By Fitch Solutions
- Liberalised power generation markets and vast solar power potential will make Egypt and Morocco the renewables generation growth outperformers in Africa over our forecast period to 2030.
- By investing heavily in the expansion and improvement of their transmission and distribution and generation infrastructure, Angola and Zambia will see the most significant improvements in power grid efficiency over the decade, reducing losses from the grid and improving the reliability of their electricity supplies.
- Kenya and Morocco will be the most conducive power markets for sustainable investment in 2021, with the most attractive balance between renewables generation, grid efficiency and share of renewables in overall generation.
We expect Egypt and Morocco to be the renewables generation growth outperformers in Africa over our decade-long forecast period, expanding by a net total of 26.0TWh and 15.5TWh respectively between 2021 and 2030. While challenges in funding, financing and policy formation will slow renewables growth across most markets on the continent, we do not expect these obstacles to feature prominently in Egypt and Morocco. Instead, we forecast expansion in their respective renewables sectors over the coming years, as highlighted in the chart above.
Reforms made under the obligations of an IMF loan signed in 2016 significantly improved Egypt’s power sector investment environment, opening it up to private investment and systematically reducing energy subsidies. Its strong competitive landscape, rapid electricity demand growth, and vast natural solar and wind power potential will make Egypt an attractive destination for power sector investment. That being said, the rapid growth in electricity capacity over recent years has increased Egypt’s oversupply of electricity, highlighting a risk to the revenue generation of new plants constructed over the short-to-medium term. In an effort to mitigate this risk, the Egyptian Electricity Transmission Company is currently pursuing plans to construct new high-voltage power transmission interconnection lines with the Middle East, East Africa and Europe. However, this oversupply of electricity – and renewables in particular – will make Egypt an attractive market for tech-investors and those in electricity-intensive sectors such as green hydrogen production.
Morocco already ranks among the most renewables-dependent markets in Africa in terms of renewables’ share of total electricity generation, coming in at an estimated 18.7% in 2020. In 2009, the country passed Law 13-09, which opened up its renewables sector to private investment in an effort to diversify its supply, improve access to electricity and promote competitiveness in order to achieve more cost-reflective tariffs in the market. In addition to this, the country aims to improve cooperation with other Mediterranean markets – Spain in particular – and is currently planning to develop new cross-border interconnections. In the long term, Morocco plans to construct significant transmission interconnection capacity with Europe through Spain, giving it access to the region’s vast demand for renewable electricity. With one of the world’s highest average solar irradiation rates per square kilometre, Morocco stands to benefit greatly from ongoing reforms in Europe to promote the use of renewable electricity. However, robust investment into its solar and wind power capacity will also place Morocco in an advantageous position to accommodate investors specifically seeking ‘sustainable’ electricity. Added to that, its close proximity to Europe would further lend itself to logistics-heavy industries, especially those reliant on sea and air transport.
In addition to overall renewable electricity supply, another key aspect in improving sustainable development in Africa will be the improvement of the continent’s power transmission and distribution (T&D) infrastructure in order to raise power grid efficiency. As the chart above shows, we expect Angola and Zambia to see the most significant improvements in power grid efficiency between 2021 and 2030, while South Africa maintains the continent’s most efficient power grid.
We expect investments into Angola’s electricity T&D sector will be key in improving the quality of electricity supply while also opening up avenues for electricity exports to countries in the Southern African region through the Southern African Power Pool (SAPP). We forecast that T&D losses will decline from an estimated 14.5% of total output in 2020 to 9.0% by 2030. In 2021 alone, the Angolan government has announced two sizeable loans intended to support power grid improvements: a USD250mn loan from the World Bank and a USD530mn from the African Development Bank (AfDB). The AfDB-financed project will form part of the first phase of the Energy Sector Efficiency and Expansion Programme, which will link the northern and southern grids of Angola, connect 400,000 homes to the country’s network and ultimately connect Angola to the SAPP through Namibia. With these ambitious plans in mind, we expect Angola will significantly improve its position as a possible African destination for sustainable development in the years following the Covid-19 pandemic.
Zambia will rank as the second most improved market for overall T&D losses relative to total domestic generation in Africa, falling from an estimated 15.2% in 2020 to 11.1% by 2030. The main factor informing our bullish forecasts in this regard is our projection for the country to become a net-exporter of electricity from 2021 as hydropower output rises with higher water levels in Lake Kariba and the completion of the first two units of the Kafue Gorge Lower Power Plant. With ongoing investment into its power grid infrastructure and the change from a net-importer to a net-exporter of electricity, we note that the country will be able to offer investors improved reliability of electricity supply. Added to that, the country’s rising reliance on both hydroelectric and non-hydro renewables generation will improve its attractiveness to investors seeking sustainable electricity supply.
In order to more accurately calculate the performance of markets in the region, the graph above ranks markets in Africa based on scores derived from power market characteristics such as renewable electricity dependence, overall non-hydropower renewables growth and net electricity exports. As can be seen from the chart above, Kenya And Morocco will be the most conducive power markets for sustainable investment in 2021, with the most attractive balance between renewables generation, grid efficiency and share of renewables in overall generation. We foresee Egypt overtaking South Africa to take third position in our scores by 2030.
With Kenya remaining a net exporter of electricity throughout our 10-year forecast period, investors in the country will enjoy significantly greater power security than those in many other markets on the continent. With ongoing growth in its renewables capacity over our forecast period, Kenya also ranks among the most renewables-reliant markets in our index. The composition of its renewable electricity supply, with a strong geothermal component, makes it one of the few markets globally to generate baseload renewable electricity on a large scale, making it attractive to sustainable investors dependent on reliable power supply.
As highlighted in the first paragraph, Morocco will be one of the most rapidly growing markets for overall renewables generation. However, the market becoming a net exporter of electricity and having a strong renewables component in its electricity mix will make the country a bright spot for investors seeking reliable renewable electricity supply. This will become stronger over our forecast period, as the country’s renewables generation will grow by 14.5TWh and its reliance on renewable electricity will increase from 21.9% to 38.3%. Morocco’s overall electricity exports will also rise to a peak of 2.6TWh in the medium term. While South Africa ranks among the top three markets on our rankings in 2021, its declining electricity exports and relatively more subdued renewables generation growth will see Egypt overtake it to rank third by the end of our forecast period by 2030.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.
The article has been sourced from Fitch Solutions and can be accessed by clicking here