Africa

Africa's Power Infrastructure

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Africa's chronic power problems have escalated in recent years into a crisis affecting 30 countries, taking a heavy toll on economic growth and productivity. The region has inadequate generation capacity, limited electrification, low power consumption, unreliable services, and high costs. It also faces a power sector financing gap on the order of $21 billion a year. It spends only about a quarter of what it needs to spend on power, much of this on operating expenditure required to run the continent's high-cost power systems, leaving little for the huge investments needed to provide a long-term solution.
Further development of regional power trade would allow Africa to harness larger scale more cost-effective energy sources, reducing energy system costs by $2 billion a year and saving 70 million tons of carbon emissions annually. Economic returns to investments in cross-border transmission are particularly high. But reaping the promise of regional trade depends on a handful of major exporting countries raising the large volumes of finance needed to develop generation capacity for export. It would also require political will in a large number of importing countries that could potentially meet more than half their power demand through trade.
Power sector inefficiencies are high, deterring investment in new capacity and electrification. There are three types of sector inefficiencies. First, there are utility inefficiencies, which include system losses, under-collection of revenue and over-manning. These result in a major waste of resources adding up to $4.40 billion a year. Under-collection is the largest component of utility inefficiencies amounting to $1.73 billion, following by system losses at $1.48 billion and by over-manning at $1.15 billion. The second type of sector inefficiency is under-pricing of power. By setting tariffs below the levels needed to cover the actual costs, SSA countries forego revenues of $3.62 billion a year.
The third type of inefficiency is poor budget execution. Only 66% of the capital budgets allocated to power are actually spent, with about $258 million in public investment earmarked for the power sector being diverted elsewhere in the budget.
Full cost recovery tariffs would already be affordable in countries with efficient large scale hydro or coal-based systems, but not in those relying on small scale oil-based plants. Once regional power trade comes into play, generation costs will fall, and full cost recovery tariffs could be affordable in much of Africa.
One of the key policy challenges is to strengthen sector planning capabilities, too often overlooked in today's hybrid markets. A serious recommitment to reforming state-owned enterprises should emphasize improvements in corporate governance more than purely technical fixes. Improving cost recovery is essential for sustaining investments in electrification and regional power generation projects. Closing the huge financing gap will require improving the creditworthiness of utilities and sustaining the recent upswing in external finance to the sector
This book is based on extensive data collection undertaken between 2006 and 2008 by the Africa Country Infrastructure Country Diagnostic, an initiative of the Infrastructure Consortium for Africa delegated to the World Bank under the guidance of the African Union, African Development Bank and other multi-lateral and bilateral development institutions.

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Published 11 April 2011
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DIRECTIONS IN DEVELOPMENT
Infrastructure
Africa’s Power Infrastructure
Investment, Integration, Efficiency
Anton Eberhard
Orvika Rosnes
Maria Shkaratan
Haakon VennemoAfrica’s Power InfrastructureAfrica’s Power Infrastructure
Investment, Integration, Efficiency
Anton Eberhard
Orvika Rosnes
Maria Shkaratan
Haakon Vennemo
Vivien Foster and Cecilia Briceño-Garmendia,
Series Editors© 2011 The International Bank for Reconstruction and Development/The World Bank
1818 H Street NW
Washington DC 20433
Telephone: 202-473-1000
Internet: www.worldbank.org
All rights reserved
1 2 3 4 14 13 12 11
This volume is a product of the staff of the International Bank for Reconstruction and
Development/The World Bank. The findings, interpretations, and conclusions expressed in this
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Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax:
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ISBN: 978-0-8213-8455-8
eISBN: 978-0-8213-8652-1
DOI: 10.1596/978-0-8213-8455-8
Library of Congress Cataloging-in-Publication Data
Africa’s power infrastructure : investment, integration, efficiency / Anton Eberhard ... [et al.].
p. cm.
Includes bibliographical references.
ISBN 978-0-8213-8455-8 — ISBN 978-0-8213-8652-1 (electronic)
1. Rural electrification—Government policy—Africa, Sub-Saharan. 2. Energy policy—Social
aspects—Africa, Sub-Saharan. 3. Capital investments—Africa, Sub-Saharan. I. Eberhard, Anton A.
HD9688.S832.A37 2011
333.793'20967—dc22
2011002973
Cover photograph: Arne Hoel/The World Bank
Cover design: Naylor DesignContents
About the AICD xvii
Series Foreword xix
Acknowledgments xxi
Abbreviations xxvii
Chapter 1 Africa Unplugged 1
The Region’s Underdeveloped Energy Resources 1
The Lag in Installed Generation Capacity 2
Stagnant and Inequitable Access to
Electricity Services 5
Unreliable Electricity Supply 7
The Prevalence of Backup Generators 7
Increasing Use of Leased Emergency Power 10
A Power Crisis Exacerbated by Drought,
Conflict, and High Oil Prices 12
High Power Prices That Generally Do Not
Cover Costs 12
Deficient Power Infrastructure Constrains
Social and Economic Development 16
Notes 19
References 19
vvi Contents
Chapter 2 The Promise of Regional Power Trade 23
Uneven Distribution and Poor Economies of Scale 24
Despite Power Pools, Low Regional Power Trade 26
The Potential Benefits of Expanded Regional
Power Trading 28
What Regional Patterns of Trade Would Emerge? 31
Water Resources Management and Hydropower
Development 33
Who Gains Most from Power Trade? 33
How Will Less Hydropower Development
Influence Trade Flows? 38
What Are the Environmental Impacts of
Trading Power? 39
Technology Choices and the Clean Development
Mechanism 39
How Might Climate Change Affect Power
Investment Patterns? 40
Meeting the Challenges of Regional Integration
of Infrastructure 40
Conclusion 50
Note 50
Bibliography 50
Chapter 3 Investment Requirements 53
Modeling Investment Needs 54
Estimating Supply Needs 55
Overall Cost Requirements 58
The SAPP 64
The EAPP/Nile Basin 67
WAPP 70
CAPP 74
Notes 77
Reference 78
Chapter 4 Strengthening Sector Reform and Planning 79
Power Sector Reform in Sub-Saharan Africa 80
Private Management Contracts: Winning the
Battle, Losing the War 85
Sector Reform, Sector Performance 87
The Search for Effective Hybrid Markets 88Contents vii
The Possible Need to Redesign Regulatory
Institutions 94
Notes 100
Bibliography 101
Chapter 5 Widening Connectivity and Reducing Inequality 103
Low Electricity Connection Rates 104
Mixed Progress, despite Many Agencies
and Funds 105
Inequitable Access to Electricity 110
Affordability of Electricity—Subsidizing the
Well-Off 112
Policy Challenges for Accelerating Service
Expansion 119
References 129
Chapter 6 Recommitting to the Reform of State-Owned
Enterprises 133
Hidden Costs in Underperforming State-Owned
Enterprises 134
Driving Down Operational Inefficiencies
and Hidden Costs 135
Effect of Better Governance on Performance
of State-Owned Utilities 136
Making State-Owned Enterprises More Effective 137
Conclusion 147
References 148
Chapter 7 Closing Africa’s Power Funding Gap 149
Existing Spending in the Power Sector 151
How Much More Can Be Done within the
Existing Resource Envelope? 157
Increasing Cost Recovery 158
On Budget Spending: Raising Capital Budget
Execution 160
Improving Utility Performance 161
Savings from Efficiency-Oriented Reforms 162
Annual Funding Gap 164
How Much Additional Finance Can Be Raised? 166
Costs of Capital from Different Sources 178viii Contents
The Most Promising Ways to Increase Funds 180
What Else Can Be Done? 180
Taking More Time 180
Lowering Costs through Regional Integration 181
The Way Forward 182
Note 183
References 183
Appendix 1 Africa Unplugged 187
Appendix 2 The Promise of Regional Power Trade 199
Appendix 3 Investment Requirements 213
Appendix 4 Strengthening Sector Reform and Planning 239
Appendix 5 Widening Connectivity and Reducing Inequality 267
Appendix 6 Recommitting to the Reform of State-Owned
Enterprises 291
Appendix 7 Closing Africa’s Power Funding Gap 299
Index 305
Boxes
2.1 The Difficulties in Forging Political Consensus:
The Case of Westcor 42
2.2 The West African Power Pool (WAPP)
and New Investment 45
2.3 Difficulties in Setting Priorities in SAPP 46
3.1Definitions 61
4.1 Kenya’s Success with Private Sector Participation
in Power 83
4.2 Côte d’Ivoire’s Independent Power Projects Survive
Civil War 84
4.3 Power Sector Planning Dilemmas in South Africa 90
5.1 Ghana’s Electrification Program 106
5.2 Residential Electricity Tariff Structures in
Sub-Saharan Africa 116