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Energy Sector Capacity Building Diagnostic & Needs Assessment

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Energy Sector Capacity Building Diagnostic & Needs Assessment Energy Sector Capacity Building Diagnostic & Needs Assessment Study Volume 1 Sub-Saharan Power Sector Capacity Building Diagnostic & Needs Assessment Volume 2 Power Sector Soft Infrastructure Programme (PoSSIP) Energy Sector Capacity Building Diagnostic & Needs Assessment Study Volume 1 Sub-Saharan Power Sector Capacity Building Diagnostic & Needs Assessment Volume 2 Power Sector Soft Infrastructure Programme (PoSSIP) Rights and Permissions All rights reserved. The information in this publication may be reproduced provided the source is acknowledged. Reproduction of the publication or any part thereof for commercial purposes is forbidden. The views expressed in this paper are entirely those of the author(s) and do not necessarily represent the view of the African Development Bank, its Board of Directors, or the countries they represent. Copyright © African Development Bank 2013 African Development Bank Avenue du Ghana Angle des Rues Pierre de Coubertin et Hédi Nouira BP 323 Tunis Belvédère 1002 Tunisia Tel.: (+216) 71 10 21 56 Fax: (+216) 71 33 26 94 Foreword The African energy sector is undergoing an interesting period of transformation. On the physical infrastructure side, the investment needs in the African energy sector are well documented. The continent remains the most energy poor region in the world with some of the highest prices per kilowatt hour. In some cases, unreliable supply and rolling blackouts have raised production costs for our private sector by over 20%. We estimate that Africa needs more than USD 40 billion worth of annual investments if we are to double current levels of energy access by the year 2030. This Report provides a comprehensive assessment of the constraints hindering energy sector performance and regional energy trade across the four power pools of sub-Saharan Africa. In response, several African countries are looking to boost electricity generation. Some such as Côte d’Ivoire, the Democratic Republic of Congo (DRC), Ethiopia and Mozambique, have already begun to emerge as significant energy exporters. The discovery of significant natural gas and geo-thermal resources will further add to future energy generation capacity, which will in turn lead to an increase in regional energy trade. Meanwhile the energy trading infrastructure, which includes the regulatory framework under the regional power pools, regional interconnections and transmission capacity, is gradually improving. At both pan-African and regional levels, African Heads of State have committed to investing in energy infrastructure under the continental Programme for Infrastructure Development in Africa (PIDA) and within their respective regional infrastructure master plans. This report focuses on addressing the soft infrastructure challenges that hamper the efficient operation and financial performance of the energy sector in Africa. The challenges are many and diverse. However, the Report places emphasis on five critical areas, namely: (i) improving the legal and regulatory framework governing the energy sector; (ii) improving performance amongst the energy utilities that constitute the regional power pools; (iii) strengthening capacity in systems operations and dispatch; (iv) supporting reforms to nurture a conducive enabling environment to attract energy investments; and (v) upgrading energy sector skills through targeted energy Centres of Excellence. Already, the Bank has begun to take on board some of the recommendations from the report. We are looking at ways to incorporate energy sector reforms and capacity building within all our future energy infrastructure operations. This will help ensure sustainability and buy-in from the beneficiary countries. We are also working to support energy Centres of Excellence, and we have been steadfast in providing legal and technical advice to structure PPPs and other vehicles for energy investments. I encourage those who are interested in understanding the current state of the African energy sector to read this report. It will not only help to appreciate the nature of the challenges that need to be addressed, it will also provide great insights into the types of reforms and capacity that the Bank will support in order to improve the sector’s operational and financial performance. Janvier K. Litse Director, NEPAD, Regional Integration and Trade Department (ONRI) AFRICAN DEVELOPMENT BANK GROUP | iii Preface Increasingly today, the Bank and other development partners are being called upon to provide more resources to improve the technical and financial performance of the energy sector as a complement to physical infrastructure investments. This report provides a useful guide on how the Bank can package and utilize such resources. Ultimately, improving the enabling environment will encourage more investments into the energy sector. Energy sector reforms, especially unbundling of vertically integrated public utilities and facilitating greater private sector investment have been on-going in Africa since the 1980s. However, reforms have not always translated into improved financial and operational efficiency. Recent investments into the sector and the establishment of inter-connected regional power pools have awoken renewed interest in sector reforms in order to improve the operational and financial efficiency of the sector. Underlying successful sector reforms are a number of key pre-requisites such as establishing an enabling regulatory framework, achieving financial viability amongst the energy utilities, and developing high-level skills to ensure sound technical, operational and policy performance. For the Bank, as a major investor in African energy infrastructure, the establishment of the regional power pools and the emergence of [or at least efforts towards establishing] regional regulators and sector associations symbolizes a significant shift in the development of the sector. We wanted this study to examine what sort of reforms and skills would be priority requirements to serve the emerging interconnected energy sector in Africa. We also recognized that inefficient utilities and regulators, or even the absence of regulation, were major stumbling blocks to both investment into the sector, and the proper functioning of regional energy trade. We assembled a team of engineers with both operational and regulatory experience, as well as in-depth knowledge of the reform process underway in African countries. The team conducted a diagnostic assessment of the four regional power pools of sub-Saharan Africa, paying special attention to lessons learned and the potential for technical support from the utilities of North Africa. In addition to regional consultations, the team undertook a survey across the four regional power pools covering 88 stakeholders in the electricity industry that included the power pool secretariats, energy utilities, regulators, policy makers and energy training centres. This report comprises two volumes. Volume I provides a diagnostic study which outlines the transformation taking place in the African energy sector at both national and regional levels, assessing developments within each regional power pool, and the role of regional energy institutions that are helping to shape the integration of energy markets. The Volume also examines past and present capacity building initiatives targeting national and regional stakeholders, and dissects the critical success factors, short-comings and lessons learned which should inform a Bank programme to support energy sector reforms. Volume II builds on this analysis and proposes the design, budget and implementation plan for a regional energy sector support programme addressing five (5) critical issues in the areas of regulation, technical and operational performance. I believe that comprehensive improvements in the aforementioned areas as discussed in this report will help create an attractive environment for increased investments into the African energy sector. This will in turn facilitate improved technical and operational performance, thereby raising the prospects for increased regional energy trade. Moono MUPOTOLA Manager, Regional Integration and Trade Department AFRICAN DEVELOPMENT BANK GROUP | v Acknowledgements The authors of the SSA Power Sector Capacity Building Diagnostic and Needs Assessment and the Power Sector Soft Infrastructure Programme (PoSSIP) would like to express their gratitude to the ONRI staff of the African Development Bank, in particular Christian Kingombe, Inye Nathan Briggs and Olumide Abimbola for the support they provided through active participation in the data collection, stakeholder interviewing process, and constructive feedback during the compilation of the report. We wish to express our gratitude to all the internal and external stakeholders who were consulted as part of a needs assessment exercise, including the following organizations: the African Union Commission’s Department of Infrastructure and Energy; the African Forum for Utility Regulators (AFUR), the Association of Power Utilities of Africa - APUA/ASEA (formerly UPDEA); the NEPAD Planning and Coordinating Agency (NPCA); the United Nations Economic Commission for Africa (UNECA); the Central African Power Pool (CAPP), the East African Power Pool (EAPP), the Southern African Power Pool (SAPP), the West African Power Pool (WAPP); ECOWAS Regional Electricity Regulatory Authority (ERERA); the Regional Electricity Regulators Association of Southern Africa (RERA); the SADC Secretariat; the ECOWAS Secretariat; the Ethiopian Electric Power Corporation
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