Empowering Africa: A Vision for an African Energy Market (Part 2)

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

Photo by Andrik Langfield on Unsplash

In part 1, the European energy market (EEM) was discussed and the plausibility of an African energy market closely mimicking the EEM with policies tailored to the African continent. In this continuing article, the Southern, Western, and Eastern Africa Power Pool are discussed and analyzed. By analyzing the experiences and lessons from these power pools, I aim to shed light on the path towards a more integrated and robust African energy market.

The Southern Africa Power Pool (SAPP)

The Southern Africa Power Pool (SAPP) stands as the oldest and most advanced power pool in all of Africa, dating back to its establishment in 1995. Currently, it boasts 12 member countries, including Angola, Botswana, the Democratic Republic of Congo, eSwatini (formerly Swaziland), Lesotho, Malawi, Mozambique, Namibia, South Africa, Tanzania, Zambia, and Zimbabwe.

As the largest economy in the region and one of the continent’s major electricity producers, South Africa has played a pivotal role in promoting regional energy security and stability within SAPP. In the past, South Africa, relying heavily on coal as its primary fuel source, generated a surplus of electricity, enabling it to export the excess to neighboring countries. This made South Africa an energy exporter, contributing to regional energy cooperation and interdependence. However, with the nation’s growing population and increasing energy demands, the dynamics have shifted. Presently, South Africa meets only 90% of its energy needs domestically, necessitating the importation of energy to bridge the gap. This shift from energy exporter to net energy importer underscores the importance of regional interconnections for ensuring energy security and meeting the demands of all member countries.

One of the driving forces behind South Africa’s push for regional interconnections is its vested interest in the potential hydro-power station in the Democratic Republic of Congo (DRC). Once completed, this hydro-power project holds the promise of providing cheap electrical power, benefiting the entire region and reinforcing the spirit of cooperation within the SAPP. Despite its standing as the most developed African Power Pool, the SAPP still faces challenges in functioning as efficiently and effectively as the European Energy Market. Currently, the majority of energy trades among SAPP countries are conducted through bilateral agreements, accounting for about 95% of transactions. Only a minimal 5% involves interconnected regional markets, utilizing market tools like the day-ahead Energy Market (EM), intra-day Energy Market (IDM), and balancing markets.

To achieve the level of efficiency observed in the European Energy Market, the SAPP must strive to enhance regional cooperation and further embrace interconnected energy markets. By increasing the utilization of market tools and encouraging more regional trading, SAPP can unlock its true potential as a driver of energy integration and sustainability across Southern Africa.

The Western Africa Power Pool (WAPP)

The Western African Power Pool (WAPP) emerged in 1998 under the management of ECOWAS, encompassing 14 out of its 15 member states. These member countries include Benin, Burkina Faso, Sierra Leone, Côte d’Ivoire (Ivory Coast), Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, and Togo, with Cape Verde being the exception.

Nigeria, with her significant generation capacity, and potential for future growth, holds a prominent position within the WAPP. However, despite its stature, Nigeria grapples with the challenge of providing electricity access to nearly 50% of its population. Shockingly, approximately 80% of those without electricity reside in the rural areas of the country. The establishment of WAPP was a proactive response to address the energy challenges faced by ECOWAS member countries and promote the development of a regional electricity market. By uniting their resources and interconnecting their electricity systems, WAPP member countries can share excess generation capacity and enhance the reliability of electricity supplies throughout the region. Yet, progress within the WAPP has been slow, primarily due to several reasons. For one, inadequate generation capacity in each member country and the lack of robust transmission infrastructure have hindered its advancement, and this is often attributed to financial constraints. To navigate these hurdles, ECOWAS established two core arms of the WAPP: the Information and Coordination Centre (ICC), which oversees the electricity market within the ECOWAS region, and the Planning, Investment Programming, and Environmental Safeguards (PIPES) responsible for project development from conception to implementation.

In June 2014, ECOWAS secured funding approval from the World Bank, amounting to $465 million, designated for countries in Western and Central Africa. This funding aims to enhance electricity access, grid stability, and integrate renewable energy within the WAPP. While the funds may not suffice to execute all planned projects, prudent management of these resources holds the potential to uplift millions from energy poverty, marking a significant stride towards regional development and progress. As WAPP continues to steer towards a more integrated and sustainable energy market, it is crucial for member countries to foster cooperation, enhance financial resources, and prioritize the development of reliable transmission infrastructure. By addressing these challenges collectively, the WAPP can embark on a transformative journey, powering economic growth, and illuminating the lives of millions across West Africa.

The Eastern Africa Power Pool (EAPP)

The Eastern Africa Power Pool (EAPP) stands as a regional organization that unites countries in East Africa, fostering the sharing of electricity resources and bolstering regional interconnections. Established in 2005, the EAPP boasts 13 member countries, including Burundi, the Democratic Republic of Congo (DR Congo), Djibouti, Egypt, Ethiopia, Kenya, Rwanda, Somalia, South Sudan, Sudan, Tanzania, Libya, and Uganda. With a shared vision, the EAPP aims to increase energy access, enhance energy security, and reduce energy costs across the region.

In contrast to some countries in the SAPP, many participating countries within the EAPP exhibit a higher level of energy self-sufficiency. Nations such as Kenya, Rwanda, and Ethiopia are on an assertive path of expanding their energy capacity, incorporating a mix of conventional and renewable energy resources. Ethiopia, in particular, holds the potential to emerge as an energy hegemon in East Africa, largely due to the ambitious Grand Ethiopian Renaissance Dam (GERD) project on the Nile River. This massive hydroelectric undertaking is expected to significantly increase Ethiopia’s electricity generation capacity. However, the GERD project has sparked concerns from Egypt, as it fears potential impacts on the flow of water to its own hydroelectric dams and water supply. These concerns have led Egypt to reassess its participation in the EAPP and explore alternative energy sources such as non-hydro renewables and nuclear power. In 2017, Egypt officially announced its withdrawal from the EAPP, citing concerns over the security of its electricity supply. This decision was influenced by a series of power outages in the country, which were perceived as a threat to Egypt’s energy security. Despite the complexities surrounding Egypt’s involvement, the country has actively engaged in negotiations with Ethiopia and other upstream countries to establish an agreement on the equitable use of the Nile River, aiming to ensure water security for all parties involved. As the EAPP endeavors to foster collaboration and sustainable energy development among its member countries, it must navigate the diverse energy landscapes and water-related concerns that exist within the region. By promoting open dialogue, inclusive agreements, and cooperative energy projects, the EAPP can become a catalyst for transforming the energy sector in Eastern Africa, driving economic growth, and advancing energy access for all its citizens.

Challenges and Plausible Solutions to Regional Energy Markets in African Power Pools

Africa has taken significant steps in establishing power pools to promote regional energy cooperation. However, progress has been slow in many regions, especially in the WAPP and EAPP. One of the key challenges lies in the predominance of bilateral agreements for energy trades, with only minimal engagement in interconnected regional markets. To achieve the seamless functioning of the European power market, it is crucial to shift towards more extensive participation with multiple market participants. At a high level, some of the challenges faced by the African power pools include:

1. Inadequate Generating Capacity: Many participating countries in the power pools have low electrification rates and insufficient generating capacity to meet their energy demands.
2. Inadequate Transmission Infrastructure: Limited and underdeveloped transmission infrastructure hinders the efficient transportation of power among member countries.
3. Preference for Bilateral Trading: Some countries may prioritize forming coalitions with specific regions for bilateral trading, leading to suboptimal regional integration. An example is Egypt, which pursued alternative energy sources due to concerns over energy security.

To transform the African power pool landscape and emulate the success of the European energy market, it is essential to address these challenges and adopt a long-term perspective. Some plausible solutions include:

1. Recognizing and Respecting Individuality: Acknowledge the unique energy capacities and challenges of each country, promoting collaboration based on mutual benefits.
2. Improving Generation Capacity: Enhance generation capacity to meet a significant portion of local demand, following the example of South Africa.
3. Enhancing Local Infrastructure: Focus on improving local infrastructure to facilitate efficient energy distribution within individual countries.
4. Developing Transmission Lines: Invest in the construction of new transmission lines and tie-switches to interconnect different nations within the power pool.
5. Establishing Regulatory Bodies: Set up regulatory bodies within power pools, such as the Information and Coordination Centre (ICC) in WAPP, responsible for overseeing the electricity market.
6. Diversifying Market Mechanisms: Develop market tools beyond bilateral contracts to include short-term trades, such as the day-ahead or weak-ahead electricity market, intra-day market (IDM), and balancing market.

By implementing these solutions, African power pools can pave the way for enhanced regional energy integration, improved energy security, and sustainable economic development. Embracing a collaborative approach, countries can work together to overcome challenges and unlock the full potential of the African energy market.

Conclusion

The African energy landscape is witnessing significant growth in certain regions, driven by individual country commitments to improve energy infrastructure and embrace renewable energy sources. The establishment of power pools has also facilitated cross-border energy trades, marking a step towards regional energy integration. However, the progress in power pools and energy markets has been slow, with many regions, particularly the WAPP, lagging behind global trends.

For power pools to thrive, energy self-sufficiency among member countries is crucial. Countries like Nigeria, as the largest contributor to the WAPP, need to focus on achieving energy sufficiency to effectively contribute to the pool’s core objectives. Additionally, fostering competition and inclusion is essential, which can be achieved through a centralized energy platform akin to the European Energy Market. With favorable regulations and a competitive market, energy investors will be incentivized to engage in various generation projects, both renewable and conventional, to profit from the centralized energy market, capacity market, and ancillary service market. Strengthening and expanding transmission infrastructure is another vital aspect to ensure the effective conveyance of electricity produced within the power pools. By addressing these challenges and taking strategic steps, the African energy market can harness its potential for growth and integration with global energy markets.

Despite obstacles like limited infrastructure and underdeveloped financial markets, the African energy market holds immense promise for becoming a significant player on the global stage. The development of initiatives such as the African power pools, coupled with the increasing adoption of renewable energy sources, sets the stage for the African energy market to flourish in the years to come. As the continent continues to advance towards energy sustainability and regional collaboration, concerted efforts from governments, investors, and regulatory bodies will be instrumental in unlocking the vast potential of the African energy market. With dedication and foresight, Africa can solidify its position as a major force in the global energy landscape, fostering economic growth, and improving the lives of its citizens through reliable and sustainable energy access.

Thank you for reading and I hope you got some value out of this!