Power Sector Reform: Game Changer for Africa

This week was special for TFHZPC. Not only was I returning to a place I used call home for 3 years while pursing my first post graduate qualification, I was attending the UCT graduate school of business power sector reform training. Professor Anton Eberhard has been conducting the program for executives for many years now and the passion for energy reform in Africa was very evident on day one.

Prof Anton Eberhard GSB UCT

Africa has many challenges and energy is just one of them. The size of the African continent alone can fit the USA, Brazil and Europe (with quite a bit of land mass to spare). However, the gross domestic product (GDP) of sub-Saharan Africa is only equivalent to a first world country like the Netherlands! What is even more alarming is that although Africa has 15% of global population, only 3% of global power installed capacity is available. The power imbalance is even more shocking with countries such as Nigeria being the most populous but miles apart from South Africa in terms of installed capacity for energy.

The generating capacity for Africa is currently slightly north of 85giga watts. Now a large portion of that is actually in South Africa. Of the remaining countries, only 12 of them account for 90% capacity. 27 counties have grid connected power systems that have smaller than 500MW (That’s almost the equivalent of 2 mines consumption). It is clearly evident that with 14 countries with smaller that 100MW installed capacity, there are few economies of scale and large energy recourses remain underdeveloped.

With this capacity debacle being ubiquitous, the impact has led to the ride of emergency short-term power leasing companies. These are companies that charge above market rates of fuel power energy solutions that can be crippling to the lessors income statement. Conversely, these “temporary energy saviors” are clearly taking advantage of countries that suffered the impact of drought, volatile petroleum prices, collateral damage from wars and the increasing demand for growth.

Hence the turning point for Africa is energy reform. But to achieve this, Professor Anton recommends two things:

  1. The need to improve the performance of utilities
  2. The need to finance capacity expansion and electrification

His proposed model for energy reform is a systematic approach to power sector reform. The vertical chain that is clearly prevalent in many African utilities may appear adaptable to a standard model of sector reform. However, the reality in Africa is that many countries have not been able to evolve over the 4 stages of reform. Instead, many are finding themselves adopting a hybrid power markets mode where incumbent state-owned utilities have retained dominant market positions and have allowed Independent Power Producers (IPP) to participate in new generation investments.

However, a hybrid approach is not without its challenges. The Achilles heel remains the performance of state own utilities due to their dominance through having control of electricity provision and inability to finance new investments. Furthermore, uncoordinated execution of projects due to poor planning around new investments affect the hybrid market.

So ultimately, the question still remains, are African regulators ready to take on the new energy economy? Our own ERB has been busy over the last couple of years. On the back of the energy debacle we experienced, they have been putting in place reforms that are now also considering ‘renewables‘ as part of our energy mix. The future is certainly bright for energy in Zambia.

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