coalbed methane needs in africa

Africa: Emerging Markets

Business Day (Johannesburg)

Business Day (Johannesburg)

COLUMN
4 September 2007
Posted to the web 4 September 2007

Simon Freemantle
Johannesburg

"WELCOME to Ghana," I was told, with just a hint of sarcasm, as the lights tripped during my meeting at a government office in Accra a few months ago. Naïvely, I asked whether the lights would come on again so that we could resume our meeting, but was told this was unlikely for another eight hours due to the country's crippling energy crisis and the need for "load shedding" every second day.

It was 11am, which essentially meant that all industry not able to afford expensive generators would have to shut down for the day, losing significant potential revenue and stifling the development of one of Africa's most promising economies.

Ghana's problems are by no means mysterious as the country continues to depend heavily on hydropower from the Volta River, a project that was initiated in 1966 by Kwame Nkrumah and has yet to be significantly upgraded to incorporate the increase in demand flowing from the country's industrial growth. Exacerbating this has been the recent drought, which has lowered the output from the Volta River, crippled gold and aluminium production and set off blackouts in Togo and Benin, which buy power from Ghana.

Ghana is most certainly not alone in its energy woes. Its West African neighbour, Nigeria, has a similar problem, albeit on a much larger scale. Nigeria is estimated to produce only 2500 megawatts of electricity a year, compared to the 20000 megawatts experts say is needed for the country to enjoy stable power supply.

Nigeria's newly inaugurated president, Umar Yar'Adua, recently admitted that only 19 of the country's 79 power plants work, with blackouts costing the economy about $1bn a year.

Zimbabwe has a power deficit of more than 700 megawatts and is therefore forced to import up to 35% of its power from its neighbours. Blackouts are also common in Uganda as the country desperately attempts to keep up with increased energy demands by leasing generators. The same is true in Zambia, which is battling to keep up with the strain exerted on its electricity grid by increased mining activity in the copper belt, spurred on by the global commodities boom.

Even SA, for years an exporter of electricity to its needy neighbours, reached capacity last year, a situation Eskom has admitted it will not be able to fully address for the next seven years, a period that includes the 2010 world cup.

To sum up the crisis: 25 of sub-Saharan Africa's 44 countries face severe power shortages, with the region, excluding SA, producing the same amount of electricity as Poland, a country of 38-million. At present, energy concerns are driving up the cost of living and drastically lowering Africa's manufacturing competitiveness on a global scale, especially when one considers the strength of the competition emerging out of China and India.

That looming problem is avoidable if governments and international funding agencies begin to see the fundamental importance of boosting energy capacities in order to stimulate further growth in Africa's economy. There has been minimal capital injection into the power sector in Africa over the past decade of economic development, despite the obvious correlation between energy and growth.

However, capital injections alone will not solve the problem as the World Bank has estimated that to ensure 100% access to electricity in Africa, an annual investment of

$8,27bn is required. And this, as we well know, will not happen. The key therefore is to strategically place funds in operations aimed at unlocking the obvious potential that exists in Africa for harnessing alternative energy sources, a particularly important pursuit given the global challenge of climate change, while simultaneously improving national electricity grids and ensuring that the continent's vast oil and gas reserves are used efficiently.
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On the alternative energy side, the scope is endless. The Congo River, for example, flows with such power that with sophisticated hydroelectric machinery in place it could power up the entire continent. There are also massive known reserves of coalbed methane in Zimbabwe, which, if realised, could provide the answer to much of sub-Saharan Africa's energy concerns. Little is known about coalbed methane, but it is a resource that is valued in the US at over $5-trillion and provides the US and Canada with a vital source of energy. With such a large and often arid land mass and thousands of kilometres of untapped coastline, Africa also has vast potential for solar and wind power generation.

Many of Africa's largest states have reached capacity regarding their power generation capabilities and therefore cannot continue to grow without innovative, proactive solutions and significant funding. Energy stability lies at the core of global production and Africa, which is enjoying a period of unprecedented peace and prosperity, can only maintain its impressive momentum by taking steps to ensure that it is not left out in the dark.

Simon Freemantle is a senior business analyst at Emerging Market Focus.