Africa Unplugged: Policy, institutional and investment challenges in powering the continent African Science Academy Development Initiative (ASADI) workshop Improving Access to Energy in Sub-Saharan Africa 17-18 March, Pretoria Prof Anton Eberhard Management Program in Infrastructure Reform and Regulation University of Cape Town www.gsb.uct.ac.za/mirwww.gsb.uct.ac.za/mir www.gsb.uct.ac.za/mir 1 Africa in perspective Sub-Saharan Africa “Average SSA country” – Land area: Australia, Brazil, – Land area: around the Europe, Japan plus size of Texas USA – Population: Europe, – Population: similar to Japan plus USA Belgium – GDP: less than The – GDP: equivalent to Netherlands mid-sized OECD city www.gsb.uct.ac.za/mir Outline _____________ 1. Africa’s chronic power problems 2. Improving sector performance 3. Investment & financing Africa Infrastructure Country Diagnostic www.gsb.uct.ac.za/mir 2 1. Africa’s chronic power problems Infrastructure is underdeveloped Electricity supply is often unreliable Power costs are high, subsidies regressive and prices barely affordable plus hidden costs www.gsb.uct.ac.za/mir Power infrastructure is underdeveloped • Installed capacity in SSA is 68 GW – Comparable to Spain – Without South Africa falls to 28 GW • Up to a quarter of capacity unavailable • Growth in capacity stagnant • Installed capacity per capita 10% of LA • Lowest electrification access, rates are declining with population growth www.gsb.uct.ac.za/mir 3 Very low access to power Source: Earthlights, 2000 www.gsb.uct.ac.za/mir Source: Africa Infrastructure Country Diagnostic www.gsb.uct.ac.za/mir 4 Source: Africa Infrastructure Country Diagnostic www.gsb.uct.ac.za/mir Power infrastructure is underdeveloped • Consumption per capita barely 1% of high-income countries and declining • Large energy resources unexploited, distant from main centers of demand (eg. hydro in DRC & Ethiopia) • Few economies of scale (33 out of 48 countries have <500MW, 11 <100MW) www.gsb.uct.ac.za/mir 5 A global outlier Generation capacity Electrification rate (MW per million population) (Percentage of households) 600 100 400 75 50 200 25 0 t 0 t A th a s ia A th a s ia S u i a s S u i a s S o s E A S o s E A S A S A Electricity consumption Power prices (kWh per capita per year) (US$ per kilowatt-hour) 1500 1200 0.15 0.12 900 0.09 600 0.06 300 0.03 0 t 0 h t A th a s ia A t ia s ia S u i a s S u s a s S o s E A S o A E A S A S Source: Africa Infrastructure Country Diagnostic www.gsb.uct.ac.za/mir History: SSA has fallen behind South Asia Base Year Year 2000 SSA SAS SSA SAS Paved arable density 717171 477 1,037 670 Total road density 1,525 757 2,556 1,408 Mainline density 444 2 222222 21 Generation capacity norm. 717171 26 737373 137 Improved water access 515151 72 636363 70 Improved sanitation access 303030 31 353535 47 Note: Base year varies by sector: roads 1960, ICT 1970, power 1980, WSS 1990 Source: Africa Infrastructure Country Diagnostic www.gsb.uct.ac.za/mir 6 Supply is often unreliable • Insufficient investment in maintenance and new capacity • WB Enterprise surveys reveal average of 56 days per annum with power interruptions – losses in forgone sales and damaged equipment • More than half of large firms have back-up generators • Own-generation now a significant proportion of installed capacity www.gsb.uct.ac.za/mir Low power reliability Burundi Eritrea Malawi Tanzania Benin Madagascar Kenya Uganda Ethiopia Mauritania Swaziland Zambia Senegal Botswana Cameroon Cape Verde Burkina Faso Mali South Africa Mauritius Niger Namibia 0 10 20 30 40 50 60 70 80 90 10 11 12 13 14 15 Power outages (days per year)0 0 0 0 0 0 www.gsb.uct.ac.za/mir 7 % of businesses that rely on back-up generation Source: Estache, 2005, p.31. Evidence from the Investment Climate Assessments www.gsb.uct.ac.za/mir Extent of crisis revealed in prevalence of emergency power leases Emergency Percentage Cost as capacity (MW) total capacity percentage GDP Angola 150 18 1.0 Gabon 14 3 0.5 Ghana 80 5 1.9 Kenya 100 8 1.5 Madagascar 50 36 2.8 Rwanda 15 48 1.8 Senegal 40 17 1.4 Sierra Leone 20 133 4.3 Tanzania 180 20 1.0 Uganda 100 42 3.3 www.gsb.uct.ac.za/mir 8 Power costs are high 0.50 0.50 0.40 0.40 0.30 0.30 0.20 0.20 0.10 0.10 0.00 0.00 el o s dr P PP P P ie y AP A AP AP D H C W E S 0.50 0.50 0.40 0.40 0.30 0.30 0.20 0.20 0.10 0.10 0.00 0.00 ll e a um g s d al m di ar nd e st S e L la ck a M Is lo o nd C La Source: Africa Infrastructure Country Diagnostic www.gsb.uct.ac.za/mir High commercial power costs 0.80 Average 0.70 total cost of own 0.60 generated power 0.50 0.40 Average 0.30 price of power 0.20 purchased from utility Averagepowerof cost (US$/kWh) 0.10 0.00 Mali Weighted Niger Benin Kenya Eritrea Malawi average Zambia Uganda Senegal Mauritius Tanzania cost of Cameroon CapeVerde SouthAfrica power used BurkinaFaso Source: Africa Infrastructure Country Diagnostic www.gsb.uct.ac.za/mir 9 Access to energy by income quintile 100% 80% 60% 40% 20% 0% Q1 Q2 Q3 Q4 Q5 Electricity for lighting Wood/Charcoal for cooking Gas/LPG for Cooking Kerosene/Paraffin for Cooking Source: Africa Infrastructure Country Diagnostic www.gsb.uct.ac.za/mir Rising costs but insufficient revenues 0.30 0.30 0.25 0.25 0.20 0.20 0.15 0.15 0.10 0.10 0.05 0.05 0.00 0.00 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 Diesel Hydro Overall Diesel Hydro Overall Average operating cost Average revenue Source: Africa Infrastructure Country Diagnostic www.gsb.uct.ac.za/mir 10 Most tariffs do not recover costs 0.35 0.30 0.25 0.20 0.15 0.10 Average Effective Tariff ($/kWh) Tariff Effective Average 0.05 0.00 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 Historical Average Costs ($/kWh) Source: Africa Infrastructure Country Diagnostic www.gsb.uct.ac.za/mirSource: AICD 2008 Hidden or quasi-fiscal costs 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Under-Pricing Unaccounted Losses Collection Inefficiencies Source: Africa Infrastructure Country Diagnostic www.gsb.uct.ac.za/mir 11 Power crisis exacerbated by • Drought • High petroleum prices • Damage to infrastructure through wars • Rapid demand growth www.gsb.uct.ac.za/mir 2. Improving performance • Reforming state-owned enterprises • Rekindling private sector participation • Managing hybrid power markets • Targeting electrification • Expanding regional power trade www.gsb.uct.ac.za/mir 12 Reforming state-owned enterprises • State-owned utilities still dominant • Two-thirds of utilities have undergone some form of governance reform – Corporatisation – International accounting standards – Performance monitoring – Exposure to private capital markets • Reformed utilities perform better www.gsb.uct.ac.za/mir Impact of reform Commercial efficiency Commercial efficiency Cost recovery ratio Cost recovery ratio Electrification rate Electrification rate System losses System losses Emergency power Emergency power Reserve margin Reserve margin Capacity utilization Capacity utilization Operational plant Operational plant 0% 25% 50% 75% 100 0% 25% 50% 75% 100 High Low % With Without % SOE Governance Private Sector Participation Source: Africa Infrastructure Country Diagnostic www.gsb.uct.ac.za/mir 13 Integrated reform of SOEs 1. Clarification of roles and responsibilities • Separation and clarification of government’s different roles • Public entity management legislation • Codes of corporate governance • Performance contracts • Effective supervisory / monitoring agencies • Transparent transfers for social programmes 2. Changing the political-economy of the firm • Improved transparency and information • Corporatisation • Commercialisation • Structural reform and direct competition • Mixed-capital enterprises • Customer-owned enterprises 3. Improved regulatory design www.gsb.uct.ac.za/mir Learn the lessons of private participation • 80% of AICD countries have enacted power sector reform law • 66% have regulators & these countries generally perform better • More than 40 IPPs across Africa, totaling 8000MW • Concessions, leases & management contracts – some disappointing • Cf. recent reviews www.gsb.uct.ac.za/mir 14 Respond to challenges of hybrid markets • Demise of standard model of reform • Incumbent SOEs remain dominant • IPPs introduced on margin • New challenges for securing investment – Responsibility for power expansion planning – Transparent criteria for allocating new build opportunities between SOE & IPPs – Institutional responsibility & capacity for procuring IPPs, use of international competitive bidding processes – Procedures for dealing with unsolicited bids – Institutional responsibility and capacity for contracting (non- exclusive Single Buyer Office?) – Transparent criteria for dispatch www.gsb.uct.ac.za/mir Target electrification efforts more effectively • Only a fifth of population have access • Two-thirds population in SSA still rural • Cheaper to electrify urban areas, followed by higher density rural areas • Off-grid technologies (such as PV) still expensive • Focus on more cost-effective areas & technologies • Urban customers can cross-subsidize rural areas • Electrification funds & clear planning criteria NB • National grid electrification has been more effective than rural elec agencies & funds supporting decentralised private operators (Mostert 2008) – but national utilities need to be reasonably efficient www.gsb.uct.ac.za/mir 15 Location of rural non-connected population Source: Africa Infrastructure Country Diagnostic www.gsb.uct.ac.za/mir Countries / distances of population from grid 100% 90% 80% 70% 60% 50% 40% 30% shares of rural ofpopulation shares rural 20% 10%