Realizing the African Single Electricity Market

The AfSEM could accelerate energy access for millions of unconnected people, and improve power supply reliability, a catalyst for economic development. Beyond the obvious direct benefits, such a market would also have indirect benefits for stakeholders, particularly the countries, generation companies and energy sector investors.

Pooling energy resources across countries has greatly improved the efficiency of the electricity supply. There is a potential for the same to happen in Africa. The AfSEM could accelerate energy access for millions of unconnected people, and improve power supply reliability, a catalyst for economic development. Beyond the obvious direct benefits, such a market would also have indirect benefits for stakeholders, particularly the countries, generation companies and energy sector investors. However, such a market that aims to link the power systems of 55 nations must surmount significant challenges. 

What needs to be done?

Interconnection infrastructure costs represent the largest direct cost in implementing the AfSEM. These costs will vary by location as it is affected by factors such as the terrain, required right-of-way, system interface hardware and energy supply requirements. Building these complex infrastructures would require huge financing. Countries and stakeholders would have to agree, depending on the financing structures and potential debt repayment arrangements. Such agreements will require extensive political and stakeholder deliberations, as some financing agreements may be subject to legislative approvals. This will require synchronicity of the political will among the countries. 

Many countries in the region have dilapidated energy infrastructure with weak grid systems. According to the International Energy Agency, Nigeria's electricity grid collapsed 46 times between 2017 and 2023. In addition to building interconnection lines, countries would have to upgrade their grid systems to meet the interconnection requirements and efficiently accommodate the expanded capacity of the AfSEM. This involves making reinforcements to the current networks and modernising transmission and control systems. 

Countries aiming to be net exporters may need to continually raise capacity to meet contracted energy generation requirements as the region’s population expands. As a result, they may face increased fuel costs, capital, and operations costs as well as transmission systems upgrades and other infrastructure costs.  As a result, power generation capacity additions could be biased as resource-rich countries that could easily ramp up generation capacity, either through cheaper renewables or access to fossil fuels could influence energy pricing across the market. Energy pricing agreements and contracts would require an understanding of complex technical, legal, interconnection and macroeconomic issues. 

Another issue that needs to be resolved is the lack of market-based tariffs in many electricity markets. Electricity prices have been part of many government’s social policies. In Nigeria, for instance, the government influences the electricity tariff— which is lower than the market price for power—and covers the tariff shortfall. The government estimates that electricity subsidies would cost about $1.2bn in 2024.  These types of policies could affect the economic feasibility of the AfSEM, by making a country unfairly more attractive for energy trading compared to another. 

Another challenge across markets in the region is the huge challenges with collections for electricity supplied. According to the World Bank, the average bill collection loss for Sub-Saharan Africa is about 0.15% of the region’s GDP. To fully ensure the feasibility of an interconnected market, each connected country would have to upgrade customer metering and billing to ensure that electricity imported is paid for. All these require significant up-front investment in equipment, monitoring software, security and personnel training and customer education. 

To ensure that the benefits of the AfSEM are maximized, there needs to be an equitable distribution of realized economic benefits among the connected countries. This ensures that the political and social costs to individual countries and stakeholders are low. This requires explicit communications of the direct and avoided costs of the AfSEM to the participating countries.  Countries will need to establish adequate economic and financial frameworks before the full implementation of the market. Policymakers, regulators and energy stakeholders across diverse jurisdictions will have to make significant legal, financial and political commitments to fully realize what will become the largest electricity market in the world. 
 

*Image credit: Danny P Robinson, 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.