Africa Unplugged: Policy, institutional and investment challenges in powering the continent African Science Academy Development Initiative (ASADI) workshop Improving Access to Energy in Sub-Saharan Africa 17-18 March, Pretoria Prof Anton Eberhard Management Program in Infrastructure Reform and Regulation University of Cape Town
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1 Africa in perspective
Sub-Saharan Africa “Average SSA country” – Land area: Australia, Brazil, – Land area: around the Europe, Japan plus size of Texas USA
– Population: Europe, – Population: similar to Japan plus USA Belgium
– GDP: less than The – GDP: equivalent to Netherlands mid-sized OECD city
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Outline ______1. Africa’s chronic power problems 2. Improving sector performance 3. Investment & financing
Africa Infrastructure Country Diagnostic www.gsb.uct.ac.za/mir
2 1. Africa’s chronic power problems
Infrastructure is underdeveloped Electricity supply is often unreliable Power costs are high, subsidies regressive and prices barely affordable plus hidden costs
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Power infrastructure is underdeveloped
• Installed capacity in SSA is 68 GW – Comparable to Spain – Without South Africa falls to 28 GW • Up to a quarter of capacity unavailable • Growth in capacity stagnant • Installed capacity per capita 10% of LA • Lowest electrification access, rates are declining with population growth
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3 Very low access to power
Source: Earthlights, 2000 www.gsb.uct.ac.za/mir
Source: Africa Infrastructure Country Diagnostic
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4 Source: Africa Infrastructure Country Diagnostic
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Power infrastructure is underdeveloped
• Consumption per capita barely 1% of high-income countries and declining • Large energy resources unexploited, distant from main centers of demand (eg. hydro in DRC & Ethiopia) • Few economies of scale (33 out of 48 countries have <500MW, 11 <100MW)
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5 A global outlier
Generation capacity Electrification rate (MW per million population) (Percentage of households) 600 100 400 75 50 200 25 0 t 0 t A th a s ia A th a s ia S u i a s S u i a s S o s E A S o s E A S A S A Electricity consumption Power prices (kWh per capita per year) (US$ per kilowatt-hour) 1500 1200 0.15 0.12 900 0.09 600 0.06 300 0.03 0 t 0 h t A th a s ia A t ia s ia S u i a s S u s a s S o s E A S o A E A S A S Source: Africa Infrastructure Country Diagnostic
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History: SSA has fallen behind South Asia
Base Year Year 2000 SSA SAS SSA SAS
Paved arable density 717171 477 1,037 670
Total road density 1,525 757 2,556 1,408
Mainline density 444 2 222222 21
Generation capacity norm. 717171 26 737373 137
Improved water access 515151 72 636363 70
Improved sanitation access 303030 31 353535 47
Note: Base year varies by sector: roads 1960, ICT 1970, power 1980, WSS 1990
Source: Africa Infrastructure Country Diagnostic
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6 Supply is often unreliable
• Insufficient investment in maintenance and new capacity • WB Enterprise surveys reveal average of 56 days per annum with power interruptions – losses in forgone sales and damaged equipment • More than half of large firms have back-up generators • Own-generation now a significant proportion of installed capacity
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Low power reliability
Burundi Eritrea Malawi Tanzania Benin Madagascar Kenya Uganda Ethiopia Mauritania Swaziland Zambia Senegal Botswana Cameroon Cape Verde Burkina Faso Mali South Africa Mauritius Niger Namibia
0 10 20 30 40 50 60 70 80 90 10 11 12 13 14 15 Power outages (days per year)0 0 0 0 0 0
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7 % of businesses that rely on back-up generation
Source: Estache, 2005, p.31. Evidence from the Investment Climate Assessments www.gsb.uct.ac.za/mir
Extent of crisis revealed in prevalence of emergency power leases
Emergency Percentage Cost as capacity (MW) total capacity percentage GDP Angola 150 18 1.0 Gabon 14 3 0.5 Ghana 80 5 1.9 Kenya 100 8 1.5 Madagascar 50 36 2.8 Rwanda 15 48 1.8 Senegal 40 17 1.4 Sierra Leone 20 133 4.3 Tanzania 180 20 1.0 Uganda 100 42 3.3
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8 Power costs are high
0.50 0.50 0.40 0.40 0.30 0.30 0.20 0.20 0.10 0.10 0.00 0.00 el o s dr P PP P P ie y AP A AP AP D H C W E S 0.50 0.50 0.40 0.40 0.30 0.30 0.20 0.20 0.10 0.10 0.00 0.00 ll e a um g s d al m di ar nd e st S e L la ck a M Is lo o nd C La
Source: Africa Infrastructure Country Diagnostic
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High commercial power costs
0.80 Average 0.70 total cost of own 0.60 generated power 0.50
0.40 Average 0.30 price of power 0.20 purchased from utility
Averagepowerof cost (US$/kWh) 0.10
0.00
Mali Weighted Niger Benin Kenya Eritrea
Malawi average Zambia Uganda Senegal Mauritius Tanzania cost of Cameroon CapeVerde SouthAfrica power used BurkinaFaso
Source: Africa Infrastructure Country Diagnostic
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9 Access to energy by income quintile
100% 80% 60% 40% 20% 0% Q1 Q2 Q3 Q4 Q5
Electricity for lighting Wood/Charcoal for cooking Gas/LPG for Cooking Kerosene/Paraffin for Cooking
Source: Africa Infrastructure Country Diagnostic
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Rising costs but insufficient revenues
0.30 0.30
0.25 0.25
0.20 0.20
0.15 0.15
0.10 0.10
0.05 0.05
0.00 0.00 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005
Diesel Hydro Overall Diesel Hydro Overall Average operating cost Average revenue
Source: Africa Infrastructure Country Diagnostic
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10 Most tariffs do not recover costs
0.35
0.30
0.25
0.20
0.15
0.10 Average Effective Tariff ($/kWh) Tariff Effective Average 0.05
0.00 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 Historical Average Costs ($/kWh)
Source: Africa Infrastructure Country Diagnostic
www.gsb.uct.ac.za/mirSource: AICD 2008
Hidden or quasi-fiscal costs
4.5%
4.0% 3.5%
3.0% 2.5% 2.0% 1.5%
1.0% 0.5% 0.0%
Under-Pricing Unaccounted Losses Collection Inefficiencies
Source: Africa Infrastructure Country Diagnostic
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11 Power crisis exacerbated by
• Drought • High petroleum prices • Damage to infrastructure through wars • Rapid demand growth
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2. Improving performance
• Reforming state-owned enterprises • Rekindling private sector participation • Managing hybrid power markets • Targeting electrification • Expanding regional power trade
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12 Reforming state-owned enterprises
• State-owned utilities still dominant • Two-thirds of utilities have undergone some form of governance reform – Corporatisation – International accounting standards – Performance monitoring – Exposure to private capital markets • Reformed utilities perform better
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Impact of reform
Commercial efficiency Commercial efficiency
Cost recovery ratio Cost recovery ratio
Electrification rate Electrification rate
System losses System losses
Emergency power Emergency power
Reserve margin Reserve margin
Capacity utilization Capacity utilization
Operational plant Operational plant
0% 25% 50% 75% 100 0% 25% 50% 75% 100 High Low % With Without % SOE Governance Private Sector Participation
Source: Africa Infrastructure Country Diagnostic
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13 Integrated reform of SOEs
1. Clarification of roles and responsibilities • Separation and clarification of government’s different roles • Public entity management legislation • Codes of corporate governance • Performance contracts • Effective supervisory / monitoring agencies • Transparent transfers for social programmes
2. Changing the political-economy of the firm • Improved transparency and information • Corporatisation • Commercialisation • Structural reform and direct competition • Mixed-capital enterprises • Customer-owned enterprises
3. Improved regulatory design
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Learn the lessons of private participation
• 80% of AICD countries have enacted power sector reform law • 66% have regulators & these countries generally perform better • More than 40 IPPs across Africa, totaling 8000MW • Concessions, leases & management contracts – some disappointing • Cf. recent reviews
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14 Respond to challenges of hybrid markets
• Demise of standard model of reform • Incumbent SOEs remain dominant • IPPs introduced on margin • New challenges for securing investment – Responsibility for power expansion planning – Transparent criteria for allocating new build opportunities between SOE & IPPs – Institutional responsibility & capacity for procuring IPPs, use of international competitive bidding processes – Procedures for dealing with unsolicited bids – Institutional responsibility and capacity for contracting (non- exclusive Single Buyer Office?) – Transparent criteria for dispatch
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Target electrification efforts more effectively
• Only a fifth of population have access • Two-thirds population in SSA still rural • Cheaper to electrify urban areas, followed by higher density rural areas • Off-grid technologies (such as PV) still expensive • Focus on more cost-effective areas & technologies • Urban customers can cross-subsidize rural areas • Electrification funds & clear planning criteria NB • National grid electrification has been more effective than rural elec agencies & funds supporting decentralised private operators (Mostert 2008) – but national utilities need to be reasonably efficient
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15 Location of rural non-connected population
Source: Africa Infrastructure Country Diagnostic
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Countries / distances of population from grid
100%
90%
80%
70%
60%
50%
40%
30%
shares of rural ofpopulation shares rural 20%
10%
0% Benin Chad* Niger* Sudan Kenya Ghana Nigeria Malawi Zambia Uganda Ethiopia Namibia Lesotho Senegal Rwanda Tanzania Cameroon Congo, DRC Congo, Cote d'Ivoire Cote Madagascar Mozambique South Africa South Burkina Faso Burkina remote: > 50 km from substation AND (not in power plant buffer AND > 10 km from lit urban area AND not lit pixel) isolated or off-grid: > 50 km from substation AND (in power plant buffer² OR < 10 km from lit urban area OR lit pixel) 20 - 50 km from substation¹ 10 - 20 km from substation¹ < 10 km from substation¹ or < 5 km from M V line
Source: Africa Infrastructure Country Diagnostic
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16 Potential for increased power trade
(a) Trade stagnation (b) Trade expansion
Source: Africa Infrastructure Country Diagnostic
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Benefits of regional trade
• Expanded trade facilitates least-cost development of power generation resources • Hydro will substitute for thermal and will thus lower carbon emissions – 70 mill tons CO2 per annum (i.e. about 20%) • Share of hydro capacity increases substantially with higher oil and carbon prices • Annual savings estimated as US$2,7 bn • High returns. Additional capital investment in SAPP recouped in less than a year. Other areas recouped in 3 to 4 years with 20- 33% returns • Countries with high domestic power costs have substantial benefits (e.g. Guinea-Bissau, Liberia and Niger could save 6-7 US c/kWh), also Angola, Burundi, Chad, Ghana, Malawi, Sierra Leone, Togo, etc • Export countries can earn significant revenues (e.g. DRC, Ethiopia, Guinea and Cameroon.
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17 Gains to import and export
2.5% 9% 8% 2.0% P 7% P D D G G f 6% f o o 1.5% e 5% e g g ta 4% ta n n e e 1.0% rc 3% rc e e P 2% P 0.5% 1% 0% 0.0% a n a a i C a ue d d e di A o ia a la op R d q n n w n S th ib ny o i D u bi a a ab ru R o m e g th S w g b u es a K An E am R U im B L N oz Z M Major Exporters Major Importers
Source: Africa Infrastructure Country Diagnostic
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4. Annual investment & needs and financing flows for power sector in SSA
Spending needs
$ billions % GDP Capex 26 4.2 Opex 14 2.2 Total 40.6 6.4
Existing financing flows Opex Capex Public Public Non Total Total sector sector ODA OECD PPI Capex Spending 7 2.4 0.7 1.1 0.5 4.6 11.6
Improving operational efficiencies: $3.3 bn; cost recovery - $2.2 bn
Financing gap $23 billion www.gsb.uct.ac.za/mir
18 Summary
• Power crisis is characterized by low capacity, low connection rates, high prices and poor reliability • Expanded regional trade will lower costs and expand access • Government fiscal resources, ODA, private investment and emerging sources of capital are not entirely plugging finance gap • Thus important for African utilities to improve their performance and financing • And new challenges in hybrid power markets need to be addressed to accelerate private investment
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http://www.infrastructureafrica.org
The Management Programme in Infrastructure Reform & Regulation (MIR) is an emerging centre of excellence and expertise in Africa. It is committed to enhancing knowledge and capacity to manage the reform and regulation of the electricity, gas, telecommunications, water and transport industries in support of sustainable development.
Prof Anton Eberhard Research, training courses, consultancy University of Cape Town
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