· 4 min read
Energy and development are intimately connected, and the majority of the African governments have well comprehended it, stepping up their game to ensure access to electricity by allocating public finances for the development of electricity infrastructure.
Nonetheless, despite the progress made, many African countries see their energy efforts hampered (or even blocked): insufficient public finance cannot adequately support the development of energy infrastructures, as a rising debt-to-GDP ratio, a tax-to-GDP ratio of about 13%, and the effects of COVID 19 and resultant shocks narrowed the scope for public spending on infrastructure. The outcome is an average deprivation of electricity access, suffered by about 42% of the African population according to IEA, with Morocco and Sudan dwelling, respectively, at the two ends of the spectrum (100% and 7%).
It is hence clear that the much-needed financial resources must come from somewhere else, namely the international private sector: so far, its contribution to Africa's energy investments averages about 24% of total infrastructure commitments and 26% for energy projects, a percentage still too little to bring about a truly transformational change.
African electricity regulatory frameworks, however, often lack clarity, stability, and transparency, driving away international investors’ capital.
The situation is far from homogeneous, as depicted by the dedicated Regulatory Reviews of Electricity Markets developed by RES4Africa and UNECA. Some markets, such as the South African one, were able to effectively attract substantial private capital, expanding the national electricity access to about 94% of its population, with 64 renewable energy independent power producers (IPPs) currently present in the market. These positive outcomes have been obtained without significant changes: Eskom, South Africa's vertically integrated national utility, remains the leading player in the power delivery business, providing 40% of electricity distribution to end customers. South Africa has successfully drawn private investments to assist the increase of its generation capacity, but market liberalisation has made little progress.
Since 2019, however, South Africa is confronting an endemic electrical problem: as a result, there is a significant decrease in national economic production, causing the country to enter a recession. This has highlighted the critical need of having a competitive energy business to fuel economic growth and social development.
The unbundling of Eskom is the first step in reforming the market structure of the electricity sector. Additionally, South Africa may reap further benefits by enacting further policy and regulatory reforms to promote the crowding-in of private investment across the full sector value chain.
Another meaningful example is Rwanda, which experienced a deeper transformation of its generation, transmission, and distribution segments, reaching 227 MW capacity in 2020 from more than 40 generating plants. Yet, major regulatory impediments still persist, such as the impossibility of following B2B investment models, not permissible under current regulation. Designing bankable contracts for off-takers, along with clear and straightforward financial support mechanisms (grants, concessional loans to tax credits), and allowing PPAs represent the way to go to further improve Rwanda's electricity market.
These and other key findings were discussed in Addis Ababa, on the occasion of the event High-Level Public-Private Dialogue on Private Sector Investment in Electricity and Infrastructure Development in Africa. During the debates, the panelists pointed at the way forward, embodied by the need to develop a multifaceted and participatory approach to regulatory reform agendas. Transparency, predictability, and competitiveness should be prioritized in policy improvements, while also ensuring that public interest and social welfare are protected. This may be accomplished by establishing clear norms and procedures, encouraging competition, and removing bureaucratic impediments.
In conclusion, we acknowledge the impossibility of formulating a universal recipe for the improvement of Africa's electricity regulatory framework. Analysing the specific national electricity market regulations and proposing evidence-based reforms is, however, well within our reach: renewing this effort and making its results available for Africa's policymakers, private actors and civil society is the way to go to guarantee energy, development, and welfare to a continent whose potential has no equals in the world.
illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.
