New investment pledges for electrification by US private companies, the World Bank and the Swedish government increased commitments for the Power Africa initiative to more than $26 billion, having started as a $7 billion, five-year federal program in 2013.
These are big numbers.
Looking back, total committed US aid for electrification was $11billion over a much longer period (1990-2010) and for a much larger set of recipient countries. Sub-Saharan African countries received a total of $25 billion of aid for electrification during that same period, $18 billion if you exclude South Africa. Data on private participation in infrastructure show a total of $20 billion of private investments in electricity infrastructure for sub-Saharan Africa during between 1990 and 2013 .
So yes, if these pledges are actually disbursed, they can make a huge difference.
Africa needs this and more.
Why has investment in African electricity been so low up to this point?
Despite the fact that 48% of the world population without access to electricity lives in sub-Saharan Africa, the region only receives 12.61% of global foreign aid and 2.3% of private investment for electrification in developing countries between 1990 and 2012.
Sub-Saharan Africa (excluding South Africa) has 36,500 MW of installed generation capacity to serve a population of more than 830 million. A similar capacity serves just 9 million people in Sweden or around 40 million in Poland or Argentina. Unreliability of supply costs Africa an average 2.1% of its GDP and most African companies point to the absence of reliable electricity supply as their biggest constraint to growth.
Africa is rich in renewable and non-renewable energy resources but economic, financial, political, institutional, human capital and geographic constraints have prevented sufficient investments in electricity infrastructure, for example:
- Bad governance has acted as a major drag, with the public sector unable to guarantee adequate and reliable supply;
- Ineffective power sector reform has resulted in hybrid power markets with unclear responsibilities for the state-owned utility and uncertain access to the market for private actors;
- Regulation lacks the credibility which would sustain long-term investments;
- Artificially low tariffs to meet political promises don’t allow for recovery of capital costs and subsidies delivered through electricity tariffs are highly regressive;
- The cost of finance is high as a result of domestic capital scarcity and the requirement of high rates of return commensurate with high political, macroeconomic and regulatory risks.
Electrification programmes require careful planning if they hope to have any impact on the poor
At IDS we find the announcements of large investments in electricity infrastructure for Africa exhilarating. We are particularly interested in whether, and how, they can bring Africa closer to a path of green inclusive growth.
Firstly, to achieve a strong form of inclusive growth, new investments in electricity need to lead to a rise in the relative incomes of the poor, so that growth also reduces inequality.
This effect cannot be presumed. Indeed, electrification projects often leave behind poor communities and even when the grid or off-grid systems reach a poor community, evidence shows that connection rates can stay low due to prohibitively expensive up-front costs. Our work has found that, when poor families eventually connect, unreliable service, low consumption and lack of productive uses limit positive impacts. In some cases, policies that are intended to benefit the poor, such as tariff subsidies, are poorly thought out and can end up benefiting the better-off and undermining the sustainability of the project. Electrification investments therefore require careful planning to specifically target the poor. Our recently published Policy Tool for the Maximisation of Benefits for the Poor of Investments in Renewable Electricity aims at guiding policymakers to achieve that.
Secondly, as regards greenness, large investments in generation, transmission and distribution required in Africa could allow the continent to leapfrog towards a cleaner and more efficient electricity sector.
Our Green Growth Diagnostics for Africa project is looking at how to target electricity generation technologies that are green, inclusive and make economic and financial sense, with a particular focus in Ghana and Kenya, so we will be keeping a sharp eye on whether these big promises will deliver reliable, affordable and green electricity for Africa’s poorest communities.
About the author
Ana Pueyo is a Research Fellow at the Institute of Development Studies (IDS). She has been working in the fields of energy and climate change for over a decade.
Other blogs by Ana Pueyo on Globalisation and Development: