09 Sep 2019 / Article

Electricity: are cross-border projects the future?

Africa has made enormous progress over the past decade in developing thousands of megawatts of power capacity. Efforts to build the infrastructure to transport this additional production, however, have not been as impressive – and particularly between neighboring countries. The potential is there for Africa’s energy mix – hydrocarbons, hydropower, solar power, wind power – to benefit each country, with the smallest producers buying the energy produced by others. The African Continental Free Trade Area (AfCFTA), whose operational phase was launched last July, could also contribute to the development of this market.

Countries with overcapacity could support their neighbors

According to the ‘Transmission Roadmap to 2030’ report produced by Power Africa, countries such as Côte d’Ivoire (+1547MW), Guinea (+717MW), Ghana (+514MW) and Senegal (+373MW) are expected to increase their electricity production surpluses by 2025, while countries like Nigeria (-3545MW) and Burkina Faso (-435MW) will be in production deficit. In Southern Africa, South Africa, Angola and Zambia could sell energy to Zimbabwe, Namibia or Malawi.

“The potential benefits [of better interconnection between national electricity transmission grids] are immense,” insists Wale Shonibare, director for energy financial solutions, policy and regulations at the African Development Bank. West Africa “aims to save $1.2bn between 2020 and 2025” by improving both transport infrastructure and market regulation in the sub-region.

Electricity cheaper to buy than to produce

The Ethiopia-Kenya-Tanzania interconnected grid is expected to enable Addis Ababa to export up to $200m worth of electricity to Tanzania over the next four years, says Shonibare. Tanzania, with a deficit of 485MW in 2018, could even save up to $500m by replacing its expensive emergency electricity with energy purchased from Ethiopia. One of the main challenges is there: some countries pay high prices to produce their electricity, while buying electricity from their neighbors would be cheaper. This argument is particularly relevant for decision-makers who wish to remain sovereign in a strategic sector.

The South African pool is without doubt the best connected on the continent

Vijay Iyer, vice-president and COO of MIGA, says: “With a good cross-border network installed from the outset, it’s possible for a country – even if it does not have a structural surplus of Energy – that has a renewable energy complement at different times of the day to sell its electricity to a neighbor in order to manage production variations.” According to Shonibare, the South African pool is without doubt the best connected on the continent, with a fully operational trading platform, unlike the relatively well-interconnected North African network, through which trade is nevertheless limited. The East of the continent should quickly catch up with the West, while Central Africa is clearly lagging behind.

Alain Ebobissé, CEO of Africa50, acknowledges that “Africa50’s shareholders are primarily focused on delivering energy to their own countries”. A lack of political will is one of the main obstacles slowing down investment in cross-border transport networks. In particular, the resolution of national and regional regulatory issues that are essential to the development of solid projects depends on this political will. “To build trust and break down political barriers” governments should start with connections between cross-border cities, says Joël Nana Kontchou, CEO of Eneo in Cameroon.

Donors prefer to finance power plants because they are built in a relatively short and predictable time frame

Better protections for private investment

Ahmed El Sewedy, president and CEO of El Sewedy Electric, points out another impediment: “Donors prefer to finance power plants because they are built in a relatively short and predictable time frame. Building transport infrastructure is much more time-consuming.”

“The return on investment is over 25 to 30 years,” says MIGA’s Iyer, “compared to 12 to 15 years for a power plant.” When he asks why there are so few good examples of private investment in the sector, all the panelists agree that new instruments must be created that better protect private investment.

 

Click here to revisit Wale Shonibare’s presentation :

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