Energy aggregators: a guiding light for southern Africa's energy potential

The energy landscape in southern Africa has long been plagued by challenges, leaving a significant portion of households and businesses grappling with unplanned power outages, load shedding, and other hazards. This not only disrupts daily life but also poses significant hurdles for commercial and industrial consumers.

Within the Southern Africa Development Community (SADC) countries, the unreliable power supply has been a major hindrance to economic growth and development. State-owned utilities, facing fiscal imbalances, have struggled to offer affordable energy, leading to high-risk premia and limited investments in electricity capacity and infrastructure. An estimated 57% of households and businesses in SSA experience unpredictable power outages, and even those with formal electricity access face inadequate supply reliability. For instance, South Africa, where access to electricity was reported at 84.39%, witnessed the worst load shedding implemented by Eskom last year, leaving people without power for over 1,165 hours, severely affecting commercial and industrial consumers.

Among a wide array of solutions that are being discussed, energy aggregators stand out as a ray of light. They consist of legal entities, acting as intermediaries, purchasing electricity from Independent Power Producers (IPPs), and selling it directly to customers or utilities. By providing a reliable solution for consumers, producers, and networks, they can play a pivotal role in overcoming the region's energy issues. 

In this regard RES4Africa Foundation, in partnership with AFRY, launched a report, Accelerating Investment in Renewables Through Energy Aggregators, which proposes the use of electricity aggregators to accelerate investment in the SADC and generate cost-efficient electricity for households and businesses. The region needs urgent investment in new electricity capacity and infrastructure to improve access and reliability. However, slow economic growth and high unemployment make energy costs unaffordable for consumers, leading to revenue risk for utilities. State-owned entities with fiscal imbalances exacerbate the situation, increasing offtake risk and hindering optimal investment. By assuming this role, aggregators can facilitate investment and transfer offtake risk from the generator to themselves, potentially reducing capital costs for electricity projects.

Promising aggregator business models have already emerged in the SADC region, with entities like Africa GreenCo, PowerX, Energy Exchange, and Empower Trading acting as intermediaries between generators and end-users. Africa GreenCo, for instance, executes short-term trades through the Southern Africa Power Pool (SAPP), contributing to a more stable and dynamic energy market.

Despite the potential benefits, several barriers still slow down the widespread adoption of aggregator models. The 'single-buyer' market model, which entrusts generation, transmission, and distribution to a single operator, hinders the development of a competitive electricity trading platform. Additionally, inconsistent application of wheeling tariffs and obtaining necessary trading licenses create disincentives for third parties to enter the market.

To foster aggregator growth business models, unbundling state-owned utilities and promoting policies that facilitate private-sector participation is essential. An open market and non-discriminatory access to the transmission and distribution grid are also vital for aggregator success. Finally, simplifying and expediting the process of obtaining and maintaining trading licenses will also encourage investment in aggregators and renewable generation.

While aggregators are not a panacea for all energy challenges, they hold enormous potential to deliver reliable access to electricity across the region. As our new study outlines, developing a long-term strategy and coordinated planning with national and local utilities can fully integrate aggregators into the energy system, maximizing their benefits. As markets become more dynamic, aggregators could evolve into traders or flexibility service providers, similar to trends seen in Europe. Ultimately, energy aggregators can complement other solutions, such as investment in the main electricity grid, new capacity, and off-grid solutions, to ensure reliable access and service for all customers: an indispensable step to build a much-needed, greater solidity for southern African countries.

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