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Energy
INCREASING GENERATION & IMPROVING TRANSMISSION & DISTRIBUTION
SECTOR IN PERSPECTIVE
The country’s energy needs are under-served and the lack of a reliable energy supply is the principal impediment to Sierra Leone’s economic and social development. The country has one of the lowest installed power capacity per capita in the world with only 99.6 MW available for a population of 6.4 million. With no access to electricity in the rural areas, fewer than 10 per cent of people have access to some form of power, which is well below the average for Sub-Saharan Africa.
There are also significant transmission and distribution network problems, resulting in losses of over 38 per cent. of generated electricity. The national transmission system consists of only one radial 161 kilovolts (kV) transmission line extending for 205 kilometres from Bumbuna to the Freetown substation.
The mining sector, which until 2014 generated Sierra Leone’s biggest export in the form of iron ore, relies primarily on in-house captive generation to meet its large power demand and those not in the industry often use private generators. Recent estimates suggest that around 35,000 diesel generators are in use in Sierra Leone, providing a capacity of approximately 180 MW. Off-grid power generation in 2012 totalled approximately 260 MW.
Increasing generation and improving transmission and distribution of electricity continues to be a priority for the GoSL. To address the issues relating to power demand, additional generation, network rehabilitation and expansion, and access options, the Sierra Leone Ministry of Energy and Power prepared an Energy Sector Strategy and Action Plan (2014-2017). This policy aims to expand the installed power capacity in Sierra Leone from around 75MW in 2013 to 1000MW by 2018.
A holistic reform package is well underway to address structural, managerial, financial and network bottlenecks, paving the way for future investment. The GoSL allocated US$43 million from the domestic 2016 budget to fund projects in the energy sector. In support of this initiative, donors such as the EU, African Development Bank, Islamic Development Bank and the World Bank will provide US$28 million towards various projects in the energy sector. In addition, the Abu Dhabi Fund for Development is expected to supply US$5 million for the Solar Park Freetown Project and the US Millennium Challenge Cooperation pledged to contribute US$3.8 million.
Positive steps have been taken in the development of projects to increase generation capacity and the construction of new transmission and distribution lines to improve access to more reliable power in Sierra Leone. With assistance from DFID, the GoSL recently launched a bold initiative to bring solar power to all 149 chiefdoms by November 2017. The so-called Energy Revolution aims to deliver power to all citizens by 2025. By signing this historic compact agreement with the UK, Sierra Leone became one of the first African nations to participate in the Energy Africa campaign to expedite universal energy access to lift millions out of poverty and end dependency on aid.
LEGAL AND REGULATORY LANDSCAPE
The National Development Agenda recognises the various supply-side constraints in the country and the negative impact these can have on economic growth derived from other sectors such as mining and agriculture. In line with the objectives set out in the National Development Agenda, the GoSL’s Energy Sector Strategy aims to dramatically increase the availability of predictable and sustainable power in Sierra Leone and to diversify its power generation in order to develop an energy mix that will result in a tariff consumers can afford.
The regulatory framework is conducive to investment in the energy sector. A company may be wholly foreign-owned and specific incentives exist for investments in what GoSL considers to be “pioneer industries”, such as solar energy.
The Ministry of Energy has implemented various reforms focused on improving governance and regulation and to encourage private sector participation and investment in line with the A4P. These are legislated for in the National Electricity Act and the Electricity and Water Regulatory Commission Act, both of which were introduced in 2011.
Reforms include the recent winding-up of the National Power Authority, which was replaced on 1 January 2015 by two separate state-owned utility companies – the EGTC and the EDSA. A Management Contractor funded by the World Bank will assist EDSA in its formative years. This unbundling is further supported by a newly established independent regulator, the EWRC.
The sector continues to operate under a “single-buyer” model, which requires power produced by private parties to be sold to the national electricity company or GoSL The power is then sold on to end consumers. The National Electricity Act enables the participation of IPPs in power generation and distribution, and establishes a basis for power purchase agreements between relevant parties. The electricity tariff regime in Sierra Leone is heavily subsidised by the GoSL and remains among the highest in Africa at US$0.28 cents/kWh. It is currently under review by both new utility companies and the independent regulator to improve cost recovery for private investors.
In February 2016, the Ministry of Energy also published guidelines on pre-qualification of energy project proposals. The criteria includes submission of a company profile outlining corporate structure, past performance and experience (including lists of similar projects completed in the past), evidence of financial capability and audited accounts, willingness to post bonds, compliance with Sierra Leone’s Local Content Act and details of a comprehensive work plan.
The GoSL established the Public Private Partnership Unit in the Office of the President in 2010. The PPP Unit is mandated to provide coordination and transactional support to the GoSL MDAs, including the Ministry of Energy, across a range of potential PPPs. The PPP Unit is developing a standardised power purchase agreement to simplify and expedite negotiations with investors in the energy sector.
Although Sierra Leone does not currently have a unified national strategy for supporting the deployment of renewable energy technologies or specific climate change targets, the motivation and the intent within the relevant government authorities to encourage private investment into such projects is apparent. For example, in November 2011 the GoSL passed a law waiving import duty on photovoltaic system equipment and low energy or energy efficient appliances for resale or use by third parties, for a period of three years. The GoSL also plans to eliminate import duties and goods and services taxes on internationally certified renewable energy products by end of this year.
Other ongoing renewable energy initiatives in Sierra Leone include the Renewable Energy Empowerment project, which is aimed at developing a knowledge base of existing renewable energy policies, including the availability, demand and feasibility of different technologies and financing options. In 2015, the GoSL prepared a draft new Renewable Energy Policy. Although not officially released, it is expected to contain clear targets for the development of the renewables sub-sector.
INVESTOR HIGHLIGHTS
Combined urban, industrial and regional demand in 2015 was estimated at around 315 MW, with 187 MW of that demand coming from the mining sector. Demand is projected to grow significantly in the near future.
To meet this demand, the GoSL aims to increase generation from 99.6 MW to 1,000 MW by 2018 through a range of new thermal, hydro, and bio-mass projects, and to improve the country’s over-bloated transmission and distribution networks.
In December 2015, the Board of Directors of the African Development Bank approved a senior loan of up to US$20 million to fund the construction and operation of a 50 MW HFO, interconnection facilities and fuel pipeline in Kissy, four kilometres east of Freetown. This marks the first phase of a planned 128 MW power plant, details of which are discussed in the investor study in this section. The project will be implemented by a consortium of two firms, each with a 50% shareholding: CEC Africa Investments Limited (a subsidiary of Copperbelt Energy Corporation plc (CEC)) and TCQ Power Limited (TCQ). The consortium formed the CEC Africa (Sierra Leone) Limited (CECASL) joint venture to develop the project. The power purchase agreement and associated project documentation were signed by the parties on 23 January 2017. The project remains conditional on financial close being achieved.
This new power plant will be the largest base load plant in Sierra Leone, adding 60 per cent of generation capacity to the grid and is expected to create further opportunities for private sector investment, which is essential to support Sierra Leone’s economic recovery post Ebola.
The renewables side of the sector remains a promising growth area for the country. Sierra Leone has significant hydropower potential. In addition to the expansion of the Bumbuna hydro-electric plant, which through a US$800m PPP investment is aimed at increasing the current 50MW capacity (at its peak operation) to 110 MW, the GoSL has identified up to 27 hydro power sites suitable for development, with a total anticipated generation capacity of 1,513 MW.
These include a large-scale project at Bikongor with generation potential of up to 200 MW and mini-hydro plants with a capacity of less than 1 MW, both of which are expected to become a major area for PPP and a means of widening access to power in Sierra Leone. In fact, the GoSL has estimated that hydroelectric potential in the country could be as high as 5,000 MW.
Solar power options also present attractive investment opportunities. Plans are in place to capitalise on the estimated 2,180 hours of sunshine Sierra Leone receives a year. These include utility scale solar power generation projects in Bo, Fourah Bay and at Njala University as well as smaller-scale developments such as solar-powered street lights in rural communities.
The evaluation process for Phase II of the street light project, which involves the development of 50,000 solar-powered street lights across all 149 chiefdoms, has now been completed. In March 2016, the former Minister of Energy, Henry Macaulay officially launched a 6 MW Solar Park Project in Freetown, which will be carried out by a consortium of ASIC and Mulk-OGI with financial backing from the International Renewable Energy Agency and Abu Dhabi Fund for Development.
The country’s burgeoning bio-fuels sector has received increasing levels of FDI in recent years. The GoSL is exploring opportunities for developing small-scale biomass for rural electrification and the potential use of biodiesel from palm oil or ethanol for domestic consumption.
A variety of other supply-side opportunities including fossil-fuelled plants are also being considered. In particular, the GoSL will be installing an additional 600 MW of thermal baseload capacity to expand access to electricity in provincial and district headquarters towns.
The establishment of a deep-water port (see the INFRASTRUCTURE section) should increase the viability of these new generation projects through the availability of better fuel import facilities.
A comprehensive transmission and distribution network rehabilitation plan was launched in 2010 as part of a medium-term investment programme. This programme is part of a longer-term goal to overhaul and expand the country’s aged domestic transmission and distribution network, and transform it into a national network. As part of this initiative, the GoSL is implementing the Energy Access Project which will reduce losses in electricity supply in Freetown Capital Western Area and improve the commercial performance of EDSA. The project is due to be completed in May 2017. Further, in October 2016 the GoSL agreed financing arrangements for a transmission line from Bumbuna to Waterloo and the AfDB agreed to finance the distribution network rehabilitation in Bo Kenema on 16 December 2016. These items are critical for the transformation of the national network.
Priorities for the expansion of transmission network have also been identified in a draft plan prepared for the development of Sierra Leone’s portion of the WAPP,1 which will offer significant opportunities for trading energy with the neighbouring countries (a 525km energy network connecting Côte d’Ivoire, Liberia, Guinea and Sierra Leone and providing energy access to 115 communities within 5km of the line. Interconnection with these countries is due to be completed between 2019 and 2021. Connection to Burkina Faso, Ghana, Gambia, Guinea Bissau, Mali, Niger, Nigeria, Senegal and Togo will follow). The GoSL is also planning the establishment of feed-in tariffs to harmonise the sale of power from various IPPs into the WAPP and the national grid.
KEY CHALLENGES
The GoSL has taken steps to improve the regulation of the power sector, but the new regulatory environment is still in its formative stages. The transition to cost reflective tariffs is important to support GoSL’s ambitious plans for the sector and to continue to build the EWRC’s standing.
In addition, the current lack of data and information (most of which was destroyed during the civil war) makes it difficult to fully assess the risks and rewards for investors in certain projects. The GoSL has acknowledged the need to improve data collection and recording and has begun a pilot programme at Bumbuna to monitor rainfall and river levels. The US Government is providing technical assistance to Sierra Leone in the areas of data management.
