Is a Single African Electricity Market Possible?

Editor’s note: This essay is available in our print issue, Pan-African Dreams. Buy the issue here.

According to the African Union the AFSEM is meant to, ‘achieve a fully integrated, competitive and harmonized electricity market in order to accelerate Africa’s development and improve access for the benefit of African citizens.’ Yet, it is not clear how these will be achieved. The amount of coordination between 55 member states of the African Union required to develop, finance and construct the generation, transmission and distribution infrastructure to achieve a fully integrated market in less than two decades is unprecedented in modern history. Africa’s installed generation capacity is about 286.7 GW. Compare this to China, the largest electricity market in the world, with an installed generation capacity of 2,564.05 Gigawatts (GW), serving about 1.4 billion people, as of 2022. To fully electrify its 1.3 billion people, AU member-states would have to install the energy infrastructure required to deliver over 2,380.9 GW to its citizens. While some scholars believe that the regional economic communities and geopolitical organizations—such as the Common Market for Eastern and Southern Africa (COMESA), the Economic Community of Central African States (ECCAS), The Economic Community of West African States (ECOWAS), the Southern Africa Development Community (SADC) and the Arab Maghreb Union (UMA)—will play an important role in achieving the AFSEM, it is not clear what that role will be.

How then is the AFSEM going to be achieved? According to the AU, the power pools have a role to play in this. To be fair many of the member-states of the SSA power pools engage in bilateral trade of electricity. For example, Niger, Togo, Senegal and Benin are net importers of power from Nigeria, Ghana and Côte d’Ivoire. Tanzania is a net importer of electricity from Uganda and Zambia. Yet none of these countries has more than 90 per cent electrification and many of them suffer from inadequate capacity for their local populations. Hence, no comprehensive regional wholesale or retail electricity market has been developed on the continent. Regional markets go from the stage of simple market integration to deep market integration. Most of the power pools in Africa are still at an early stage of electricity market integration, where transactions are based on bilateral contracts. At the stage of deep market integration, the AFSEM would have a harmonization of market rules that will include an agreement on the currency of settlements and an independent continental systems operator with oversight of other regional systems operators, where various products will be sold, in energy, ancillary and capacity markets.

It seems to be the case that for the AFSEM to be possible, each of Africa’s 55 countries needs to have a functional electricity market. These national markets can then translate into efficient regional power pools. Only when the regional power pools have reached the deep market integration can a fully functional AFSEM be possible. Hence, we cannot speak of an AFSEM without considering the electric power sector in AU member-states.

As of 2000, the energy access rate of SSA was 25.7 per cent. All countries in North Africa had an energy access rate of over 90 per cent, except Mauritania and Morocco, which were 19.1 per cent and 69.8 per cent respectively. At the turn of the 21st century, inadequate energy infrastructure was a major problem disproportionately affecting sub-Saharan Africa. Around this time, many SSA countries were served by state-owned vertically integrated utilities—vestiges of the colonial era—post-independence. These state-owned utilities experienced extensive problems, which include non-reflective cost tariffs by utilities to consumers, dilapidated and ageing infrastructure, bureaucratic inertia and political corruption. In addition, many of these state-owned utilities were government agencies and depended on the state treasury to cover their shortfalls. The political instability brought about by a series of military coup d’états and civil wars between the mid-1960s and 1980s, in addition to poor governance, monetary and fiscal policies, gave the continent a precarious economic foundation at the turn of the century. Between the 1980s and 1990s, many African countries had undergone some sort of Structural Adjustment Program and debt restructuring. This meant that the power sectors across Africa were also in dire straits and many of them suffered from severe liquidity crises.

Hence, multilateral agencies such as the World Bank and International Monetary Fund (IMF) recommended market liberalization policies within the power sectors of many SSA countries. These policies were generally known as power sector reforms. In some cases, they were considered a prerequisite for any debt relief plan these countries were going to benefit from. While there was no strict set of rules for the implementation of electric power sector reforms, a general recommendation by the World Bank was to create an independent regulator to restructure the sector. This involved unbundling state-owned assets across the generation, transmission and distribution businesses of the value chain. It also involved introducing private sector participation (PSP) in the sector, and where possible, introducing wholesale and retail power markets.

The effects of reforms in SSA have been mixed. As of 2021, the energy access rate in SSA is 50.6 per cent, yet disparities between various countries exist. For example, the energy access rates for South Sudan, Burundi and Chad are 7.7 per cent, 10.2 per cent and 11.3 per cent respectively, while Nigeria, Ghana and South Africa have energy access rates of 59.5 per cent, 86.3 per cent and 89.3 per cent respectively. In North Africa, only Libya and Mauritania have an energy access rate less than 90 per cent.

Not all countries implemented electric power sector reforms and those that implemented reforms did so differently. For example, countries like Niger and Mauritania only established a regulator for their electric power sectors. Others like Botswana and Tanzania  introduced private sector participation in the generation business of the value chain; a few like Nigeria and Kenya unbundled their state-owned utilities into distribution, generation and transmission. Only 29 countries in Africa have some level of private participation in their electric power sectors, and just ten countries have restructured their sectors by unbundling state-owned utilities. The single buyer model is still the most common mode of reform implemented in Africa, where a single state-owned entity controls most of transmission and distribution but augments its generation capacity by procuring more from independent power producers.

No SSA country has a wholesale or retail power market. In fact, wholesale power markets are exceptionally rare in developing countries. Those that exist are in India, Romania, the Philippines and Chile, among others. Retail power markets are virtually non-existent in developing countries. Part of the reasons for this includes the fact that power markets are complex and require not just liquidity and a backbone transmission infrastructure, which many African countries lack, but they also require strong institutions that can protect and enforce the property rights of investors and ensure technical performance for consumers. The AFSEM would have to overcome some of these issues to be a functioning power market.

Since national and regional performance of the power sector is important for the realization of an integrated continental single market in Africa, discussing the current state of the regional power pools and their member-states is important. This way some of the problems the sector faces can be properly considered, and solutions can be proffered to the extent that they have been successful in other similar countries.

The North African power pool is an association of five North African countries—Algeria, Libya, Mauritania, Morocco and Tunisia—adopted as a specialized agency of the UMA after its founding in 1989. All members of the COMELEC have a 100 per cent electrification rate except Mauritania and Libya. Mauritania with an energy access rate of 47.7 per cent has implemented no private sector participation (PSP) in its power sector, which is run by a single state-owned entity—Société Mauritanienne d’Electricité. Libya, which saw a steady decline in energy access from 98.6 per cent in 2001 to 70.2 per cent in 2021, has been mired with violent civil unrest and wars since 2011.

Established in 2005, the EAPP is a specialized agency of COMESA. Its members include Burundi, Djibouti, DRC, Egypt, Ethiopia, Kenya, Rwanda, Sudan, South Sudan Tanzania and Uganda. While geopolitically considered to be a North African country, Egypt is a member of EAPP and not COMELEC. In EAPP, Egypt is the only country with 100 per cent electrification. Egypt, Kenya, Ethiopia, Uganda and Sudan are the only countries with unbundled utilities. Ethiopia, Sudan and Egypt still maintain government ownership and control of utilities. There is some degree of private sector participation in the generation business in most member-states, especially for renewable energy procurements, except for Burundi, South Sudan and Sudan. The DRC presents a unique situation because, while there is no national grid (the DRC has three regional grids managed by the state-owned utility), there are many mini-grid utilities operated by faith-based institutions and private entities. This is, in part, due to the DRC’s many years of civil unrest. Kenya and Uganda have been the most aggressive in electric power sector reforms in the EAPP. They have introduced some type of private ownership and control in transmission and distribution utilities. Trade between various EAPP member-states is common. For example, Djibouti purchases over 60 per cent of its electricity from Ethiopia. Tanzania is also a net importer of electricity from Uganda and Zambia.

The CAPP was established in 2003 as a specialized agency of the ECCAS, the regional economic community for Central African countries. ECCAS members include Angola, Burundi, Cameroun, Central-African Republic, Chad, Congo, the DRC, Gabon, Equatorial Guinea and São Tomé and Principe. Gabon has the highest energy access rate at 91.8 per cent followed by Sao Tome and Principe at 78.5 per cent. These two countries have very small populations, at 2.34 million and 223,000 respectively. In addition, Gabon’s state-owned electric utility, Société d’Energie et d’Eau (SEEG), was operated under a 20-year concession by French company, Veolia, since 1997. This concession ended in 2019. Veolia maintained a 50 per cent share ownership of SEEG.

The SAPP is a specialized institution under the auspices of SADC, which was established in 1995. Its members constituted the national electricity utilities of its member-states. Its member-states include Angola, Botswana, the DRC, Lesotho, Malawi, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. Zambia did not unbundle its state-owned utility but allowed for private sector participation in the generation, transmission and generation sections of the value chain. Tanzania, Botswana, Malawi, Namibia and Mozambique still maintain state-owned vertically integrated utilities but have PSP in the generation business. Lesotho has partially unbundled utilities but no PSP. While Angola and Zimbabwe have unbundled utilities which are all still state-owned but only allow PSP to augment their own generation capacity.

The WAPP was formed in 1999 as a specialized agency of ECOWAS. Its member-states include Benin, Burkina Faso, Côte d’Ivoire, Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo. Nigeria and Ghana have fully unbundled utilities, while Sierra Leone has partially unbundled utilities. Only Nigeria has private utilities in the WAPP. Côte d’Ivoire’s state-owned utility, CI Energies, has operated a management and concession agreement with the private entity, Compagnie Ivoirienne d’Electricité, since 1990. While other WAPP members have some sort of PSP in the generation section of the value chain, only Ghana, Nigeria, Côte d’Ivoire and Senegal have extensive PSP involvement in the sector. These four countries are also responsible for over 90 per cent of WAPP’s generating capacity. Cross-border trading takes place between only nine WAPP member states largely based on bilateral contracts due to inadequate infrastructure with Ghana, Nigeria and Côte d’Ivoire serving as the net exporters to Senegal, Niger, Togo, Mali and Benin as net importers.

Based on power sector reforms across the various regions, some lessons can be distilled and could serve as a pathway for leaders in the African Union to adopt in support of the development and realization of the AFSEM. These lessons include the importance of cost-reflective tariffs; encouraging private sector participation and enforcing contractual agreements; ensuring political stability; a flexible regulatory structure which enables entrepreneurial dynamism and institutional evolution; and less direct interventions by governments or multilateral agencies.