Better Together: Regional Power Pools in Africa are Worth the Challenge

By Amy Rose

Despite an abundance of energy resources, electric power systems in Africa have been slow to develop, leaving a large portion of the population in sub-Saharan Africa (SSA) without access to electricity. The growing interest in regional power pools across the continent could dramatically alter that trend, overcoming key barriers to investment and improvement in SSA’s electricity infrastructure. Regional pooling of demand and supply can reduce total reserve requirements by capitalizing on asynchronous peak demand among participants, create a larger market to justify large-scale projects, and help to shield individual systems from the effects of droughts or volatile fuel prices. Currently, there are four power pools in SSA, all in various stages of development (Figure 1). While there remain significant challenges to implementing these regional systems, there are several reasons why power pools are worth the effort in Africa.

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Figure 1 Regional power pools currently being developed [1]

 

Previous efforts to increase generating capacity have been hindered by a lack of economies of scale and financing for large projects at the national level. A key challenge to providing electricity throughout SSA is that energy resources, though plentiful, are not uniformly distributed in form or location (Figures 2 and 3). The Congo River alone has an estimated potential to produce 1400 TWh per year, equivalent to over three times the annual consumption in all of SSA in 2010 [2, 3]. Meanwhile, abundant coal resources are concentrated in the south while most of the natural gas and oil reserves are found in West and North Africa. Regional trade could enable resource sharing among countries, allowing resource-rich countries to export power to countries with limited resources and greater diversity in the fuels used to electricity generation. Developing these resources will require substantial capital investments, on the order of $27 billion per year [4], and sufficient consumer demand to guarantee investors can recover their costs through revenues.  However, in over half of SSA countries, national demand is less than the size of a typical utility-scale power plant. By pooling demand across multiple countries, regional power pools provide a larger consumer base in which to sell power, making projects that would be oversized and risky for a single country economically feasible for a regional market.

rose2 While significant progress has been made to develop integrated expansion plans and market rules for SSA power pools, there has been only limited movement to implement these plans. Key barriers in each regional pool include conflicting national policies, such as those related to energy security that run counter to the goals of regional integration, and a significant need for infrastructure investments, particularly cross-border transmission lines to permit trade and resource sharing. These challenges and the slow pace of implementation are not unique to Africa. The regional markets in Central America and Europe have taken over 15 years to develop, requiring the implementing of legislation, the creation of regional institutions and market rules, and the building the physical interconnection lines needed to facilitate trade. Unlike these cases, many of the African countries involved have limited experience with electricity markets and power sector regulation even at the national level.

This inexperience is both a blessing and a curse in the formation of a regional market. The process of harmonizing varying market rules and regulations can be vastly simplified if there are no pre-existing national markets and countries are just beginning to create national regulators, as is the case in much of SSA. When the Regional Electricity Regulators Association (RERA), the regional regulator for the Southern African Power Pool (SAPP), was created, only 4 out of 15 member countries had national regulators. Now 12 member countries have national regulators, and because these institutions were created alongside RERA, new national regulations and practices are already consistent with regional rules.

On the other hand, limited regulatory capacity and experience with electricity markets means a lot of capacity building and education is required among regulators, utilities and policy-makers. Utilities, often vertically integrated companies, are accustomed to operating in a self-policing mode. For the first 10 years of the SAPP, there was no regional regulator and disputes were often resolved between the utility companies themselves. This mode of operation is hardly conducive to creating a competitive market and attracting new investment. As regulators gain experience, they must take responsibility for setting and enforcing rules in order to create a fair playing field among member utilities.

With a larger pool of demand in which to sell power, and clearly defined market rules and enforcement procedures, sub-Saharan countries and regions could offer an attractive market for much-needed capital investment in new electricity infrastructure. The transition to competitive regional power pools will be difficult, requiring significant political will and coordination from all members. However, with 600 million people still without access to electricity and those that do have access facing some of the highest prices and worst reliability in the world, the potential benefits have never been greater.

[1] Southern African Power Pool, “Southern African Power Pool.” Map by TradeMark Southern Africa.

[2] Organisation for Economic Co-operation and Development and the International Energy Agency, “Key  World Energy Statistics.” Paris, 2013.

[3] World Bank Group, “World Development Indicators: Electricity production, sources, and acces.” Washington, DC, 2015.

[4] Infrastructure Consortium for Africa, “Regional Power Status in African Power Pools.” African Development Bank, Tunis, 2011.

[5] BP, “BP Statistical Review of World Energy.” 2006.

[6] World Atlas, “Hydropower and Dams,” Surrey, 2009.

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