Energy Capital & Power

Unlocking Senegal’s Energy Market

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The Government of Senegal has placed strong emphasis on positioning local content and capacity building at the forefront of unlocking industry growth in the country. Offers are currently being implemented by commercial banks, such as the Bank of Africa and Orabank to target small and medium enterprise development across the country’s energy sector. The underlying goal of these opportunities, which are also being developed by the private sector and foreign partners, is to increase the demand for petroleum-related services. 

Through the implementation of a robust and transparent framework for resource management and the design and application of local content regulations, Senegal will be able to make the most of its natural resources through the development of strategies that maximize the benefits of its natural gas. Continual, diversified investment in power and energy, including renewables and natural gas, while phasing out its heavy fuel oil use, has the potential to strengthen the country’s power sector. 

Invest in Africa (IIA) is a consortium of major operators such as Woodside Energy, BP, Cairn, and Kosmos Energy with the goal of developing local content capacity across the energy value chain. The organization unites partner banks and financial institutions to lower the risks associated with backing local ventures. These synergies between the private financial sector and the government are imperative for the market to move forward and achieve shared local content goals.  

The Mauritius Commercial Bank (MCB) has provided $60 million in investments to assist Senegal’s national electrification and gas use ambitions. The project finance facility has enabled Karpowership to operate its 235 MW powership off the coast of Dakar since August 2019, which contributes to approximately 15% of Senegal’s electricity supply. In line with the country’s Plan Sénégal Émergent, the powership is set to shift from using heavy fuel oil to gas, which would make it the first power generation source in the country fueled by gas. 

The country has also implemented the use of microgrids to improve accessibility. These consist of an independent electricity generation system primed for providing electrification to remote communities.  

Last year, Senegal inaugurated its first utility scale wind power project, the 158 MW Taiba N’Diaye wind farm, the largest solar park in West Africa with the potential to produce approximately 48 million kWh of electricity each year.  

To achieve universal access to electricity by 2030, Senegal must double its electrification rate, according to the UN. According to the IEA Africa Energy Outlook 2019, Senegal’s electrification rate is 69%, with a 92% rate in urban areas and merely 42% in rural areas. Achieving universal access to electricity will require more investment in diverse generation sources and modes of delivery, which includes both grid connections and independent micro-grids. The Agence Sénégalese d’Electrification Rurale proposed a portfolio of rural electrification projects for medium-voltage grid extension, mini-grids, and solar home systems.  

In 2018, 83% of Senegal’s installed energy capacity derived from thermal power, with solar power providing 11% and hydropower providing 6%. Senegal has substantial renewable energy potential, particularly from solar sources due to the country’s approximate 3,000 hours of sunshine per year. 

Senegal has several solar projects, both under construction and completed, with the state-owned electric utility company, Senelec, calling for contractors to establish an additional 100 MW of new solar projects. One such project includes a 15 MW grid-connected solar facility in the city of Thiès.  

There are various financial products that can support clean energy development in Senegal, such as grants for project participation, results-based financing, equity investment, concessional loans, short term credit for inventory purchase and working capital, trade finance from export credit agencies or suppliers, and medium-term loans assured by assets from a single project or portfolio. Several performance targets are in place for Senegal to attract more investment, such as reaching production rates of 100,000 barrels of oil per day by 2022, achieving 200 GWh in hydropower electricity production output, and reaching universal access to electricity by 2025, with 95% of rural connections provided by the national grid.  

Senegal differentiates itself from other energy producers due to its implementation of local capacity and in-country financing capabilities that are necessary for the training and engagement of local companies and individuals.  

Despite these benefits, many local financial institutions must still implement a strategy to leverage Senegal’s growing hydrocarbon market. Improving access to funding for small and medium enterprises is critical to assuring local participation in the country’s emerging hydrocarbon sector and enabling them to compete for offshore service contracts.  

Despite an increased demand for renewable energy and energy efficiency financing, large-scale participation of domestic commercial financial institutions has lagged, with energy projects relying heavily on concessional development finance. Thus, commercial banks can substantially scale up clean energy lending through a conventional and innovative approach. Development assistance organizations have the potential to increase energy lending through bank portfolio guarantees and other risk mitigation measures.  

Senegal’s electricity supply is characterized by insufficient generation and storage capacity, high generation costs, heavy dependence on imported petroleum fuels, and outdate production, transmission, and distribution infrastructure. According to the International Energy Agency, in order to unlock its potential for gas, expand power networks, and increase electricity access, energy investment in Senegal must amount to $30 billion through 2040. 

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Matthew Goosen

Matthew Goosen

Matthew Goosen is a Video Editor and Content Writer at Energy Capital & Power. He holds an Honours Degree in Film and Media Studies at the University of Cape Town and is currently undergoing his Masters Degree. Born in Pretoria and raised internationally, he has been living in Cape Town since 2013.