Electricity needs in Africa require infrastructure investment

Due to a lack of grid access, off-grid solutions such as mini-grids, solar home systems and pay-as-you-go systems are seeing record uptake, particularly in rural areas. Countries like Zambia and Ethiopia have enacted regulations and directives to attract private investment in small grids.

Despite the rise of off-grid systems, there is an equal demand for larger scale main grid infrastructure development, and renewable projects. To reach universal access in Africa, $50 billion is needed annually in grid infrastructure alone by 2030. Unlocking this scale of financing will mean that investment in grid expansion must shift beyond dependence on public capital and attract private financing.

Public-private partnerships (PPPs) are increasingly being recognised by government and industry players as a gateway to private investment for grid expansion. Although the main investors in infrastructure have traditionally been African governments and international partners like China, the Economic Commission for Africa (ECA) has stressed that financial constraints have increased the need for PPPs. The ECA has therefore been working with African countries to enhance their PPPs for infrastructure development and industrialisation.

The African Development Bank estimates that between $130 and $170 billion is needed for infrastructure development every year, leaving a financing gap of $68 to $108 billion.

Nigeria’s Electricity Act 2023 is an example of recent legislation enacted to entice private sector participation, and a testament to the growing recognition amongst African governments that such investment is paramount to achieving universal electricity access.

Rising electricity access needs provide energy infrastructure opportunities

The rapidly increasing electricity deficit is giving rise to opportunities for grid infrastructure at a multinational scale. For example, a team of economists from Nigeria, China and Turkey are proposing to build an electrical grid across 12 countries in the region – South Africa, Mozambique, Burundi, Tanzania, Kenya, Uganda, Ethiopia, Sudan, Chad, Nigeria, Niger, and Mali.

Based on simulations, the total electricity demand for the grid would be approximately 700 TWh per year, with costs ranging from around half a trillion dollars to just under three trillion. If the project materialises, electricity sufficient countries will export their surplus power to neighbouring countries affected by chronic power shortages including Nigeria and Mali. Similar projects, referred to as “electricity power pools”, already exist in East, Central, West and Southern Africa, but nothing compared to this scale. Realising the project would require substantial investment into sophisticated grid technologies and energy efficient storage solutions as well as political cooperation to ensure joint policies and regulations among the participating nations. The team hopes to take lessons from the EU super grid, which passes through over 25 European countries.

Concession-based models and lessons to be learned

Utilities in sub-Saharan Africa chronically suffer from corruption, financially unsustainable business models, and regular bankruptcy. To alleviate this and accelerate electrification, the region should adopt and tailor existing concession-based models to suit its own needs.

A concession is a grant of right given by a government, usually to a private entity, to operate a specific business. This traditional Western model has been tested in several Latin American, Asian, and mostly African countries. However, without any practical adaptation to wholly different socio-economic contexts, it has proven unfit for sub-Saharan African conditions, defined by unstable demand and the constrained financial resources of rural households – the key factors contributing to high grid electricity costs.

Lessons can be learned from four national utility-scale concession programs operating in Cameron, Cote d’Ivoire, Gabon, and Uganda. Whilst these concessions were able to turn inefficient distribution utilities to financially sustainable entities, their impact on electrification, if any, remains limited as none were specifically designed to improve energy access. However, their resilience and flexibility to the traditional concession model should be seen as an example which governments could adopt and improve to best suit the region’s socio-economic needs.

To achieve universal electrification through utility-scale concessions, the following lessons can be learned from the abovementioned programs:

• Universal energy access should be mandated into concession agreements, and concessions designed specifically for this purpose.
• Utilities should be given adequate support to achieve this mandate. Providing adequate guarantees, subsidies and flexibility regarding the mode of electrification – grid extension mini-grids or solar home systems – would allow utilities to extend their concession area and implement stable electrification programs.
• Political support is vital for fostering institutional, financial and operation cooperation between public and private stakeholders.

Key takeaway

The opportunities emerging in sub-Saharan Africa remain promising for the region’s pursuit of universal electricity access. To realise these efforts, governments and private sector players must work together to learn valuable lessons from established systems and adapt these to the specific socio-economic and political contexts of the region.

Co-written by Karen San Juan of Pinsent Masons.