The number of big multilateral financing facilities being put in place for electricity transmission and distribution (T&D) projects across Africa points to a recognition that, after decades when installing generation capacity was the central preoccupation of governments and donors, the infrastructure for delivering power to the people has often been ignored. Historically, large-scale T&D infrastructure has, of course, been put in place. But the momentum to modernise and expand grids has, in most jurisdictions, lagged in recent decades.
Failure to develop (usually state-owned) transmission systems and provide commercially viable environments in which distribution companies can thrive has often left a legacy of poor – or no – services. But this situation could be set to change. As one participant told the 14-15 November Africa Investment Exchange (AIX): Power and Renewables meeting in London, “transmission is the next big deal” in widening access across sub-Saharan Africa.
Big financiers are looking hard at T&D, with the World Bank Group (WBG), African Development Bank and other major players accelerating support for transmission. In West and southern Africa, real progress is being made on cross-border interconnections – underlined by a new 225kV link between Ghana and Burkina Faso and WBG support for the Mali-Guinea interconnector – and the construction of stronger domestic electricity backbones. The growing number of projects reflects an appreciation of the economic benefits of power trade: the WBG estimates that power trade within the West African Power Pool could lead to cost savings of $5bn-8bn/yr. Among projects in its pipeline, the WBG is preparing support for the Elmed Interconnector project to link Tunisia and Italy.
The consensus is that much more support for domestic and regional projects will follow, often shoring up state utilities whose central role is underlined by the traditional perception that transmission is a ‘natural monopoly’. In a rare case of transmission being privatised, Cameroon’s government has decided to take back control from operator Eneo (which keeps its generation and distribution concessions). Critics feared this decision was made on political rather than commercial grounds, but it reflects a need to keep the operator neutral in a system where Eneo is set to be only one of several independent power producers.
Forward-thinking investors believe openings will occur in transmission, which “will become a big focus for investment in the next five to ten years”, a private equity executive told AIX. This is most likely to require public-private partnership-type models. Like South Africa’s renewables programme, the executive believes projects could be “wrapped up by government” and then offered to the market, to overcome several of the problems associated with transmission, such as negotiating land rights. Ghanaian legislation allows for private transmission, encouraging a small grid in the south, and system operator GridCo is slowly moving to become “a really independent operator” that could oversee private investment.
But investors remain cautious. A development finance institution executive commented that to finance T&D “we must know how we will get our money back”. This is not yet clear. “All too often problems need to be resolved in the system,” he said.
It may seem ironic that investment in transmission grids operated by often insolvent state utilities is accelerating during a period of transition, as mini grids, rooftop solar and other distributed solutions emerge as a real alternative to traditional grids. But strengthening the grid is essential to serve major population centres and create more efficient regional industries. What is essential, AIX participants largely agreed, is proper planning that can incorporate stronger grids, maximise the use of electricity generated and encourage commercially viable off-grid solutions, in many cases using new business models. A regulator argued that “we must avoid the on-/off-grid fight, where mini grids and the like are seen as parasites”. On- and off-grid developments “must be seen as a symbiotic relationship”, with each development backed by a robust business case.
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