The benefits of public-private partnerships (PPPs) for renewable energy in Africa

By: HUGO MURPHY


posted on: May 22nd, 2018

These are exciting times for the renewable energy sector in sub-Saharan Africa. Governments are showing a willingness to find sustainable solutions to their energy problems. The technology that lies behind solar, wind, and hydropower is improving very fast. The possibility for growth in the sector is enormous. Hopefully, a large part of the electricity shortage problem will be solved in cheap, clean, and renewable ways. However, for this to happen as quickly as possible, ‘public-private partnerships’ will be crucial.

WHAT IS A PUBLIC-PRIVATE PARTNERSHIP?

A public-private partnership (PPP) is usually an agreement between a government (which is ‘public’) and a company (which is ‘private’). The public and private groups work together to complete a project or deliver a service. PPPs are important ways of developing infrastructure in any country. Governments have limited supplies of money, and they cannot take large risks. However, private companies can bring their own money to the table, and they are also in a position to approach risky projects, such as building a very large dam. This allows a government to oversee the development of important infrastructure without taking on risks themselves.

WHAT ARE THE BENEFITS?

PPPs don’t just remove the burden of risk from governments. They allow for faster and more successful development. Usually, private companies are more agile than governments, meaning that they can react to changes and make decisions faster. This is crucial for making sure that a project is completed on time.

Private companies can use their greater expertise to make sure that a project is handled effectively. For example, a government might want to provide its country with clean electricity from wind farms. However, a company that designs wind turbines will know more about how to construct a large wind farm than the government does. It therefore makes sense for the company to carry out the project, while also having the support and security of the government.

When a private company uses its own money to deliver a service, it has a large incentive to make sure that the service is delivered properly. If the job is not complete to a high standard, then the company will not be able to make its money back. Because of this, the pressure on companies to complete a project well is very high. As a result, more projects are completed on time and to the expected standard. For example, if a company is building electricity cables, it must make sure that the cables work efficiently. If the cables do not work well, then the company will not be able to transport and sell much electricity. If the company cannot do this, then its investment will have been largely wasted. In this way, the risk carried by private companies encourages better results.

WHAT CAN PPPs BRING TO THE RENEWABLE ENERGY SECTOR?

PPPs will be crucial for the development of the renewable energy sector in sub-Saharan Africa. There have already been many positive examples. One of them is the Lake Turkana Wind Power Station in Kenya.

Lake Turkana Wind Power Station represents the largest private investment in Kenya’s history ($850 million). The project is being carried out by a combination of private companies. Once completed, the power from the station will be bought at a fixed price by Kenya Power, which is owned by the Kenyan government. This means that the government does not have to take on the risk of building the station, but it will have control over distribution of the electricity.

In order to create a sustainable energy system across sub-Saharan Africa, many more PPPs like this will be required. Governments will have to work very hard to encourage private investment, but a positive start has already been made.

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