Powering Prosperity

Industry News

Developments in the Electric Power Industry

Electricity is a key driver of economic productivity, growth, prosperity, and related improvements in human welfare and changes in lifestyles. According to the International Energy Agency (IEA) global investment in power generation tripled between 2000 and 2012[1]. The electric power industry is changing, driven by ecological and economic imperatives, technological change and global connectivity. While the demand for electric power in the developed (OECD) countries is sluggish, demand in the developing world has continued to grow rapidly, requiring investments in new generating plants utilizing all the available technologies, and for building transmission infrastructure. The OECD countries continue to invest to replace aging capacities and to change the mix of generating technologies to achieve goals in lowering carbon emission standards, thus investments in renewables have become dominant. An important development in the power industry has been the growth in the wholesale trading of electric power, between countries, firms and households, requiring appropriate transmission and distribution infrastructure and effective institutional framework.

The combustion of fossil fuels (coal, oil and natural gas) and hydroelectricity remain the dominant technologies for power generation. Coal, while cheaper than oil and gas for power generation, emits considerably more carbon dioxide into the atmosphere. Investments in coal-fired power plants are out of favor with governments seeking to reduce carbon dioxide emissions.  Oil and gas,  widely used in other activities besides power generation, are also major contributors to carbon dioxide emissions. Besides, concerns about the reliability of supply and the specter of price escalations, given recent experience, constrain investments in oil and gas fired plants. Nuclear power generation has lost steam in recent years due to some high profile accidents that raised fears of safety of people and necessitated the shutting down of the plants for extended periods. Concerns about the threat of climate change from the high levels of carbon emissions have shifted investments from fossil fuel generation to power generation with technologies using non-exhaustible resources (or renewables) – hydro, bioenergy, geothermal, wind and solar,  particularly in the European Union. Investments in the wind and solar photovoltaic (PV) technologies are more expensive per unit of power than for conventional technologies (fossil fuels, hydroelectricity) and the life span of investments are also lower. Governments in Europe and USA provide generous subsidies to promote investments in wind and solar technologies.

Hydropower is enjoying a strong revival. Ecological and human welfare concerns on hydropower include the threats to biodiversity, natural ecosystems and the livelihoods of poor and remote populations. However, appropriately planned actions can mitigate and contain these threats. Power generation from variable renewables (wind and solar PV), so characterized as the output is bound to the variations of wind speed and levels of solar irradiance, needs to be effectively integrated into the existing power infrastructure as needed and essential for reliable and steady power supply. Nevertheless, power generation with these technologies has experienced rapid growth in recent years, albeit from a low base. The International Energy Agency (IEA) estimated that wind power generation grew by 25 percent per annum from 2000 to 2012 while generation using solar photovoltaic (PV) expanded at the rate of 50 percent per annum during the same period[2]. Looking forward, the IEA projects that cumulative investments in renewables including hydropower will be about double that in fossil fired generation over the next twenty years.

Power from variable renewables technologies is in order of tens of kilowatts to megawatts, much smaller than conventional power plants, presenting opportunities for firms, local governments communities and households to generate power with pole-mounted or roof-top PV panels and small on-shore wind farms [1]. Due to their scalable nature, investors can choose the scale of their investment in renewables power generation in accordance with their needs and budgets. Where connections to the national grid exist, self-generation would be complementary to the grid, with the investor selling to or buying power from the grid in the event of surplus or deficit respectively. For households without connections to the grid or with very unreliable grid supplies, solar power can provide a huge improvement in productivity at work and household chores as well as leisure activities. For institutions, it could support critical needs such as refrigeration of vital medications in hospitals and health centers. While the investment costs per unit of output are higher than for conventional plants, operating costs are very low as there are no fuel costs.  Besides, technological innovation has recently driven down the investment costs of solar PV in particular; the cost of solar panels has fallen by 40 percent since 2011[2]. With the ongoing research on solar technologies, this trend in price reduction is likely to continue.

Trading in electric power is booming and substantial experience exists in the process, especially from the established practice in the Scandinavian countries and the USA. Around the world, infrastructure and institutions are being set up or planned to facilitate trading in electric power. In Africa, with the encouragement of the African Union, a number of power trading pools have been established, including power pools for Southern Africa (SAPP), Central Africa (CAPP), Eastern Africa (EAPP) and Western Africa (WAPP). Trading has been hindered by the lack of effective institutional framework, and more importantly, few countries have excess electricity to sell. However, potential exists to generate electricity that can power up the continent.  Ethiopia has substantial hydro potential that can generate electricity well above its needs. It plans to build the capacity for exporting electric power to its neighbors. The huge Renaissance Dam on the Blue Nile under construction will generate 6000MW of electricity. In addition there are two other hydro projects for 2000MW, a completed wind power project, a few solar power installations and a geothermal project at the planning stage. However, the big daddy of power generation potential is the Democratic Republic of Congo, with the Congo River that throws more water into the ocean than any other river in the world except the Amazon. Near the bottom of the Congo River is the huge Inga Falls, reputedly the largest waterfall by volume in the world. There are advanced plans for the Grand Inga Dam project, which would be the largest hydropower project in the world, with the potential to generate up to 40,000MW of electricity when completed. This volume of power will change the electric supply in Africa substantially but it would require functioning transmission infrastructure and trading institutions to provide power to other countries. As with other power projects in Africa, the stumbling blocks to this project are financing and institutional and human technical capacity.

 1       IEA: World Investment Outlook 2014. http://www.worldenergyoutlook.org

2       International Energy Agency (IEA): Renewable Energy Outlook, World Energy Outlook 2013. http://www.worldenergyoutlook.org/publications/weo-2013/

[3]       ibid.

[4]       ibid.