Potential Economic Benefits of the AFSEM

When fully implemented, the AfSEM will result in notable direct and indirect benefits for countries, economies, and electricity end users across the continent. The AfSEM would also encourage the addition of cheaper technologies such as nuclear which further reduces generation costs.

The African Single Electricity Market (AfSEM) would catalyse development across the continent. Linking the electricity systems across the continent’s 55 countries will reduce the overall power supply costs. The linking of isolated power systems allows for the pooling of resources which enables efficient power value chain operations.

For example, in interconnected electricity markets, there is a lower operating cost for generation as there will be a reduced need for peak-capacity power plants. When fully implemented, the AfSEM will result in notable direct and indirect benefits for countries, economies, and electricity end users across the continent. Some of these benefits include:

Reduced Energy Costs

The AfSEM would potentially reduce power generation costs as it allows for a diverse energy mix that prioritises generation plants with lower fuel costs. This could have a significant impact on the cost of power in countries like Sierra Leone, Mali and Burkina Faso that depend on costly heavy fuel oil (HFO) generation capacity. Access to cheaper gas-fired and hydro generation would reduce energy costs. The AfSEM also allows for the siting of power plants in resource centres, making them cheaper to develop. For instance, building thermal power plants in gas fields eliminates the added costs and challenges associated with transporting the gas to another country or area for power generation.

The AfSEM would also encourage the addition of cheaper technologies such as nuclear which further reduces generation costs. One of the largest impediments to nuclear energy addition across Sub-saharan Africa has been the lack of adequate grid capacity to facilitate 100 per cent power evacuation from nuclear plants. An operational AfSEM will increase the size of the power supply system and energy demand. 

Another way the AfSEM would decrease generation costs is by eliminating or drastically reducing the need for new domestic generation capacity additions for countries that import power. Lower generation costs and capacity additions will ultimately result in saved capital expenditure and lower operational costs for countries importing power. Lower operations costs could be from reduced variable costs as the number of power plants operated, spinning reserve capacity needed, and plant waste disposed would all reduce. Lower fixed costs would result from reduced plant maintenance and human resources needed. 

Ultimately, the end users will benefit from the cost savings as they will pay lower rates for improved power supply. 
Increased National Income and Economic Development

Income from power export can be vital for countries—especially if energy sales are denominated in hard currencies. The AfSEM would help energy resource-rich countries with trade deficits to attain a positive balance of trade. It would help boost national accounts and macro-economy by improving foreign exchange liquidity, particularly in countries with trade deficits. 

By increasing power supply reliability across countries, the AfSEM would ensure the access and availability of cheap energy for businesses and industries across the region. This in turn would positively impact local economies by lowering production costs and enabling industralisation. In Nigeria, the provision of cheaper reliable supply would significantly reduce production costs (current self-generation increases costs by as much as 40%), thereby reducing the costs of goods and services for millions. 

Cheaper power would also rapidly enable the mechanisation of key sectors like agriculture that rely on crude labour for activities like irrigation and agro-processing, thereby improving food production and security across the continent. This would lead to increased savings and expendable income for many as food, is the major driver of inflation across many regions on the continent. Improved electricity access would also translate to better socio-economic development for the continent's remote and rural populace. Electrified public institutions such as schools and health centres would be able to provide improved services. 

The AfSEM is also the best option to match increasing population growth and electrification rates. As the continent’s population grows, the AfSEM would rapidly expand electricity access to countries faster than the development of local generation and supply capacity. This reduces the lag time between energy demand growth and supply growth, eliminating temporary energy deficits that can negatively affect economic growth. 

*Image credit: Chris Kirchhoff, Media Club, licensed under CCBY 2.0

 

Join us at the Africa Energy Expo from 4 - 6 November in Kigali Centre Rwanda and experience the Africa energy landscape at its finest. The event will serve as a scene-setter to the Africa Power Vision by bringing key energy stakeholders together to increase the level of international support and facilitate access to modern, affordable and sustainable energy solutions in Africa.