1 April 2019
Chinese companies have significantly enhanced their engagement in Africa over the last 20 years, covering a wide range of sectors, including power generation, transmission and distribution. These are important investments as despite growing economies, around half of the rapidly growing African population does not have access to electricity. Achieving universal energy access will require significantly increased investment on the continent, in both off-grid and large-scale on-grid electricity generation capacity and networks – this is where Chinese companies are playing a significant role.
When we first looked at China’s involvement in the sub-Saharan Africa power sector in 2016, we found that Chinese companies operating as the main contractor were responsible for almost 30% of capacity additions in the region. Renewable sources accounted for 56% of total capacity added by Chinese projects, including 49% from hydropower. Taking another look this year, we find that capacity additions by Chinese companies have fallen somewhat, but low-carbon projects represent a larger share.
A slightly declining contribution
In our 2016 report, we showed that Chinese companies were responsible for 12 GW of projects (completed or under construction, 2010 to 2020), including some very large projects such as the 1 250 MW Merowe dam in Sudan.
Updated data for 2019 shows that over an equivalent ten-year timeframe (2014 to 2024), Chinese-added capacities will total 9 GW. This does not include two large dams currently under construction (the 2 160 MW Cacula dam in Angola and the 3 048 MW Mambila dam in Nigeria), which might not be completed before 2024. Without these two megaprojects, the 19 projects currently under construction total 4.5 GW, compared to the 24 projects totalling 5 GW that we found in 2016.
At least 24 countries have contracted new power plants to Chinese construction services companies over 2014-2024. Zambia is the largest investor in Chinese-added capacity, followed by Nigeria, Angola, Uganda and Côte d’Ivoire. These five countries make up around half of the capacity added or being added by Chinese contractors, mostly due to large hydro projects. Compared to the almost 30% that we found in 2016, the role of Chinese companies in total Sub-Saharan Africa capacity additions has declined to 20%.
A greener mix
The share of hydro projects in Chinese-added capacity has increased to 63% compared to 49% in our 2016 findings. The 750 MW Kafue Gorge Lower hydropower station, which will be completed in 2020, is expected to meet Zambia’s electricity demand for the next five to ten years.
The share of capacity added from other renewables sources appears to be higher, totalling just 7% in our 2016 findings compared to 13% this year. Almost half of these non-hydro renewable projects are using biomass, concentrated in Angola, Nigeria, and Côte d’Ivoire. This means that despite adding more than 1 GW of capacity, there is potential for significantly more projects from other non-hydro renewable sources like wind and solar.
Gas accounts for 11% of the projects, coal for 9%, and oil represents 4%. In the last five years, Chinese contractors completed five coal-fired plants in Nigeria, Rwanda (peat), Zambia, and Botswana for a total of 811 MW. Some planned projects have been delayed and no others are currently under construction.
Focus on turnkey projects
Most Chinese energy companies continue to be state-owned enterprises, while the share of private companies working in overseas markets are still very small – especially in Africa. Those companies that are operating in the region are able to provide solutions in all stages – a turnkey project – including the supply of equipment manufactured to Chinese standards, plant design and construction, and project financing or the facilitation of financing.
Of all the newly Chinese-built power plants in the region, 52% are fully integrated with a Chinese contractor and a Chinese turbine manufacturer (a share higher than for projects undertaken in emerging Asian countries). Chinese manufacturers are also supplying the primary equipment for 9% of all projects contracted to non-Chinese companies in the region between 2014 and 2024, including one‑quarter of hydropower turbines and 38% of solar PV projects. In total, Chinese equipment manufacturers are supplying more than 9 GW of power generation equipment: approximately 7 GW in hydro, 1 GW in wind and solar PV, and 1 GW in coal and oil.
Chinese energy infrastructure companies also source equipment for overseas projects from suppliers in OECD countries totaling 1.5 GW. This is mostly made up of gas turbines, a piece of equipment for which Chinese contractors working on overseas projects currently rely entirely on foreign manufacturers.
Projects modes and financing
Chinese energy companies in Africa focus mainly on supplying construction services and equipment with engineering, procurement and construction (EPC) being the most common type of project contracting arrangement for construction services. Host country governments issue bids and award projects, and Chinese energy infrastructure companies deliver construction services without having any stake in the project.
Additional electricity capacities fall under public sector spending from a country’s national budget. This means that project financing remains challenging and tends to shift progressively away from public lending towards more equity financing. However, this remains challenging in the absence of reliable power purchase agreements and adequate, stable local regulation. Ultimately, the success of a power project depends on the ability of African governments to negotiate, implement and maintain the project.
Eradicating energy poverty is a priority for the IEA. In 2018, the IEA and the African Union agreed to a strategic partnership towards a more secure, sustainable and clean energy future for countries across the African continent. Under its “open doors” policy, the Agency will continue to support expanded energy access and clean energy technology development in Africa.