ENERGY
SECTOR IN PERSPECTIVE
Sierra Leone’s energy needs are under resourced and the scarcity of a reliable energy supply is one of the key impediments to Sierra Leone’s economic and social development. The country’s installed power capacity per capita is among the lowest in the world with approximately 105 MW available for a population of over 7 million in 2018. According to a UNDP report, energy consumption in the country is dominated by biomass, accounting for approximately 80% of energy used. The largest source of biomass energy is wood fuel, followed by charcoal; the 2015 Population and Housing Census found that wood and charcoal were used for 96.9% of households’ cooking needs. Imported petroleum products are the next largest source of energy for power generation at around 13% of energy consumption, according to the MTNDP.
The GoSL has recognised an urgent need for access to electricity for the people of Sierra Leone. Only 15% of the total population of Sierra Leone currently has access to electricity, and only 2.5% of its rural population had access in 2016, according to World Bank data. This is well below the average of 42.8% for the population of Sub-Saharan Africa.
The difficulty in accessing electricity is also compounded by significant transmission and distribution network problems, resulting in losses of 34.5% of the electricity supply in the Freetown Capital Western Area alone in 2017. The national transmission system consists of a 161 kilovolts (kV) transmission line extending from the Bumbuna hydroelectric plant to the Freetown substation, as well as an electricity grid for the town of Makeni and a 33 kV transmission line from Bo to Kenema. The GoSL reports that funding has been made available from ADB/DFID for rehabilitation and expansion of the transmission between Bo and Kenema, with project completion in 2020). Other transmission lines are being developed (with some funding reported to be in place, and completion in 2020-2021).
The mining sector, which until 2014 generated Sierra Leone’s biggest export in the form of iron ore (see the Natural Resources section for more details), is heavily reliant on in-house captive generation to supply its significant power needs. Outside of the industry the use of private generators is prevalent. 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.
Reform of the Energy Sector
Increasing generation and improving the transmission and distribution network continues to be a priority for the GoSL. In attempts to address the issues relating to power demand, additional generation, network rehabilitation and expansion, and access options, the Sierra Leone Ministry of Energy has, over recent years and with support from ECREEE, Millennium Challenge Corporation (MCC) and other development partners, prepared a number of policy papers and proposals aimed at reforming the energy sector. The GoSL, under its New Direction, has stated its intention to strengthen the capacity of the regulatory agencies. How this plays out in practice remains to be seen.
The GoSL allocated US$15.6 million from the domestic 2018 budget to increase electricity generation, enhance existing thermal plants, and rebuild and enhance the distribution network. In support of this initiative, development partners have also pledged US$43.7 million towards various projects in the energy sector. In 2015 the US government (through the MCC) granted up to US$44.4 million over a 4-year programme to the GoSL to support a number of reforms, including towards the provision of electricity services in Sierra Leone. Three years into the program at the time of writing, all funds are now committed to three projects: Water Sector Reform Project, Electricity Sector Reform Project and the Regulatory Strengthening Reform Project. The program is managed by the Millennium Challenge Coordinating Unit (MCCU), which is an entity established by Parliament with oversight functions carried out by the MCCU Board chaired by the Vice President. MCCU works with beneficiary institutions Electricity Distribution Authority (EDSA) and Electricity Generation Company (EGTC) in relation to the electricity sector reform project by providing institutional strengthening support and capacity building through consultancy services. The project involves production of an Electricity Sector Roadmap, financial analysis of the EDSA, Electricity Sector Expansion Planning and Electricity Sector Asset Inventory and Revaluation.
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, an initiative was launched in May 2016 to provide basic energy to all citizens by 2025. By signing this compact with the UK, Sierra Leone became one of the first African nations to participate in the Energy Africa campaign to expedite universal energy access.
In June 2018, the GoSL also concluded and signed a two year electricity supply agreement with Turkish company Karpowership, for the generation of electricity from its maritime vessel docked in Freetown. This arrangement is expected to help alleviate the immediate power challenges in the country. The GoSL is also developing a strategic vision to make Sierra Leone Africa’s first Zero-Carbon middle-income economy by 2040, taking advantage of the fact that the country has one of the lowest pollution levels in the world. Development of the renewable energy sector will form a key role in achieving this vision and international development investments are already underway. For example, in October 2018, the International Finance Corporation signed a US$40 million agreement to install a 50 MW solar power plant in Sierra Leone.
LEGAL AND REGULATORY LANDSCAPE
In line with its New Direction and as recognised in the MTNDP, the GoSL aims to dramatically increase the availability of efficient and sustainable power in Sierra Leone. It plans to invest in renewable and modern forms of energy generation in order to provide energy in sufficient quantities to all regions of the country to realise the development goals of industry and the general population.
The regulatory framework is conducive for 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.
Various reforms focused on improving governance and regulation and to encourage private sector participation and investment were legislated for in the National Electricity Act and the Electricity and Water Regulatory Commission Act, both of which were signed in 2011 and implemented in 2015.
The National Power Authority 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, where such appointment has been effective since November 2016. The unbundling was further supported by an 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 directly. 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 and remains among the highest in Africa at US$0.28 /kWh. It is currently under review by both new utility companies and the independent regulator to improve cost recovery for private investors.
As outlined further in the Infrastructure section, the PPP Unit was established 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, the motivation and the intent to encourage private investment into such projects is apparent. The Sierra Leone Renewable Energy Association, which was established following the Energy Revolution initiative, successfully campaigned for an exemption of solar imports from import duties and other taxes in the Finance Bill of 2017. In addition, the Sierra Leone Rural Renewable Energy Project (RREP) was developed to support increased access to rural energy resources, with a view to contributing to a significant reduction in the country’s future emissions.
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. The World Bank has set aside US$40 million for the energy sector and US$59.7 million under the WAPP Project mainly to promote renewable energy in Sierra Leone.
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, with expectations that it will exceed 360 MW by 2023. Growth is anticipated to continue at an estimated 10-20% annual rate of increase over the next decade.
To meet this demand, the GoSL aims to encourage investment in the renewable energy potential of the country, including areas such as solar, hydropower, wind and biomass. Plans include the provision of special financial incentives to businesses operating in these sectors.
Renewables – Hydropower
The renewables side of the sector remains a promising growth area for Sierra Leone; a study undertaken in 2016 by representatives of the Climate Investment Funds estimated the hydropower potential in Sierra Leone to be up to 2,000 MW capacity, with suitable development sites ranging from 2 MW to 160 MW. A study conducted by UNIDO has estimated that hydroelectric potential in the country could be as high as 5,000 MW.
In terms of recent hydropower projects, the Bankasoka Hydro Dam in Port Loko town was completed by Chinese Hunan Group for US$60 million and commissioned in December 2017, producing about 5 MW of electricity supply through small hydro plants. There is a planned expansion of the Bumbuna hydro-electric plant (Bumbuna II) under a US$700m PPP investment, which aims to increase the current 50MW capacity (at its peak operation) by an additional 143 MW. Bumbuna II is currently on hold pending a review of the engineering and financing. Bumbuna II is anticipated to be an integral part of the GoSL’s energy strategy once these reviews are completed. Generation potential of up to 200 MW and mini-hydro plants with a capacity of less than 1 MW are also planned, both of which are expected to become a major area for PPP and a means of widening access to power in Sierra Leone.
Renewables – Solar
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. In May 2018, the Minister of Finance secured funding from the World Bank for a 60 MW solar project in Freetown for an indicative pricing of less than US$0.07 cents/kWh.
The evaluation process for Phase II of the street light project, which involves the development of 50,000 solar-powered street lights across all 190 chiefdoms, was recently completed. A 6 MW Solar Park Project is being developed in Newton by a consortium of ASIC and Mulk-OGI with financial backing from the International Renewable Energy Agency and Abu Dhabi Fund for Development. When completed, the Solar Park will provide substantial access to clean renewable and sustainable electricity to both urban and western rural districts around Freetown. An energy company managed by ResponsAbility Investments has signed an agreement with Africa Growth and Energy Solutions to co-develop a 25 MW solar PV project in Bo. The first phase of the project will be the construction of a 5 MW plant and was due to commence in 2018. There is also an ongoing Rural Renewable Energy Project, which has US$44m funding provided by DFID and is implemented by UNOPS, to establish 90 solar mini-grids (at around 30-49kW each) in rural areas. Up to 360,000 people are expected to benefit from low carbon energy by 2020 as a result of this project and the GoSL has signed 4 public-private partnerships for other like projects.
To date, DFID has funded the provision of electricity using solar thermal energy for 50 selected Chiefdom Health Centres and to extend mini-grids closer to these centres in 12 districts.
Bioenergy
The country’s 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.
Other energy sources
A variety of other supply-side opportunities including fossil-fuelled plants are also being considered. The GoSL has also indicated that it intends to promote the use of Liquefied Petroleum Gas (LPG).
The development of port infrastructure (see the Infrastructure section) should increase the viability of these new generation projects through the availability of better fuel import facilities.
Transmission and distribution networks
The US$15 million Energy Access Project funded by the World Bank aimed to reduce losses in electricity supply in Freetown Capital Western Area and improve the commercial performance of EDSA. The project completed in July 2017. Preliminary assessment of losses after completion of the project was at 34.5%, indicating an improvement, and performance indicators showed that overall operation and financial performance of EDSA has gone up, evidencing institutional strengthening of EDSA. Further, in October 2016, the GoSL agreed financing arrangements for a 225 kV transmission line from Bumbuna to Waterloo, which will provide transmission capacity between Bumbuna II and Freetown once commissioned. The project continues to make progress, with the Bumbuna and Kamakwie sub-stations having been completed whilst those in Kenema and Bumpeh are underway. Further, the AfDB and DFID agreed to provide US$37.15 million to finance the distribution network rehabilitation in Bo Kenema in December 2016, with a planned completion date of December 2020. This project will increase power transfer capacity and electricity access to existing areas and expand the network for newly developed communities that do not currently have access to electricity.
Priorities for the expansion of the transmission network have also been identified via the WAPP-initiated CLSG Interconnector project, which involves the construction of a 1,357km transmission line to connect the national networks of Côte d’Ivoire, Liberia, Sierra Leone and Guinea. There is a possible deal for Côte d’Ivoire to export power initially to Sierra Leone at a guaranteed minimum of 27 MW at US$0.13 cents/kWh. A draft plan has been prepared for the development of Sierra Leone’s portion of the project, which will offer significant opportunities for trading energy with the neighbouring countries, enable the leveraging of commercial capital for regional power generation projects at scale, and providing energy access to 115 communities within 5km of the line. Interconnection with these countries is due to be completed in 2020. 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
There is a lack of capacity and inadequate staffing in the sector. The EWRC is not fully independent and is therefore not in a position to fully exercise all its functions and powers. As part of its reform process, the EWRC intends to adequately staff and build capacity to be able to regulate the industry in order that the sector can attract potential investors.
There is also continued reliance on emergency fuel, sub-optimal PPAs, poor planning, and a non-cost-reflective tariff. The transition to cost reflective tariffs is important to support the GoSL’s ambitious plans for the sector and to continue to build the EWRC’s standing.
In addition to there being insufficient generation capacity to meet demand, EDSA and EGTC are not bankable, and are unable to secure financing for projects. There is also an inadequate energy mix – HFO generating plants are required to maintain generating capacity given seasonal fluctuations of hydropower. The Western Area Generation Power project, once completed and operational, will provide the required balance of alternative energy sources in the country.
Private participation in rural energy development remains a key challenge. In its New Direction, the GoSL acknowledged that improving the sustainability and efficiency of energy supply in Sierra Leone will be essential for growth and industrialisation.
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.
