A new report authored by AT Kearney has indicated that surging demand for electricity outstrips supply in sub-Saharan Africa, where government-owned utilities lack the resources to improve and expand distribution grids.
The report recommends that properly structured private sector participation can fill the gap.
“Sub-Saharan Africa (SSA) experienced lackluster economic growth between 1980 and 2000. Since 2000, at an average annual growth rate of 4.8 percent, regional GDP has more than doubled. Growth would have been even stronger if SSA had enough electricity to meet surging demand.
“Given the close correlation between electricity consumption and economic growth, the African Development Bank (AfDB) estimates that inadequate electricity supply costs SSA approximately 2 percentage points of GDP growth annually,” it noted.
It revealed that limited access to electricity and chronic power shortages impede efforts to maximize growth and raise living standards for nearly 1 billion people across the region.
“Insufficient generation capacity, inadequate transmission and distribution networks, and high power-loss levels are the major contributors to the region’s power deficit. Substantial investments are required to expand capacity and improve performance within each segment of the electricity value chain— generation, transmission, and distribution,” it stated, adding that “Although many governments throughout SSA place a high priority on increasing electricity supply, most can’t afford to finance the necessary improvements without private sector capital.”
The report additionally said boosting capacity through Private Sector Participation (PSP) tends to be more difficult in distribution than generation and transmission, due to the inherent complexities between electricity distribution network owners and investors and customer-service aspects of distributing power.
“PSP ventures in distribution require complex risk-allocation arrangements among investors and network owners, along with incentives to align their interests around capacity and efficiency goals. As natural monopolies, distribution utilities operate under consumer protection mandates and other regulations that squeeze profit margins.
“Still, PSP in electricity distribution is essential to meet the growing needs of Africa’s people. This paper presents the case for PSP in distribution and outlines the key elements of a successful electricity distribution PSP arrangement.”
With 14 percent of the world’s population, SSA has more than half of the world’s 1.1 billion people who lack access to electricity.
SSA’s per capita electricity consumption of 488 kilowatt hours (KWh) annually is well below the global average of 3,104 KWh.
South Africa, with per capita consumption of approximately 4,330 KWh, is the only SSA country that exceeds the global average.