A few far-sighted public officials and private equity investors have been looking at transmission and distribution (T&D) as the next big thing for the African electricity supply industry for some time (AE 381/21). Momentum is building behind this, underlined by the recent creation of T&D-focused Gridworks by UK government-owned investor CDC. Many participants interpreted the unexpectedly large audience for the T&D session at the 13-14 November AIX: Power and Renewables meeting in London as a sign of changing times that could herald a major breakthrough in sub-Saharan Africa.
It remains early days for private investment in African transmission – still seen by most governments as a natural monopoly – and distribution; all too many companies struggle with high levels of financial and system losses. “I would love to do transmission projects, just show me where they are,” commented one AIX delegate with a large generation portfolio. Large T&D portfolios in Latin America show how such projects can become the norm, but in Africa this remains frustratingly far from being the case.
Those working on early-stage T&D projects see off-grid solutions as a complement to their operations. “These are very different businesses but there is a growing perception that by influencing one you influence all of them – thus, if you build a distribution system, it could make sense to build HV transmission lines to substations, which initially might supply mini-grids and embedded power, and connect to the grid later,” an industry analyst observed. Those thinking about these new business models do not necessarily believe these three functions should be carried out by one company, but “by fixing parts of the chain other bits can come together”, the analyst said.
Private transmission is at a very early stage. Leading the way is Kenya, with five private lines in development: three by Africa50 and two by the International Finance Corporation for a future tender process. Mozambique is also looking seriously at privately financed transmission.
Eastern Democratic Republic of Congo is notable for its lack of regulation creating a very permissive investment environment where consumers in centres like Goma will invest in renewable and other solutions to overcome lack of grid electricity. Nuru, which has piloted commercial solar in troubled North Kivu, is now looking at a plan to import surplus hydropower from western Uganda. BBOXX has been trialling mini-grids in Goma; the region is a target for Gridworks too.
Uganda’s Umeme was one of the first African distribution companies to mobilise private investment when it was established in 2005. Generally seen as a success – and listed on the Kampala Stock Exchange – even Umeme is challenged over its concession renewal. T&D privatisation has rarely proved an easy option, as highlighted by Electricity Corporation of Ghana’s failed management contract.
Nigeria remains a model of misery for investors in distribution companies (discos), but new players such as London- and Abuja-based Konexa are working to apply a mini-utility model to reach new consumers.
An industry hinging on privately financed T&D plus mini-grids would take pressure off often insolvent state utilities and reach new consumers. In making this shift, “there is no one size fits all”, a Kenyan participant observed. “The starting point is to ask: what are your sectoral objectives and what are you trying to achieve? If you are very clear about your objectives then the different actors have the capacity to interpret those and translate them into commercially viable models wherever in the sector they are playing.” If policymakers are on board, then market appetite suggests money and innovative business models will be there to radically shape the industry.
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