September 2018: ISSUE 115

Oxford Energy Forum 114 looked at liberalization and decarbonization of Electrifying Africa Rural electrification: the potential and limitations of solar power 37 electricity systems around the world, Anna Aevarsdottir, Nicholas Barton and especially outside the OECD Tessa Bold (Organisation for Economic Co- Contents Does solving energy poverty help solve operation and Development). poverty? 39 Introduction 1 Previously, Forum 104 had studied the Catherine Wolfram, Ken Lee and David Robinson challenges facing the electricity sector Edward Miguel in OECD countries, with a focus on Financing system challenges for energy The politics of renewable energy in transformation in Africa 6 Europe. Regardless of their East Africa 41 Laurence Harris circumstances, virtually all countries Emma Gordon are undergoing a fundamental Electrification in Africa: the need for new forms of cooperation 12 Aid and the design and implementation transformation of the sector, involving a Lapo Pistelli of power sector reform projects in sub- significant increase in the role of Saharan Africa 46 renewable energy, greater Natural gas in Nigeria and Tanzania: can Neil McCulloch, Esméralda Sindou and decentralization of energy resources, it turn on lights? 14 John Ward Rahmatallah Poudineh and Tade and the adoption of new ‘smart’ digital Oyewunmi Electrification in sub-Saharan Africa: technologies. This transformation the role of international institutions 49 creates opportunities for expanded New enablers for achieving sustainable Simone Tagliapietra energy for all in Africa 20 consumer access and participation, as Carlo Papa and Giuseppe Montesano well as for decarbonization of energy. Opportunities and challenges in However, it also requires new policies, achieving universal electricity access in markets, and regulations, as well as sub-Saharan Africa 22 new approaches to investment, Anteneh G. Dagnachew, Paul L. Lucas, operations, industry structure, and Andries F. Hof and Detlef P. van Vuuren business models. Sustainable electrification in Africa 27 Gregor Schwerhoff This issue of the Forum focuses on the electrification of Africa, especially sub- Electrification planning with a focus on human factors 30 Saharan Africa (SSA). Due to Roxanne Rahnama and Ignacio Pérez- significant expected population growth, Arriaga the number of Africans without Access to sustainable electricity access in 2030 may not fall electricity in Mali 34 much from today’s level of about 600 Maryse Labriet million, which is about 60 per cent of the world’s current population without September 2018: ISSUE 115 – Electrifying Africa

access to electricity. The articles cover is potential to ‘leapfrog’ carbon- electricity access to over 180 a wide variety of countries and issues, intensive generation, especially in million people by 2030. Emma focusing on barriers to meeting isolated rural areas. Anna Gordon explains that the Ethiopian electrification objectives and ways to Aevarsdottir and colleagues argue government has traditionally that even low levels of renewable encouraged large-scale projects overcome them. Here are some of the electrification, especially solar connected to the central grid, while general themes. lamps, can bring substantial the Kenyan government has  The rationale for electrification. economic and noneconomic promoted innovation by private Electrification is expected to benefits. Other authors, including operators in decentralized contribute to meeting many of the Lapo Pistelli as well as systems. However, even in those UN’s Sustainable Development Rahmatallah Poudineh and Tade two countries, integrating Goals by 2030, including ending Oyewunmi, emphasize the centralized and decentralized poverty, ensuring quality potential for natural gas to play a systems is becoming important. education, and ensuring access to key role in meeting Africa’s energy energy, while promoting economic needs.  Consumer preferences and local growth, gender equality and other participation in rural electrification. goals. However, many authors  The role of China. China plays an Most of SSA’s unconnected introduce important qualifications. important and controversial role in consumers are in rural areas. Gregor Schwerhoff argues that the electrification of Africa. Emma Roxanne Rahnama and Ignacio electrification could undermine Gordon credits the good Ethiopian Pérez Arriaga argue that other development goals, including track record in completing successful electrification of rural access to clean energy and climate infrastructure projects in part to the populations requires consumer- action, if it is carbon-intensive. government’s partnership with centric planning and business Catherine Wolfram and colleagues China. Laurence Harris notes that, models. Maryse Labriet agrees argue that electrification may not for SSA, China is the largest and emphasizes the importance of be as important as other policy national source of investment in a strong enabling environment, a issues (such as health) and may the electricity sector’s expansion solid supply of products and not contribute much to achieving and upgrading. Simone services, and a robust demand for the Sustainable Development Tagliapietra points out that Africa is these products and services. Anna Goals. Roxanne Rahnama and part of China’s ‘One Belt, One Aevarsdottir and colleagues Ignacio Pérez Arriaga maintain that Road’ initiative and that China has emphasize the limits to effective electrification requires an focused on coal and large electrification and the need for new understanding of ability to pay, the hydropower projects. He says that financing mechanisms. value of unserved energy, and how China seems not to consider the consumers value different environmental and social issues  The role of institutions, policies, attributes of electricity service. that prevent most international and regulatory frameworks. Emma Maryse Labriet stresses that financing institutions from Gordon explains how politics energy access must be measured supporting coal. influences the process of in quantitative and qualitative electrification, contrasting the terms, and to be meaningful must  Decentralized and centralized political support in Kenya for be accompanied by clean cooking systems. A number of authors, private enterprise with the facilities. Anna Aevarsdottir and including Laurence Harris and Ethiopian preference for colleagues emphasize the need for Carlo Papa and Giuseppe government control. She also new financing mechanisms to Montesano, argue that both the notes the political risks in Kenya make electrification a reality. declining cost of renewable power related to corruption, ethnic and the adoption of smart conflict, and political instability. Neil  The generation mix. Coal is technologies support the McCulloch and colleagues stress currently an important part of the development of decentralized rural the importance of taking local SSA generation mix and electricity systems and their political context into account when investment in new coal-fired plants connection to central grids. deciding on aid policy. continues. The authors recognize Anteneh Dagnachew and Rahmatallah Poudineh and Tade that renewable power will play an colleagues maintain that on-grid Oyewunmi illustrate the need to increasingly important role in electricity would be cost-effective improve legal and institutional African electricity, whether at large in most cases, but renewable mini- frameworks, introduce independent scale or in isolated systems. There grid technologies could provide regulation, and liberalize the

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electricity sector in order to support perspective on the challenges of centralized systems (where new investment and improve operating electrifying Africa and identifies financial instruments and institutions efficiency. proposals for addressing them. The can increase investor return–risk second looks at system-wide issues ratios), and how it differs for investment  New financial architectures. Many related to expanding output and supply in decentralized clean electricity of the articles propose ways to security, including the potential for systems. finance the enormous investment large-scale generation projects and the Increasing the output and reliability requirements, with de-risking of integration of national and local grids. of integrated systems private investment being a The third focuses on rural common theme. Laurence Harris electrification, especially from the Lapo Pistelli argues that the African proposes a financing systems perspective of consumers. The final continent has huge renewable energy framework that looks at the entire part explores perhaps the most difficult potential and abundant natural gas that process from financial source to challenge, namely how to finance the together can deliver stable and implementation. Lapo Pistelli enormous investment requirements to environmentally sustainable electricity identifies various credit guarantee achieve universal electricity access in generation. The author refers to the proposals. Rahmatallah Poudineh Africa. untapped potential of natural gas and and Tade Oyewunmi recommend cites evidence that new (fossil-fuel- improvements for institutions, An overview of the electrification of fired) power projects in Africa burn coal policies, and regulation. Carlo Africa and even diesel, not natural gas. After reviewing reasons for the lack of Papa and Giuseppe Montesano Laurence Harris identifies three tasks investment in gas-fired plants, the suggest creating separate asset for electrifying Africa, in particular SSA. author identifies models for supporting classes and clusters of investment The first is to expand the output and that investment. One, from Ghana, to attract private investors with reliability of existing centralized power involves World Bank guarantees and different time frames and risk– systems that supply connected other payment securities (subject to return profiles. Simone consumers. The second is to connect policy reforms that ensure the power Tagliapietra argues that SSA the unconnected population, which is sector is able to sustain itself) that governments must reform their mainly rural, in decentralized systems helped attract additional sources of power sectors to facilitate and mini-grids that, using finance. The European Fund for international private investment developments in hardware and digital Sustainable Development Guarantee is and that international public control systems, can at a later stage another form of credit enhancement finance should be better link to wide-area (centralized) grids. guarantee, but natural-gas-fired plants coordinated and designed to The third is to decarbonize the energy are not currently a primary target for the promote private investment. mix, in particular reducing the fund. A third is the Scaling Solar importance of coal, high-carbon local programme, designed by the World  Climate change. Simone biomass, and diesel (which at present Bank to create viable markets for grid- Tagliapietra concludes by is widely used as an energy source in connected solar projects. More reminding readers that low-carbon stand-alone generators). The author generally, the author argues that the electrification of Africa’s growing argues that this transformation requires key to electrifying Africa is developing population is critical in the global advancements in engineering and new forms of cooperation to de-risk fight against climate change. investment. For engineering, the key is investment. Anteneh Dagnachew and to exploit the already achieved and colleagues argue that the cost of continuing cost reductions of Rahmatallah Poudineh and Tade electrifying Africa would be lower if renewables as well as recent advances Oyewunmi argue that domestic gas-to- climate change policies were in system design and smart grids to power projects can contribute adopted worldwide; the savings connect generation, storage, and significantly to universal energy access would result from improved demand from national and local as well as to the security and efficiency in the use of energy. systems. For finance, since investment sustainability of energy supply in Gregor Schwerhoff says that, is well below the rate required although investment in new coal to achieve universal electricity access Tanzania and Nigeria, but these plants continues, the case for coal by 2030, the author proposes countries need to overcome a range of is weakening, in particular due to a financing systems framework that challenges to enable this. For Nigeria, the risk of stranded assets. involves a many-stepped process from the main challenges are ensuring the financial source to implementation of effectiveness of legal and institutional This Forum has been organized into real investment. He illustrates how the reforms, establishing an independent four parts. The first offers an overall framework applies to investment in regulator for domestic gas supply,

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investing in infrastructure, transitioning electricity in SSA. Against a business- grid in many cases. Furthermore, to a more liberalized and market-led as-usual scenario, the authors compare national grids will have to be built to pricing and resource allocation model, two scenarios: one achieves universal accommodate long-range exchange of boosting the stability of the power access without climate policy, and the electricity from variable sources. In transmission network, and mitigating other achieves it with global climate spite of the advantages of renewable the liquidity crisis in the power sector. mitigation policy imposed everywhere. energy, the author points to the For Tanzania, the challenges are They draw three conclusions. First, new significant investment in new coal-fired investing in generation capacity, policies and initiatives are needed to generation, and to the continued bias, developing gas reserves upstream, ensure access to electricity for over 500 notably from financial institutions, in leveraging the technical and million people, on top of the business- favour of conventional power plants. operational expertise of international oil as-usual effort. On-grid electricity would However, he notes that the case for companies for offshore reserves, be cost-effective in most cases, but coal power is weakening, in particular addressing the liquidity crisis faced by renewable mini-grid technologies could due to the risk of stranded assets. the state-owned utility, TANESCO, and provide electricity access to over 180 Decentralized clean electrification: a reducing energy losses in the network. million people. Second, universal consumer perspective electricity access requires annual Carlo Papa and Giuseppe Montesano investment of US$27 billion assuming a Roxanne Rahnama and Ignacio Pérez- propose three enablers for African global climate policy and US$33 billion Arriaga argue that electrification electrification in conditions of rapid assuming no global climate policy; the planning is too often addressed population growth and urbanization. ‘savings’ in the cost of achieving full exclusively from techno-economic First, from a technical perspective, access result from greater efficiency, perspectives, without seriously utility-scale projects could electrify but the calculation does not include the questioning the ways in which populations living in or near towns; cost of introducing climate policy. Third, electricity services are perceived, used, standardized, decentralized mini-grids institutions need to stimulate innovation and paid for by consumers. They argue could be temporary solutions for remote in supply technology and business that the complexity of electricity rural areas and could eventually models by providing the necessary consumers has often been neglected in connect to the national grids. Second, incentives for innovation by establishing the discourse on financially sustainable the proposed business model would functioning electricity markets. electrification, especially for the rural decouple generation from the mini-grid poor. To serve these populations well system, restricting the latter to Gregor Schwerhoff points out that, of requires an understanding of ability to distribution and supply to end-users, total electricity generation in Africa in pay, willingness to pay, the value of while sourcing power from bigger 2015, only 0.33 per cent was sourced unserved energy, and how consumers renewable power plants built nearby from solar power and 0.96 per cent value different attributes of electricity and serving more than one mini-grid. from wind power, while coal and gas service. In short, successful Third, on finance, the authors suggest dominated electricity generation. The electrification requires consumer- creating separate asset classes and author refers to recent research which centred policies and business models. clusters of investment – from mini-grids indicates that wind and solar power will to industrial-scale projects and high- become the dominant source of Maryse Labriet draws on the case of voltage grids – that could attract private electricity on the continent by mid- Mali to support three main points. First, investors with different time frames and century if at least minimal importance is the definition of electricity access must risk–return profiles. The authors given to health benefits and climate include the qualitative and quantitative emphasize the importance of reaching change mitigation. This development is dimensions of access. Second, a consensus with affected being driven by falling prices for planning should focus not on electricity communities, close cooperation with renewables and the excellent potential but on the energy services provided. governments and international for renewables in Africa. Such a shift in This requires a shift from top-down to institutions, and ensuring a clear policy the energy strategy would have bottom-up planning of the electricity framework with a robust regulatory important repercussions for the way system. Third, governance should environment. electrification is planned. Since the size involve stakeholders from multiple of renewable power plants can be sectors, not just energy, as well as local Anteneh Dagnachew and colleagues adjusted to needs, decentralized authorities. The author emphasizes use scenario modelling to analyse the electricity grids may be more attractive that an integrated framework for costs of providing universal access to than connections to the distant national electricity access relies on a strong

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enabling environment, a solid supply of authors recognize the risk of technically desirable. Development products and services, and a robust generalizing the results, they explain partners need to balance activities that demand for these products and why one should be cautious in are consistent with the current political services. Finally, she stresses assuming that electrification is the key equilibrium with those supporting that energy access requires electricity to rapid economic growth: access to legitimate domestic actors that as well as facilities for clean cooking. electricity does not make poor people challenge the status quo. Researchers rich; other interventions (e.g. to improve need to test whether programmes that Anna Aevarsdottir and colleagues health) may deserve a higher priority; adopt more politically savvy discuss the potential and limitations of electricity is more useful if you can approaches are more effective and how off-grid solar. The authors argue that afford to buy appliances; and poor their success or failure is affected by due to high irradiation potential, the reliability makes electricity less the nature of the political context and falling cost of solar photovoltaic, the valuable. the way in which they are implemented. speed of roll-out, and the limited capital investment required (compared to grid Finance, investment and politics Simone Tagliapietra argues that two connections), solar home systems may Emma Gordon compares Ethiopia and changes are needed in order to scale be attractive solutions in sparsely Kenya to show how government policy up the investment required to make populated rural areas of SSA. Even low and country risk affect renewable (clean) power available to all in Africa. levels of electrification, especially solar energy investment. Both countries aim First, SSA countries must reform their lamps, can bring substantial economic to encourage foreign investment in power sectors to facilitate international and noneconomic benefits. The authors renewable energy, with Ethiopia looking private investment. Reforms must make cite a study in Tanzania that showed most favourably on large utility-scale utilities financially sustainable, while that the benefits of solar lamps include projects and Kenya offering better ending the subsidization of inefficient lower payments for lighting, kerosene, opportunities for off-grid projects. utilities and old forms of energy, like and mobile phone charging, along with Although Ethiopia has a comparatively kerosene. Second, international public increased income and even happiness. low country risk and low levels of finance should be better coordinated However, limited willingness and ability corruption, the government closely and designed to promote private to pay will need to be addressed controls the sector, and the regulatory investment, both for large-scale, low- through broader financing mechanisms, framework for private investment is carbon projects and for distributed rural flexible payment schemes, and possibly incomplete, leaving investors very electrification projects. Coordination short-term targeted subsidies. reliant on government support. In could be improved by streamlining Furthermore, available off-grid solutions contrast, Kenya has a long history of different financial initiatives, notably are unlikely to provide the electricity private investment and of innovative those led by the European Union. To needed for larger-scale productive off-grid solutions, with a well-developed support private investment, these uses; these activities will require mini- regulatory framework. However, international financial institutions should grid or on-grid solutions. investors in Kenya face political risks, encourage domestic power sector reforms and devise innovative financial Catherine Wolfram and colleagues especially due to corruption, the high products, especially to overcome the challenge what they consider to be a levels of ethnic competition, and the barriers to investment in small-grid and commonly held belief that access to potential for protracted litigation and off-grid rural electricity systems. The reliable electricity drives development violent protests that can delay or stop author ends by reminding readers that and is essential for job creation, investment projects. low-carbon electrification of Africa’s women’s empowerment, and Niel McCulloch and colleagues growing population is critical in the fight combating poverty. Drawing on an examines how aid donors have tried to against climate change. experiment in Kenya that compared two take political context into account in sample groups (a ‘treatment” group supporting power sector reform in sub- Readers may also be interested to read given access to electricity and a Saharan Africa. The author argues that an article in Forum 114 on South Africa, ‘control’ group not given access), the aid programme designs should start which country is something of an outlier authors find no difference between the with a detailed analysis of the in sub-Saharan Africa, accounting for two groups after 18 months and again underlying motivations of the key actors fully half of the generation there and after 32 months. For instance, and institutions to identify reform having achieved much higher levels of children’s test scores remained the pathways that are politically feasible, access to power than elsewhere in the same in the two groups. Although the rather than just those that are region.

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FINANCING SYSTEM Engineering advances for three subsidized markets – are not generally CHALLENGES FOR strategic tasks sustainable without major change.

ENERGY Strategies for ‘electrifying Africa’ have The capacity of sub-Saharan Africa’s TRANSFORMATION IN to address three great tasks: centralised systems was far below AFRICA Task 1. Expanding both the output and those of other regions of the global Laurence Harris reliability of existing power systems. south in 1980 and has not matched population growth since then, falling The production, distribution, and These centralised systems for power further behind those of the other consumption of electricity in Africa is a generation, transmission and regions. disaster that blights the continent’s distribution, inherited from the twentieth economic and social prospects. And it century, involve large scale generation Investing in the centralised systems has the potential to become much and transmission through centralized principally addresses the currently worse. The twentieth century grids. Investing in their expansion is unsatisfied and future growth of powersystems at the heart of the fundamental to Africa’s electrification. demand for reliable power from present supply infrastructure are But investment has to encompass existing, connected consumers. inadequate to meet present day major, challenging change of two types. Capacity and grid expansion can also demand for reliable power. For the New and upgraded capacity increase the numbers connected but future the projected growth of both incorporating new generating and cannot quickly provide coverage for population and GDP per capita in Africa transmission technology is required; large numbers in unconnected rural implies expanding demand resulting in and the institutional and market areas far from established grids. worsening shortfalls unless radical structures that characterized the strategies of expansion and change are systems historically – utilities as state implemented. owned, vertically integrated, monopolies in poorly regulated and

Share of population without access

Source: International Energy Agency. Africa Energy Outlook, 2014, Figure 1.6

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Task 2. Increasing access to electricity biomass, and local hydro, while being COP21’s ‘ground-up’ process of by connecting the unconnected. autonomous from commercial supply ‘intended nationally determined chains of fossil fuels (or partly contributions’, in the Paris agreement More than 50 per cent of sub-Saharan autonomous in the case of hybrid several African countries committed to Africa’s population has no access to source decentralized systems). Thus significant reductions in emissions. For power from the centralised system (see they are generally analysed as example, compared to business-as- figure on page 6). decentralised clean power systems usual levels Angola pledged to reduce Partly because lack of access is enabling countries (partially) to develop emissions unconditionally by 3 per cent particularly acute for rural populations twenty-first century power by by 2030, with an additional 15 per cent spread over large distances, in some ‘leapfrogging’ twentieth century reduction conditional upon support, and countries investment in grid expansion centralised fossil fuel based systems. Nigeria pledged to reduce emissions by is not a cost-effective means to reduce But, since renewable distributed 20 per cent unconditionally and 4 per it substantially and rapidly. Even South generation can, subject to geography, cent conditionally. Investing in Africa’s Africa, which inherited an extensive, be linked to existing and extended fixed electrification in ways that increase the large capacity centralised system in grids investment in both should be seen proportion of clean energy sources is 1994 and embarked on a successful as complementary. With a feasible required to support those goals. So is programme of extending grid objective of achieving hybrid power investment in the centralised grid to connections to provide access for the over linked grids, decentralised clean reduce wasteful energy transmission unconnected, found by 1999 that grid systems are sometimes regarded as losses that currently occur in sub- extension could not efficiently and transitional systems for the decades Saharan countries at a rate much quickly connect more than 80 per cent before previously unconnected regions higher than the global average through of the population. Consequently much are connected to hybrid centralised old and poorly maintained grids. recent attention has focused on the systems. Apart from climate change emission- development of decentralized small Task 3. Energy mix reducing changes in the region’s systems in which distributed local energy mix is also seen as being in generation is linked to mini-grids. Sub-Saharan Africa, in line with global African countries’ interests partly obligations, has the task of shifting its The feasibility of decentralized systems because of the cost that climate change energy mix further towards a low has been greatly increased in recent imposes on the region; partly because carbon emissions average. Within years by recent developments in of the negative public health impact of hardware and digital control systems. Their benefits include their Electricity generation by fuel in sub-Saharan Africa in the New Economic Policies relative cost effectiveness in Scenario, 2012 and 2040 locations distant from a centralised grid; their flexibility in being able to speedily supply new industrial or residential locations; their short development period and potential for early revenue streams; their scalability through linking both mini- grids and additional local generators; and the possibility of linking distributed generation to the centralised grid.

The technological advances that have made decentralised systems feasible and attractive are linked to advances in the use of renewables in generation, for decentralised systems can be seen sourcing Source: International Energy Agency (2014) African Energy Outlook: World Energy Outlook Special energy locally from solar, wind, Report Figure 2.6

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high emission fuels; and possibly within capacity energy storage systems within of real investment that would be an energy security strategy insofar as it utilities to meet peak demands to required to implement the strategies reduces dependence on international household battery storage to overcome that they make feasible. Focusing on supplies of fossil fuels. the variability of supply from solar PV Task 2 alone, connecting the panels. According to a recent estimate unconnected, the International Energy Fossil fuels accounted for 74 per cent median costs of lithium-ion battery Agency (International Energy Agency, of Sub-Saharan Africa’s power storage decreased by between 11 per 2011. Energy for all; financing access generation sources in 2012, with coal cent and 12 per cent between 2015 and for the poor) calculated that the accounting for 54 per cent and oil 9 per 2016. additional investment required between cent (see final figure). The overall 2010 and 2030 to achieve universal figures mask great variations with, at But of equal or greater significance are access in sub-Saharan Africa would be one extreme, South Africa’s generation engineering’s technical advances in USD 389 billion (constant 2010 USD), being almost entirely coal based while system design. Generating electricity but the region’s total annual investment generation in Central Africa and with PV cells, wind turbines or fossil fuels is relatively simple, but systems in power (for both connected users and Mozambique is predominantly from that make the output usable and new connections) is well below the hydro sources. enhance operational efficiency pose annualized rate required for that A leading scenario for a changed complex problems. The output of scenario. energy mix envisages increasing the centralised utilities has to be This article outlines some selected share of hydro to 26 per cent (from 22 transmitted and distributed across wide issues in financing the costs of the per cent) and other renewables such as area grids and local connections while the output of local generators has to be investment needed for Africa’s solar PV and wind to 15 per cent (from distributed to consumers across mini- electrification. 1 per cent) by 2040 (see figure on page grids, and ultimately connected to a 7). Within it, a move toward cleaner A financing systems framework centralised grid permitting two way fossil fuels involves a switch from oil flows. ‘Smart grids’ that integrate ‘How can investment in Africa’s and coal towards gas. generation and storage from a range of electrification be financed?’ is (decentralised and central) sources, To achieve electricity sector susceptible to simple, broad brush and manage both demand and supply transformation in Africa that addresses answers. One approach is to calculate to minimise fluctuating and costly those three tasks – and the many sub the (total or annualized) capital cost of imbalances, are now feasible. Digital reaching a target level of megawatts categories of tasks they involve – technology enables networks to move per person for sub-Saharan Africa over requires strategic advances in two electricity from high to low voltage a certain period and compare it with an distinct spheres: engineering and systems and to control feed-ins, and estimate of funds that could be investment. Rapid technological the design of systems that combine advances, particularly in system different sources, storage, and controls available from various sources. design, now offer solutions to most of efficiently is now routine. The But such calculations do not take us associated new hardware technology of the engineering challenges for far, for the devil is in the detail. automated controls that ensure rapid centralised, decentralised and hybrid Analyses that grasp key details from a switching between sources, control of systems, but investment lags far conventional perspective on finance supply surges, and supply behind. responsiveness to demand changes is focus on the risk-return implications Engineering advances have now established. Meanwhile, mobile and risk sharing characteristics of transformed power generation through phone technology, particularly the financial instruments; the optimal advances in the design of solar techniques of mobile money transfer combination of a variety of debt photovoltaic cells and their large scale pioneered by M-PESA in Kenya, have instruments and equity finance. manufacturing process, by the design led to the development of payment Similarly, important studies concern the systems designed to suit low income of wind turbines and by technologies for range of combinations of state, consumers of decentralised clean efficient use of gas and oil. At the concessional foreign, and ‘private’ electricity. same time, storage technologies have finance, their implications for risk- developed fast, especially in the mass While engineering advances have sharing, cost and revenue sharing, and, production of lithium-ion batteries. opened new routes to Africa’s hence, the cost of capital invested. Costs depend on the mode in which electrification recent investment trends This article is founded on a more they are used, ranging from large have fallen well short of the high rates holistic approach to financing. The

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approach, a Financing Systems account, undermine payment of that the global infrastructure investment Framework, treats finance as a electricity fees. Illustrative examples required to support currently projected connected set of quantities, prices and are the past experience of South Africa global economic growth would absorb choices linked in a many-stepped in collecting payments for municipal USD 3.3 trillion per annum on average process from financial source to electricity and, in respect of a different from 2016 through 2030 or a implementation of real investment. It is infrastructure category, the South cumulative total of USD 49.1 trillion of a process that occurs within institutional African revolt against fees for use of which USD 14.7 is allocated to power constraints that can either hinder or Sanral’s debt-financed upgraded road projects (see here). facilitate it and which demand policy network. Focusing only upon the design Taking that as a starting point for interventions. of suitable instruments for channeling African electrification’s financing wholesale finance to African power Seeing finance for investment in process it may be argued that the first projects can be followed by unpleasant Africa’s electrification as a process step is to consider how to attract financial surprises unless differs from the static approach of finance into infrastructure from complemented by measures to address calculating pools of funds available; it institutional investors’ portfolios. institutional issues across the whole enables us to consider key issues at Although infrastructure assets, with financing system. each stage of the process. Those their long and stable income steams include, fundamentally, the risk-return Since Africa’s electrification involves (post development) are compatible with characteristics of actors’ portfolio three major tasks, financing systems the liability structure of many allocation decisions. They include the differ according to the task: investment institutional investors such as pension institutional constraints affecting the and finance for modernising and funds, the main asset classes for process, stretching all the way from expanding centralised utilities and grids institutional investors as a whole are financial market structures, through differs from that needed by public equity and other financial market financial and energy market regulations decentralised power, and some specific assets. For example, in McKinsey it is to African countries’ governance, financing systems relate to investment argued that institutional investors have stakeholder interests, and incentive for emissions reduction. Instead of a some USD 120 trillion under structures, and, further, to the financial comprehensive analysis of issues at all management which governments and literacy and customs, of retail points of different types of financing other stakeholders can attempt to customers as well as their income level systems this paper the following attract for investment in infrastructure. and volatility. Thus, the financing sections focus on some illustrative To the extent that institutional investors systems framework enables us to points. I first discuss some key aspects switch into infrastructure financing the identify financing problems at key of financing systems for investment in issue is how to make fund allocations points, from the conditions of global centralised systems, followed by into African electrification at least as financial markets through the many distinctive financing system aspects attractive in terms of risk and return as intermediate stages to the capacity of applicable to investment in infrastructure projects in the countries African countries, communities, and decentralized systems. of developed and other developing individuals to use finance for electricity regions (when risk and return are Infrastructure financing of investment. judged broadly to include such factors centralised systems’ real as the cost and risk of institutional The need for a financing system investment: Macroeconomic obstacles). approach to complement existing fundamentals studies of specific financing Financing investment in utility and grid Attracting funds from global investment mechanisms is illustrated by simple power is broadly similar to financing portfolios is at one end of a financing ‘failure’ scenarios. Imagine the other large, long-term infrastructure process. I focus on it here to highlight consequences for sustained investment projects. Desirable levels of global that if studies calculate such financial if new financial instruments are devised investment in infrastructure as a whole resources but neglect macroeconomic that improve the return risk ratio for would generate a large demand for fundamentals they obscure some basic international investors in African funds and financing the upgrading of issues that have to be faced by electricity projects but the projects’ Africa’s centralized generation and grid strategies for African electrification. expected revenue streams fail to systems has to compete globally Increased investment in expanding and materialize because local politics or against the world’s infrastructure upgrading the infrastructure absorbs culture, that had not been taken into projects. One scenario calculation is real resources that must be matched by

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real domestic or foreign saving. Without by a stock of already existing physical or new principal-agent relations, as is an increase in domestic saving or a capital. Investment in Africa’s illustrated by two recent examples. reallocation of domestic saving from electrification is a flow to be calculated The proposal of Arezki et. al. (Arezki, other investment projects, the real over a planning horizon period. In R., Bolton, P., Peters, S., Samama, F. resources come from an increased recent years a high proportion of the and Stiglitz, J., 2017. From global inflow of foreign saving. In national foreign saving being invested in sub- savings glut to financing income accounting terms a large Saharan Africa’s centralised electricity infrastructure. Economic Policy, 32(90), investment programme from 2016 to systems originates from China’s flow of pp.221-261) for increasing institutional 2030 implies higher current account new resources measured by the investors’ financing of infrastructure deficits on the balance of payments country’s excess of domestic saving such as African centralised electricity matching the excess of domestic real (current account surplus). systems envisages a transformation of investment over domestic real saving. For sub-Saharan Africa China is the public-private partnerships (public Thus, financing of electrification largest national source of investment in agency and private developer/operator) investment is fundamentally a the sector’s expansion and upgrading. into fourfold partnerships that macroeconomic problem. One financial Financing is tied to Chinese contractors additionally have development banks implication of that macroeconomic designing and carrying out the projects. and institutional investors as partners. constraint, neglected in most writing on It is estimated that between 2010 and Although the entities involved are not electrification strategy, is that funding it 2020 China will have completed 145 unusual in project financing this from foreign saving through loans or sub Saharan Africa projects for new proposal places them on a partnership debt adds to the country’s foreign capacity in generation, transmission footing with a new, proactive agency liabilities and complicates its debt and distribution (see table). Of these it role for development banks as initiators management. Ultimately the is estimated that 78 per cent are and coordinators. The proposed sustainability of the country’s debt financed wholly by Chinese entities and financing mechanism associated with depends on the macroeconomics of the another 10 per cent are partially the institutional change is for growth rate and macro policy’s financed by China in tandem with development banks to create pools of management of domestic sectors’ multilateral development banks and infrastructure assets that are the basis saving and investment rates. Attracting other sources. for asset backed securities sold to foreign saving to match electrification investors. Financial instruments and investment requires more than a capital institutions A different innovation in this space is budgeting assessment of each project the fledgling market in green bonds that or programme; assessment of its Whatever the ultimate source of could be a channel for funding clean implications for the country’s debt savings for investment in African electricity projects in Africa as well as management and the macroeconomic electrification, the financing process other climate change mitigation policies it requires should not be may be strengthened by designing projects. Although the market is very neglected. financial instruments tailored to increase investors’ return- risk ratios. small, annual new bond issues have Macroeconomics also underlines the Such innovations imply associated initially grown at a fast rate, principally value of distinguishing between stocks institutional changes to create new due to issues by development banks and flows at this stage of the financing markets, new financial intermediation, and corporations (see figure). Chinese process. Calculations of the Overview of Chinese power projects in sub-Saharan Africa, 2010-20 amount of wealth potentially available in the portfolios of institutional investors refer to an accumulated stock of past saving that, in global accounting, is, in principle, matched Source: International Energy Agency, 2016. Boosting the power sector in Sub Saharan Africa, China’s Involvement, Table 1

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entities, international and regional Bond Initiative is committed to (household level) solar energy has not development banks, and US borrowers achieving such transparent standards, resulted in significant adoption. For have dominated issues, but, with the experience with other climate related African countries, some insight into the exception of a small amount of green finance mechanisms suggests that it challenges facing adoption of local bonds issued by the African will be difficult to achieve the degree of clean electricity can be gained at a Development Bank, green investment standard setting required for a well- granular level from case studies. in Africa has not had a significant functioning market. Interviews of actors involved in presence. The potential contribution of Financing decentralised clean renewables-based local systems in green bonds, their attraction as an electricity rural areas of Uganda, Tanzania, and asset class for institutional investors, is Mozambique, including local residents twofold. So, can we envisage sub-Saharan Africa being transformed in the near who have had the opportunity to access Inclusion in institutions’ portfolios may future by decentralised clean power? that electricity have revealed numerous increase their attractiveness to a Among the obstacles that have to be difficulties. They include lack of local growing class of savers who value faced is the readiness of unconnected management skills, difficulty of environmental benefits, and they act as end users to make use of access to a ensuring maintenance of installed a hedge against the climate change local clean power supply. Adoption of systems, the need for organisations risks (such as the risk of stranded the supply innovation is an example of and individuals promoting the system to assets) to which other securities in their an issue encountered in more general obtain local trust, and finance. portfolio are subject. studies of diffusion of innovations as Financing installation costs is an Although increasing numbers of suggested in an analysis of obstacle for adoption by households. institutional investors are announcing decentralised clean energy in Uganda. Evidence from case studies suggests strategies for increasing their portfolios’ It is at the opposite end of a financing that financial innovations that enable green hue, the creation of a significant process compared to international cost recovery while lowering the market in green bonds requires finance sources; it involves matters at financial threshold reduces the obstacle associated institutional changes in ground level. to adoption by low-income consumers order to establish and monitor rigorous The experience of Brazil suggests with low savings for such investment. A standards for classifying funded possible difficulties, for legislation in range of financial models have been projects as green. While the Climate 2012 intended to promote small scale used within African programmes promoting decentralised clean Green Bond Issuance Diversification electricity systems models. All use fee- for-service payments that enable adopters to spread the cost in very small, affordable payments related to use.

In Tanzania, Uganda and elsewhere recent ‘Paygo’ systems use mobile payments systems and remote monitoring. By contrast early fee-for- service systems for decentralised solar electricity in Zambia involved monthly visits by the electricity scheme’s company’s technicians to collect the fees, check on maintenance and provide a two way channel for information and feedback. The Zambian schemes’ success is likely due in part to such ‘outreach’ – parallel to the experience of microfinance Source: Shishlov, I., Morel, R. and Cochran, I., 2016. Beyond transparency: unlocking the schemes where ‘outreach’ based full potential of green bonds. Institute for Climate Economics schemes outperform others. The

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outcome of those Zambian cases is not only because of its size and its pumping of water, refrigeration for food also due partly to its subsidy from situation within an industrialised society and medicines, and cooking and foreign aid. A case study of South with large coal reserves, but because of lighting. Its unavailability for hundreds Africa’s programme to roll-out the institutional framework that has of millions of people in sub-Saharan household clean power systems with enabled long term strategic planning. Africa means countless early deaths fee-for-service cost recovery through Notwithstanding faults in corporate and and environmental devastation from local service delivery enterprises political governance affecting the cooking indoors with charcoal produced (concessions) operating forms of sector, South Africa’s opening of the by cutting down scarce trees and using outreach finds that the programme’s sector to independent power producers kerosene for both cooking and lighting success depends on the continuity and introduced private enterprises that – not to mention the substantial predictability of subsidies to the changed the energy mix by producing a contribution to economic and social concessions. significant expansion of clean energy. It development that women could make if is a world-leading example of they were freed from gathering biomass Fee-for-service methods of financing institutional change – including for energy. decentralised supplies rest on business strategic change in regulations and models where local agents, operating So far, improvements in access to energy tendering processes -- facilitating a concessions granted by a central have not substantially changed the overall change in market structure to enable authority supply installations and picture in the region. About 600 million new financing processes and an maintenance and recover costs from people still have no access to effective shift in the country’s electricity subsidies and fee-for-service customer electricity, and according to IEA’s World provision. payments. Since the long run financial Economic Outlook (WEO) the number sustainability of that model is not yet will be about the same in 2030 (while it known, it is too early to say that it can will decrease in all other world regions). ELECTRIFICATION IN successfully reduce the obstacles to In sub-Saharan Africa, the average adoption and have a significant impact AFRICA: THE NEED FOR electricity consumption per capita is on increasing access to electricity. NEW FORMS OF between 100 and 200 kilowatt hours COOPERATION (kWh), compared to 2,100 kWh in Conclusion Lapo Pistelli emerging Asian economies, 5,100 kWh Considering the current situation of in Europe, and more than 10,000 kWh The lack of access to electricity is one electricity availability and use in sub- in the United States. In addition, over of the prime structural brakes on Saharan Africa and the prospects for the last decade, although Africa’s development and improved human transformation, this article introduces global primary energy supply has health in sub-Saharan Africa, and fresh some key concepts and issues. Its grown by more than 3 per cent each thinking is required to improve a dismal limited scope requires the omission of year, the energy mix has remained situation and to prevent it from many features and issues in Africa’s substantially unchanged. The region’s becoming even worse. electrification and the paper contains electricity-generating capacity has no direct policy recommendations. At The situation is all the more regrettable changed little in more than 20 years. At present, the broad policy implication is because the continent has huge about 0.04 megawatts per 1,000 that policies to address institutional renewable energy potential and people, capacity is less than one-third obstacles at different points in the abundant natural gas – the cleanest that of South Asia, and less than one- financing process are necessary. hydrocarbon – which, when combined, tenth that of Latin America and the Treating the financing process of can deliver stable and environmentally Caribbean. Whatever general progress electrification at the level of sub- sustainable electricity generation. there has been in Africa has been propelled by improvements in East Saharan Africa as a whole obscures Electricity plays a key role in Africa, where the electrification rate the wide variety of national experiences development not only as a primary increased by roughly 30 per cent to and prospects in the region. It diverts enabler of industrialization and reach 40 per cent in 2016. In 23 of the attention from the lessons that can be modernization – powering everything 42 countries of sub-Saharan Africa, learned from countries’ varied problems from basic manufacturing to the however, more than 90 per cent of the and policies. Internet – but also as a primary driver population uses only biomass (mostly of the basic well-being of local Within the region’s variety South charcoal) for cooking and heating. Africa’s electricity sector is an outlier communities. It can power the efficient

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The untapped potential of natural about 60 km off Ghana’s Western country’s effective implementation of gas Region coast. The fields have about policy reforms that ensure that the Natural gas has a large untapped 770 million barrels of oil equivalent power sector is able to sustain itself. potential; it currently meets only 13 per (MBOE) in place – 500 million barrels The duration of these processes and cent of demand. Gas reserves are often of oil and 270 MBOE (about 40 billion their unpredictability discourage not developed because they are cubic meters) of non-associated gas. investors, leaving significant national commercially unviable – the reserves Eni started gas production from OCTP resources untapped. in early July 2018. The field is expected are too small, national legislation is not The European Union (EU) has also to provide 180 million standard cubic conducive to investment, domestic recently launched a guarantee scheme feet per day for at least 15 years, prices are subsidized and thus provide under the EU External Investment Plan. enough to convert half of Ghana’s inadequate return on investments, or The European Fund for Sustainable power generation capacity to gas. the off-takers have creditworthiness Development will underwrite loans, Production will gradually flow via a issues. Even when gas is associated guarantees, or ‘any other form of dedicated 60 km pipeline to the with oil production, the same problems funding or credit enhancement’ offered Onshore Receiving Facility in Sanzule, arise, and flaring – burning gas by trusted institutions, such as where gas will then be compressed and associated with oil production into the development banks, governments, and distributed to Ghana’s national grid. atmosphere – is still very common. The private companies investing in OCTP gas will contribute to Ghana’s amount of gas burned each year in development projects in Africa or in the energy stability, which is a prerequisite Africa is equal to 30 per cent of the total EU’s southern and eastern neighbour for industrial and economic growth, gas consumption of the continent. countries. Unfortunately, investments in while at the same time helping reduce gas-fired power plants have not been All this has led to the sad fact that, harmful emissions. according to the World Bank’s Private considered a primary target for the Participation in Infrastructure Report Development of the gas resources was European Fund for Sustainable made possible by the negotiation of an 2017, in Africa in 2017 all new power Development. innovative payment security structure plants burned fuel oil, diesel, or even involving World Bank (International A good model could be the Scaling coal, thereby both losing an important Bank for Reconstruction and Solar programme, designed by the bet on the continent’s energy transition Development and International World Bank Group to help create viable and placing a heavy burden on national Development Association) guarantees markets for grid-connected solar budgets. amounting to $700 million: $500 million photovoltaic (PV) power plants in low- from the International Development So the market alone is failing to deliver income countries. The programme Association to secure payments by the access to energy in the sub-Saharan offers a one-stop-shop package of state-owned Ghana National Petroleum region. Natural resources are there, as advisory services, contracts, financing, Corporation for the purchase of gas, guarantees, and political risk insurance well as actual and potential energy end- and $200 million from the International from the World Bank, International users. Fixing what is missing or not Bank for Reconstruction and Finance Corporation, and Multilateral properly functioning requires a vast Development to cover the repayment of joint effort between governments, the loan. The World Bank’s involvement Investment Guarantee Agency. Both international institutions, and the private also paved the way for subsequent International Development Association sector to bring together government participation by international payment guarantees and loan development goals with private-sector commercial banks and export credit guarantees are offered to developers. know-how, technology, and capital. agencies as well as the International The programme is currently active in Finance Corporation and the Ethiopia, Madagascar, Senegal, and The experience in Ghana, the only Multilateral Investment Guarantee Zambia. It has been able to attract top- country in sub-Saharan Africa in which Agency. tier global developers and, through the non-associated gas has been Obtaining a credit enhancement provision of guarantees, to make power developed in deep water and entirely guarantee is not an easy task. Only available at very low tariffs. dedicated to the domestic market, is a multilateral development finance good example of a model that could be New forms of cooperation institutions such as the World Bank and more frequently applied. The Offshore This points to the importance of the African Development Bank can Cape Three Point (OCTP) block, of developing new forms of cooperation provide these. Guarantees are rightfully which Eni is the operator, is located between the private sector, subject, among other things, to a

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development finance institutions, and Tanzania, on the other hand, has made developments in the gas sector the public sector. For instance, steps significant gas discoveries within the and electricity supply industry even taken by the EU in further expanding past decade. The two countries are as the latter was privatized and the use of guarantee schemes in the keen to leverage their abundant gas being liberalized (Oyewunmi reserves to boost electricity generation 2018), new budget proposal for the EU and energy access for industrialization External Action, envisaged for the next and economic growth.  an unstable power transmission Multiannual Financial Framework network, and There are various reasons that gas is (2021–2027), will hopefully consolidate and expand the approach inaugurated considered a strategic option in  a liquidity crisis in the Nigerian by the European External Investment electrification. First, the modular power sector due to high energy Plan launched in 2016. There is great investment costs of gas-fired losses, exacerbated by non-cost- potential for EU guarantee schemes to generators make them attractive to reflective tariffs and irregular bill encourage private-sector funding and investors, especially when there is an collection (Peng and Poudineh, address suboptimal investment adequate infrastructure and reasonably 2017). situations, provided that simplification priced gas supply outlook. Second, and streamlining across the financial natural gas is the cleanest-burning In Tanzania, which has ambitious institutions involved in the scheme are hydrocarbon and is often portrayed as electrification plans, enhancing the gas- ensured. a bridging fuel that can provide security to-power supply chain requires not only and reliability in increasingly timely investment in generation There is also great potential in the decarbonized economies where capacity but also an increase in gas African Investment Forum and the renewable energy sources are production and processing. Given the initiative that the African Development becoming dominant. Third, small scale of onshore reserves, Bank is leading to set up a ‘mutualized advancements in combined cycle gas Tanzania will need to invest in its co-guarantee platform’ to de-risk turbine technology realised over the offshore gas resources for domestic investments, together with the past two decades means that power use; this is challenging as it requires International Finance Corporation, generation is now more efficient in technical expertise and capital from World Bank, Inter-American terms of energy and heat utilization. international oil companies, who Development Bank, Islamic Therefore, the successful development typically prefer export rather than Development Bank, and European of gas-to-power supply chains in these domestic supply mostly due to the often Bank for Reconstruction and countries has the potential to contribute distorted gas prices in the domestic Development, among others. to both energy access and market. The liquidity crisis of the In short, to build a future where decarbonization. Tanzania Electric Supply Company everyone can access energy resources (TANESCO), the state utility company, Developing a commercially viable gas- efficiently and sustainably, collaborative and the high level of technical and to-power supply chain is, however, a effort that helps de-risk investments in nontechnical energy losses in the complex matter for both countries. The the electrification of Africa is key. electricity grid further exacerbate these main issues in Nigeria are issues (Peng and Poudineh, 2016).

 inconclusive structural reforms and These issues are arguably the reason NATURAL GAS IN NIGERIA lack of an independent regulatory that gas consumption for power AND TANZANIA: CAN IT regime for domestic gas supply, generation is much lower in Nigeria and Tanzania than in the resource-rich TURN ON LIGHTS?  poor geographical coverage of gas North African countries as shown in the transportation pipelines between Rahmatallah Poudineh and Tade graph. Oyewunmi the gas-rich south-south Niger Delta region and the main Nigeria Nigeria and Tanzania are two countries generation facilities which are in sub-Saharan Africa (SSA) in which Although it has about 184 Trillion Cubic nearer to industrial and commercial natural gas is likely to remain essential Feet (Tcf) of proven reserves, Nigeria centres in the western and eastern for meeting growing energy demand in produced about 47.6 Billion Cubic Feet region, the medium to long term. Nigeria has (Bcf), 42.6 Bcf, and 47.2 Bcf of gas in the most abundant gas reserves in  misalignments between 2015, 2016, and 2017, respectively (BP Africa and has been the continent’s institutional and commercial Statistical Review of World Energy leading producer for several years.

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2018). Most of the production is in service due to load shedding, and privatisation of the GENCOs and typically either exported as Liquefied thus mostly rely on self-generation DISCOs was completed in 2013. Natural Gas (LNG) and Natural Gas through private diesel and petrol Currently, power generation from about Liquids (NGL), reinjected as part of generators. To address electricity 25 grid-connected generators (21 gas- enhanced oil recovery processes, or shortages in Nigeria, the immediate fired thermal power plants and 4 hydro- flared (NNPC Bulletin). Despite this, past government set a target of 20,000 powered) are mostly constrained due to natural gas has been the primary fuel MW of generation capacity by 2020, shortages and interruptions in gas for power generation in Nigeria, which while the current government is supply, while power generation from has a total installed capacity of about pursuing incremental additions to the hydro generators fluctuates with 12,522 megawatts (MW) (10,142 MW generation capacity. The Nigerian seasonal changes and rain levels. The thermal and 2,380 MW hydro) (see Electricity Regulatory Commission’s 25 grid-connected generators are Power Africa). In 2013, the nation’s (NERC’s) regulations and guidelines for owned and operated by the GENCOs, primary energy consumption consisted captive power generation, embedded independent power producer (IPPs), of 74 per cent biomass (typically wood, generation, independent distribution and the National Integrated Power charcoal, manure, and crop residues, networks, mini-grid permits, and Project (NIPP) plants. The NERC used for cooking and heating, mainly in renewable-energy-sourced electricity reports that, as of June 2018, only 5 rural areas), 12 per cent natural gas, helps to outline a cognisable framework power purchase agreements (PPAs) 13 per cent oil, and 1 per cent hydro for much needed capacity additions, were fully active, and only 3 gas supply (US Energy Information Administration including off-grid systems. The agreements (GSAs) were fully active, (EIA)). structural reforms of the power sector out of which two were self-suppliers, launched in the early 2000s led to (i) Nigeria’s population is about 186 Shell Petroleum Development the establishment of the NERC as million, and the electrification rate is Company of Nigeria (SPDC)’s AFAM independent regulator, and (ii) the about 45 per cent, leaving tens of VI, and Okpai IPP, owned by the corporatisation and unbundling of the millions of people without access to Nigerian National Petroleum vertically integrated state-owned utility electricity (US EIA). This means Nigeria Corporation (NNPC)/Agip Joint i.e. the Nigerian Electric Power has one of the lowest rates of net Venture. (For information from the Authority, into six generation electricity generation per capita in the NERC on PPAs and GSAs, (see here). companies (GENCOs), 11 distribution world. Those with access to electricity companies (DISCOs), and a national One major reason for nonactivation of often face blackouts and interruptions transmission company. The take-or-pay-based gas supply

African gas consumption for power generation, 1990–2014

Source: International Energy Agency, Natural Gas Information, 2016 Edition

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agreements, which also underscores (who may continue to be billed based complexity (Oyewunmi, 2017). The the liquidity challenge in the gas-to- on estimations). Current measures of government seemingly recognizes the power supply chain, is reported to be aggregate technical, commercial, and need for developing good quality and the inability of the Nigeria Bulk collection losses for the 11 DISCOs effective framework to address the Electricity Trading Company (NBET) to range between 30 and 60 per cent, longstanding challenges that arise meet its payment obligations to the though a detailed breakdown of losses beyond gas production. Among other GENCOs. In the current transitional across categories is not available. This things, the proposed plans and policy energy market context, NBET was has resulted in a liquidity crisis across objectives aim to facilitate the created to purchase electricity from the the gas-to-power supply chain. The development of a liberalised market for GENCOs, NIPP and IPPs, based on insolvency and commercial issues gas-to-power in the medium to long- the PPAs and sells to DISCOs through faced by the utility companies has term and also set up an independent vesting contracts. impacted their ability to carry out timely economic regulator in the context of the investment in generation capacity and wider petroleum industry reforms In an extended gas-to-power supply electricity network enhancement. (National Gas Policy, 2017). Despite chain, energy travels from gas the lack of a coherent regulatory upstream to electricity downstream In the gas sector the transmission and framework for downstream gas while money moves in the opposite distribution networks do not have transmission and distribution (legal direction. However, in Nigeria, final sufficient coverage. Additionally, the reforms in this area have continuously electricity tariffs are generally non-cost- regulation of pricing for gas supply to stalled), there are private companies reflective, and this creates financial power below cost-of-service has, engaged in gas transmission and problems for the entire gas-to-power among other things, had a negative supply to a few large industrial and supply chain. Since 2015, every impact on investment decisions and commercial buyers. However, such change in the electricity tariffs has market development. The current suppliers still need to rely on existing encountered opposition from either domestic gas pipeline infrastructure infrastructure mainly owned and DISCOs or end-user representatives. mainly comprises two unintegrated operated by the NNPC and its gas The trend is exacerbated by an pipeline networks of approximately transmission subsidiary. irregular bill collection regime, which is 1,100 kilometres: the Alakiri-Obigbo– still mostly based on estimates or Ikot Abasi Pipeline (the Eastern The proposed legal and institutional analog meter readings, while few end- Network), and the Escravos–Lagos reforms of the National Oil and Gas users have access to digitalised or Pipeline System (the Western Policy 2004 and the Petroleum Industry smart meters. Records from the Port Network), as well as the dedicated Bill, and re-drafts such as the Harcourt Electricity Distribution pipeline infrastructure owned by the Petroleum Industry Governance Bill Company, submitted as part of the Nigerian Liquefied Natural Gas (PIGB) 2017, have been inconclusive. latest tariff review, reveal that Company, the NNPC/SPDC/Total Joint The PIGB was recently passed by the residential customers are the source of Venture, and the Chevron/NNPC Joint National Assembly but requires the most significant collection losses, Venture. The Eastern Network is limited presidential assent before it becomes with only 43 per cent of all bills in reach, while the Western Network law, and this appears unlikely before collected, compared to 77.4 per cent for delivers gas to Lagos, the main the 2019 presidential elections. The commercial customers and commercial nerve centre and most implementation of the National Oil and 75.3 per cent for industrial customers populous state in Nigeria. For over a Gas Policy, the Gas Master Plan 2008 (Peng and Poudineh, 2017). A survey decade, several planned but (which provides for a gas pricing policy, of low-income consumers revealed uncompleted pipeline and gas the Domestic Gas Supply Obligation irregularities at the distribution and processing facilities have been (DGSO), and the Gas Infrastructure demand interface: many low-income earmarked by NNPC and the Federal Blueprint), and the 2008 National consumers did not know the name of Government under the Nigerian Gas Domestic Gas Supply and Pricing their DISCO and had never interacted Masterplan’s Gas Infrastructure Policy and Regulations, all within the with them; most customers were Blueprint. ambit of the Petroleum Act 1969, unmetered and thus wrongly classified NNPC Act 1977 and Oil Pipelines Act Protracted reforms in the oil and gas and received estimated bills; the 1956, have been largely ineffective. industry and attendant institutional prevalence of estimated billing has led Problematic provisions in the policy issues in the gas-to-power supply chain to illegal bill collection rackets, resulting documents include requiring the context adds another layer of in voluntary disconnection of customers delivery of low-cost gas to the power

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market, while not properly defining ‘low privatization once the required laws to ambitious target will require more than cost’ or enabling the commercial consolidate the policy proposals are doubling the current daily domestic gas environment to make such volumes enacted. Domestic market supply. Developing the reserves available; lack of clarity and duplication requirements are to be prioritized, while required for such an increase in in the roles of the new gas aggregator Nigeria seeks to maintain a significant domestic supply, estimated at 30 Tcf, (the Gas Aggregation Company presence in international markets. will require timely capital investments of Nigeria), the Department of Gas, and US$20 billion or more. The difficulties in On pricing reforms, the 2017 National the Department of Petroleum arriving at a market-led or cost- Gas Policy stipulates that the upstream Resources (DPR); as well as the reflective price for gas-to-power, largely gas price for domestic sales will be extensive powers of the Minister of due to the socio-political challenge of fixed based on netback from export Petroleum, a position that under some managing pass-through costs and parity prices. Thus, the price an circumstances is filled by the President transitional issues, have created a very upstream producer will receive for (Oyewunmi, 2014). Since the DGSO complex challenge. supplying gas to the domestic market policy was adopted in 2008, there has will be set at par with the average price From an efficiency perspective, been a dismal level of compliance by received by producers for exporting rationalizing gas prices is necessary, upstream producers, including the gas, less the cost of transportation or but in theory, it might give a competitive NNPC and its upstream joint venture delivery to the export destinations. The advantage to more carbon-intensive interest holders or production sharing rationale is to develop a cost-reflective fuels such as coal. Coal played a contractors, comprising of international pricing regime to encourage producers considerable role (mostly in commercial and local private companies (National to supply gas locally or at least be applications and rail transport) between Gas Policy, 2017). The main reasons neutral in choosing between the 1906 and 1960. However, after the for non-compliance with DGSOs can be domestic market and often more discovery of commercial oil reserves in attributed to inadequate infrastructure, favourable export markets. The setting 1956, the share of coal in the Nigerian cost inefficiency, economic and price of tariffs is to be based on a regulated energy mix became negligible. It regulation issues as well as supply cost of service and rate of return reportedly dropped to about disruptions and sabotage of pipelines in paradigm, with an eventual transition to 0.02 per cent or less by 2003. Although the Niger-Delta area. Notably, the issue a fully competitive and liberalized Nigeria is reported to have about 639 of sabotage and militant disruptions has wholesale market (National Gas Policy, million tonnes and 2.75 billion tonnes of reduced considerably within the past 2017). proven and inferred reserves of coal, three years, following definite steps respectively, its use for power taken by the current federal While the provisions of the National generation faces daunting challenges. government on security issues. Going- Gas Policy are seemingly on the right These include the high cost of forward, it will be essential to address track, it is perhaps more important to reopening and increasing the the misalignments between the power resolve the underlying administrative, productivity of the coal mines, the need sector’s costs, tariff setting, and market institutional, and structural issues that for mechanization and ancillary dynamics vis-à-vis developments in gas may have hindered the timely transportation systems, and most supply industry. completion of infrastructure projects importantly, the environmental factors and created funding and investment Among other things, the federal that make coal less popular than gaps. There is also a need to deal with government recently approved two renewables such as solar and wind. regulatory uncertainties, duplication of policy instruments under its National Recent gas-fired IPPs such as Azura- roles, and liquidity issues affecting the Economic Recovery and Growth Plan Edo and initiatives for distributed and creditworthiness of gas offtakers in the 2017-2020 i.e. the National Gas Policy incremental generation, especially with gas-to-power supply chain (Peng and 2017 and the National Petroleum Policy renewables (in particular solar), Poudineh, 2017; Oyewunmi 2018). 2017. The National Gas Policy suggest that investors are willing to recommends a single, industry-wide Achieving the goal of a gas-fired power invest in both gas-to-power and regulatory agency i.e. the Nigerian generation capacity of over 20,000 MW renewables. However, institutional and Petroleum Regulatory Commission, by 2020 appears unrealistic, governance issues need to be while the Ministry of Petroleum will considering the amount of investment, addressed, and a transition to a more remain responsible for policy directives institutional efficiency, and competitive and commercially viable and supervision. The NNPC is infrastructure development that would gas-to-power pricing system needs to earmarked for restructuring and require (see here). Attaining this occur in the mid to long term.

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Tanzania TANESCO, the state-owned utility Somangu and Mtwara, operate small With around 55 Tcf of natural gas company, currently owns and operates gas-fired power plants which are reserves, Tanzania is emerging as a downstream power sector supplied by natural gas from the Songo major gas producer in SSA. Its other infrastructure. Mwenga Hydro, which Songo and Mnazi Bay projects. Some energy resources include 1.9 billion owns and operates the 4 MW hydro contracted small power producers also tonnes of coal, of which 25 per cent is project, is the only other company that provide electricity to the mini-grids. A proven, a potential for about 4,500 MW also holds a licence for distribution and further 15 MW of generation capacity is of hydro, with just 12 per cent currently supply activities. The main grid owned available through imports from Uganda developed, and other renewable and operated by TANESCO consists of and Zambia, exemplifying the growing sources like solar and wind (Energy 4,869 km of transmission lines at 220 importance of cross-border energy Policy 2015). Electricity net generation kilovolts (kV), 132 kV, and 66 kV. supply transactions in SSA. in Tanzania was 5.3 billion kilowatt The installed generation capacity in The government of Tanzania also plans hours (kWh) in 2013, of which almost Tanzania includes both on-grid and off- to expand the country’s installed gas- 68 per cent was from fossil-fuel grid facilities. Of the on-grid facilities, fired generation capacity. The plan sources, 32 per cent from hydropower, hydropower stations (561 MW of includes four major plants: the 150 MW and a small amount from modern hydropower projects commissioned Kinyerezi I, funded by TANESCO and biomass and solar (US EIA). Akin to between 1964 and 2000, dominated by started in 2016; the 240 MW Kinyerezi Nigeria, Tanzania’s rural population the Kidatu Dam with 204 MW and the II, which started operation in 2018 with relies on traditional biomass and waste Kihansi Dam with 180 MW), are a capacity of 168 MW but is expected (typically consisting of wood, charcoal, responsible for about half of the to reach full capacity later; Kinyerezi III, manure, and crop residues) for electricity generated in the country. with 320 MW in phase 1, to be financed household heating and cooking. These hydro stations are located in by China Power Investment Tanzania’s economy has also grown southern Tanzania, while most load Corporation; and Kinyerezi IV, with 330 rapidly over the last 10 years. The centres are in the north. There are also MW capacity in phase 1, to be financed gross national income per capita fossil-fuel-fired, on-grid power by China’s Poly Group, a state-run increased on average by 9.5 per cent generating plants built since the 2000s, conglomerate. owned and operated by different each year between 2006 and 2014, Beyond these projects, the Symbion companies, reflecting the lifting of from $450 to $930. Per capita Southern Electrification Project, a 400 TANESCO’s monopoly in generation electricity consumption grew from 51 MW gas-fired power plant and a 400 kV starting in 1992. Fossil-fuel-fired kWh to 99 kWh between 2000 and transmission line from the plant in generation plants owned and operated 2012, at an annualized growth rate of 6 Mtwara to Songea, is being negotiated by IPPs came online a decade after the per cent, but it remains low relative to as a public–private partnership lifting of the monopoly: Independent other countries with similar levels of between TANESCO and US-based Power Tanzania in 2002 and Songas in total energy consumption. To increase Symbion Power, a company already 2004. In 2011, TANESCO contracted the use of electricity, the government operating in Tanzania as an emergency emergency power producers, the US has established aggressive power producer. There are also plans company Symbion Power and electrification targets: 30 per cent by to install other types of plants such as Glasgow-based Aggreko, to bridge the 2015 (which has already been small-scale hydro, biomass, solar electricity supply gap caused by achieved), 55 per cent by 2025, and at photovoltaic, and wind power. least 75 per cent by 2035. Although this droughts and to provide diesel-fired is less ambitious than the United rented capacity. Since 2010, a few To achieve its gas-to-power strategy, Nations’ goal of universal access to small power producers have provided the government of Tanzania needs to modern energy services by 2030, it is electricity to the grid from biomass and deal with several key issues. The first is aligned with estimations that SSA is hydro plants. ensuring adequacy of gas supply and timely investment in upstream facilities. more likely to achieve an electrification In regions where connection to the grid The planned capacity of gas-fired rate of 80 per cent by 2040, based on is not available, mainly in the western generation is 1,700 MW, which, in experiences elsewhere such as belt from Bukoba to Songea, combination with existing gas-fired Tunisia, South Africa, Indonesia, and TANESCO owns and operates isolated generation capacity of 736 MW, Brazil. diesel-generator-powered mini-grids. amounts to a total of 2,436 MW if all Mini-grids on the eastern shore, in planned power plants come online on

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time. If run at 70 per cent load (the Thus, the success of the investment and global fuel prices. To become average load factor of Tanzanian plan for enhancing the gas-to-power fiscally sustainable, the regulator needs demand) and assuming a higher supply chain in Tanzania depends not to periodically adjust retail tariffs based heating value-based efficiency of only on timely investment in generation on ex-post fuel costs and inflation rates. 40 per cent, supplying all these power capacity, but also on timely investment However, this diminishes its ability to plants will require a gas supply of 340 to double gas production and maintain tariff stability, which might MMcf (Million Cubic Feet) per day. processing at Songo Songo and Mnazi impact certain classes of customers Estimates from TANESCO, using Bay. In the long term, it also depends more than others. different assumptions, forecast a 2018 on the successful development of In view of the challenges of gas-to- demand of 475 MMcf/day. Existing Tanzania’s offshore gas resources for power in Tanzania, the government has production capacity is 102 MMcf/day at domestic use, which is unlikely to occur also been considering coal as a fuel to Songo Songo and 70 MMcf/day at independently of an export LNG enhance energy access. In 2013, Mnazi Bay, adding up to 172 MMcf/day, project. Tanzania produced about 77,000 which falls short of the projected On top of these issues, Tanzania tonnes of coal, which was consumed demand. Based on the $120 million suffers from high energy losses; these locally (US EIA). Kibo, a Tanzania- cost of expanding production at Songo stood at 18 per cent in 2012. Although based minerals exploration and Songo from 92 MMcf/day to 102 its transmission and distribution losses development company, is undertaking MMcf/day, the expansion still needed are comparable to those of its a twin-track development at Mbeya, (from 160 to 300 MMcf/day) is likely to neighbours (Zambia, Kenya, and comprising a coal mine based on the require investment of $2 billion to $3.5 Mozambique), they are significantly existing coal resource and a 250–300 billion. The existing gas transmission higher than the world average. A MW mouth-of-mine thermal power plant capacity between the production fields portion of these losses are due to which has an engineering, procurement and the proposed locations for the technical problems: ageing and construction (EPC) contract with a power plants, the Mnazi Bay–Dar es infrastructure, unplanned extension of China-based contractor. In recent Salaam pipeline, has a total capacity of distribution lines, and the overloading of years, China, as part of its Belt and 784 MMcf/day, which is adequate and inadequate equipment. About half is Road initiative, has exported coal not expected to require expansion in also due to commercial problems such power plants to Africa. Despite these, the near term. as misalignment between billed the market and institutional and The second challenge for the Tanzania electricity and electricity fed to the infrastructural capacity for significant government is that the total near-shore power grid. coal utilization is still underdeveloped reserve, estimated at 2,147 Bcf, will compared to gas-to-power. Thus, as in TANESCO has announced plans to only be able to support consumption by the case of Nigeria, significant new invest in transmission capacity with the power generation plants at the planned investment in coal power plants is more goal of integrating the gas-producing rate for 17 years. If gas-fired plants are problematic than investment in gas south with the main grid. This should to supply Tanzania beyond 2035, the fired plants and ancillary gas supply reinforce the transmission backbone off-shore reserves will need to be infrastructures. Furthermore, under around and to the west of Dar es developed by that time. The capital current project financing conditions, it is Salaam, and expand the grid towards investments and technical capacities of becoming more difficult to secure inner Tanzania, where isolated diesel- international oil companies are international investment in coal powered mini-grids operate. However, expected to be of critical importance for utilization. International investors and TANESCO has been facing serious this purpose. However, such multinational financing institutions are liquidity issues, which constrain its involvement is largely conditional upon seemingly more receptive to clean ability to make significant investments. the development of the onshore LNG generation, especially due to climate Furthermore, TANESCO’s liquidity export facility, projected to cost change concerns and the global drive problems and the high transmission between $20 billion and $30 billion. A for decarbonisation. and distribution losses reportedly portion of the gas produced by the threaten the operations of IPPs and Conclusions international oil companies will be used negatively affect their willingness to to supply the domestic market under A viable gas-to-power market in Nigeria invest. TANESCO’s costs of service are the domestic supply obligation and Tanzania has the potential to subject to critical external uncertainties contained in their production-sharing contribute significantly to universal like hydrology, currency depreciation, agreements. energy access and to the security and

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sustainability of the energy supply. NEW ENABLERS FOR whom live in Africa. Surely, looking at However, the development of a ACHIEVING SUSTAINABLE this figure, we should avoid an overly competitive and commercially secure ENERGY FOR ALL IN pessimistic view and recognize the gas-to-power supply chain is a complex AFRICA substantial progress that has been task. made. However, we must stress the Carlo Papa and need to find new and more effective For Nigeria, the main concerns are the Giuseppe Montesano ways to achieve sustainable energy for effectiveness of legal and institutional all (see here) in Africa, focusing on an reforms in the power and gas sectors; At the beginning of the last century in integrated way to address the the need for an independent regulator the north-western United States, economic, social, and environmental of the domestic gas supply; timely electricity salespeople were following dimensions of sustainable investment in and completion of the farmers who were turning the development. essential infrastructures; efficient desert green, and new distribution lines management of the costs and benefits were following the salespeople. At In this context, we should be ready to of transitioning to a more liberalized about the same time, in Italy, the bet once again, as our predecessors and market-led gas to power system; economy was growing at double-digit did, on electricity and on the the reliability and resilience of the rates year on year, powered by the capabilities of human beings by recognizing that humanity has the power transmission network; and the ‘white coal’ of hydropower. potential to develop in a sustainable liquidity of the power sector. In both cases, our predecessors bet way within the operating space of For Tanzania, achieving gas-to-power that electricity would play an essential planetary boundaries (The Human objectives requires timely investment in role in economic development – Quest: Prospering Within Planetary generation capacity and development considering electricity, at the very least Boundaries. Johan Rockström, Mattias of gas reserves upstream. There is also in the access and development phases, Klum, 2012). This time, after a century of experience, it should be easier, given a need to leverage the technical and a cause or a facilitator rather than the evidence of the relationship operational expertise of international oil assuming a unidirectional causal link between electricity and growth – to the companies for offshore reserves, both from economic growth to electricity extent the UN identifies access to availability – and bet even more on for export projects and to meet sustainable energy as a prerequisite for humans’ ability to become smarter domestic requirements. Addressing poverty eradication and building the masters of nature through lateral TANESCO’s liquidity crisis will require sustainability and resilience of considerable economic and structural thinking. communities – and the tremendous reforms. In July 2018, United Nations Secretary progress made on renewable General António Guterres will report to generation and smart grids able to The two countries now have a clear function as platforms for global and the High-Level Political Forum on path towards maximizing gas utilization local sustainable development. for power generation with an Sustainable Development on progress understanding of underlying pricing and towards the Sustainable Development The human factor is indeed the governance challenges. Such Goals (SDGs), providing an overview of indispensable element – and understandings are increasingly leading the current situation for each SDG. sometimes the most forgotten – to to economic restructuring and new Commenting on progress on SDG 7 some extent, the real compass in the policy instruments intended to support (ensure access to affordable, reliable, journey from poverty to sustainable the transition to a liberalized and sustainable and modern energy for all), prosperity in the realm of electricity. he will likely highlight that ‘ensuring competitive gas-to-power market. We need to keep in mind our fellow access to affordable, reliable and Renewables already play a significant human beings, their needs, and their modern energy for all has come one role in Tanzania, and their use is competences in a given lifespan, when step closer due to recent progress in growing in Nigeria. Looking-ahead it is thinking about strategic and practical increased access to electricity, expected that renewables fill the gaps approaches to generation and supply of particularly in Least Developed created by inadequate gas-to-power electricity in energy-deficit areas of the Countries (LDCs) and improvements infrastructure and provide energy planet. We should consider what in industrial energy efficiency’. Still, the access in remote and rural areas. people need in order to thrive, with report will draw our attention to the electricity as a key element – rather nearly 1 billion people who still lack than setting a theoretical level of access to electricity, a good portion of

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demand based on the assumption that and decentralized solutions for remote of the planet, we should approach mini- people in energy-deficit regions cannot rural areas. Analysis by the grids as building blocks, applying the expect a similar level of energy supply, International Energy Agency (IEA) lego bricks logic. Practical and well-being, as people in energy- revealed that from 2000 to 2016 nearly implementation of this approach is surplus regions. Undeniably, this all of the people who gained access to currently rare, if not nonexistent, so it requires us to design growth paths and electricity worldwide did so through new would require a change in perspective, set development milestones relying on grid connections, mostly with power but it could be successful because of its and implementing, from the beginning, generation from fossil fuels. scalability. Gradually connecting mini- scalable solutions to accommodate Nevertheless, the technologies used to grids could help to systematically growing energy needs in a sustainable provide access have started to shift, expand energy access, progressively and resilient setting. with renewables providing 34 per cent offering growth opportunities and local of new connections since 2012, and benefits with the eventual goal of Two megatrends have a direct impact with off-grid and mini-grid systems connecting areas to large grids on electricity access in Africa. accounting for 6 per cent. wherever possible. Escalating birth rates and higher life expectancy are rapidly increasing the India’s success story is a good Developing and implementing continent’s population, exacerbating example. Thanks to investment in grids standardized mini grid solutions, using existing problems such as youth and to new connections realized by the compatible equipment as highlighted by unemployment and unsustainable government over the last two decades, IEA – from analytical site selection tools social services. Even if electrification electrification grew at a significant rate, that help ensure consistency and efforts in sub-Saharan Africa are increasing the number of people with impact, to software and hardware – accelerating and the number of people access to electricity from half a billion to could in the short-term help drive down without access to electricity decreased one billion. The commitment of political costs, ensure homogeneous quality for the first time in 2014, these institutions made it possible to standards across territories while in the achievements will likely soon be massively improve the quality of life of medium term help large smart grid overtaken by population growth. the population and put India on track to intensification and expansion.Clearly, a reach universal electricity access in the positive policy and regulatory Urbanization is the other social early 2020s, with renewables providing environment that recognizes and phenomenon that will significantly energy to 60 per cent of the population promotes this electrification solution will influence access to electricity: by 2030, that gains access. create momentum and stimulate new more than 50 per cent of the population entrants, such as traditional distribution of Africa will be living in cities, and by Even though the Indian contexts differ companies, to the micro- and mini-grid 2050, over 60 per cent. Urbanization is in some ways from the African ones, space. This is happening in Colombia, creating significant opportunities for including population density, Africa’s where Codensa, part of the Enel social and economic development and strong urbanization trend makes Group, has just installed a standardized more sustainable living but is also access through power plants connected off-grid system and is planning to reach putting pressure on infrastructure and to the grid the main solution. The role of thousands of households in the near resources, particularly energy. decentralized systems, on the other future. hand, will be fundamental where For a smart, strategic, human-centred scattered populations and remote Business model approach to electrification, and to locations make construction and achieving sustainable energy for all in Conventionally, power generation is maintenance of grids difficult, or as a Africa, we may want to consider new seen as a technical component totally temporary solution prior to grid enablers in three fundamental areas: integrated into the mini-grid. We could connection. technical design, business model, and instead consider decoupling it from the financing. This approach can help resolve the mini-grid system, restricting the latter to debate between advocates of mini- distribution and supply to end-users, Technical design grids and those who argue that, while sourcing power from bigger Two possible technical solutions should although they may be cost-effective for renewable power plants built nearby be considered: utility-scale projects small and isolated communities, they serving more than one mini-grid. This connected to the national grid to cannot provide the economies of scale approach could benefit from the provide electrification for most of the and the resilience of utility-scale smart presence of renewable plants, mostly in population living in the towns or nearby, grids. In powering energy-deficit areas semirural areas, often relatively large

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installations connected to larger grids, establishing a path to traditional scenario, especially since the which now represent a significant infrastructure deals in the long run. expansion of access to electrification portion of annual capacity additions. It Clearly, this scenario is more likely to has lagged behind population growth. would allow mini-grid customers, who materialize where there is a clear Based on relationships between would otherwise be excluded from institutional framework and a robust electricity access on the one hand and connection to the larger grid, to enjoy regulatory environment. GDP per capita, population density, lower electricity costs, mini-grid Conclusion and urbanization rate on the other, operators to provide a higher level of model projections show that following service, and the entire community to To ensure that smart grids and historical trends about 515 million experience greater resiliency. Last but renewables become increasingly people will still lack access to electricity not least, it would result in a more important elements in the effort to in 2030. Eastern Africa is projected to flexible consumption profile with room provide energy for all, adopting the have the highest proportion of people to grow over time. Such growth operational approaches described without access to electricity by that date opportunities can serve several above, human-centred and conscious (48 per cent), followed by southern productive and social uses, increasing of planetary boundaries, the name of Africa without the Republic of South the ability of new customers to pay the game is indeed convergence. Africa (44 per cent), western and tariffs and therefore supporting the Reaching consensus among central Africa (31 per cent), and the recovery of investments in grids and communities on the type of future they Republic of South Africa (12 per cent). increasing their profitability over time. want is paramount, as well as tight cooperation between government, Access to electricity is especially Financing local, and international institutions, to lagging in rural areas, which are International agencies frequently refer ensure that a clear policy framework projected to account for 85 per cent of to the tremendous amount of and robust regulatory environment are the population without access by 2030. investment needed to power rural in place that encourage all stakeholders Providing universal electricity access Africa and the difficulty of raising capital to make mutually beneficial choices in requires major investments in for this purpose. As the electricity enlightened self-interest. generation capacity and transmission sector has evolved over time, and distribution. However, strategies to transmission and distribution have achieve this goal should also consider probably been among the most stable OPPORTUNITIES AND possible trade-offs and synergies with and lucrative segments of the value CHALLENGES IN other SDGs, including how they affect chain over the medium and long term – ACHIEVING UNIVERSAL greenhouse gas emissions. to the point that they have become an ELECTRICITY ACCESS IN This article reports on a study that important element of infrastructure SUB-SAHARAN AFRICA investment, an alternative asset class explored ways to achieve universal able to reduce portfolio volatility and Anteneh G. Dagnachew, Paul L. electricity access in SSA, technology gather interest for pension funds, Lucas, Andries F. Hof and Detlef P. options, investment needs, and insurance companies, and sovereign van Vuuren synergies and trade-offs with global wealth funds. Access to electricity is an important climate policy, using the integrated prerequisite for human development. assessment model IMAGE-TIMER. The In this context, in a scenario where This was acknowledged by the global study sought to identify the roles of committed and forward-thinking actors community through the adoption of the individual and institutional actors and will be able to create clusters of Sustainable Development Goals the role of regulations in the transition projects, from mini-grid to industrial- (SDGs), which call for universal access to universal electricity access in SSA. It scale renewables and grid lines, which to electricity by 2030. Currently, more involved workshops conducted in the can be increasingly integrated with one than 600 million people in sub-Saharan Netherlands and Ethiopia with actors another, and systematically scale up Africa (SSA) have no access to involved in the region’s electricity the electricity system in Africa, we electricity, and the total installed system; case studies of centralized and believe there will be ample room for generation capacity in the region is less decentralized electrification programs both venture capital and private equity, than that of the United Kingdom. Thus, and projects in Nigeria, Ghana, through which pension funds can invest universal access in SSA is unlikely to Tanzania, and Ethiopia; and a desk in powering Africa, receiving the benefit be met under business-as-usual study. of diversification in the short run while

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The study applied three Regional differences in annual household electricity consumption, 2010 and 2030 electricity-access scenarios: a baseline scenario which is a business-as-usual path where no measures are taken to increase or improve supply, a universal access scenario without a climate policy, and a universal access scenario with a climate mitigation policy in place in all regions. The scenarios were based on the exogenous assumptions and projections of the drivers of energy demand (e.g., population growth, economic development, rate of technology change, and urbanization rates) of the Shared Socioeconomic Pathways, as implemented in IMAGE. The model also uses data on cost of power Pathways to universal electricity Ways to provide access to electricity generation by different technologies, access include grid, mini-grid, and off-grid population density, cost of transmission Currently, there are large differences in systems. The preferred method largely and distribution, technical potentials of electricity consumption between depends on distance to an existing renewable energy sources, and the power line, population density, distance of population settlements from regions, urban and rural areas, and household electricity demand, and local an existing power line. income classes. While the average annual household electricity resource potentials. For our default These findings are discussed in more consumption in 2010 was under 350 assumptions regarding electricity detail in papers recently published in kilowatt hours (kWh) in most of SSA, in consumption, access to the central grid the journals Energy (Dagnachew et al., the Republic of South Africa it was over is the least-cost option to provide 2017, 'The role of decentralized 2300 kWh/year. There were also large access for 85 per cent of the newly systems in providing universal differences between urban and rural connected population in SSA, while electricity access in Sub-Saharan Africa areas and between income quintiles. over a 100 million people are projected – A model-based approach', Energy, These differences remain important in to gain access through off-grid 139, 184–195); Energy Policy our projections. The projected annual systems. However, if electricity demand (Dagnachew et al., 2018, 'Trade-offs growth in electricity consumption per remains low, it would be attractive to and synergies between universal household between 2010 and 2030 connect a much higher share of the electricity access and climate change population through off-grid systems. If mitigation in Sub-Saharan Africa'. ranges from 2 per cent in the Republic governments target a minimum level of Energy Policy, 114, 12), Dagnachew et of South Africa (as a result of the access in which households get al., Submitted, ‘Actors and governance relatively high current levels and lower enough power to light two bulbs and in the transition toward universal and projected economic growth) to 6 per charge mobile phones, off-grid systems sustainable electricity systems in Sub- cent in eastern Africa. could provide access to more than 65 Saharan Africa’).

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Least-cost electrification systems under the two universal-access scenarios

per cent of the newly connected would need 21 terawatt hours less improvements lead to lower overall population. Especially in poor, sparsely capacity to serve the additional demand. Use of coal is projected to populated rural settlements in SSA, off- connections while providing the same decrease especially significantly, while grid systems – including mini-grids and level of energy services. Efficiency the share of natural gas for combined- stand-alone systems – could play a improvements, together with higher cycle power plants will increase, as its vital role in providing electricity at a fossil fuel prices, would create more carbon content is lower than coal’s and reasonable cost. favourable conditions for renewable off- it can be efficiently used to balance grid systems. As a result, under the fluctuating renewable resources. The Achieving universal electricity access universal-access scenarios, 10 million scenario also shows a significant will require a significant further more people would be connected via increase in nuclear energy, especially expansion of installed capacity as well off-grid systems in the scenario with in the Republic of South Africa. as transmission and distribution climate policy than in the scenario infrastructure. The capital investment In 2010, residential CO2 emissions from without it. required is projected to exceed US$33 electricity accounted for around 25 per billion per year, between 2010 and Climate policy will also make it cheaper cent of total electricity-related CO2 2030, on top of investments projected to meet the universal electricity access emissions in SSA and only around 0.5 under the baseline scenario at US$16 target. The efficiency improvements will per cent of global electricity-related billion. Of this investment, 85 per cent lead to lower additional investment CO2 emissions. Without climate policy, would go to upgrading and extending requirements for generation capacity additional on-grid generation capacity the transmission and distribution and transmission and distribution mostly consists of scaling up existing infrastructure, reflecting the severe lack infrastructure for the additional capacity. Hence, achieving the of such networks and the inefficiency of connected population (US$27 billion a universal access target will result in an the system. year, compared to US$33 billion a year increase in emissions of 24,000 tonnes

without a climate policy). However, of CO2, which is three times those of Synergies and trade-offs with these capital investments do not cover 2010. Still, this increase can be climate policy the significant costs of implementing considered negligible, as it is only Increasing energy efficiency is an climate policy. around 0.2 per cent of the projected important strategy for avoiding climate global electricity-related emissions in Stringent global climate policy also change by reducing consumption. If 2030. The shift to low-carbon energy changes the electricity mix. While total climate change mitigation policies are sources and efficiency improvements electricity production from renewable introduced globally, including in SSA, a due to carbon price will help avoid 65 20 per cent saving in total residential energy sources does not change per cent of the projected CO2 considerably in absolute terms, its consumption by 2030 might be emissions of 2030. achieved. This would mean that SSA share increases as the efficiency

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Climate mitigation policies Additional investments for universal electricity access compared to the baseline trend, are projected to result in 2010–2030 higher electricity prices in all regions, with the price increase correlating with the share of fossil fuels in the mix. Eastern Africa will be the least affected as its electricity mix is dominated by renewable energy. Still, the price in this region is projected to be 25 per cent higher under the scenario with climate policy than under the scenario without it. In the Republic of South Africa, the model projects a 120 per cent increase in the electricity price due to the strong dominance of coal in the electricity mix.

Governance for universal electricity access government. established with the mandate to Access challenges in SSA are not the facilitate rapid electrification, engaging The current governance structure is result of lack of energy resources, as producer-consumers and the private associated with corruption and the region has ample fossil and sector. National electricity policies are inefficient management of several renewable energy resources to meet designed with the SDGs as the central utilities over long periods of time. As a demand. The challenges are rather a element but require better institutional result, the energy system functions result of deeper governance and arrangements and human capacity, and poorly with an unstable and unreliable institutional problems as well as lack of greater collaboration between different electricity supply, low generation capital to meet the high investment actors. While community engagement capacity, low efficiency, inadequate requirement. and empowerment are crucial for wider investment, high costs, and prices that deployment and sustainability of off-grid While the actors in the electricity sector have often been too low to cover costs. electrification systems, there has been and their roles differ by country and by Other problems in the sector include very little community participation in the project, governments generally have a lack of human resource capacity, power design and development of strong presence in electrification. In theft, lack of stakeholder collaboration, electrification programs. Institutional several countries, a single public utility lack of consumer awareness on energy barriers (most of all corruption), weak with a top-down governance structure efficiency, and poor quality products. stakeholder collaboration, lack of has been the main or only actor in These have resulted in a sector-wide finance, and high transaction costs are electrification for a long time. Of the revenue gap, increasing the risk for among the obstacles mentioned countries we studied, Nigeria is the only private-sector participation. repeatedly by study participants to one where power generation within the The private sector is gradually growing expansion of decentralized systems. central grid is privatized. Power in the off-grid electricity market, but Problems also arise from the lack of distribution in Nigeria is also fully institutional and financial capacity communication between the public and privatized, while Ghana’s Enclave problems persist in many of these private sectors. Power Company is a private-sector countries. The number of household entity involved in the country’s central Several countries have developed and community energy producers (and grid system. In Ethiopia and Tanzania, regulatory instruments to facilitate the consumers) is growing, while rural all components of the central grid are penetration of decentralized systems, electrification agencies are being owned and operated by the including financial incentives (e.g. start-

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Fuel mix for residential electricity generation

up grants and loan guarantees), fiscal To achieve universal electricity access, with climate policy and US$33 billion incentives (e.g. exemptions from import on-grid systems will need to be without one. Carbon pricing lowers the duty and/or value added tax), and complemented with off-grid required investments through efficiency elimination of market distortions (e.g. technologies. Between now and 2030, improvements in household appliances reducing fossil fuel subsidies). Capital policies will need to ensure access to and learning in renewable energy subsidy is one of the most widely electricity for over 500 million new technologies. While this increases adopted policy instruments to help off- customers. While on-grid electricity electricity prices, it could also be grid projects overcome the initial investment barrier. The Ethiopian would be cost-effective in most cases, considered an opportunity to move government has provided duty renewable mini-grid technologies could away from fossil fuels and improve exemptions for solar power equipment, provide electricity access to over 180 energy security. and the governments of Ghana, million people depending on the To facilitate universal electricity access, Nigeria, and Tanzania have subsidized targeted level of consumption. institutions in the electricity sector need the cost of the photovoltaic module. Decentralized renewable-energy-based to stimulate innovation in supply systems, largely based on solar Tanzania, Ghana, and Ethiopia have technology and business models by photovoltaic technology, can be set up special funds to broaden establishing a functioning electricity implemented with relatively low initial financing channels for off-grid projects. market. The institutions in SSA are Crowdfunding, for example through investment, gradually scaling up generally weak and unable to cope with TRINE (www.jointrine.com), has capacity as the level of consumption population growth and technology financed solar projects in Tanzania and increases. However, in large parts of developments. Especially for off-grid Uganda. Operating and maintenance western and southern Africa, due to systems, stable and consistent policy subsidies are seen as essential to their high population density and frameworks, clear technical standards, sustain project operations over a long relatively high household electricity and certification for new technologies period, particularly in the case of consumption, the central grid remains extremely remote areas with a poor are crucial. They also require the preferred electrification option. ability to pay. Microfinance has enabled innovative revenue schemes and rural households to set up solar home International climate policy could make differentiated financing schemes (e.g. systems in Ethiopia. universal access to electricity cheaper. low-interest loans, public–private Conclusion Universal access is projected to require partnerships, and carbon finance). annual investments of US$27 billion Similarly, governments could work to

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lower the transaction costs for electrification is so high on the policy obstacle to large-scale deployment. To decentralized systems through agenda. However, there are trade-offs, address this challenge, some studies appropriate policies and capacity- and progress towards one of the SDGs have introduced detailed building programs. can have positive or negative effects on representations of technologies for progress towards others. If managing variability into integrated electrification is to improve human well- assessment models and have shown SUSTAINABLE being, it needs to be sustainable – that that very high rates of VRE can be ELECTRIFICATION IN is, it needs to ensure healthy lives achieved and would allow for rapid AFRICA (Goal 3), combat climate change (Goal economic development. Others identify 13), and protect ecosystems (Goal 15). leapfrogging opportunities for the Gregor Schwerhoff African energy system, with some Making electrification sustainable What is the objective of electrification in arguing that renewable energy can requires identification of suitable energy Africa? The Sustainable Development eventually provide 100 per cent of sources. Electricity generation in Africa Goals (SDGs) provide a list of societal Africa’s electricity (see here). In has been dominated by coal and gas; objectives for evaluating policy. contrast to other energy sources, in 2015, only 0.33 per cent was renewable energy offers the opportunity Electrification is expected to contribute sourced from solar power and to make progress on development to ending poverty (Goal 1), ensuring 0.96 per cent from wind power. This, without moving backwards on health quality education (Goal 4), ensuring however, appears poised to change. and sustainability. access to energy (Goal 7), promoting The figure below shows which economic growth (Goal 8), and other technologies are projected for Africa Schwerhoff and Sy (2018;) analysed based on analysis using integrated the energy mix in Africa in detail; this Many of these emerging issues relate assessment models. These results article focuses on the consequences for to the fact that the current wholesale were obtained in a model comparison the electricity grid infrastructure of market was designed before study as optimal ways to limit climate using renewable energy. decarbonization, when it handled a very warming to no more than 2°C. The different supply mix. The limitations of Decentralized electricity grids and technologies include biomass, the the existing market design were renewable energy combination of coal with carbon capture recognized by the Market Design and storage, and nuclear power. It may Decentralized energy generation Committee that originally developed the not be possible, however, to use large reduces the pressure to extend the system. It was intended as a temporary amounts of biomass within planetary electricity grid to remote locations. This solution that would transition to a boundaries. The use of coal, even is especially important for sub-Saharan system with locationally-varying pricing when combined with carbon capture Africa, since many households live in over 18 months, but it has remained in and storage, still causes local air areas that would be disproportionately place for one and a half decades. pollution, which is harmful for health. expensive to connect to the national Various patches and temporary Nuclear power may be more expensive grid in the short term. For very isolated improvements have been layered onto than previously thought. These three households, solar home systems are the original design, but these are technologies are thus suitable for the most economical way to provide insufficient to address today’s mitigating climate change but have basic energy access. They bring challenges. The inefficiencies of the negative effects on other aspects of substantial welfare benefits and existing design have been documented sustainability. significantly reduce energy expenditure. and analysed by the IESO, the market These savings mean that the system is To identify a sustainable approach to monitor, and independent observers. amortized long before its lifetime ends. electrification for Africa, recent studies The changing supply mix and In addition, the price for solar home have examined the possibility of using increasing flexibility needs have systems is falling substantially while the mostly variable renewable energy amplified these challenges. The quality keeps improving. Solar home (VRE). While prices for VRE are falling introduction of new technologies, such systems also provide health and safety continuously and have reached the cost goals. All these goals are promoted benefits. of fossil fuels in Africa, management of directly through the availability of variability has been considered a major electricity and explain why

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Projected Energy mix in Africa, 2020–2100

Source: Author’s calculations using data from the LIMITS Scenario Database. Schwerhoff and Sy (2018) (Developing Africa’s Energy Mix. Climate Policy, 1–17; CCS = carbon capture and storage.

Solar home systems generally have low-power appliances each, micro-grids projected that off-grid photovoltaic (PV) lower capacity than grid power, are the best option. The figure below systems could reach 17 per cent of the however, and some studies have illustrates what a mix of national grid, population cost-effectively by 2020 in concluded that they cannot provide a micro-grid, and solar home systems Kenya. In addition, some studies show full substitute for grid power. In this could look like in Nigeria: transmission that local generation of renewable context it is important to keep in mind lines through the most populated areas energy can lower the cost of electricity that there are different levels of energy connect strategically located power supply to grid-connected villages, access. The Secretary-General's plants throughout the country, mostly by reducing grid losses, and advisory group on energy and climate electrifying the surrounding area. increase the quality of supply. change (AGECC (2010) has Beyond a certain distance from the The rapid spread of small electricity distinguished between ‘basic human lines, either micro-grids or home grids is powerfully driven by mobile needs’ (level 1), ‘productive uses’ (level systems are used, depending on phones and the virtual financial 2), and ‘modern society needs’ (level population density. services that come with them. Mini- 3). Some small systems provide only For several years now, mini-grids grids are preferred to solar home level 1 energy access. In addition, solar based on renewable energy have been systems due to the better services they home systems still need to be a lower-cost option for many offer. When the national electricity grid subsidized, since many households communities than grid connection or is not fully reliable, PV-based face strong credit constraints. Despite mini-grids based on diesel. Zeyringer et communal grids may even be preferred these limitations, solar home systems al. (2015) (Analyzing Grid Extension to the national grid. While electrification offer an important option for and Stand-Alone Photovoltaic Systems increases electricity consumption, it has electrification in remote areas. for the Cost-Effective Electrification of the potential to reduce greenhouse gas For villages with more than 500 densely Kenya.” Energy for Sustainable emissions, since it reduces the demand grouped households using three to four Development 25 (April): 75–86) for pollution-intensive energy forms.

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Renewable energy and the design of variability as well as integration options and seasonal variation. Integrating the electricity grid like storage or pooling through grid these solutions would make an energy While decentralized electricity supply is expansion in the model setup. When mix with nearly 100 per cent an attractive option for remote areas, integration options were modelled renewables optimal for Africa from the majority of households can be accurately, it became clear that high 2040 onwards. Others have pointed out reached most efficiently through the shares of VRE are realistic. the role of the different types of solar energy. At low penetration rates, PV is national electricity grid. The following Solar energy as a large-scale power the least-cost option. As variability sections discuss future electrification source for the electricity grid has been becomes more important, concentrated trends in Africa and ways to adapt to systematically underestimated for a solar power systems can be the variability that accompanies use of long time. In addition to the insufficient constructed, as this technology is less VRE. representation of VRE in models, variable than PV. The future of electrification in Africa technological learning on solar energy was underestimated. A range of Adapting energy infrastructure to As recently as 2013, integrated accommodate variable renewable assessment models projected that solar integration options for VRE can make energy and wind power would have only a solar energy an important part of the electricity supply in Africa. These limited role in the electricity supply of Among the options for preparing energy Africa, even in scenarios with a climate options will have to be used in order to infrastructure for VRE, the expansion of policy. This changed when some rather realize the potential of solar energy. If the electricity grid receives the most this is done, Africa can remain below coarse ways of representing the attention. Low connectivity is among challenges of integrating VRE, like firm average in per capita emissions even the challenges for the electricity system upper bounds on VRE penetration and when GDP catches up with the most in sub-Saharan Africa. Interconnections developed regions, as is assumed will other simple approaches to built for the best available renewable representing flexibility requirements, occur in the course of the century. options will look different from those built for traditional networks (based were addressed explicitly. These Some studies have demonstrated the mainly on hydropower, for example). coarse methods had been adopted to potential of short-term storage (for As many of the connections built for an compensate for the lack of example, flow batteries) and hydrogen optimal use of energy will require representation of temporal and spatial electrolysis for balancing out diurnal

Optimal mix of grid types in Nigeria, based on anticipated expansion of the main transmission lines

Source: IEA 2014, Africa Energy Outlook: A Focus on Energy Prospects in Sub-Saharan Africa (Paris: International Energy Agency).

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international or regional cooperation, A further option for adapting to decarbonize almost completely; this Oseni and Pollitt (2016) (“The variability is the integration of the could occur by the year 2050. Van Der Promotion of Regional Integration of electricity system with facilities for Zwaan et al. (2018) (“An Integrated Electricity Markets: Lessons for desalination and gas-to-power Assessment of Pathways for Low- Developing Countries.” Energy Policy transformation. Finally, grids can be Carbon Development in Africa.” Energy 88 (January): 628–38; have made built as smart grids. This would allow Policy 117: 387–95, found evidence detailed recommendations for the dynamic balancing of electricity that Africa has the opportunity to promoting the regional integration of generation and demand. As a result, leapfrog fossil fuels and directly fulfil its electricity markets. Given significant Africa could leapfrog some aspects of energy requirements with renewable gains of trade for electricity and traditional power systems and energy. There are also indications that examples of cooperation between accelerate its electrification. the political reasons for favouring countries with a history of conflict, they conventional power are weakening, as Conclusion argued that there is reason to be coal power plants in particular are at optimistic that this can successful. Given the advantages of renewable risk of becoming stranded assets. Nevertheless, there are substantial energy, it may be taken for granted that Electrification infrastructure will play a political and practical barriers to electrification in Africa will be decisive role in overcoming the international integration. sustainable. Unfortunately, however, current choices indicate that it will be a challenges and grasping the Some studies have explored the challenge for Africa to avoid a carbon opportunities described in this article. potential of regional integration for lock-in. Coal is experiencing a Concerning the choice between on-grid managing variability in specific renaissance in developing economies. and off-grid electrification, the subregions of Africa. Studies on the Egypt, with 15 gigawatts (GW) in active opportunities offered by decentralized use of renewable energy in North Africa development, and South Africa (12 renewable energy should be fully consistently find that market integration GW) are among the top countries for exploited and considered in decisions and cross-border power exchanges new coal power development, with on grid extensions. As a second step, have the potential to significantly Zimbabwe, Malawi, and others also investment in energy infrastructure improve efficiency. South Africa has building considerable coal capacity. In should be harmonized with up-to-date more powerful wind energy resources this context, it is important to note that knowledge on the best available energy and Tanzania has more reliable ones. this article is concerned with technical mix for Africa. This will likely include This provides a classic opportunity to and economic issues. There are more investment in connectivity, the benefit from trade, given that the barriers in terms of political economy as use of existing and new storage countries are well connected. The well as historic and institutional reasons capacity, and smart grids. harmonized positioning of renewable for the choice of conventional power power plants and interconnections in plants and coal in particular. An southern Africa can reduce the need for important example is the bias of ELECTRIFICATION capacity and result in sizeable cost financing institutions from outside Africa PLANNING WITH A FOCUS savings. towards conventional plants. ON HUMAN FACTORS

Improving interconnections is not the At the same time, renewable energy is Roxanne Rahnama and Ignacio only way to adapt energy infrastructure breaking through in Africa. According to Pérez-Arriaga to renewable energy. An important data from the International Renewable Despite the steady improvement in option is to use hydro dams as virtual Energy Agency, both wind and solar electrification rates in low income and batteries for solar PV and wind energy. energy have shown very strong growth developing countries (LIDCs) in the last This solution is of particular importance in recent years, each growing at least few decades, an estimated 16 per cent in Africa, since the continent is well 15 per cent per year. According to of the global population – over one endowed with hydropower. While Ueckerdt et al. (2017, Fig. 10) thousand million people, largely hydropower is used well for the (“Decarbonizing Global Power Supply concentrated in India and sub-Saharan moment, VRE can be a good under Region-Specific Consideration of Africa – still lack access. Progress complement to hydropower in case Challenges and Options of Integrating toward the Sustainable Development climate change makes the latter less Variable Renewables in the REMIND Goal of universal access by 2030 reliable. Model.” Energy Economics 64: 665–84. remains elusive in sub-Saharan Africa, Africa could be the first region to where population growth matches the

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electrification rate. Even these statistics may not be suitable for electricity- electricity is known, its affordability (and are gross underestimates of the true intensive appliances and community that of electrical appliances) for the magnitude of access challenges, given and productive uses. customers and their preferences will the inconsistencies in how determine their optimal level of Too often, electrification planning is electrification is measured by various consumption and the associated utility exclusively addressed from techno governments, as well as the financial function of electricity utilization for each economic perspectives, without and psychological costs imposed on customer, which equals his or her seriously questioning the nuanced the millions more living with unreliable willingness to pay (WTP) for the ways in which electricity services are power. service. actually perceived, used, and paid for The stubbornness of the problem has at various levels. Here we argue that no WTP is constrained by ability to pay financial, technological, and social solution will be satisfactory unless it (ATP). WTP reflects not what roots. Populist policies directed at addresses the complex socio-political, customers would pay if they could, but meeting residential and agricultural cultural, and behavioural factors that what they are willing to pay out of their demands have kept electricity tariffs contribute to the present unsatisfactory actual resources. It cannot exceed below supply costs in practically all situation of electricity access in LIDCs. ATP, and it may not be realized in sub-Saharan countries, rendering the practice if there is insufficient access. The complexity of electricity consumers distribution utilities bankrupt and thus The perfect access level can be defined has often been neglected in the unable to invest to connect more as the one that does not limit the supply discourse on financially sustainable customers, which would further of electricity that customers are willing electrification. Recent experiences and exacerbate their financial situation. The to use and to pay for, as described by studies have revealed widespread traditional approach to electrification by their WTP, adjusted for any existing variability in the attitudes, behaviour, grid extension becomes impossibly subsidies. and decision-making processes of the expensive for the small and dispersed energy poor – which is manifested in The WTP of any customer for the first demand in rural areas. Frustrated consumers’ valuation of different few watt hours of consumption is very customers with unreliable service stop electricity attributes, their aspirations for high (if you do not believe this, check paying their bills or decide to connect access and reliability, and their the first lesson in any microeconomics illegally, developing an adversarial opportunities for future productive textbook on the price/demand curve). relationship with the distribution growth. Differences in the political, This is why many poor customers in company. Governments periodically informational, and technological LIDCs pay, in monthly or weekly fixed must bail out these companies at a high environment for consumers in low- amounts, an extremely high price – cost, because of their enormous losses, access countries create non-negligible when calculated in per unit of electricity leaving the root cause of the problem effects on their psyches and consumption – for the small amounts of untouched. Other dimensions of the subsequent valuations of different electricity that they consume in on- and problem, in particular the lack of electricity attributes. To serve these off-grid systems. When the ATP investment in generation and populations well requires consumer- increases, the total amount of electricity transmission infrastructure, are beyond centred business models. consumed increases and (again the the scope of this paper. price/demand curve) the marginal WTP Utility metrics Only recently, developments in decreases. Efficient tariffs are based on photovoltaic generation, battery, and In this section we define and examine this marginal WTP, resulting in information and communication in detail the key metrics that are used in consumer surplus, since the consumers technologies have offered the electrification planning to characterize are willing to pay more than this possibility of off-grid electrification in energy poverty, welfare, reliability, and marginal WTP for the first units of rural areas. These off-grid supply access levels. We focus on willingness energy. If tariffs are not regulated, the technologies further serve as to pay, ability to pay, and the cost of poorest customers may end up paying complements or alternatives to non-served energy, examining their a high price, close to their marginal unreliable supply anywhere. Although relationships with quality of service. WTP, with a very low surplus. off-grid solutions are cost competitive The ultimate goal of electrification Failures of electricity supply reduce the with grid extension for small and planning is to maximize the social continuity and quality of the electricity dispersed loads, they may not be welfare associated with electricity received by customers, and affordable for many potential users, and supply. Assuming that the price of consequently their utility functions or

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WTP. The corresponding loss of utility – how much a customer would pay to to the difference between having some to each customer is also termed the avoid an interruption of electricity of a level of electricity access and having cost of non-served energy (CNSE). specific duration at a given time. none at all. This can make a major However, again, in the context of difference in the wellbeing of a The term ‘reliability’ broadly describes electricity supply in LIDCs, it is more household or community. On the other how well the power system does in useful in the interaction with customers hand, in the context of electrification supplying electricity – the quality of to use, for instance, the WTP per planning alone, everybody is supposed service. It encompasses the continuity month for an electricity supply of some to receive some kind of electricity of the service, which in turn is characteristics. Current methods for supply, and the meaning of CNSE is described by the frequency, duration, estimating these WTP values include the one described before: the cost to and quantity of demand affected by an contingent valuation and discrete the customer of an interruption to interruption, as well as the time at choice experiments that aim to model existing supply levels. which the interruption occurs. Reliability either directly stated or indirectly also includes the technical quality of the Understanding income-constrained revealed preferences. supply: the voltage level, waveform consumers shape (if in alternating current), and Electrification planners who use As indicated above, the relationship micro-interruptions. Studies of computer models need to represent the between electricity users and suppliers consumers’ responses in LIDCs have cost of lost supply in their simulations. is generally much more complex in concluded that WTP critically depends In this context, it is useful to assign a LIDCs than in industrialized countries. on reliability, with its many attributes. CNSE value to every kWh that is Commercial losses – resulting from curtailed in the power system. If the In industrialized countries, most unpaid bills and illegal connections – model is able to work at the individual customers are accustomed to almost are very high, as shown in the following customer level, as is the case for the perfect reliability and almost never have sample of revenue collection rates in Reference Electrification Model REM to make choices in this respect. The western Africa. Off-grid options for (see http://universalaccess.mit.edu), it situation in LIDCs is very different: both many of these existing or potential may be possible to distinguish between planners and customers face trade-offs customers complicate the picture even a CNSE for critical loads at certain between cost and reliability. more. times of the day and another, lower Nonsophisticated customers have to CNSE for the rest of the demand. But it The success of an electrification plan choose among several delivery modes remains difficult to estimate the value of under these complex conditions and options within each mode, each of CNSE. A simple way to circumvent this critically depends on a well-thought-out which comes with varying costs and problem is to use the computer model consumer engagement plan, and on levels of reliability. It seems that we to obtain the electrification plan several understanding what the customer have not yet been able to figure out a times, each time with a different CNSE wants. The utility derived from fully satisfactory approach to value, and let the customers incorporating reliability performance (or the system planner with metrics into human-centred business input from the customers) model planning in LIDCs. decide which plan, with its The term ‘willingness to pay’ (WTP) combination of cost and suggests a method of measuring or performance, is preferred. estimating the value of individual One more nuance regarding utilities, just by asking customers how CNSE relates to the context much they would be willing to pay for a in which electrification supply of electricity with certain planning takes place. In a characteristics. However, this is more multisectorial planning simply said than done. Just think what context, the planner may you would pay to have one unit of have to, for example, assign electricity at different times of the day limited resources to health, and under different circumstances (e.g. education, transportation, while sleeping, in an elevator, or and electrification objectives. charging your phone). In practice it is In this case, the CNSE refers somewhat simpler to ask for the CNSE

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electricity use has two main trust, reference dependence, status untrustworthy. Some degree of components: the ‘utilitarian’ attributes quo bias, mental accounting, and experimental testing should be that are directly associated with its information and inattention bias – can carried out by the electricity instrumental and functional purposes, theoretically influence consumers’ provider, in partnership with a local WTP; often, the direction of the effect and the more subjective ‘hedonic’ community network, to identify the varies based on the aforementioned attributes such as pleasure, happiness, social signalling design that would demographic, socioeconomic, and and social stature that it provides. work most effectively and technical parameters. For example, the sustainably under local social and When consumers choose between age or educational status of a various options, the ways in which they household member has important cultural norms. assess the trade-offs are influenced by implications for the degree of reference social, economic, demographic, dependence, status quo bias, and  ATP-related challenges: behavioural, and technical components inattention bias held and the ways in Sensitivity to local cultural and that interact with each other. The which this affects WTP. The ways in social norms is also necessary in continuity of power supply and other which information is communicated to relation to ATP. It has been found measures of quality of service – like consumers can also have profound that a financial incentive scheme voltage level or customer interaction – effects on trust and the propensity to that involved monetary awards for hold a bias of negative and/or positive have a major impact on consumers’ energy conservation and penalties reciprocity toward the government or a valuation of the utilitarian attributes for for poor conservation practices private electricity service provider. both grid and off-grid services. There rebounded, likely due to low- are also large differences in the social Implications for customer-focused income consumers’ mistrust of and hedonic attributes. For example, electrification approaches particular financial contracts. while the actual utilitarian or functional Several successful experiences with Default (opt-in/opt-out) schemes attribute of reliable electricity from a distribution franchises, mostly in India, for saving money may have lower microgrid or solar home system may be have shown that a prerequisite for any levels of acceptance than much higher than that of unreliable grid kind of consumer engagement activity individual or pooled savings access, the perceived hedonic is an electricity supply with an mechanisms administered by attributes of grid electricity, such as acceptable technical quality of service. locally trusted savings and credit higher social status associated with However, diverse complementary groups that partner with the connection to the grid system, may hold measures are also necessary to electricity service provider. The greater weight. promote sustainable, long-term shifts in efficacy of some personalized messaging tactics may be Socioeconomic and demographic consumers’ attitudes and behaviour. contingent on the prevalence of factors such as higher income, We have grouped them into three educational status, number of school- categories. mobile applications and mobile age children, and ownership of or payment adoption in a particular  Electricity theft, attitudes toward aspiration to own a home business country or region. Thus, sensitivity tariff hikes, and bill payments: generally indicate an increase in the to both technological and cultural perceived utility or WTP. In contrast, Where trust and reciprocity are low constraints should be maintained studies have found age, occupation, – with outbreaks of hostility when when designing interventions to and household structures to have more utility employees attempt to enhance ATP. ambiguous effects. WTP depends on enforce bill payment – strategies how reliability is measured or presented based on the threat of pecuniary  Closing the gap between to consumers. For example, household penalties or social shaming may appliance ownership and WTP differs according to whether the backfire. Receptivity to messages aspirations: expectation of an outage is can depend heavily on the person When planning interventions to communicated beforehand. WTP also or entity communicating the help consumers acquire the depends on differences in households’ message: a threat or shame-based appliances they aspire to own, it is financial ability to cope with outages by nudge may carry much more important for electricity service using alternative backup sources (e.g. weight when it is communicated by providers to take into account diesel or kerosene) or simultaneous phenomena that may vary with grid and off-grid connections. a trusted local leader rather than by a service provider who is local economic and social Behaviourally, different cognitive perceived as illegitimate or conditions. For example, an opt- factors – including negative reciprocity, in/opt-out ‘appliance savings

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account’ may be effective where a critical enabler of development, not only and does not provide a complete view service provider is well trusted and by increasing income possibilities of the situation. has a strong relationship with (productive uses) but also by improving For example, in Mali, the formal grid consumers. But it may fail in the health, education, and general quality connection rate was estimated by the absence of ground-level capacity of life (community and household utility Energie du Mali (EDM) at and long-term trust-building; in uses). 27 per cent in 2016, while household environments with high information surveys reported a 35 per cent Off-grid renewable electricity is part of asymmetries and poor electrification rate. Several reasons for the solution. Compatible with low- communication about this difference are possible, including carbon transitions and reduced climate expectations, consumers will likely assumptions about household size; vulnerability, off-grid renewable perceive it as a scam allowing the informal connections to the grid; and electricity is also better adapted to the service provider to steal their off-grid supply from diesel, solar, and characteristics of remote communities money. An initial analysis of hybrid mini-grids and from stand-alone than grid-connected solutions. How can solar home systems, the market for attitudes toward government vs. we provide sustainable electricity which is growing quickly and could private electricity service provision access to all? What do stakeholders become visible in statistics in the near and randomized testing of different think? While there is no simple solution future. promotional tactics is important for to this challenge, a number of recent creating approaches that will be From top-down to bottom-up developments provide food for thought. effective in a specific country and electricity planning context. Access: definitions, models, and In the link between electricity and data development, what counts most is not Conclusion The definition of electricity access is electricity itself but the value of the There is enough evidence to support important, because it drives objectives, services provided by electricity access, the idea that a better understanding of models, and monitoring of progress. such as heat for cooking; lighting; customers and a focus on customer Most statistical measures have defined refrigeration of food or medicine; engagement is essential for the access as connection to the national mechanical force for water pumping, success of electrification processes in grid. This definition is simple and easy cereal grinding, and other industrial LIDCs. to measure, and statistics are usually activities; and operation of available from the energy utilities. communication and entertainment devices. ACCESS TO SUSTAINABLE However, it does not capture electricity access through off-grid options, which ELECTRICITY IN MALI The focus on energy services consti- are rapidly increasing. It also ignores tutes a radical change in the way of Maryse Labriet the quality of the connection; for looking at the energy system. The example, outages and breakdowns, In 2016, roughly 1 billion people or usual supply-driven electricity planning quite frequent in Mali, affect about 13 per cent of the world’s must be replaced by demand-driven commercial, industrial, and social population lived without access to planning. This requires moving from a activities. And it does not consider the electricity, according to the 2018 top-down to a bottom-up decision real consumption of electricity: a Energy Progress Report of the World framework. Moreover, given the household that is connected to the grid Bank. In Mali, a landlocked country in magnitude of the needs and the may not able to afford to use much West Africa, 12 million people or differences in the characteristics of the electricity or may not have access to 65 per cent of the population lacks different electricity services, priorities appliances. access to electricity, according to must be well established and a national household surveys; in rural The multi-tier framework proposed by progressive plan must be implemented areas that proportion rises to the World Bank, encompassing several to reach universal access in stages. 75 per cent. levels and both quantitative and Should households be given priority? qualitative dimensions of electricity This situation is unacceptable. community services? productive uses? access, is a good move forward. It also Sustainable electricity access is part of Should a minimum access level for means a new approach to data, since the United Nations Sustainable welfare be mandatory, and if yes, what data on energy access at national Development Goals, adopted in 2015, should that level be? There is no good levels are usually limited to connections and is widely acknowledged as a or bad answer and no easy solution;

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each country must define its own direct legitimacy at the local level: they of diesel or biofuel generators and solar targets and deadlines on the path to usually know the population well; they panels. AMADER has clearly universal access. When asked “What are in charge of local social and contributed to the growth of rural are the most urgent energy services to economic development plans; and they electrification in Mali, but it faces a be satisfied in Mali?” in an informal are usually elected. With the huge task given the high number of consultation in 2015, stakeholders appropriate capacity and budget, they rural communes and villages it serves. selected energy services for healthcare could become contracting authorities Moreover, the projects have usually and for clean water access. The same for projects and programs. The focused on short-term results, and the priorities were expressed in another decentralization process that has been interest and involvement of local project in Togo in 2013–2014. In Mali in implemented in many African countries operators remain low; for example, 2015, 88 per cent of the primary has reinforced the competencies and 33 per cent of the subsidized schools and 11 per cent of the roles of local authorities in sectors like installations were not operational in secondary schools had no access to education and water management, but 2015. electricity. Why not establish the target not yet sufficiently in the electricity Prevailing regulations still prioritize grid of providing electricity services to all sector. expansion over decentralized systems, health centres or all schools in five Mali’s challenges and tariff models discourage private years? Mali’s electricity system largely relies investment. Indeed, the maximum New forms of governance on hydropower, resulting in high climate tariffs allowed in off-grid areas, set to A multisectoral and multistakeholder vulnerability; fossil fuels, creating a limit the difference between them and task force can be a powerful tool to dependence on international markets; the urban tariffs of EDM, which has a bridge stakeholders’ varied goals and and interconnections with other social tariff of 100 West African CFA interests. Decision-makers and experts countries which are themselves francs(XOF) or around €0.15 per from outside the energy sector – for dependent on hydropower and fossil kilowatt-hour (kWh), are not sufficient to example, from the health, education, fuels. EDM, the privatized national allow profitable and sustainable development, and environment sectors utility, serves only urban locations operation of rural mini-grids. A – must be involved in order to generate through the national grid. Already simplified analysis of electricity sales by at least a real dialogue, at best cross- heavily subsidized, EDM, like many EDM and the operators supported by cutting decisions. National Multisectoral central electricity utilities, has limited AMADER shows that a fee (the word Energy Committees have been ability in managing broad-access ‘tax’ is deliberately avoided) of XOF 5 established in some African countries. deployment programmes. In other or €0.008/kWh on the total electricity words, large parts of Mali must be sold by EDM in 2013 would allow a This type of governance is sometimes cross-subsidy of XOF 200 or challenging due to competing views, served by mini-grids or stand-alone €0.30/kWh on the total electricity sold in priorities, and funding; but experience, energy systems. the communities served by AMADER’s as in the recent EERA project, has Mali's Agency for Domestic Energy and shown that it also allows existing projects during the same year. Such a Rural Electrification (AMADER, after its resentments and preconceptions to cross-subsidy between grid-connected initials in French) promotes rural emerge and be openly discussed, and and off-grid access exists in very few electrification through public–private expands awareness of the expertise countries (Peru is one). Of course, its available within the countries. The partnerships and regulates the sector. implementation in Mali would be committee in Mali explored synergies While its top-down large-concession challenging given the political and between existing plans such as the approach, aiming to serve multisectoral financial issues (including the financial National Action Plan on Renewable electrification zones, was not situation of EDM) and technical aspects Energy, the National Action Plan on successful, AMADER, through the (limited number of households Energy Efficiency, and the Sustainable Spontaneous Project Application for connected to the grid). Energy for All agenda, to which Mali is Rural Electrification programme committed as a member of the (PCASER, after its initials in French), Towards sustainable electricity Economic Community of West African has supported projects that are smaller, access States. demand-driven, locally based, and for The NGO Energía sin Fronteras Finally, the role of local authorities, for the most part based on mini-grids. conducted a national survey in October example city councils, must be Priority is now given to hybrid mini- 2015 and a national workshop in increased. Local authorities have a grids, usually based on a combination November 2016, in the context of the

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project Access to Renewable Energy National Biofuels Development measures. Services in Kita (PASER-K), funded by Agency – to reduce complexity and  Promotion of local production of EuropeAid and Plan International. The conflicts over authority and energy products. objective of the survey was to identify finance.  Definition and implementation of barriers to sustainable electricity  Clear definition of the conditions quality standards, labels, supplier access in Mali and recommendations independent producers must meet certification (such as the Regional for overcoming them. Key results are to access the national grid. Certification Scheme for solar summarized below; details are  Territory-based definition of targets installers, under development in available in the complete takestock for rural electrification and the West African Economic and study and workshop synthesis. renewable energy, with clear Monetary Union). allocation of responsibilities (EDM Barriers Actions on behalf of consumers and for the national grid, AMADER for knowledge include the following: The key institutional and fiscal barriers mini-grids, and the Agency for identified by survey and workshop Renewable Energy for stand-alone  Support for microfinance and participants were lack of credit access systems). This would correspond prefinancing of appliances. by the private sector, households’ low particularly well to the need that  Providing information on available capacity to pay, lack of synergy with has emerged under recent energy products and services. energy efficiency, EDM’s financial reforms to delink urban  Studies of energy potentials, difficulties, and policies that are overly concessions from less energy needs, successful business focused on supply. commercially viable rural models, and products and Technological and human barriers concessions. expertise available in country, and included lack of monitoring and efforts  Actions at the business level dissemination of the results. include the following: to identify lessons learned, the cost and The Agency for Renewable Energy was  Support for access to credit variability of renewable energy, lack of expected to carry out the following (concessional loans and loan data on energy needs by location, and roles: lack of consumer awareness. guarantees).  Promotion of clear and favourable  Definition and implementation of In contrast, lack of an up-to-date conditions for public–private national renewable energy policies, electrification plan, lack of clear partnerships (tariffs, firmness of including financial support, for example through a special tax on objectives, insufficient participation by contracts, fair and transparent energy projects. civil society in policy-making, and lack bidding process, conditions for  Detailed analysis and mapping of of technical expertise were not connection to the national grid). the renewable energy potential, as considered significant barriers.  Reinforcement of favourable fiscal Solutions Framework for sustainable electricity access Actions at the institutional level 1. Objectives and targets recommended during (national policies and plans) 4. Governance and transparency the survey and 2. Standards and certification 5. Mobilization of international (appliances and services) workshop include the funds following: 3. Tariff

 Better coordination Foster an enabling or even integration environment of the Ministry of Energy and the 1. Easy doing business conditions different national 1. Information and awareness of energy agencies – 2. Strong chain value consumers Strengthen Enhance 3. Access to finance, innovation 2. Warranties AMADER, the supply demand 3. Data access, market Agency for 4. Data access, market intelligence intelligence Renewable 4. Consumer finance 5. Qualified workforce Energy, and the

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well as of energy products and environmental impacts. Electricity and Reduced cost of solar expertise available in Mali, by clean cooking access must go hand-in- Due to slow progress in expanding region. hand to achieve sustainable national grids, solar energy is being  Promotion of demonstrations that development. promoted by many as a decentralized allow consumers to see and test and clean solution for rural areas that renewable energy products. The ideas shared in this article are not requires minimal infrastructure  Promotion of product and service intended to be prescriptive. In the end, investment. This approach has become quality by monitoring, certification national decision-makers, in increasingly feasible as the cost of (in collaboration with the collaboration with national solar photovoltaic (PV) modules has Malian Agency for Standardization stakeholders, must choose the been dramatically reduced over the and Quality Promotion), labelling, strategies to achieve sustainable past decade. In addition, the and establishing a testing centre. energy access for all. International Renewable Energy  Strengthening of its research and Agency estimates that the cost of solar development activities related to PV cells will fall by another 59 per cent new technologies. RURAL ELECTRIFICATION: between 2015 and 2025 (The Power to  Definition and coordination of a Change: Solar and Wind Cost national strategy for management THE POTENTIAL AND Reduction Potential to 2025, IRENA, of solar waste (e.g. batteries and LIMITATIONS OF SOLAR 2015). These reductions in cost and panels). POWER improvements in efficiency have made solar energy a much more cost An integrated framework Anna Aevarsdottir, Nicholas Barton effective and feasible solution in Taken together, these recommended and Tessa Bold developing countries where resources actions form a framework for electricity Introduction are limited. It is estimated that by 2030 access that has three pillars: a strong There is a general consensus that solar could be the cheapest or second- enabling environment, a solid supply of energy, in particular electricity, is a key cheapest energy source in the majority products and services, and a robust input to economic development. This is of SSA countries. (Brighter Africa: The demand for these products and highlighted in Sustainable Development Growth Potential of the Sub-Sahara services. Goal 7: ensuring affordable, reliable, Electricity Sector, McKinsey and sustainable, and modern energy for all Company, 2015). While Mali is gaining experience in by 2030. Despite this consensus, public–private partnerships and rural Decentralization nearly 1.1 billion individuals around the electrification concessions, sharpening world lack access to electricity. Of Many developing countries, in particular of regulatory and financing those, about 620 million live in sub- in Africa, receive an abundance of solar mechanisms remains a challenge, as in Saharan Africa (SSA). In addition, irradiation throughout most of the year. many developing countries. based on current grid expansion plans It is estimated that SSA has about 11 and population growth projections, it is terawatts of potential capacity, Electricity access and development estimated that 600 million people in exceeding the projected capacity Electricity access is necessary but not SSA, primarily in rural areas, will needed to meet demand by 2040 by a sufficient to achieve development. remain without a grid connection in factor of 30. (Brighter Africa: The World Energy Outlook 2017 Development needs a holistic approach 2030 ( , Growth Potential of the Sub-Sahara that includes much more than the International Energy Agency). In order Electricity Sector, McKinsey and to address these challenges, the energy sector. Believing that energy Company, 2015). Due to this irradiation access alone will ignite development Sustainable Energy for All global potential and the rapid reductions in the creates the risk of moving from poverty initiative, launched in 2012, aims to extend electricity access to the poor cost of solar PV, solar home systems without electricity access to poverty through both grid and non-grid small- and solar-powered mini-grids may be with electricity access. scale electrification, especially in SSA. particularly attractive solutions in rural Moreover, energy access has two All this is done in the hope of unlocking and sparsely populated areas where elements: access to electricity services the development potential of the cost of extending the national grid and access to modern and clean electrification as seen in the context of may be prohibitive. They can be rolled high-income countries. In this article, cooking. Around 3 billion people cook out more quickly and with more limited we discuss the potential and limitations and heat their homes with solid fuels on capital investment than grid of off-grid solar solutions in closing the open fires or traditional stoves, with connections. gap in energy access by 2030. severe health, gender, economic, and

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Consumer benefits education, and increases in female energy expenditures, found broader The availability of electricity along with employment (‘The Effects of Rural welfare impacts of solar lamp other complementary investments, in Electrification on Employment: New ownership. Specifically, it found that particular lighting, is thought to affect Evidence from South Africa’, Taryn household expenditure on lighting development outcomes in a number of Dinkelman, American Economic decreases, as does expenditure on ways. The final outcomes of interest to Review, vol. 101, pages 3078–3108, phone charging, both of which are policy-makers typically include 2011). clearly directly impacted by the ownership of a solar lamp sold as part improved learning and education, Despite these positive findings on grid of the study. Having more reliable increased labour supply and household access, relatively little robust evidence access to mobile phones also income, and better health. In turn, the exists on comparative impacts of solar increases use of mobile money by pathways through which electricity energy access on household welfare. A those who already have a mobile affects the final outcomes can be handful of studies have explored the money account. Adults work more characterized by a number of educational impacts of access to solar outside of the household and in jobs in intermediate outcomes which energy in rural contexts with mixed which they can earn money, a result themselves are also informative and of results. Encouragingly, a few studies on that is confirmed by analysing the time interest. These intermediate outcomes the immediate impacts of access to use of household members. This include, but are not limited to, additional solar energy have found that solar increase includes more women working productive hours for businesses, lamps (a small-scale solar home in wage jobs. Comfortingly, adolescents market work, and study; improved system) significantly reduce energy do not increase their entry into the productivity during existing work and expenditures and lead households to labour force or drop out of school more. study hours; improved access to substitute away from poor-quality, high- Owning a lamp thus appears to create information (via mobile phones, radios, emission light sources (see for new opportunities by which households and the Internet); more efficient example: A First Step up the Energy can increase their income, in part by business practices through better Ladder? Low Cost Solar Kits and exploiting the opportunity to charge access to communication technology; Household's Welfare in Rural Rwanda, others money for using the mobile and improved indoor air quality as World Bank Economic Review, vol. phone charger. Not only do households households switch to a cleaner energy 31:3, pages 631–649, 2017). source. report a higher income, but A recent study from rural Tanzania, in respondents also report feeling happier A number of papers have shown that addition to confirming the impact on with their current situation in life (The with improvements in grid electricity Summary of household-level impacts such improvements in intermediate and final outcomes do indeed materialize, but have also pointed out the importance of complementary enabling conditions for the full benefits of electrification to accrue. These include reductions in energy expenditures, improvements in Source: Aevarsdottir et al 2018. The Impacts of Rural Electrification on Labor Supply, Income and Health: health and Experimental Evidence with Solar Lamps in Tanzania, Anna Aevarsdottir, Nicholas Barton, and Tessa Bold, IIES Working Paper, 2018).

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Impacts of Rural Electrification on Grimm, Luciane Lenz, Jörg Peters and Conclusions Labor Supply, Income and Health: Maximiliane Sievert, Ruhr Economic Household-level electrification, even at Experimental Evidence with Solar Papers #745, 2018). Taken together, low levels such as those provided by Lamps in Tanzania, Anna Aevarsdottir, these results suggest that if the target small-scale solar home systems, can Nicholas Barton, and Tessa Bold, IIES of universal access by 2030 is to be bring substantial economic and Working Paper, 2018). achieved, improved financing noneconomic benefits to rural mechanisms will need to be coupled Willingness to pay households in developing countries. with some form of subsidies, at least in However, limited willingness and ability Evidence from recent studies has the short run. These subsidies could be to pay will need to be addressed shown that, despite the potential direct, by lowering the cost of the through broader financing mechanisms, economic and noneconomic benefits product, or indirect, by supporting flexible payment schemes, and possibly from access to solar energy, extended payment periods. short-term targeted subsidies to reach willingness to pay is still quite low in the Sustainable Development Goal of developing countries. For example, a Capacity limitations universal access by 2030. recent study found that only a small Based on the evidence discussed share of households in rural western above, off-grid solar appears to be a Tanzania are willing to pay full price for promising strategy for household-level DOES SOLVING ENERGY solar lamps that produce enough power electrification. It has been documented POVERTY HELP SOLVE to provide lighting and charge a small that even for grid-connected appliance such as a mobile phone, households, rural energy consumption POVERTY? even when offered the possibility to pay levels are low, in the range of 50 to 100 Catherine Wolfram, Ken Lee and in instalments over four months (The kilowatt-hours per capita per year, Edward Miguel Impacts of Rural Electrification on enough to provide a household with Recent research has made us sceptical Labor Supply, Income and Health: lighting and mobile phone access and of a widely held belief. Experimental Evidence with Solar power a fan for five hours a day (Africa Lamps in Tanzania, Anna Aevarsdottir, Energy Outlook, International Energy ‘Access to reliable electricity drives Nicholas Barton, and Tessa Bold, IIES Agency, 2014;). These low levels of development and is essential for job Working Paper, 2018). However, the electricity consumption support the creation, women’s empowerment and study also found that the energy case for promoting solar to expand combating poverty.’ This statement, expenditure savings accumulated over household energy access in rural attributed to Gerth Svensson, chief a two-year period would cover the cost areas. However, currently available off- executive of Swedfund (a development of the solar lamp, without taking any grid solutions are unlikely to be able to finance group), neatly summarizes a other benefits into account. These affordably provide the electricity commonly held belief in the energy and results indicate that financing needed for larger-scale productive uses development communities. mechanisms and payment solutions such as powering machinery for This belief has backed a number of that allow longer repayment horizons or agricultural production or efforts to help the 1.1 billion people pay-as-you-go models may significantly manufacturing. As an example, a small- without electricity in their homes gain increase the take-up of small-scale scale rice mill needs an electric motor access. For example, the UN and the solar home systems among rural with the capacity of 2 kilowatts, which is World Bank launched the Sustainable populations. roughly equivalent to the capacity Energy For All initiative in 2011, the provided by 700 units of the most A recent study from rural Rwanda mission of which is to accomplish commonly featured small-scale solar concluded that relying solely on a Sustainable Development Goal 7, home systems in the studies reviewed market-driven approach to reach ‘Ensure access to affordable, reliable, above (Africa’s Pulse, Spring 2018: universal electrification is likely to be sustainable and modern energy for all.’ Analysis of Issues Shaping Africa’s unsuccessful due to very limited The government of India has Economic Future (April), World Bank, willingness and ability to pay among announced an ambitious goal of Washington, DC, 2018). In order to poorer segments of the population, connecting its 300 million un-electrified address the energy needs of industry resulting in unrealistically long citizens by 2022. and other productive uses, some form repayment periods (Demand for Off- of mini-grid or on-grid solutions will be But is the statement true? Or are some Grid Solar Electricity: Experimental required. parts true, but not others? For example, Evidence from Rwanda, Michael maybe electricity drives job creation but

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not women’s empowerment, or vice grid, and they were no better off by our other things, which is hard if you’re versa? measure 18 months later than very poor. Households in our study households without a connection. Even hardly used electricity – only 3 To answer questions like these, we the students’ test scores were the same kilowatt-hours per month, compared conducted an experiment on grid in the treatment and control groups. with the US average of 900 kilowatt- electrification in western Kenya. We hours per month. And they barely started by identifying households that Our results are intellectually bought any appliances. were within 600 meters of an existing fascinating, but at the same time electric transformer but were not discouraging. It would be nice to 4) Reliability matters. In many low- already connected to the grid. We next believe the widely held perspective that income countries, the grid has divided these households into two electrification will immediately drive frequent blackouts and groups, treatment and control. We growth. But here are some reasons we maintenance problems. This may divided them randomly, meaning that should be careful accepting this belief: make electricity less useful. In each community had an equal chance 1) Correlation does not equal western Kenya, where our work of being in the treatment or control causation. There is likely nearly 100 took place, poor reliability is not group. This mimics the well-established per cent overlap between the 1.2 caused by load shedding. In fact, approach that drug companies use to billion people in the world who do Kenya right now has more than test new drugs, and it means that, on not have electricity in their homes enough generating capacity. But average, the only difference between and the world’s very poorest nearly 20 per cent of the the two groups is the treatment they citizens. But just because the lack transformers in our study area were receive, which helps isolate the impact of electricity is an easy identifier of not working at some point during of that treatment. the poor doesn’t mean that giving the first 18 months. And when they In the treatment communities, our them electricity will alleviate their were down, they were unavailable research team paid to connect up to 15 poverty. In addition to electricity, for on average three months. households to the electricity grid for they also likely lack running water, Households may be reluctant to free or at a steep discount. We worked good sanitation, consistent food make investments that rely on closely with the electric utility and the supplies, good education for their electricity if the electricity supply is rural electrification agency to ensure children, good health care, political unreliable. But in much of the that the households were connected. influence, and a host of other assets developing world, a grid connection that may be harder to measure but is a connection to an intermittent About 18 months later, we surveyed are no less important to their well- supply. households in both the treatment and being. control groups. We asked all kinds of It’s also possible that our results can’t questions, like whether they were be generalized. They certainly don’t 2) We need to think about the timing of employed outside of subsistence apply to enhancing electricity services interventions. For very poor agriculture (the most common work in for nonresidential customers like households, there may well be other these communities), how many assets factories, hospitals, or schools. And interventions that have higher the household had, and how good their maybe the households we’re studying immediate returns and should be health was. We gave the 12- to 15- in western Kenya are particularly poor prioritized ahead of electrification. year-olds tests, as one frequent (although measures of well-being For example, previous work by one assertion is that access to electricity suggest they are comparable to many of us showed substantial economic helps students do better in school since rural households in sub-Saharan Africa) gains from government spending on they can study at night. or particularly politically treatment for intestinal worms in disenfranchised. Or maybe our results We next compared the answers from children. would have been different if we were the treatment and control groups to looking at electrifying a whole measure the difference driven by 3) Electricity has value only when community or region and not just electrification and found … nothing. No paired with electrical appliances, individual homes. difference that our data could detect. which can be expensive. To use The rural electrification agency had electricity for more than basic We were also concerned that 18 paid an average of more than $1,000 lighting and cell phone charging, months was too short a time to see per household to connect them to the households need to be able to buy meaningful impacts. We recently went

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back to the households in the treatment THE POLITICS OF dominates the economy and and control groups and surveyed them RENEWABLE ENERGY IN development is government driven. The again, about 32 months after they were EAST AFRICA power sector was, in practice, a state connected. Unfortunately, the results monopoly until 2017, and although the were nearly identical to the results at 18 Emma Gordon government is committed to growing months – essentially no difference Less than a quarter of East Africa’s renewable capacity, its approach has between treatment and control groups. population has access to electricity – stifled growth, particularly in off-grid the lowest electrification rate in the systems. The government retains a Results from several related world. This, combined with the region’s preference for large on-grid projects experiments on the impacts of smaller- vast natural resources, represents a that it can control. Increasingly, scale solar electrification solutions major opportunity for renewable energy investors are likely to be granted deliver similar ‘meh’ results. One study investors. Solar irradiation levels are generous incentives to enter the found that subsidized solar lamps high due to proximity to the equator; Ethiopian market, and the government helped western Kenyan families save wind speeds are some of the strongest will support them with the necessary $0.93 on kerosene per month, but they on the continent; hydropower resources infrastructure development. were not transformational. Children are plentiful; and the Great Rift Valley is didn’t study more; people didn’t spend In Kenya, the market theoretically a promising source of geothermal their time differently. A similar drives economic and social power. experiment in Rwanda found some development, and as a result, the evidence that children with solar lamps This article compares the two largest private sector has more freedom to studied more, while another study economies in the region, Ethiopia and operate. Consequentially, Kenya has found that children with solar lamps Kenya, to show how government policy become a hub of innovation for off-grid studied more but their tests scores affects renewable energy investment. solutions. In 2015, East Africa were worse. Both countries have ambitious accounted for over half of the global renewable-energy targets. The investment in off-grid systems, primarily Addressing the needs of the world’s presence of both baseload and in Kenya and Tanzania. Kenya’s poorest citizens is clearly important, intermittent power sources means that regulatory environment welcomes and those of us who live with 24/7 both countries are able to aim for distributed energy systems, particularly electricity, Internet, running water, and 100 per cent renewable power sectors. in rural areas. Equally, from an locked houses cannot imagine living However, they both lack investor’s perspective, these projects without them. But in a world of limited comprehensive power infrastructure reduce some of the biggest risks for resources, we need to be focused on and have a history of failing to meet foreign companies in Kenya, notably the best ways to address poverty. peak demand, leading to frequent land access, security risks, and high We are not arguing that poor rural power shortages. Both countries are levels of bureaucratic inefficiency and households should live without a grid therefore seeking to expand their off- corruption. connection forever. But it’s important to grid systems, particularly in rural areas, Understanding country risk think about the best sequencing for and to improve their on-grid generation different development initiatives. Will an capacity. The first major obstacle for many electricity connection have a higher renewable energy projects in Africa is The investment experiences in Ethiopia payoff once a household has satisfied securing international financing. and Kenya differ greatly. In Ethiopia the other needs, such as food security, Reaching financial close can take over sector is only now opening up to private education, and health care? The five years longer for African projects investment and the emphasis is on emerging evidence suggests that than for their counterparts in more large, utility-scale projects. In Kenya, electrifying rural households may not stable investment environments. These private companies have been present be the essential key that we thought it delays are evident in the two largest for decades and the country has was for the very poorest of the poor. on-grid developments covered in this become a hub for innovation in report. The Lake Turkana Wind Power commercial off-grid and micro-grid Project in Kenya took nine years to systems. reach financial close; the Corbetti These experiences reflect different geothermal project in Ethiopia has political, regulatory, and security taken seven years, and close is still an climates. In Ethiopia, the state estimated 18 months away.

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For many private investors, Africa centralized development approach. Such policy concerns preclude the presents an unfamiliar and potentially development of fossil-fuel-generated Ethiopia has the second-highest unstable operating environment. Given power. However, there is still an urgent installed generation capacity in sub- the limited sources of domestic need for the government to diversify. It Saharan Africa at 4.5 gigawatts (GW), financing, the majority of infrastructure is currently overly dependent on and a relatively advanced infrastructure projects on the continent have hydropower, which is likely to become network. In 2018, the World Bank historically been financed by export less reliable as droughts intensify. estimated that ‘nearly 80 per cent of the credit agencies, multilateral institutions, Hydropower projects will remain the Ethiopian population [are] living within or bilateral deals. In part, this is main source of baseload power, proximity of medium-voltage because only 24 of the 49 countries on supplemented by new geothermal transmission lines.’ Despite this the continent have been assigned a developments, but these will need to be seemingly strong enabling credit rating by the three major ratings supported by intermittent sources such environment, only 43 per cent of the agencies, and of those, only three have as wind and solar to meet peak population, 24 per cent of primary an investment grade rating. Despite demand. schools, and 30 per cent of health this, the appetite for renewable energy clinics have access to electricity. Although the government has projects in Africa has increased over acknowledged that off-grid and micro- the last few years. The cost of solar This contradiction is a result of policy grid projects are important for rural and wind equipment has plummeted, decisions which have adopted a electrification, the vast majority of and several companies have centralized, top-down approach to power comes from large on-grid demonstrated the commercial viability electricity expansion. Development of sources. For the next five years, the of off-grid and micro-grid solutions. the country’s power sector is governed emphasis on utility-scale projects is by the Growth and Transformation Plan Understanding the political, regulatory, unlikely to waver since it follows the (GTP) – the national development plan and security environment is a vital part government’s centralized model. that dictates the majority of prominent of risk assessment. Among other government policies. The GTP was first Nascent but evolving regulatory things, it enables investors to establish released in 2010 and was replaced by sector whether they can expect a supportive GTP II in 2016. The primary objective Until recently the electricity sector was policy environment, predictable tariffs, of the GTP is that Ethiopia reach a state monopoly run by the Ethiopian standardized contracts, and physical middle-income status by 2025. Electric Power Corporation. The security for their assets. Each country Electricity generation and access are government has acknowledged the presents a unique risk environment, crucial to this goal. The first GTP called need to increase capital investment in and knowing the drivers of these risks for a quadrupling of generation capacity the electricity sector and would prefer should be a fundamental part of the from 2 GW to 8 GW. Despite falling to utilize public investment for project financing process. short of this target, ambition only grew, infrastructure needs that cannot Ethiopia with GTP II setting a target of 17 GW generate self-sustaining revenue. It has Ethiopia’s abundant natural resources, by 2020. Huge hydropower projects – therefore committed to drawing in more ambitious electrification targets, and notably the Grand Ethiopian international investors, and in 2017 it green credentials make a seemingly Renaissance Dam – as well as five new signed its first independent power perfect combination for renewables wind farms, aim to bring the country to production contract with Corbetti investors. However, the state- 5 GW by 2020. Geothermal. This represents a major turning point. In June 2018, the dominated approach to economic A remarkable result of these government also announced that it was development has limited private-sector development plans is that Ethiopia’s considering opening up Ethiopian growth. Since 2017, the government power sector is one of very few Electric Power to partial privatization. has opened the energy market to worldwide to have an electric grid Despite these steps, the government international investors. It has become a supplied almost exclusively by maintains tight control over the sector willing partner, offering generous renewable energy. The idea of green and the direction in which it develops. incentives and supporting investment growth is enshrined in the GTP, and at with the rapid construction of relevant the UN Conference on Climate Change Private investment in the electricity infrastructure. That said, it offers less in 2015, the Ethiopian government sector is a relatively new phenomenon support to off-grid projects, which sit pledged to cut emissions by an in Ethiopia, and regulation is still in its less comfortably with Ethiopia’s ambitious 64 per cent by 2030. infancy. Over the last five years, the

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government has introduced new hence would likely facilitate smooth come online in recent years. Much of legislation to reform the sector and to project planning and allow for more this efficiency is due to the drive up capital investment. Despite certainty while seeking access to government’s partnership with China, this, the country does not yet have key finance. which provides the finance, equipment, policies such as a feed-in tariff or net and frequently the workforce for these For off-grid and micro-grid companies, metering, mechanisms that ensure the projects. As in other priority sectors, the there is even more regulatory price at which producers can sell power confusion, particularly over licencing government supports China’s back to the grid. These regulation gaps and their relationship with the rural contributions with tax breaks, quick undermine the ability to attract electrification agencies. Private decision-making, and easy land financing, which tends to require such investment was authorized in 2013, but access. policies in order to guarantee stability private-sector involvement has not This track record will encourage utility- and profit predictability. grown significantly beyond the sale of solar home systems. The government scale renewables investors who rely on However, the government has proved a has sought to maintain a level of control the expansion of transmission networks willing partner given that renewable of the off-grid developments, and with to get their electricity to market. As part energy – both on- and off-grid – is support from the World Bank and other of the National Electrification Program, considered one of the so-called priority development institutions, runs most of the government plans to build 114 new sectors. As such, investors are offered the solar home system expansion transmission substations and 13,540 generous incentives including projects. km of new 500 kilovolt to 66 kilovolt expedited decision making, tax breaks, transmission lines by 2020. This will There is an equal need for further and access to scarce foreign currency. harmonization of rural electrification mark a dramatic increase from the Renewable energy investors are agencies. Off-grid and micro-grid 10,869 km of transmission lines in therefore likely to find fewer place in 2015. projects often need to coordinate bureaucratic hurdles here than in closely with these agencies, since they A further boost for would-be investors neighbouring Kenya. That said, the are likely to be serving the same are the government’s ambitious power environment for off-grid investors is far market. In Ethiopia, six agencies are export plans and commitment to less developed, and all companies will involved in rural electrification, with improving regional interconnectivity. need to contend with the on-going overlapping and occasionally Ethiopia is part of the East African currency shortages. contradictory policies. Power Pool and is either already Despite this progress, there are still Comparatively low country risk delivering or on track to deliver power numerous regulations that remain to Djibouti, Kenya, Rwanda, Sudan, One of Ethiopia’s noticeable outstanding. The Ethiopian Energy and Tanzania. This significantly advantages is that it has lower Authority – the sector’s regulator – is in expands the potential market for on- corruption risks than any of its the process of developing model power grid projects. neighbours. Most businesses do not purchase agreements and report the same level of bribery However, there are also risks. One of implementation agreements for all demands and corrupt tendering as in the most significant risks to companies renewable technologies. These model Kenya, Tanzania, or Uganda. However, operating in Ethiopia is currency contracts will remove a significant as reported by the World Bank in 2012, shortages. Access to foreign exchange amount of uncertainty for future the high level of government has been a major obstacle for investors. Crucially, this will include involvement creates ‘a widespread businesses for years and has worsened cementing important protections for perception of hidden barriers to market over 2017 and 2018. Even in the investors, notably a generation entry’ and ‘an impression of priority sectors, which are given payment guarantee in the event of the favouritism’. preferential access, businesses Ethiopian Electric Power Corporation frequently complain about delays defaulting. Alongside these The government also has a track accessing currency of over three standardized agreements, the record for completing infrastructure months. Ethiopian Energy Authority has projects without the repeated delays proposed introducing a feed-in tariff. A and cost inflation seen elsewhere in the Renewable energy investors also need standardized feed-in tariff would reduce region. This is most evident in the to manage the risk exposure of their the need for complex bilateral transport sector, but is also true of physical assets. These risks are negotiations for each project, and various hydropower projects that have significantly higher for large, utility-

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scale assets since off-grid and micro- The government has a history of hydropower. Both sources can provide grid projects are by nature small and welcoming private investment. baseload power, which would allow for dispersed. That said, Ethiopia has Moreover, the power sector is much a 100 per cent renewable energy mix. lower asset risks than many countries more influenced by market needs than However, the government has not in the region. All land is government by the government’s vision for committed to this target. It has plans to owned, removing access challenges development. Like Ethiopia, develop a coal power plant in Lamu, but presenting investors with the risk of renewables are the main contributor to and the Ministof Energy has made association with human rights concerns the electricity mix, and ambitious several statements indicating its over forced displacements and electrification targets focus on intention to use natural-gas-powered government overreach. renewable energy projects. The turbines as a back-up power. legislative environment for foreign Frustration over government land A unique feature of Kenya’s electricity investors is relatively well established policies has, in the past, led to localized sector is its innovative use of off-grid for both off-grid and micro-grid projects. protests in rural areas. In 2015, it solutions. The government has long This reduces regulatory risk. However, sparked mass protests across the recognized off-grid expansion as an the nature of the political system does Oromia region. These spread to effective means of rural electrification. present challenges, not least over Amhara and to a lesser extent the There are at least 19 state-owned off- corruption and access to land. As a Addis and Somali regions, lasting until grid power stations in remote locations, result, unlike in Ethiopia, risks are early 2018. Protests often attracted primarily in the northern part of the higher for large, on-grid projects than thousands of people, and in Oromia country. Private companies are also for off-grid and micro-grid investments. and Amhara led to attacks on foreign allowed to generate and distribute businesses, particularly those that were Kenya was one of the first countries in power through micro-grids. either associated with the ruling party sub-Saharan Africa to liberalize its Of the 2,700 MW capacity addition or central to the government’s power sector, opening it to independent planned over the next five years, 80 per economic policy. This included throwing power producers in the 1990s. The cent is likely to come from private stones (or in rare cases in Amhara, sector is relatively well developed and investment. This reflects Kenya’s grenades) and burning company has a strong track record. Electricity reputation as a business-friendly vehicles; in the worst cases, flower access rates have risen from 36 per destination. Parties across the political farms and textile factories were burned cent of the population in 2014 to 56 per spectrum support private investment, to the ground in Oromia. cent in 2016. The government is aiming including in the renewable energy for universal access by 2020. Utility-scale renewable projects are sector. Thus, Kenya’s energy policy is likely to face high reputational and As access increases, so will demand. likely to continue to support private litigation risks due to their need to Kenya has comparatively high per- investment. partner with the government. capita consumption for the continent – The sector is further protected from International investors have faced 161 kWh, compared to 126 kWh in political fluctuations by the partial criticism for benefiting from the Nigeria, for example – and as the privatization of utilities. Only the government’s controversial land fourth-largest economy in Africa it has a Geothermal Development Company policies. Domestic and international burgeoning industrial sector. Peak and the Kenya Electricity Transmission rights groups have accused industrial demand therefore has the potential to Company are wholly state-owned and agribusiness projects of being increase from 2015 levels of 1,800 enterprises. That said, political risk is complicit in forced relocations and megawatts (MW) to 2,600–3,600 MW still high compared to Ethiopia, due in inadequate compensation. The by 2020. This will exceed the current large part to the high levels of ethnic government has taken steps to improve installed capacity of 2,333 MW. In competition throughout the system. compensation procedures, but it is response, the government is in the highly unlikely that all individuals process of more than doubling its A major concern of investors in Kenya affected will have given free, prior, and transmission network from the current is the frequency and scale of political informed consent. 4,149 km. crises. In 2007–2008, political violence killed over 1,000 people and displaced Kenya Renewable energy accounts for 87 per over half a million. A decade later, cent of Kenya’s power mix. It is at the Kenya presents a very different elections in 2017 led to a Supreme heart of expanding power generation investment environment to Ethiopia. Court intervention that annulled the plans based on geothermal and

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election result and brought the country the first decade, after which they The tariff system has been particularly to a standstill in the six months until a will rise to up to 5 per cent. challenging for off-grid and micro-grid new election was held. During election projects, where it has resulted in Despite the delays in introducing the cycles, gross domestic product growth lengthy negotiations for licences. new Energy Bill, the presence of such a dips dramatically, as investors tend to Private operators generally charge a well-developed regulatory framework is delay decisions, fearing property higher tariff than the universal rate and a strong draw for international damage and physical risk to staff as offset the high tariff with a low investors. Crucially, Kenyan power well as the potential for contract connection rate, based on the purchase agreements (PPAs) use a renegotiation or regulatory changes assumption that usage will be high. standardized model following should power change hands. This tension has resulted in the government guidance. This provides government rejecting several A well-developed but inefficient additional contract certainty for commercial tariff proposals, system investors. It also reduces regulatory significantly delaying project The unstable political environment has uncertainty for utility-scale investors by implementation and putting investor numerous knock-on effects when establishing the terms under which they profit margins at risk. dealing with government bureaucracy. sell their power back to the grid. As noted, corruption risks are Additionally, under a collection of legal Even for larger projects, progress can particularly high and politicking can notices approved in 2015, renewable be slow. Vestas Wind Systems first reduce the effectiveness of state energy projects receive a number of tax signed their PPA in 2010, but institutions. This can affect efforts to exemptions – including from construction on the Lake Turkana Wind expand the power infrastructure withholding tax, stamp duty, export Power project did not begin until 2016. network, which is essential for many duty, and VAT and customs tax on While there is a strong government on-grid proposals. imports. impetus behind these projects, they are still stymied by the same long That said, the government has created Renewable energy projects under negotiations and high transaction costs a relatively strong legislative and 50 MW can currently apply for feed-in as other infrastructure projects. The regulatory framework for renewable tariffs, which were first introduced in politicization of negotiations can also energy investors. Unlike in Ethiopia, 2008 and last revised in 2012. This add to the challenge of finding foreign this includes a number of targeted allows power producers to sell their backers for projects. For example, in policies such as feed-in tariffs and net electricity to an off-taker for a fixed metering proposals. The plans for the 2012, the World Bank withdrew from a price, over a set period. This system is sector are laid out in key policy deal to guarantee funding for the considered beneficial as it allows documents, such as Vision 2030, the Turkana Wind Project due to a investors to guarantee their profit National Energy and Petroleum Plan disagreement over the terms of the margins. However, in Kenya it has 2015, and the 1997 Rural Electrification PPA. Master Plan. These policies have been caused delays during licensing translated into two key laws and discussions and has led to the growth Despite having a better regulatory regulations: the Sessional Paper No. 4, of speculation in the market. environment than Ethiopia, Kenya’s 2004 on Energy, and the Energy Act bureaucratic inefficiencies and high The government will replace the current 2006, which is due to be replaced by levels of corruption affect a significant feed-in tariffs with a system of the Energy Bill 2017, currently in draft proportion of interactions with the competitive auctions under the Energy form. The new bill contains a number of government. Further, the level of Bill 2017. This will allow for greater key changes: tribalism within the political system competition over pricing, in theory  Removing Kenya Power’s leads to cyclic disruption associated producing a better result for end users. monopoly to make the distribution with elections and a complex social For investors, auctions still provide market more competitive. environment for investors to navigate. price stability, but they are likely to  Replacing the feed-in tariff policy Land politics present a particularly high have to offer lower tariffs, potentially with competitive auctions. risk, with many large-scale projects reducing their profit margins. That said,  Introducing net-metering to facing either protracted litigation or competitive auctions have proved support private, off-grid violent protests in connection with their highly effective elsewhere on the consumers. physical assets. continent, including in South Africa and  Introducing royalties of 1–2.5 per Zambia, where they have produced cent for geothermal producers for record low tariffs.

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Conclusion Meanwhile, in Kenya, asset risks are These efforts have frequently The renewable energy sector in East significantly higher and regulatory gaps encountered challenges associated Africa presents a vibrant investment are fewer. This creates an environment with the political sensitivity of such environment with opportunities for large where projects with a large physical reforms and the difficulties that donors on-grid projects in geothermal and wind presence are at a disadvantage. face in responding to these challenges. as well as commercially viable Problems with land access and a high As a result, there has been a distributed solar investments. However, risk of protests can cause major delays resurgence of interest in the political the prevalence of political, regulatory, to large, on-grid projects but pose little economy of donor engagement in and security risks can contribute to long to no risk to distributed off-grid projects. reform processes. A series of studies delays in project finance. In some Equally, since the legislative and have suggested that projects that take cases, investors have pulled out of regulatory environment is more a flexible and adaptive approach to projects or closed operations down entirely as a result of regulatory developed, it includes provisions reform have been more successful. uncertainty or a physical threat to their covering off-grid and micro-grid Donors have been urged to focus on assets. Yet despite this, an increasing systems. This, combined with the boom problem solving through an iterative number of private power producers in mobile payment technologies, has process, while projects should ‘crawl persevere to reach financial close, and allowed for the roll-out of pay-as-you-go the design space’ for solutions (see over the last year off-grid ventures have solar systems that support government here). Similarly, donors are increasingly completed record funding rounds. electrification targets while still recognising the need to ‘think and work providing returns to international politically’ (see here) and to ‘work with East Africa is home to one of the investors. the grain’ of the domestic political largest hydropower projects in the reality (see here). There is also a world (the Grand Ethiopian growing literature of comparative case Renaissance Dam in Ethiopia), one of studies that argue that aid programmes the largest planned geothermal projects AID AND THE DESIGN AND in Africa (Corbetti in Ethiopia), and the IMPLEMENTATION OF which are flexible, long-term, and locally owned are likely to be much largest onshore wind development in POWER SECTOR REFORM more effective in achieving sustainable Africa (Lake Turkana in Kenya). The PROJECTS IN SUB- region is also home to several record- SAHARAN AFRICA change than more traditional ‘linear’ programmes (see here). breaking off-grid ventures, including M- Neil McCulloch, Esméralda Sindou Kopa in Kenya and Off Grid Electric in and John Ward Donors have been paying attention to Tanzania. this literature and are increasingly Although some African countries have recognizing that an appreciation of the These examples hint at one of the key made great strides in off-grid politics of the sectors and countries in findings of this article: that Ethiopia electrification, the bulk of Africa’s which they are operating is essential for looks more favourably on large utility- population is still more likely to achieve successful and sustainable reform. This scale projects, while Kenya presents access through the grid. However, the article examines how donors have tried opportunities in off-grid innovation. This extension of grid access in sub- to take political context into account in is partly driven by the differing risk Saharan Africa has been painfully slow. their support of power sector reform in landscapes in these countries. In One reason is that the power sector in sub-Saharan Africa. In most countries, Ethiopia, the risk is primarily in the many African countries is loss-making power systems are centralized, mainly political and regulatory stage, whereas and often insolvent (see here). based on a national grid, and although physical asset risks are lower. The Development partners have therefore electricity is part of the development country’s less developed regulatory attempted to support power sector narrative of most countries, it tends to system means that investors are likely reforms to improve the viability of the be controlled by a domestic elite and is to rely more on government support to sector, improve reliability, and extend a significant source of rents. Thus the push ahead with a project. The access. Often power sector reform has characteristics of the power sector government has proven more willing to been seen as a necessary condition for make accounting for political throw its weight behind large utility- advancing electrification in Africa, given considerations particularly important. scale investments, while gaps in the the shortage of government capital legislation still prevent the rapid budgets and the reluctance of the Although there is already a literature on expansion of private off-grid private sector to invest in a loss-making the political economy of power sector investment. sector. reform, rather little has been written

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about the role of donors and the extent Development Bank, the European Bank standard textbook for reform focuses to which they have taken knowledge for Reconstruction and Development, on the end point, namely an unbundled, about the politics of reform into account and other international agencies, such privately owned and competitive power in the design and implementation of as the World Energy Council. Donors sector, not on the steps that their programmes in Africa. have played a major role as the governments need to take towards that In this article we look at the following architects of reforms in the power end.’ sector, and have often attempted to questions: To what extent have donors Third, many reform attempts failed to initiate reform through the provision of analysed the underlying political take account of the underlying political constraints that they face? Have donors technical assistance and capacity constraints facing decision makers. In significantly shifted the nature of the building programmes in developing almost all countries, reform of the power sector reform programmes which countries. power sector is an extremely sensitive they implement as a result of a better area. Electricity is part of the At first, most development partners understanding of the political context? development vision of all countries and typically implemented a somewhat Are they taking on board the lessons therefore brings significant political uniform approach to power sector from recent research on ‘thinking and benefits to leaders who can control the reform. The approach taken in OECD price of and access to this key working politically’, and if so, how? Are countries crystallized into a standard developmental service. Economies of there general lessons that can be model for restructuring the sector, scale mean that large financial flows learned about what sorts of approaches which followed a logical sequence of are involved in procuring power to power sector reform are more, or distinct steps: corporatization, production, transmission, and less, successful and how this varies by commercialization, legislation, distribution systems. The centralized context? We conclude with a summary regulation, restructuring, privatization, nature of the technology concentrates of the lessons about how donors might and competition. The development control in the hands of relatively few respond more effectively to the political powerful individuals. As a result, the community promoted reform out of a challenges associated with power location of transmission and distribution belief that the standard model would sector reform. lines can be driven by electoral enable the transformation of poorly considerations, power may be rationed A brief history of donor engagement performing energy systems in to influence voters, and power in power sector reform developing countries, promoting growth generation may fluctuate with the and improving access for poor Although donors have been involved in election cycle. Utilities have historically supporting power sector investments populations. In the words of one former been used to serve the broader since the 1950s, the nature of senior donor official from a major patronage system and have become multilateral donor, ‘there was, in the large employers (see here). As reforms development partner involvement in often emphasize restructuring utilities, power sector reform in developing early 1990s, a strong belief that one they have faced strong resistance from countries is rooted in the size did actually fit all.’ labour unions. Reforms have also transformations that affected the sector However, the application of the encouraged cost-reflective pricing, but in OECD (Organisation for Economic standard model of reform in developing the associated price increases have Co-operation and Development) countries yielded rather modest results, resulted in popular uprisings in several countries in the 1980s. During that as it faced significant political barriers. countries including Argentina, Ghana, time, a combination of political, The consensus in the literature is that India, Indonesia, and South Africa. financial, and technical factors triggered the standard model failed for three Thus, rather than the standard model, power sector reforms in the United main reasons. the reforms of the last two decades Kingdom, Chile, and Norway. These have generated a wide variety of hybrid countries’ experiences appeared to First, it often failed to take account of the vast differences between structures (see here) for a recent demonstrate the benefits of such classification of different systems in reforms, which were then followed by circumstances prevailing in developing Africa). In each case, these reflect the several other industrialized nations and countries and those in the OECD countries where it was first outcome of a complex and context- some developing nations from the early specific contestation both between 1990s. Since then, power sector reform implemented. domestic actors (utilities, independent has been advocated by the Second, it failed to map out a feasible power producers, regulators, finance development community, including the pathway for reform. As Victor and ministries, energy ministries, and World Bank, the Inter-American Heller (2006) summarized it, ‘The political leaders) and between domestic

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and international actors (independent 1. Analysing the underlying politics discipline, making building a power producers, donors, and other of change in a country is valuable – multidisciplinary team difficult. Certain financiers). but only if used. types of donors are constrained to work with particular counterparts – for Donors still undertake remarkably little By the early 2000s, the donor example, in the power sector, projects serious formal analysis of the political community was conscious of the often must work through the ministry of context in which reforms are difficulties being encountered in the energy, even where the ministry’s undertaken. Reforms are viewed as implementation of power sector reform influence is a key constraint on reform. technical, with the result that the only in developing countries. The World analysis undertaken prior to the Flexibility is particularly difficult when it Bank commissioned a major review of comes to stopping on-going initiatives. implementation of projects is its power sector operations (see here); Once a project is approved, donor assessment of the different technical it concluded that ‘the most important officials and implementers are obligated aspects of the project, rather than lesson from reforming power markets in to make a success of it. This provides assessment of the wider political developing countries is that “cookbook” strong incentives to continue, even context and the incentives for various solutions for reforming their power when external, often politically induced, stakeholders. markets are ruled out by the extensive changes have made the chance of success slim. range of economic and institutional This is not because donor officials fail endowments of these countries.’ to understand the political context. 3. Dialogue, trust, and personal However, the instruments at their The consequence of this reappraisal relationships are of critical disposal, the pressure to disburse, and was the abandonment of the one-size- importance for reform. the processes with which they have to fits-all approach. The World Bank The long-term nature and sunk costs of comply seem, at best, to discourage a issued new operational guidance to its power sector reforms make the issue of slower and more reflective approach to staff, which emphasized context trust particularly important. Most engagement. It appears to be difficult specificity and the importance of the successful reforms have involved the not to pursue reform, even if there is political dimensions of reform. In construction of an effective working evidence that the particular pathway particular, a stronger focus was put on relationship through intensive and being proposed is unlikely to be identifying ‘stakeholders with the repeated interaction, often over a long successful. incentive and influence to press for period of time. Counterparts often want improved performance’ and ‘top-level 2. Flexibility is important – but there donors to listen more and lecture less. political decision makers’ who will be are reasons why it is difficult. As one experienced donor official put it, ‘There is no substitute for an able to champion the reform process. There is widespread agreement among experienced and credible [donor] staff The last decade has therefore seen donors that programmes should be member who has the trust and considerable experimentation by designed to be flexible and adaptive confidence of the key decision maker.’ development partners and closer (see here), since this allows donors to attention to the political context. But shift focus to take account of changes However, donor structures and training donors still face considerable in government and key personnel in may make building trust more difficult challenges in navigating the complex counterpart organizations, as well as than before. The high burden of politics of power sector reform, and it is enabling implementing partners to process compliance required of donor not clear whether the deeper experiment with alternative staff takes time that might otherwise be understanding of context has yet approaches. spent engaging key stakeholders. In translated into donors undertaking part, this bureaucracy reflects risk different interventions in the countries However, there are significant structural that they support. and procedural reasons that flexibility is aversion associated with donor-country difficult. For example, the US Agency domestic political concerns, or a results Lessons learned for International Development receives agenda requiring officials to ‘prove’ that Our analysis of the research literature funding from the US Congress that is aid is working. Frequent rotation of and documentation from donor projects allocated by sector and by country, donor staff also undermines the ability and our interviews with donor officials inhibiting the flexibility to shift resources to build long-term relationships and to suggest some general lessons for from less effective to more effective obtain a good understanding of the policymakers, both in development areas. Complex reforms often require country’s recent history. partners and developing country multidisciplinary approaches, but donor staff are often organized by sector and governments.

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4. Mental models matter. Many development partners appear to are below 30 per cent; and South Africa Notwithstanding the evidence be unaware of the emerging aid is predominantly (86 per cent) suggesting that the standard model has modalities for engaging with dynamic electrified. Lack of access to electricity not worked in many developing political contexts or, for structural or in SSA is even more dramatic in rural countries, the model’s core elements political reasons, are unable or areas, where electrification rates still appear to hold sway in the thinking unwilling to adopt them. average 16 per cent, compared to 99 of development partners and some per cent in North African countries and At a minimum, programme design government officials. In part, this is 71 per cent in South Africa. should start with a detailed analysis of because there is no other compelling the underlying motivations of the key Since 2014 the number of people mental model to which to refer. Rather, actors and institutions to identify reform without access to power in SSA has path-dependent hybrid models have pathways that are politically feasible declined, as electrification efforts have begun to develop based on local rather than just technically desirable. surpassed population growth. experimentation within different political Development partners need to balance Decentralized renewable-energy contexts. However, most international activities that are consistent with the solutions play an increasing role in this consultants, on whom donor officials current political equilibrium; with those trend. However, around 590 million depend, are still most familiar with the supporting legitimate domestic actors to people in SSA continue to lack access standard model. As a result, it has been challenge the status quo. And to power, more than half of the world’s difficult for donors to shift their advice, researchers need to test whether total. whilst developing countries have found programmes that adopt more politically it hard to gain donor acceptance of the Lack of access is not the only savvy approaches are actually more somewhat expedient and path- component of SSA’s electrification effective and how their success or dependent approaches implemented in challenge. Even among people who do failure depends on the nature of the practice. have access to electricity, there are political context and the way in which wide disparities in annual per capita 5. There may be opportunities to they are implemented. consumption between the three build domestic demand for reform. The answers to these questions could regions: 225 kilowatt-hours (kWh) in Development partners have put help donors to support African SSA – and as little as 100 kW in rural relatively little effort into building a countries to reform their power sector in areas – compared to 1,500 kWh in wider domestic constituency for reform ways that are politically feasible while North Africa and 4,200 kWh in South in the countries in which they operate. also advancing the extension of Africa. Rather, most donors appear to have electricity access to all. interpreted ‘country ownership’ to mean Thus, two-thirds of SSA’s population government ownership. This may This article is an abridged version does not have access to power, while reflect the fact that, in some countries, of McCulloch, N.; Sindou, E. and Ward, the remaining one-third cannot donor projects are tightly controlled by J. (2017) ‘The Political Economy of Aid consume as much as it would like, due the government, which may be for Power Sector Reform’, IDS to regular blackouts and brownouts unsympathetic to activities that attempt to support advocacy activities. Bulletin 48.5-6: 166-84. resulting from structural problems in the electrical system. However, the lack of interest in building coalitions in support of reform is Making power available to all by 2030, surprising, given the growing evidence ELECTRIFICATION IN SUB- in line with the UN Sustainable of the importance of building broader SAHARAN AFRICA: THE Development Goals, is therefore a coalitions to achieve sustainable ROLE OF INTERNATIONAL major challenge for Africa, notably for reform. INSTITUTIONS financial reasons. Conclusion and recommendations Simone Tagliapietra The International Energy Agency Whilst development partners are often Introduction estimates that cumulative investments fully aware of the political nature of Africa’s access to electricity varies by between 2017 and 2030 under current reform of the power sector, they devote region: North Africa is almost entirely policies and commitments are less than little attention to the analysis of political (99 per cent) electrified; in sub-Saharan one-fifth of the amount needed to constraints, and what analysis there is Africa excluding South Africa (SSA), achieve universal electricity access in has little influence on the nature of electrification rates in most countries SSA, which it estimates at $454 billion, programmes that are put in place. an average of $35 billion per year.

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How to meet this substantial investment The key role of international public Africa, followed by the Climate requirement? The issue is complex, finance initiatives in fostering Investment Funds, the Arab Fund for and no simple solution exists. However, Africa’s electrification Economic and Social Development, two points seem to be essential: International public finance institutions, OFID, the United Arab Emirates, and others. The African Development Bank 1) SSA countries should reform their such as multilateral development banks also played a significant role in the power sectors to facilitate and national development agencies, region, while the World Bank Group international investment. could channel international private was only marginally engaged there. In 2) The international public financing investments into Africa’s power sector SSA (excluding South Africa), the major made available for Africa’s by establishing dedicated blended investors were the World Bank Group, electrification should be better finance tools and/or risk-sharing the EU, and to a lesser extent the used, in order to encourage mechanisms. African Development Bank. The African international private investments in The combination of political risks (e.g. Development Bank and the World Bank the sector. corruption), commercial risks (e.g. Group were the key players in South Sub-Saharan African countries capacity of consumers to pay their Africa. should first reform their power bills), lack of stable power market China has also played a substantial sectors to facilitate investments regulatory frameworks, and lack of adequate power infrastructure, role in Africa’s power sector, but that SSA countries should be the key currently discourage private country does not disclose precise drivers of their own energy investment. On the other hand, information about its development development. They have the resources international official development finance flows to Africa, and only to do so, and to realize the policy assistance and other official flows to unofficial estimates exist. According to ambitions of governments throughout the African power sector have the International Energy Agency, the region to improve the reliability and quadrupled over the last decade, Chinese companies (90 per cent of coverage of their power systems. But increasing from $2 billion in 2005 to $8 which are state-owned) were this potential can only be unleashed by billion in 2015. responsible for 30 per cent of new creating sufficient opportunities for power capacity in SSA between 2010 investment. This challenge extends well The World Bank Group, European and 2015, with a total investment of beyond the power sector, and meeting Union (EU) institutions and member around $13 billion. Chinese contractors it will require a reduction of the risks states, and the African Development have built or are contracted to build 17 arising from macroeconomic and Bank disbursed most of the funds in the gigawatts of power generation capacity political instability and from weak sector, while other players – including in SSA from 2010 to 2020, equivalent protection of contract and property the United States, the Climate to 10 per cent of existing installed rights. But it will also require specific Investment Funds, the Arab Fund for capacity. These projects are reforms in the power sector as well – in Economic and Social Development, widespread across SSA, in at least 37 particular, two key reforms: and the OPEC Fund for International of the region’s 54 countries. Chinese Development (OFID) played a far 1) Reform of power utilities – today, contractors primarily focus on large smaller role. SSA power utilities are not projects involving traditional forms of financially sustainable. Almost all Investors have focused on different energy like hydropower (49 per cent of of them run in quasi-fiscal deficit energy sectors, with the World Bank projects 2010–2020), coal (20 and thus need to be subsidized by Group investing mainly in non- per cent), and gas (19 per cent); their the state. renewable power generation involvement in modern renewables 2) Reform of energy subsidies – (particularly coal), the EU in renewable remains marginal (7 per cent). SSA countries spend around $25 power generation (hydro, wind, and Africa is also part of China’s One Belt, billion every year in energy solar), and the African Development One Road initiative. That initiative subsidies, mainly of inefficient and Bank in power transmission and includes not only the ‘Silk Road wasteful electricity utilities and, in distribution infrastructure. Their economic belt’ stretching from Asia to certain cases, of old forms of geographic focus has also been Europe, but also the ‘maritime Silk energy, like kerosene. different. For instance, over the last Road’ linking China and Europe via the decade the EU was the main Indian Ocean littoral and East Africa. international public investor in North According to a Boston University study,

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China has invested about $128 billion resulting in most finance being innovative financing for energy in energy projects in Belt and Road earmarked for small-scale projects projects), and Africa50 (an countries since 2001. Of this rather than sizeable programmes. infrastructure fund owned by the Bank, investment, $4.1 billion has targeted African governments, and global Global financing initiatives for Africa’s Africa – predominantly to develop coal- institutional investors, created to electrification are broad in scope and fired power plants. In this initiative, mobilize long-term savings to promote eclectic in focus. Taken in isolation, this China thus seems not to consider the infrastructure development). The United might be considered as good news, as environmental and social issues that States mainly acts through Power it signals widespread global support for currently prevent the majority of Africa, a public–private partnership Africa’s electrification. However, when international financing institutions from launched in 2013 involving 12 US considering that 92 per cent of the last supporting coal projects in Africa. government agencies, African decade’s international financial support China’s focus on coal and big governments, other multilateral to Africa’s electrification came from only hydropower projects makes partners, and more than 100 private- three sources (the World Bank Group, international financing institutions’ sector partners including energy African Development Bank, and EU), support for solar and wind energy companies, investment banks, equity there likely remains a coordination projects in Africa even more important. funds, and institutional investors. issue between these large well- Limitations to the current system established funders and the multitude Making the most of international The increasing international support for of new initiatives. assistance Africa’s electrification is good news for The EU’s presence appears particularly Electrification is a major requirement for the continent, but it is not sufficient to fragmented, with 26 initiatives socioeconomic development in SSA. bridge the gap between current originating from member states and EU Achieving it requires joint action by investments and those required to institutions. The variety of member SSA countries and the international provide access to power to all by 2030. states’ initiatives is understandable, as community. The most promising way to bridge this each country has its own political and SSA countries should reform the gap is to scale up international private commercial interests. What is less governance of their energy sectors – in investment; and for that to occur, understandable is the fragmentation of particular, of power utilities and energy domestic reforms are needed to create EU institutional initiatives. This subsidies. Without this, they will not a viable and attractive investment fragmented system seems to favour attract international private investment environment. overlaps, inefficiencies, and higher at the scale needed to achieve International financial assistance for transaction costs. European taxpayers’ electrification or other elements of Africa’s electrification should also money would arguably be better spent Agenda 2030. evolve to assert more leverage over if channelled through a single facility, International financial and development private investors, and over African allowing policy consistency, elimination institutions need to offer more than of overlaps, reduction of transaction governments by incentivizing energy financial support for Africa’s costs, and therefore higher efficiency market reforms. In this regard, the main electrification. Increased technical and impact. issue is coordination. assistance is also critical. International institutions with solid experience in Around 60 international initiatives – The World Bank Group, African infrastructure financing could enhance originating in Europe, America, the Development Bank, and United States Africa’s ‘soft’ infrastructure of national have streamlined their activities, Middle East, and Asia – are currently governments and institutions by focusing resources on a few initiatives, contributing to the development of supporting the development of sound and thus do not appear to be energy markets and the improvement energy policies, regulations, incentive of access to power in Africa. contributing to the fragmentation systems, sector reforms, corporate problem. For instance, the African governance, and transparency and As outlined by the Africa Progress Development Bank, in addition to its accountability best practices. Panel in 2015, Africa’s energy needs traditional financing tools, has Programmes like the New Deal on are poorly served by such a fragmented established two initiatives: The New Energy for Africa and Power Africa, system. This because funding is Deal on Energy for Africa (a public– described above, are already generally delivered through overly private partnership between the Bank, contributing to this effort. bureaucratic structures that combine African governments, and the global high transaction costs with low impact, private sector aimed at establishing

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Calls for better coordination and sum of the costs of the hundreds the world’s poorest and to mitigate cohesion in the development arena are of transactions required for climate change. It is up to African ubiquitous, and there are relatively few comparable capacity from solar countries themselves to initiate this success stories. Still, the way to make photovoltaic or wind power. virtuous cycle – by making the reforms the most of the global financing necessary to create a favourable International financing institutions could initiatives for Africa’s electrification investment environment. play a truly vital role in making a could be to establish a coordination or stronger case for investment in rural information-sharing mechanism to electrification solutions. better track the sector’s rapid changes Europe would need to make a and keep key actors and stakeholders informed. Given its global outreach and particular effort to coordinate its many considering its attention to the issue of existing programmes in the region. This energy access, the International Energy is the only way Europe can make a Agency could be the right institution to significant contribution to SSA’s run such an initiative. electrification challenge, in terms of both crowding-in private investments International financial support is and stimulating SSA countries’ energy particularly vital for the three-fifths of sector reforms. Coordinating current the SSA population living in rural areas. and prospective European programmes Developing small-grid and off-grid for SSA electrification though the power solutions in rural areas is often recently established EU External highly challenging due to geographical Investment Fund could represent a or economic constraints. With declining pragmatic way to achieve this. costs and increasing performance for small hydro, solar photovoltaic, and Electrification and climate change wind power generation as well as In addition to its relevance for SSA’s electricity storage and control systems, socioeconomic development, small-grid and off-grid renewable electrification has important energy systems could become game- implications for climate change. The changers for SSA rural electrification, in United Nations has predicted that Africa a decentralized and modular manner. will experience greater population However, these innovative energy growth than any other region, from 1.2 solutions face two major barriers. billion in 2015 to 2.5 billion in 2050. 1) While their operating expenses Energy demand is likely to grow are low, they require substantial accordingly. Thus, ensuring a up-front capital investment. In sustainable energy mix for Africa is SSA, country, regulatory, and crucial to avoiding a negative impact on commercial risks substantially climate, and efficiently supporting increase the return expectations Africa’s sustainable electrification of investors and thus any project’s should be seen by international actors capital costs. This discourages as an important component of their capital-intensive energy options overall climate change mitigation effort. and encourages less capital- In this regard, the potential for a new intensive, conventional energy global North–South financial technologies. cooperation should also be considered. Financial resources from Europe and 2) They are characterized by high North America could be invested in transaction costs. For instance, green assets in the global South, and the transaction cost per kWh of notably in Africa. This would allow electricity produced from a investors to earn higher returns, while hydropower plant is lower than the helping to improve living conditions for

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CONTRIBUTORS TO Neil McCulloch is a development Gregor Schwerhoff is a researcher at THIS ISSUE economist with expertise in political the Mercator Research Institute on economy analysis and the design and Global Commons and Climate Change, Anna Aevarsdottir is a graduate implementation of politically smart aid Berlin. programmes. student at the Institute for International Esméralda Sindou is an energy policy Economic Studies, Sweden. Edward Miguel is Oxfam Professor in expert with the Sustainable Energy Nicholas Barton is a PhD student and Environmental and Resource Team at GOPA International Energy a research assistant to the chair of Economics, University of California, Consultants (intec), Bad Homburg. Berkeley, United States. Development and International Simone Tagliapietra is a research Economics at Goethe University, Giuseppe Montesano is deputy fellow at Bruegel, Brussels, and senior Frankfurt, Germany. director of the Enel Foundation. researcher at Fondazione Eni Enrico Mattei, Milan. Tessa Bold is chair of Development Tade Oyewunmi is a senior researcher and International Economics at Goethe at the Center for Climate Change, Detlef P. van Vuuren is with PBL University, Frankfurt, Germany. Energy and Environmental Law, Netherlands Environmental Anteneh G. Dagnachew is with PBL University of Eastern Finland, and Assessment Agency, The Hague, and Netherlands Environmental visiting scholar at Tulane University the Copernicus Institute of Sustainable Assessment Agency, The Hague. Law School, New Orleans, Louisiana, Development, Utrecht University. United States. Emma Gordon is an East Africa risk John Ward is managing director of the analyst. Carlo Papa is director of the Enel economic consultancy Vivid Foundation. Economics, London. Laurence Harris is with the School of Finance and Management, SOAS, Ignacio Pérez-Arriaga is with the Catherine Wolfram is research University of London, and the Oxford Comillas Universal Energy Access Lab director of the Energy for Economic Institute for Energy Studies. and Tata Center for Technology and Growth Research Program, University Design at the Massachusetts Institute of California, Berkeley, United States. Andries F. Hof is with PBL of Technology, Cambridge, United Netherlands Environmental States. Bassam Fattouh is editor, Assessment Agency, The Hague, and Oxford Energy Forum and Copernicus Institute of Sustainable Lapo Pistelli is executive vice director, Oxford Institute for Development, Utrecht University. president and head of international Energy Studies affairs at Eni. Maryse Labriet is a consultant at Eneris Environment Energy Rahmatallah Poudineh is lead senior Consultants and a lecturer at the EOI research fellow at the Oxford Institute for Energy Studies. Business School, Madrid.

Ken Lee is executive director of Roxanne Rahnama is with the The views expressed here are the Energy Policy Institute at the Comillas Universal Energy Access Lab those of the authors. They do not University of Chicago in India (EPIC- and Tata Center for Technology and necessarily represent the views India). Design at the Massachusetts Institute of the Oxford Institute for Energy Studies or any of its Members of Technology, Cambridge, United Paul L. Lucas is with PBL Netherlands nor the position of the present or States. previous employer, or funding Environmental Assessment Agency, body, of any of the authors'. David Robinson is co-editor of this The Hague. issue and a senior research fellow, Oxford Institute for Energy Studies.