Market Influence On The Energy Sector In Africa
Energy availability is a major prerequisite for physical and socio-ecomic development in both the rural and urban settings. There is a need o foster the assurance of energy security in the power sector, its availability and reliability in other to uphold any, meaningful development as well as pave way for more research and technological advancement to bring about evolution of human convenience. Access of the population of a nation to adequate electrical power supply for domestic and industrial or business use is one of the major determinants which separate developed countries from developing countries. Without question, Africa as a continent; and to be more specific Sub-Saharan Africa, is the least developed area in the continent, this slow rate of development can be traced to low access to modern energy in the region, as a result of inadequate or ineffective government energy policies, low level of investments, poor or outdated energy infrastructure and low technology transfer rate. The use of renewable energy technologies is also minimal in the region and electrical power generation is majorly dominated by hydroelectric generation, coal lignite, crude oil, natural gas and nuclear fuels (less common). The institutional setting of energy companies whether foreign or local in Africa play a major role in determining the current state of the power sector in most African nations.
Although power sector reforms in Africa have been prevalent, the original intent for the policy reforms and restructuring were not achieved. Evidently, state-owned electricity utility companies have encouraged investment inputs from foreign investors through Independent Power Production, but the standard reform results of a fully unbundled power division with privatized companies competing in the electricity distribution business. What the ‘pragma’ shows in most case, is a dominant state owned enterprise with other Independent Power Producers (IPPs) have been introduced into the market on edge.
The challenge of attracting new investors to such hybrids markets poses a new problem for the government. A Diagnostic Country (AIDC) has indicated that the capacity of power generation is insufficient to meet electricity demand in most Sub-Saharan African countries. The cumulative installed Power generation capacity of the entire continent is about equal to that of a single European Country, Spain.
Previously, the local state-owned utility company assumed the full task of generation, transmission and distribution, as well as expansion planning. They tended to build more conservatively in order to mitigate against un-foreseen circumstances as a form of redundancy check because they were run by engineers. Costs of operations quickly ran high as financial difficulties came, and electricity bills insufficient to provide for new required investments. In recent times, most electricity utility companies are facing the issue of under-investment as they don’t have the financial capital required to free themselves. Pressures have increased for reforms to encourage integration of IPPs in new private investments to complement the efforts of already existing utilities in power generation, distribution and grid network expansion. It remains uncertain in these markets who’s jurisdiction it falls under to respond to demand for more power, expansion plans (if still important). There occurs confusion between the utility and government on what roles to assume in the electrical network system. With the integration of IPPs into the system, we need to take into consideration a number of other legal and financial issues. The connections between planning and private investments would be of priority to the operations of the utilities as well as the government. This is sufficient proof that unsettled testing with IPPs will not lead to continuous investment from the private sector. It can be noted though that all countries who have unbundled generation, transmission and distribution have established independent regulators.
Taking Kenya as a typical case, it’s regulator in conjunction with the acceptance of ICB practice has been able to reduce its PPA charges. There was a similar situation in Senegal who’s prime (GTi Dakar) IPP was not overseen by an Independent regulator in contrast to its subsequent (Kounoune I) which was supervised with a more experienced Senelac which saw benefits combined with the latter project. The Energy Regulation Commission of Kenya has also been helpfully involved in setting the price of energy billing and linking itself between both the public and private sector in the industry. Transparency of process which was instrumental in reducing bureaucracy from inception of the project could be observed by the sponsors in Uganda. Staff of the Uganda Electricity Regulatory Authority (ERA) affirmed that the presence of ERA assisted in converging minds on the conditions for setting up power supply projects so that investors coming in are clear of what is expected of them from inception and hence orientate themselves and bids to those conditions. In retrospect, more private investors were seen bidding to set up IPP projects.
However, in Ghana, Nigeria, Cote d’Ivoire and Tanzania, regulatory agencies only came into the scene after IPPs had been transacted and there has been minimal impact, if any is yet to come, in terms of new investment. What can be seen is that the mere presence of a regulatory body is not sufficient itself as a factor to attract IPPs, their presence in a project may or may not have a positive impact on the outcomes. But a clear, fair and detailed regulatory process of governance would result in a positive outcome for the host nation and investor together. There is also proof that the active oversight of a regulatory body may lead to reduction in stated project capital costs while also improving efficiencies. The African economy developed at 5. 4% overall from 1997 to 2007 and the level of Africans living on US$ 1. 25 multi day declined from 58% out of 1996 to half in mid 2009. Interests in framework contributed the greater part to Africa's enhanced financial development however substantially more should be finished. The sub-Saharan African power foundation is falling behind others in creating districts as a result of inefficiencies in the segment which retain 1. 9% of Gross domestic product. What's more, if other sub-Saharan African nations imitated Mauritius, the provincial pioneer in the power segment, and done similarly well, 2. 2 rate focuses could have been added to the yearly per capita development.
Today sub-Saharan Africa is the locale with the least power get to levels of 31%. The power age limit of the locale with a populace of 800 million is 68 Gigawatt (GW), equivalent to that of Spain with a populace of 45 million, and when South Africa is avoided the aggregate sums to just 28 GW. This has not generally been so. In the mid 80s electrification levels in South Asia and sub-Saharan Africa were level with, however from that point on sub-Saharan Africa slacked behind, and in 2008 electrification development rates were a large portion of those in other creating areas. Access changes crosswise over areas and nations. North African nations, but Mauritania, have accomplished relatively all inclusive power get to. Be that as it may, in sub-Saharan Africa 561 million individuals, equivalent to 74% of the populace, have no entrance to power ascending to 89% in rustic zones. The low age and access levels convert into low per capita utilization of 457 kWh every year overall, diminishing to 124 kWh without South Africa, contrasting with 1155 kWh in the creating scene and 10 198 kWh in high-wage nations.
Anticipating present electrification rates and populace development rates to 2030, 654 million individuals will be without power in 2030, as contrasted with 587 million out of 2009. In sub-Saharan Africa, 80% of the populace cook with solid mineral fuels (wood, charcoal, and coal) when contrasted with 58% in China also, 71% in India. While wood is the real cooking fuel in sub-Saharan Africa, it is coal and wood in China, and wood and manure in India Large amounts of indoor air contamination from consuming biomass for cooking and warming are harming to human well-being. In sub-Saharan Africa rate of biomass utilization is the cause of 4. 2 infant deaths per 1000 populace from pneumonia, a much higher rate than in other districts. The modern-day energy market in Sub-Saharan Africa can be said to be largely uinderdeveloped. In general, the main problems that could be said to be facing the population as well as the market of energy in Africa are
- High costs of operations and production
- Power shortages
- Mismanagement on the government’s part
- High tarriffs
- Unequal access.
For progress to take place, the sector must undergo government policy reforms, higher capital funds injection, influx of private investors into the industry as well private sector participation and increase trade power.
Energy reform programmes in Africa
Most articles that discuss energy reforms in Africa’s electricity power sector talk about the decline in government support over the years and poor quality of implementation in policies over the years. They blame most of the challenges faced by the sub-sector as a result of state intervention. The urgency for embarking on a complete power sector reform stems from two basic reasons:
- General displeasure at the technical services provided, lack of proper financial asset management and poor management and maintenance culture of electrical public utilities.
- Failure of government and utilities to stimulate and attract foreign and private investments into the sector.
Most of the reforms that have taken place in continent are based on industry structural changes, denationalization of the power utilities. The changes in structure refer to the disbanding of the previously vertically integrated system into separate entities of generation, transmission and distribution facilities. Horizontal disbanding is only possible in larger economies, of which Nigeria alone fits into that category in Africa.
The urgency for undergoing the complete reform of the power sector stems from two primary issues of priority.
- Creating a diverse competitive market place: Increase in the number of players who engage in the vertical system of energy generation to distribution
- Creating a cost-effective tariff system.
- Minimizing government intervention to a minimum.
It is important to take note however, that none of the intended and implemented energy policies in the sector were intended to raise awareness or investments in the area of renewable energy and neither did they address the issue of improving access to power supply among the poor, which should be a priority.
Privatization is basically a transfer of ownership of assets of a utility most times from the government or public sector to private investors. The most common privatization path undertaken by the majority of African countries has been the corporatization, commercialization, issuing of management contracts and stop at allowing the entry of independent power producers (IPPs).
