Alternative forms of energy, including solar, wind, geothermal, and hydroelectric power, are used frequently throughout East Africa. In Kenya, for example, an estimated 60% of generated electricity comes from hydroelectric power stations and dams.⁽²⁾ Over the past five years, however, significant oil discoveries have been announced throughout the Great Lakes and Rift Valley regions of East Africa. In 2009, the publically owned and London based Tullow Oil Group announced that 700 million barrels of oil had been found in Uganda and that there may be more under Lake Albert.⁽³⁾ The findings could result in East Africa relying more on oil to meet growing energy demands while shifting away from alternative energy, particularly hydroelectric power.

This CAI discussion paper briefly examines the industries, businesses, and economics behind alternative and traditional energy production. It begins by examining the current energy regimes in place throughout East Africa. It then looks at what resources have been required to establish the current systems throughout the region. Finally, it seeks to analyse the long term benefits and risks that traditional and alternative energy projects offer, and the possibility of a leading oil-based energy exporter emerging in East Africa.
Alternative energy in East Africa

Throughout East Africa, there are three primary forms of alternative energy currently in use or available for potential development. These include hydroelectric, wind, and geothermal power. Kenya provides a prime example of an East African nation that is almost entirely dependent on non-traditional energy sources. Kenya produces more electricity than it consumes, and despite producing 0 barrels of oil, still exports over 35 million kilowatt hour (kWh) of electricity per year.⁽⁴⁾

The majority of Kenya’s generated electricity comes from five large hydroelectric power stations. All located along the River Tana, they have an installed capacity of more than 400 megawatts (MW) of power.⁽⁵⁾ In addition to hydro electric power, Kenya also generates electricity by tapping into geothermal energy at different sites along the Great Rift Valley. Two geothermal power plants, the Olkaria I and Olkaria II, provide over 100 MW of electricity.⁽⁶⁾ Kenya is also poised to become the first regional producer of wind-generated power through the Lake Turkana Wind Power project. Scheduled to be completed in July 2012, the project involves constructing over 350 wind turbines that are scheduled to provide 300 MW of electricity at full production.⁽⁷⁾

Alternative energy is also used in East Africa outside of Kenya, and shows potential for further development. According to some estimates, the Great Rift Valley could provide up to 15,000 MW of electricity through large-scale geothermal projects.⁽⁸⁾ The Rwandan Government is currently digging three geothermal wells designed to add 300 MW of electricity.⁽⁹⁾ In Ethiopia, it is estimated that hydroelectric power stations on the Nile and Omo rivers could provide at least 15,000 MW of electricity and turn Addis Ababa into a regional electricity exporter.⁽¹⁰⁾

Not all countries in East Africa have maintainable alternative energy sources. Uganda, like Kenya derives a majority of its electricity from two hydroelectric power stations. These two stations, Nalubaale and Kiyira, are fed on water diverted from Lake Victoria.⁽¹¹⁾ A recent drop in the lake’s water levels has reduced the stations’ electricity output. The two stations provided 300 MW of Uganda’s estimated national demand of 380 MW. However, those totals have fallen to 135 MW since the lake levels dropped.⁽¹²⁾

Alternative energy obstacles

While Uganda’s situation highlights some of the environmental challenges to developing an alternative energy regime, there are significant financial and economic costs that must also be considered.

Kenya has been one of the few countries to successfully develop a geothermal electrical capacity. Geothermal Development Company (GDC) is a Government-owned developer. GDC has been hampered in efforts to develop geothermal projects, largely as a result of a lack of skilled domestic workers and the high prices for drilling rigs. GDC has had to contract work to individuals from China for month long shifts. Flying, feeding, and housing these foreign workers has caused many planned projects to exceed initial project budgets.⁽¹³⁾

Aside from a lack of engineers, geothermal projects require drilling rigs similar to those used in oil and natural gas extraction projects. Increasing global use and competition for these rigs are driving up the prices. The Kenyan Government recently borrowed US$ 160 million towards purchasing five drilling rigs needed for construction on geothermal power projects.⁽¹⁴⁾

Kenya’s Lake Turkana Wind Project highlights some of the additional obstacles in developing an alternative energy program. Apart from constructing the actual facility, the Lake Turkana Wind Project involved partner corporations, consulting work, and significant improvements to surrounding infrastructure. As a result of its remote location, over 200 kilometers of road and bridge had to be upgraded and 400 km of transmission lines were needed to connect to the national electrical grid.⁽¹⁵⁾ Factoring in required upgrades, environmental impact analyses, consulting fees, construction costs, and purchasing the parts for the actual wind turbines adds up to over Sh 46 billion (US$ 549 million).⁽¹⁶⁾

Coming up with the capital for large-scale alternative energy projects can be very difficult. Ethiopia recently announced plans to develop a hydroelectric power project on the River Nile at an estimated cost of US$ 4.7 billion. The Government in Ethiopia has stated its intent to finance the project by itself as a result of Egypt campaigning to prevent international loans from funding the dam.⁽¹⁷⁾ In other situations, financing for alternative energy projects may come from foreign governments or international financial institutions.

Oil extraction projects, unlike projects in alternative energy, have often been funded by major international oil corporations or other global companies. Recently, however, large firms have started to take a closer look at investing in alternative energy projects. Russian power and construction company Zarubezhstroy Corporation has recently announced plans for a US$ 700 million investment in a Tanzanian hydroelectric power plant.⁽¹⁸⁾

Oil as an option?

Money plays an important role when considering energy policy options. While alternative energy projects like hydroelectric or geothermal power stations require significant financing by the national government, oil extraction often serves as a profit maker for politicians. In Uganda, for example, a consortium of companies including Tullow Oil, the French multinational Total, and China National Offshore Oil Corporation (CNOOC) paid the Government of Uganda nearly US$ 3 billion to purchase Heritage Oil’s extraction rights.⁽¹⁹⁾

The length of time required to bring oil projects online in East Africa is relatively unknown. Aside from constructing oil wells, the necessary refineries and pipelines must also be built in order to profit from oil. This process is proceeding slowly in Uganda, with storage facilities being constructed in the western city of Hoima, and a pipeline being developed to an export terminal on the Indian Ocean.⁽²⁰⁾

If Uganda were to provide oil to the rest of East Africa, neighbouring countries would need to increase their oil refinement capacity and thermal power capacity. At current levels, Kenya provides about 30% of its electricity through thermal power stations, Ethiopia receives approximately 13% of its electricity through diesel power, and Tanzania derives less than 10% of its energy through thermal power.⁽²¹⁾
Energy intangibles

Aside from the purely financial considerations involved in energy development projects, Governments throughout East Africa must also consider the secondary and tertiary benefits and risks associated with their decisions.

While East Africa is home to many large cities and urban centres, including Nairobi and Dar es Salaam, many citizens live in rural or remote areas far away from national electric grids. Alternative energy projects, especially small-scale hydro and solar electric power stations offer an opportunity to provide more citizens with electricity.⁽²²⁾ Thermal power, by comparison, is typically provided in major cities or port cities where oil terminals and refineries are located.
Human capital and Uganda

An additional factor to consider is the human capital required for various oil projects. Both traditional and alternative energy projects require considerable education and engineering backgrounds to be effectively constructed and operated. East Africa and the international community will need to work on improving access to education and training to enable more local citizens to participate and gain employment through energy projects. In Uganda, a partnership has been formed with Tullow Oil to provide scholarships for Ugandans to study petroleum sciences abroad, and the Government in Kampala has formed the Petroskills Training Consulting Limited (PETRAC) School to train residents for careers in oil and gas.⁽²³⁾ Similarly, the United Nations University Geothermal Training Program has provided six-month training courses to many students from Africa, but the number of graduates has not been enough to meet growing industry demand within East Africa.⁽²⁴⁾

Risk of rising prices in Kampala

Another risk with oil extraction is the higher prices that production tends to bring about. In Luanda, Angola and Juba, South Sudan, inflation has become a major problem associated with oil production and oil-industry employees. Specialized markets tend to emerge around the oil executives who travel to the capitals of oil producing nations. Luanda was recently named the world’s most expensive city.⁽²⁵⁾ A similar process could play out in Kampala if oil executives and workers come to the capital to work and negotiate with the Government.
Concluding remarks

Ultimately, the future of energy regimes throughout East Africa will depend on money and reliability.

As Uganda stands to profit from their newfound oil reserves, it seems likely that they will be willing to spend the money needed to adapt their energy infrastructure, moving towards thermal energy and away from the alternative sources. For Uganda’s neighbours throughout East Africa, however, it seems unlikely that Governments would be willing to spend money to rework their energy regime in order to spend additional money in the future on oil imports.

However, Governments might be interested in reducing dependence on hydroelectricity, especially considering regional droughts that have reduced the total output from hydroelectric dams. Droughts and unpredictable rainfall patterns reduce total output as measured in megawatts, damage the structure of the hydroelectric power stations, and ultimately force the Governments to charge higher prices for energy consumption. If Uganda becomes an oil exporter, as is expected, it will also deal with unreliability, albeit from global oil prices rather than climate change and water levels.

Looking ahead, Kenya appears to be in the best position from an energy perspective. The Government has invested in diversifying the types of energy that the nation draws from, and has also worked to expand the handling capacities for both traditional and alternative energy sources.

Due to the unpredictability associated with hydroelectricity, the price volatility with oil, and the mismatched thermal energy capacity with Uganda’s newfound hydrocarbon capabilities, it does not appear likely that any country in East Africa will be poised to be a regional energy exporter.

NOTES:

(1) Contact David Rosenblum through Consultancy Africa Intelligence’s Africa Industry and Business Unit ( industry.business@consultancyafrica.com This e-mail address is being protected from spambots. You need JavaScript enabled to view it ).
(2) MBendi Information Services, Electrical Power in Kenya, http://www.mbendi.com.
(3) Checkley, A., ‘Oil find enough for Uganda’, The Guardian, 27 July 2009, http://www.guardian.co.uk.
(4) Central Intelligence Agency, World Factbook, Kenya, https://www.cia.gov.
(5) MBendi Information Services, Electrical Power in Kenya, http://www.mbendi.com.
(6) Ibid.
(7) Lake Turkana Wind Power, 2011, http://laketurkanawindpower.com.
(8) Lacey, S., ‘East Africa sees a flurry of geothermal activity’, Renewable Energy World, 1 February 2011, http://www.renewableenergyworld.com.
(9) Ibid.
(10) Hailu, S., ‘Hydropower of Ethiopia: Status, potential, and prospects’, EA CE Bulletin Vol. 1, No 1, 1998, http://www.ethiopians.com.
(11) Saundry, P., Encyclopedia of Earth, ‘Energy profile of Uganda’, 15 July 2009, http://www.eoearth.org.
(12) Ibid.
(13) Lacey, S., ‘East Africa sees a flurry of geothermal activity’, Renewable Energy World, 1 February 2011, http://www.renewableenergyworld.com.
(14) Ibid.
(15) Lake Turkana Wind Power, 2011, http://laketurkanawindpower.com.
(16) Kisero, J., Lake Turkana Wind Power, ‘Spain gives giant Turkana Wind Power Project $150m funding’, 3 January 2010, http://laketurkanawindpower.com.
(17) NewsDire, ‘Ethiopia launces US$ 4 billion hydro-power project on River Nile’, 30 March 2011, http://www.newsdire.com.
(18) Mwangi, G., ‘Russian firm to invest US$ 700 million in Tanzania hydropower project’, Dow Jones, 2011, http://www.nasdaq.com.
(19) Tullow Oil plc, 30 March 2011, http://www.tullowoil.com.
(20) Commodity Online, ‘Museveni tightens grip on Uganda oil, 9 April 2011, http://www.commodityonline.com.
(21) Afrepen.org, ‘Country energy profiles’, http://www.afrepren.org.
(22) Hailu, S., ‘Hydropower of Ethiopia: Status, potential, and prospects’, EA CE Bulletin Vol. 1, No 1, 1998, http://www.ethiopians.com.
(23) The Razor Newspaper, ‘New school to train oil experts’, 4 April 2011, http://www.razor.ug.
(24) Lacey, S., ‘East Africa sees a flurry of geothermal activity’, Renewable Energy World, 1 February 2011, http://www.renewableenergyworld.com.
(25) The Financial, ‘Luanda is the world’s most expensive city’, 29 June 2010, http://www.finchannel.com.

Written by David Rosenblum ⁽¹⁾