Africa's Power Infrastructure
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Public Disclosure Authorized DIRECTIONS IN DEVELOPMENT Public Disclosure Authorized Infrastructure Africa’s Power Infrastructure Investment, Integration, Efficiency Anton Eberhard Orvika Rosnes Public Disclosure Authorized Maria Shkaratan Haakon Vennemo Public Disclosure Authorized Africa’s Power Infrastructure Africa’s Power Infrastructure Investment, Integration, Efficiency Anton Eberhard Orvika Rosnes Maria Shkaratan Haakon Vennemo Vivien Foster and Cecilia Briceño-Garmendia, Series Editors © 2011 The International Bank for Reconstruction and Development/The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved 1 2 3 4 14 13 12 11 This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. 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Eberhard, Anton A. HD9688.S832.A37 2011 333.793'20967—dc22 2011002973 Cover photograph: Arne Hoel/The World Bank Cover design: Naylor Design Contents About the AICD xvii Series Foreword xix Acknowledgments xxi Abbreviations xxvii Chapter 1 Africa Unplugged1 The Region’s Underdeveloped Energy Resources1 The Lag in Installed Generation Capacity2 Stagnant and Inequitable Access to Electricity Services5 Unreliable Electricity Supply7 The Prevalence of Backup Generators7 Increasing Use of Leased Emergency Power 10 A Power Crisis Exacerbated by Drought, Conflict, and High Oil Prices 12 High Power Prices That Generally Do Not Cover Costs 12 Deficient Power Infrastructure Constrains Social and Economic Development 16 Notes 19 References 19 v vi Contents Chapter 2 The Promise of Regional Power Trade 23 Uneven Distribution and Poor Economies of Scale 24 Despite Power Pools, Low Regional Power Trade 26 The Potential Benefits of Expanded Regional Power Trading 28 What Regional Patterns of Trade Would Emerge? 31 Water Resources Management and Hydropower Development 33 Who Gains Most from Power Trade? 33 How Will Less Hydropower Development Influence Trade Flows? 38 What Are the Environmental Impacts of Trading Power? 39 Technology Choices and the Clean Development Mechanism 39 How Might Climate Change Affect Power Investment Patterns? 40 Meeting the Challenges of Regional Integration of Infrastructure 40 Conclusion 50 Note 50 Bibliography 50 Chapter 3 Investment Requirements 53 Modeling Investment Needs 54 Estimating Supply Needs 55 Overall Cost Requirements 58 The SAPP 64 The EAPP/Nile Basin 67 WAPP 70 CAPP 74 Notes 77 Reference 78 Chapter 4 Strengthening Sector Reform and Planning 79 Power Sector Reform in Sub-Saharan Africa 80 Private Management Contracts: Winning the Battle, Losing the War 85 Sector Reform, Sector Performance 87 The Search for Effective Hybrid Markets 88 Contents vii The Possible Need to Redesign Regulatory Institutions 94 Notes 100 Bibliography 101 Chapter 5 Widening Connectivity and Reducing Inequality 103 Low Electricity Connection Rates 104 Mixed Progress, despite Many Agencies and Funds 105 Inequitable Access to Electricity 110 Affordability of Electricity—Subsidizing the Well-Off 112 Policy Challenges for Accelerating Service Expansion 119 References 129 Chapter 6 Recommitting to the Reform of State-Owned Enterprises 133 Hidden Costs in Underperforming State-Owned Enterprises 134 Driving Down Operational Inefficiencies and Hidden Costs 135 Effect of Better Governance on Performance of State-Owned Utilities 136 Making State-Owned Enterprises More Effective 137 Conclusion 147 References 148 Chapter 7 Closing Africa’s Power Funding Gap 149 Existing Spending in the Power Sector 151 How Much More Can Be Done within the Existing Resource Envelope? 157 Increasing Cost Recovery 158 On Budget Spending: Raising Capital Budget Execution 160 Improving Utility Performance 161 Savings from Efficiency-Oriented Reforms 162 Annual Funding Gap 164 How Much Additional Finance Can Be Raised? 166 Costs of Capital from Different Sources 178 viii Contents The Most Promising Ways to Increase Funds 180 What Else Can Be Done? 180 Taking More Time 180 Lowering Costs through Regional Integration 181 The Way Forward 182 Note 183 References 183 Appendix 1 Africa Unplugged 187 Appendix 2 The Promise of Regional Power Trade 199 Appendix 3 Investment Requirements 213 Appendix 4 Strengthening Sector Reform and Planning 239 Appendix 5 Widening Connectivity and Reducing Inequality 267 Appendix 6 Recommitting to the Reform of State-Owned Enterprises 291 Appendix 7 Closing Africa’s Power Funding Gap 299 Index 305 Boxes 2.1 The Difficulties in Forging Political Consensus: The Case of Westcor 42 2.2 The West African Power Pool (WAPP) and New Investment 45 2.3 Difficulties in Setting Priorities in SAPP 46 3.1 Definitions 61 4.1 Kenya’s Success with Private Sector Participation in Power 83 4.2 Côte d’Ivoire’s Independent Power Projects Survive Civil War 84 4.3 Power Sector Planning Dilemmas in South Africa 90 5.1 Ghana’s Electrification Program 106 5.2 Residential Electricity Tariff Structures in Sub-Saharan Africa 116 Contents ix 5.3 Rural Electrification in Mali 127 6.1 Kenya’s Success in Driving Down Hidden Costs 138 6.2 Botswana’s Success with a State-Owned Power Utility 139 6.3 The Combination of Governance Reforms That Improved Eskom’s Performance 142 7.1 Introducing a Country Typology 152 Figures 1.1 Power Generation Capacity by Region, 1980–2005 3 1.2 Power Generation Capacity in Sub-Saharan Africa by Country, 20064 1.3 Household Electrification Rate in World Regions, 1990–20055 1.4 Per Capita Electricity Consumption and GDP in Selected Countries of Sub-Saharan Africa and World Regions, 20046 1.5 Power Outages, Days per Year, 2007–088 1.6 Generator Ownership by Firm Size9 1.7 Own Generation as Share of Total Installed Capacity by Subregion, 20069 1.8 Economic Cost of Power Outages as Share of GDP, 2005 10 1.9 Average Residential Electricity Prices in Sub-Saharan Africa and Other Regions, 2005 13 1.10 Average Cost of Grid and Backup Power in Sub-Saharan Africa 13 1.11 Average Power Sector Revenue Compared with Costs 14 1.12 Contribution of Infrastructure to Total Factor Productivity (TFP) of Firms 17 2.1 Profile of Power Generation Capacity in Sub-Saharan Africa 25 2.2 Disaggregated Operating Costs for Power Systems in Sub-Saharan Africa, 2005 26 2.3 Electricity Exports and Imports in Sub-Saharan Africa, 2005 27 2.4 Savings Generated by Regional Power Trade among Major Importers under Trade Expansion Scenario 30 2.5 Cross-Border Power Trading in Africa in Trade Expansion Scenario (TWh in 2015) 34 3.1 Overall Power Spending by Country in Each Region 63 4.1 Prevalence of Power Sector Reform in 24 AICD Countries 81 xContents 4.2 Effect of Management Contracts on Performance in the Power Sector in Sub-Saharan Africa 88 4.3 Power Sector Performance in Countries with and without Regulation 95 4.4 Coexistence of Various Regulatory Options 99 4.5 Choice of Regulatory Model Based on the Country Context 100 5.1 Patterns of Electricity Service Coverage in Sub-Saharan Africa 104 5.2 Electrification Rates in the Countries of Sub-Saharan Africa, Latest Year Available 107 5.3 Rural Electrification Agencies, Funds, and Rates in Sub-Saharan Africa 108 5.4 Countries’ Rural Electrification Rates by Percentage of Urban Population 109 5.5 For the Poorest 40 Percent of Households, Coverage of Modern Infrastructure Services Is below 10 Percent 111 5.6 Infrastructure Services Absorb More of Household Budgets as Incomes Rise 113 5.7 About 40 Percent of Households Connected Do Not Pay 114 5.8 Subsistence Consumption Priced at Cost Recovery Levels Ranges from $2 to $8 115 5.9 Electricity Subsidies Do Not Reach the Poor 117 5.10 Subsidy Needed to Maintain Affordability of Electricity 118 5.11 Prepayment