Empowering Africa: A Vision for an African Energy Market (Part 1)

Illuminating Africa, particularly sub-Saharan African countries, one home at a time…

Photo by Asher Pardey on Unsplash

The African energy landscape has witnessed varying degrees of progress over time. While some countries have harnessed the momentum inspired by developed nations and the accessibility of affordable energy resources, many others in sub-Saharan African regions continue to face significant energy challenges. Amidst the quest for viable solutions, the concept of an African energy market emerges as a promising strategy, mirroring the successful model of the European energy market. Established in 1996, the European energy market (EEM) aimed to create a unified energy market within the European Union (EU). Comprising countries such as Austria, Belgium, Germany, Italy, and many more, the EEM fostered a fully decentralized electricity market, with only the transmission network regulated by a neutral entity under government oversight.

The interconnectedness of all EU member countries facilitated seamless energy trading, each adhering to similar electricity market structures. The countries were grouped into zones, allowing different market participants to engage in trades within predetermined ‘zonal pricing’ periods, be it short or long. Each zone operated under the guidance of a central market operator or transmission system operator (TSO), responsible for managing the energy and ancillary services market in their respective zones. The diverse energy mix available in each zone played a significant role in determining zonal prices post-market clearing. Factors such as the percentage of renewable energy in the energy mix influenced the pricing, reinforcing the EU’s commitment to promoting clean energy adoption.

Drawing inspiration from the success of the European energy market, an African energy market holds immense potential in addressing energy challenges across the continent. By establishing a unified energy platform, African countries can leverage their collective resources, share energy surpluses, and address energy shortages more efficiently. However, the path toward an African energy market is not without its challenges. Unlike the EU, where member countries already possess established energy infrastructure and policies, many African nations face infrastructural gaps and regulatory hurdles. Yet, these challenges can be viewed as opportunities for growth and development, paving the way for innovative solutions tailored to Africa’s unique context.

In envisioning an African energy market, collaboration among African countries is paramount. By forming regional alliances and sharing expertise, knowledge, and resources, they can collectively build a robust energy ecosystem that fosters sustainability, accessibility, and economic growth. An African energy market has the potential to catalyze investment in renewable energy sources, aligning with global efforts to combat climate change and reduce carbon emissions. Renewable energy projects can flourish as countries pool their resources and expertise, encouraging a shift towards cleaner and more sustainable energy practices. Moreover, decentralization and localized energy trading can empower communities, stimulating economic development and empowering individuals to actively participate in the energy marketplace. The integration of smart grid technologies and innovative financing mechanisms can further amplify the impact of an African energy market, making energy more reliable and affordable for all.

Regarding electricity trading within the EU member countries, the EEM adopts a dynamic short-term electricity market scheme. Within this framework, various market tools, such as the day-ahead electricity market, intra-day electricity market (IDEM), and balancing market, are deployed. These mechanisms foster healthy competition among market participants, including generators and retailers, enabling multiple participants to engage in trading at regular intervals. This stands in contrast to bilateral agreements that involve only two participants and often extend over long-term periods. In the African context, the concept of a regional electricity market is not entirely foreign, but it is the idea of power pools that has gained more traction. While these terms may appear similar on the surface, they hold distinct meanings. A power pool refers to a regional organization that unites electric utilities and regulatory bodies from multiple countries with the goal of optimizing the region’s power generation resources and enhancing access to electricity. On the other hand, an energy market represents a platform for buying and selling energy and its associated products, such as electricity and natural gas. Typically characterized by a centralized exchange or bilateral transactions, energy markets enable transparent and efficient trading between energy producers and consumers.

It is essential to recognize that a region can have both a power pool and an energy market, much like the European power pool and European energy market. However, it is also possible for one to exist without the other, as is the case in many regions across Africa. The presence of a regional power pool does not guarantee the existence of an energy market, and vice versa. Nevertheless, the establishment of a power pool can act as a catalyst for creating an energy market. By harmonizing rules and regulations, promoting cross-border energy trade, and bolstering energy security, a power pool can set the stage for the emergence of a centralized energy trading platform. In Africa, commendable progress has been made in establishing power pools, and some regions have even engaged in bilateral electricity trades before power pools were enacted. However, it seems that with the establishment of power pools, the focus has remained primarily on bilateral trades, with limited progress towards the development of a centralized energy trading platform.

In the next article, we explore three of the power pools established in Africa, closely examining their challenges and offering plausible solutions to address these issues. By analyzing the experiences and lessons from these power pools, we aim to shed light on the path towards a more integrated and robust African energy market.