing
infrastructure, availability of skilled construction labor, and logistics of equipment to site. Operating costs
may vary with the available expertise and training of in–country technicians and management. Fuel costs
are sensitive to changes in product availability, price, logistics, and alternative sources of fuel both from
different geographic sources and pricing structures.
Additional financial analysis should include: 1) tax and depreciation incentives provided by the host
government to incent new generation of a particular type, 2) carbon tax/disincentives that should be
clearly identified in the feasibility study stage, and 3) import duties and tariffs.

14. Project Financial Risk Mitigation
To enhance the project’s profitability and reduce the risk volatility, the following measures can be
employed:
1. Portfolio of power off-takers, mixture of private and public
2. Portfolio of investors of different countries to balance risk
3. Revolving letter of credit to ensure payment
4. Creditworthiness and long-term viability of energy off-taker
5. Develop “Plan B” for selling power; evaluate risk of one or more off-takers defaulting
6. Penalties for non-payment
Government Support, Environmental & Regulatory Policy
Any power generation project requires close government support and coordination as there are several
key environmental issues in the host country that must be assured are handled in a positive and non-
impactful manner. Another challenge is the political risk of a major investment in the host country by the
developer/IPP/financier, and the government’s stability is a key consideration. The host government’s
policy toward energy generation projects should be gauged, and even challenging concerns can be
handled in a transparent manner and intentional dialogue to engage all key stakeholders. The
environmental policies and regulations differ by each country in Africa.
Energy projects require many permits and studies, including the following:
1. Environment impact statement / assessment
2. Water usage
3. Air emissions
4. Land acquisition
5. Construction permit
6. Import licenses and duties
7. Potential re-location of existing villages
8. Work visas for both construction and ongoing operating staff
Non-transmission Infrastructure
The non-transmission infrastructure in the host country is also an important challenge as it dictates how
costly, delayed, or liability-prone the transportation of fuels and facility equipment will be. Power
generation projects require the following infrastructures:
1. Highway and railway system for transportation of key equipment to generation site
2. Pipelines, compression stations for natural gas delivery
3. Logistics of fuel supply, handling, decanting, storage
4. Fuel and freight import facilities: new terminal, port, jetties
5. Communications systems

15. Labor
Finding sufficient and adequately-trained skilled labor for both the construction of a generation facility
and the operation/maintenance is another key consideration. Although many African nations are adding
technical schools and growing their base of technical knowledge and quantity of qualified candidates,
securing and keeping talented staff is always a concern in rapidly-growing economies in Africa. Some of
the key labor considerations are the following:
1. Generation facility construction trade skills
2. Operation and maintenance of facilities
3. Ex-pat vs. local labor supply
4. In-country productivity
5. Training programs to develop the skill sets required for both infrastructure improvements and
new generation facilities
Opportunities & Summary
Although we have seen that African power project development has many challenges, the opportunity to
responsibly use the abundant natural resources and to raise the overall quality of life and standard of
living is great.
To facilitate this transformation with the aid of increased power supply to spur economic development,
several changes are recommended as follows:
1. Better policy frameworks to attract investment and align economic returns with investor risks
and returns
2. Encourage independent power producers and public private partnerships to facilitate
development deals
3. Seek private sector power off-takers to secure financing
4. Improve transmission grid and its reliability to:
a. Access power generation fuels (wind, natural gas, hydro) and connect to load centers
b. Reduce reliance on high price emergency diesel generators
c. Limit load shedding which inhibits economic growth
d. Decrease highway logistics issues with truck transport of diesel
5. Harvest abundant energy sources with larger scale projects to gain economies of scale
6. Seek to limit importation of liquid petroleum fuels due to the high price for power generation,
high life cycle costs, and future price inflation