Keeping the lights on in Africa

People in Zanzibar danced in the streets in June to celebrate the return of electricity after a month-long blackout caused by the failure of power lines supplying electricity from the Tanzanian mainland.

The island’s plight is not new. In April 2008, the International Monetary Fund reported that about 30 of the 48 countries in sub-Saharan Africa had suffered “acute” energy shortages in recent years.

The causes, notes Ram Babu, chief power engineer at the African Development Bank, are many, but mostly because the continent’s power infrastructure is poorly maintained, prone to collapse and unable to keep up with surging demand brought on by the continent’s impressive economic growth.

Until recently, he says, governments invested little in power companies but demanded that the companies supply electricity to the public at low rates.

As a result, “Many utilities are heavily in debt. They are selling power at a cost sometimes lower than that of production. They are making losses and have hardly any resources with which to maintain their current infrastructure.”

Expanding the supply of electricity is critical for Africa’s continued economic growth and a major priority of the continent’s development blueprint, the New Partnership for Africa’s Development. But the price is high: according to the International Energy Agency, Africa needs about $344-billion to create additional electricity capacity, upgrade installed equipment, and extend transmission and distribution networks to households and factories across the continent.

Flawed policies
Electricity shortages do not only affect economic productivity. They also reduce people’s quality of life. Without power, “clinics cannot deliver babies safely at night, children cannot study longer, businesses close at sunset and vaccines cannot be reliably refrigerated”, observes Vijay Modi, a researcher on alternative fuels for Africa at Columbia University in New York.

Despite African government policies that have kept electricity prices low, about 550-million people, or almost 75% of the population of sub-Saharan Africa, still do not have access. In 2004 in East Africa, fewer than 3% of rural people and 32% of urban residents were connected to their national grids. Connection rates are not much better in the rest of Africa, with only Côte d’Ivoire and Zimbabwe exceeding 70% coverage.

If most governments’ policies are to keep costs down, why are connection rates so dismal?

The answer, says Babu, is that governments’ efforts to expand access have relied mostly on capping the amount power utilities can charge for use. But that doesn’t help rural dwellers and other poor consumers whose homes are not yet linked to the power grid, he points out, because they face very high connection costs instead.

In cities where grids exist, the cost of a connection may start at $200. Where there is no grid, construction and connection costs can exceed $1 500. So, “poor people in rural areas are simply not connected,” says Babu.

Businesses and the better-off are often willing to pay a little more than the current rate, if that means that power companies can keep the electricity on. Instead of keeping prices artificially low, Babu argues, governments would be better advised to use a tiered system of charges based on consumption.

‘Smart subsidies’
“What are needed are smart subsidies, to facilitate connection to the grid and for people who use less,” he says.

Most Africans, except the very poor, are able to pay for electricity, since they already pay for candles, kerosene, firewood and other sources of power. Reducing the cost of connection while ensuring that the wealthier pay more for use would allow more people to connect to the grid. The scheme would also provide power companies with more income to maintain their systems.

Kenya is already experimenting with such an approach. Poorer members of the community who consume less power pay a lower rate than middle-income consumers who generally use more. Industries and large businesses pay rates that rise with their level of usage — raising additional money and creating financial incentives for conservation and efficiency.

In addition, the Kenyan government is allowing private companies to generate electricity and compete to sell power to the government-run transmission company. These policies have increased the power supply and ended the blackouts that were common in the late 1990s. The government has also sold shares in its transmission company and main power producer, increasing public scrutiny and pressure for better performance.

In South Africa, the government supplies free basic electricity services to the poor in selected areas. Those not connected to the electricity grid, but who use alternative fuels, such as solar power, are granted about R65 a month to help meet the costs of maintaining and operating such systems. But these subsidies do not come cheaply. They cost the government nearly R850-million a year, and some people have asked questions about whether they can continue.

However African countries decide to finance and reform their struggling power systems, Columbia University’s Modi concludes, it is important that they take action now. “It is critical that just as economic growth rates pick up in Africa, energy access and supply does not become one of the bottlenecks.”

Reprinted from UN Africa Renewal

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