Energy Regulation in Africa: Dynamics, Challenges, and Opportunities (Advances in African Economic, Social and Political Development) [2024 ed.] 3031526767, 9783031526763

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Advances in African Economic, Social and Political Development

Ishmael Ackah Charly Gatete   Editors

Energy Regulation in Africa Dynamics, Challenges, and Opportunities

Advances in African Economic, Social and Political Development Series Editors Diery Seck, CREPOL—Center for Research on Political Economy, Dakar Yoff, Senegal Juliet U. Elu, Morehouse College, Atlanta, GA, USA Yaw Nyarko, New York University, New York, NY, USA

Africa is emerging as a rapidly growing region, still facing major challenges, but with a potential for significant progress – a transformation that necessitates vigorous efforts in research and policy thinking. This book series focuses on three intricately related key aspects of modern-day Africa: economic, social and political development. Making use of recent theoretical and empirical advances, the series aims to provide fresh answers to Africa’s development challenges. All the socio-political dimensions of today’s Africa are incorporated as they unfold and new policy options are presented. The series aims to provide a broad and interactive forum of science at work for policymaking and to bring together African and international researchers and experts. The series welcomes monographs and contributed volumes for an academic and professional audience, as well as tightly edited conference proceedings. Relevant topics include, but are not limited to, economic policy and trade, regional integration, labor market policies, demographic development, social issues, political economy and political systems, and environmental and energy issues. All titles in the series are peer-reviewed. The book series is indexed in SCOPUS.

Ishmael Ackah · Charly Gatete Editors

Energy Regulation in Africa Dynamics, Challenges, and Opportunities

Editors Ishmael Ackah Public Utilities Regulatory Commission Accra, Ghana

Charly Gatete ECOWAS Regional Electricity Regulatory Authority Accra, Ghana

ISSN 2198-7262 ISSN 2198-7270 (electronic) Advances in African Economic, Social and Political Development ISBN 978-3-031-52676-3 ISBN 978-3-031-52677-0 (eBook) https://doi.org/10.1007/978-3-031-52677-0 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Paper in this product is recyclable.

From Ishmael to: My wife, Sarah, my mum Lucy, And my children Leslie, Afia, and Fiifi. From Charly: To my wife, Josiane and my children: Charbel and Bishoy

Regulation should be inclusive and should facilitate development. Africa’s Energy issues require regulators who are both innovative and can contextualise traditional and emerging practices into sustainable local solutions. This will help the continent achieve its SDG goals and end energy poverty. This book throws more light on these dynamics. Dr. Matthew Opoku Prempeh Energy Minister, Republic of Ghana

Foreword

Dear readers, African countries face major challenges and can also seize significant opportunities as they develop their energy sectors over the next decade and beyond. Many of these challenges and opportunities are common to other countries at all levels of development. Others, however, are unique to African countries, particularly those in sub-Saharan Africa. These include the abundance and under-utilisation of natural resources such as solar, biomass and hydropower, the opportunity to select the best approach to the massive electrification and industrialisation of the countries, the increasing presence of independent generation of electricity and distributed energy resources, and the commitment to contribute to mitigate climate change, but also the significant lack of access to electricity or clean cooking fuels, the need for massive off-grid electrification, the poor financial and technical performance of distribution companies, an underdeveloped transmission system and cross-border interconnections—unable to balance the surpluses and deficits of neighbouring countries—with a general lack of private investment in grid infrastructure, electricity tariffs below cost, huge technical and commercial distribution losses, the demographic explosion, the strong urbanisation process, and the low affordability of a large part of the African population, among others. Regulation is an important factor in determining the behaviour of actors in the energy sector. At present, most of the existing regulations in African countries is still largely anchored in a business-as-usual mindset that is woefully inadequate to deal with the challenges and opportunities that have just been described. Unfortunately, it is not just a matter of copying and pasting international best practices, as the specific characteristics of the energy sector in each African country require serious work of regulatory innovation and adaptation. The main merit of this book is that it opens Pandora’s box and asks frankly what the regulatory answers should be to many of the present and future challenges and opportunities of the African energy sector. The book is written by a large group of mostly African professionals currently working in energy regulation. It begins with a historical review of the evolution of energy regulation in Africa, with a focus on

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the political economy of regulatory reform, perhaps the dominant factor in determining the regulatory make-up of many African countries. The book then covers many of the key issues identified earlier: regional trade and power pools; reconciling industrialization and universal access with climate change mitigation; the role of natural gas as a transition fuel and how regulation can help; gender discrimination in energy companies and even in regulation; plausible pathways to universal energy access; energy regulation in times of crisis such as COVID-19; the impact of noncost-reflective tariffs; the role of the media in reporting on climate change; or the impact of fossil fuel subsidies on the electricity generation mix. Other topics will have to wait for a second or third book by this or a similar group of authors. This book is necessary and opens the door to an open discussion on regulatory development, reform, and innovation in the energy sector. Its aim happily overlaps with that of the African School of Regulation: to harness the powerful influence of policy and regulation in the overlapping areas of energy and climate change by building the human capital that the African energy sector needs to enable the achievement of Agenda 2063 goals for sustainable development on the continent. Prof. Ignacio Perez-Arriaga Interim Director of the African School of Regulation (ASR) Professor and Director of Energy Training Florence School of Regulation (FSR) European University Institute Florence, Italy MIT Energy Initiative and Center for Energy and Environmental Policy Research (CEEPR) Cambridge, USA Instituto de Investigacion Tecnologica (IIT) Universidad Pontificia Comillas Madrid, Spain

Acknowledgements

We wish to thank God, the ever-merciful and ever-gracious. We thank the management and staff of the ECOWAS Regional Electricity Regulatory Authority and the Public Utilities Regulatory Commission.

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About This Book

This book analyses the political economy governing energy regulation across the African continent. Presenting case studies that span diverse energy sectors and countries, it provides an overview of their complex political and regulatory frameworks. The book explores emerging technologies and energy markets, highlighting Africa’s preparedness for the energy transition, and sheds light on the pivotal role of cross-border energy trade with regard to energy access. Further, it examines regulators’ influence within regional power pools, as well as their contribution to gender mainstreaming in the energy sector, addressing vital social issues. This book is divided into five parts, the first of which focuses on the political economy of energy regulation. The second part discusses emerging technologies and climate change issues, while the third examines regional energy markets and regional institutional collaboration. The fourth part features contributions on gender mainstreaming, while part five rounds up the coverage. The book will be of interest to policymakers and investors in Africa, as well as scholars interested in energy regulation and economics.

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Contents

Political Economy of Energy Regulation in Africa The Dynamics of Energy Regulation in Africa . . . . . . . . . . . . . . . . . . . . . . . . Ishmael Ackah and Charly Gatete Africa’s Transition to Cleaner Energy: Regulatory Imperatives and Governance Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sidique Gawusu and Abubakari Ahmed The Political Economy of Electricity Sector Regulation in Africa: A Comparative Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Crispin Bobio, Ishmael Ackah, Dramani Bukari, John A. Jinapor, and Vida Aba Essuman The Political Economy of the Next Wave of Power Sector Reforms in Africa: Evidence from Zimbabwe, Kenya and Namibia . . . . . . . . . . . . . Christine Juta

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Legal and Regulatory Pathways for Sub-Saharan Africa’s Energy Access and Energy Transition Agenda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 Ivie Ehanmo and Oghosa Erhahon Policy Framework and Regulations to Promote Clean Energy and Renewable Energy Transition in ECOWAS Countries . . . . . . . . . . . . . 131 Charly Gatete and Haliru Dikko Effective Regulation and the Energy Transition in Zambia . . . . . . . . . . . . 151 Naa Adjekai Adjei The Rationale of Economic Regulations: Theoretical Review . . . . . . . . . . 169 Haliru Dikko Power Sector Regulation in Africa in an Energy Transition Era . . . . . . . . 185 Pauline Anaman, Jennifer Boca, Tenele Habangaan, and Akua Chrappah Ayippey

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The Role and Challenges of Energy Regulators in Africa’s Energy Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 Benjamin Ashitey Armah Regulating Public Utilities Within a Crisis Situation in Africa . . . . . . . . . 219 Etutu Mawondo Shalman The Electricity Tariff and Utility Performance: Evidence from Ghana, Uganda, and Namibia Electricity Market . . . . . . . . . . . . . . . . 235 Jeffrey Kenneth Baiden Regional Electricity Markets Development Major Challenges in Africa in the Development of Competitive Electricity Markets. An Analysis of the ECOWAS Regional Electricity Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257 Charly Gatete, Nutifafa Fiasorgbor, Mina Antwi-Yeboah, and Adeoti Adedoyin Regional Power Trade in Africa: The Different Institutional and Regulatory Models of African Power Pools . . . . . . . . . . . . . . . . . . . . . . . 283 Mohamed A. Eltahir Elabbas An Outlook on a Future-Proof Regulated Cross-Border Electricity Market in Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 Oghosa Erhahon, Musiliu Oseni, and Ivie Ehanmo Cross-Border Power Trading Model for SSA; Challenges and Opportunities of Operationalizing Power Pools in Africa . . . . . . . . . . 337 Ishmael Ackah, Eric Kyem, Crispin Bobio, and Albert Okanto Ohene Competitiveness and Sustainability of Electricity Markets in the ECOWAS Region: Evolution of Reforms, Regulations Challenges, and Markets Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361 Charly Gatete Emerging Technologies and the Energy Transition Energy-Related Climate Change Reportage in Africa: Has the Media Gotten It Right? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397 Maame Esi Eshun, Israel Amenfia, and Ishmael Ackah Effect of Fossil Fuel Subsidies on Renewable Energy Transition in Sub-Saharan African Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429 Souleymane Diallo, Youmanli Ouoba, and Charly Gatete

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The Gains and Pains of the Energy Transition: A Perspective on Sub-Saharan Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453 Ishmael Ackah, Rexford Kweku Asiama, Albert Okanto Ohene, Vida Aba Essuman, Maame Esi Eshun, Charles Owusu, and Patrick Nyarko Willingness to Change to Electric Cars: Is the Ghanaian Consumer Ready? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473 Ishmael Ackah, Ibrahim Mohammed, Albert Okanto Ohene, Rexford Kweku Asiama, Alhassan Atta-Quayson, and Theophilus Adoko Economic Power and the Transition to Renewables in South Africa . . . . 491 Sumayya Goga An Analysis of the Implications of Imported Clean Cooking Technologies. Implications for Policy Development in Ghana . . . . . . . . . . 509 Crispin Bobio, Dramani Bukari, Eric Zunuo Banye, Ishmael Ackah, and Sarah Anang Natural Gas as a Transition Fuel; Domestic Natural Gas Production and Energy Security in Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . 531 Paul Minsung Gyeng, Shafic Suleman, and Francis Xavier Tuokuu Gender Mainstreaming in the Energy Sector Putting Gender on the Corporate Agenda in Ghana’s Oil and Gas Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553 Phil Faanu and Emmanuel Graham The Impact of Gender, Culture, and Other African Traits in Cooperating with Energy Regulators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 579 Dominic Kwesi Eduah Imperatives for Gender Mainstreaming in Energy Sector Regulation in Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593 Ifeyinwa Ikeonu Concluding Chapter Concluding Thoughts—The Future of Energy Regulation in Africa . . . . 617 Charly Gatete, Ishmael Ackah, and Harrison Edifor

Editors and Contributors

About the Editors Ishmael Ackah is the Executive Secretary of Ghana’s Public Utilities Regulatory Commission (PURC). He chairs the Legal and Regulatory Committee of the Electricity Market Oversight Panel. He worked with the United States Agency for International Development (USAID) West Africa Energy Program, Deloitte, the Energy Commission, Ghana, and the Africa Centre for Energy Policy. He is an Adjunct Lecturer at the University of Ghana Law School, GIMPA, and the University of Cape Coast. As a researcher, he has consulted for the AfDB, NRGI, SNV, UN, DFID/ GOGIG, and Energy for Growth Hub among others. He holds a Ph.D. in Energy Economics from the University of Portsmouth-UK, an M.Sc. from University of Surrey, UK, and a bachelor’s from University of Professional Studies, Ghana. Charly Gatete is a seasoned energy economist, who holds a Ph.D. in Energy Economics from the University of Paris Sarclay (France) and another in Energy from 2iE (Burkina Faso). He is an economist expert at ECOWAS Regional Electricity Regulatory Authority (ERERA), contributing to economic regulation ECOWAS’s Regional Electricity Market. Previously, he managed some renewable energy projects in Africa, was an energy expert for UNDP, UNITAR, and assistant professor and researcher at Thomas Sankara University, 2iE, and CIRAD.

Contributors Ishmael Ackah Public Utilities Regulatory Commission (PURC), Accra, Ghana Adeoti Adedoyin ECOWAS Regional Electricity Regulatory Authority (ERERA), Accra, Ghana

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Naa Adjekai Adjei University of Cape Town, Graduate School of Business, Cape Town, South Africa Theophilus Adoko Mining and Mineral Policy, Africa Centre for Energy Policy, Accra, Ghana Abubakari Ahmed Department of Urban Design and Infrastructure Studies, Faculty of Planning and Land Management, SD Dombo University of Business and Integrated Development Studies, Bamahu-Wa, Ghana Israel Amenfia Public Utilities Regulatory Commission, Accra, Ghana Pauline Anaman AB & David Africa, Accra, Ghana Sarah Anang University of Kent, Kent, UK Mina Antwi-Yeboah ECOWAS Regional Electricity Regulatory Authority (ERERA), Accra, Ghana Benjamin Ashitey Armah Strategy, Super Cargo Logistics, Tema New Town, Ghana Rexford Kweku Asiama Department of Sustainable Energy and Resources, University of Environment and Sustainable Development, Somanya, Ghana Alhassan Atta-Quayson Department of Economics, University of Education, Winneba, Ghana Akua Chrappah Ayippey AB & David Africa, Accra, Ghana Jeffrey Kenneth Baiden Markets, Volta River Authority, Accra, Ghana Eric Zunuo Banye United Nations Industrial Development Organization, Accra, Ghana Crispin Bobio Public Utilities Regulatory Commission, Accra, Ghana Jennifer Boca JBOCA Associates Limited, Cambridge, England Dramani Bukari Kwame Nkrumah University of Science and Technology, Kumasi, Ghana Souleymane Diallo Norbert Zongo University, Koudougou, Burkina Faso Haliru Dikko ECOWAS Regional Electricity Regulatory Authority (ERERA), Energy Commission Building, Accra, Ghana Harrison Edifor Bui Power Authority, Accra, Ghana Dominic Kwesi Eduah GNPC Foundation, Takoradi, Ghana Ivie Ehanmo Electricity Lawyer and, Centre for Energy, Petroleum and Mineral Law & Policy, University of Dundee, Scotland, UK

Editors and Contributors

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Mohamed A. Eltahir Elabbas Institute for Research in Technology (IIT), ICAI School of Engineering, Comillas Pontifical, Madrid, Spain Oghosa Erhahon Sustainability and Energy Consultant, Abuja, Nigeria Maame Esi Eshun Public Utilities Regulatory Commission, Accra, Ghana Vida Aba Essuman Chief Executive’s Secretariat, Meinergy Technology Limited, Accra, Ghana Phil Faanu McMaster University, Hamilton, Canada Nutifafa Fiasorgbor ECOWAS (ERERA), Accra, Ghana

Regional

Electricity

Regulatory

Authority

Charly Gatete ECOWAS Regional Electricity Regulatory Authority (ERERA)/ Economics Department, Accra, Ghana Sidique Gawusu Whiting School of Engineering, Johns Hopkins University, Baltimore, MD, USA Sumayya Goga Centre for Competition, Regulation and Economic Development (CCRED), University of Johannesburg, Johannesburg, South Africa Emmanuel Graham Department of Political Science, York University, Toronto, Canada Paul Minsung Gyeng ENI, Ghana and Ghana Institute of Management and Public Administration, Accra, Ghana Tenele Habangaan Eswatini Electricity Company, Mbabane, Eswatini Ifeyinwa Ikeonu Energy Policy, Markets, and Regulation Consultant, Abuja, Nigeria John A. Jinapor Stellenbosch University, Stellenbosch, South Africa Christine Juta Graduate School of Business, University of Cape Town, Cape Town, South Africa Eric Kyem PURC, Accra, Ghana Ibrahim Mohammed Accra, Ghana; Research and Consultancy, University of Professional Studies, Accra, Ghana Patrick Nyarko Petroleum Hub Development Corporation, Accra, Ghana Albert Okanto Ohene Electricity Company of Ghana Limited, Accra, Ghana Musiliu Oseni Market Competition and Rates, Nigerian Electricity Regulatory Commission (NERC), Abuja, Nigeria Youmanli Ouoba Thomas Sankara University, Saaba, Burkina Faso Charles Owusu Petroleum Hub Development Corporation, Accra, Ghana

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Etutu Mawondo Shalman Electricity Sector Regulatory Agency, Yaoundés, Cameroon Shafic Suleman Institute for Oil and Gas Studies, University of Cape Coast, Cape Coast, Ghana Francis Xavier Tuokuu Mercy Corps, Washington, D.C., USA

Political Economy of Energy Regulation in Africa

The Dynamics of Energy Regulation in Africa Ishmael Ackah and Charly Gatete

1 Background The goal of continental, regional and individual country governments in Africa is to enhance access to sustainable and modern sources of energy at competitive prices. Clearly, Africa’s energy situation can be likened to the paradox of plenty. With abundant sources of both renewable and other sources of energy, it appears relatively strange to see Africa’s energy access rate of less than 60%. According to Othieno and Awange (2016), this low access rate has major socio-economic implications for the continent. In order to address the energy access challenges, different reforms and activities geared towards enhancing private sector investments, unbundling transmission, establishing independent regulatory institutions, and improving the efficiency and financial viability of distribution utilities have been implemented since the 1990s. While some of these reforms were externally driven by the World Bank, IMF and other development partners, in some cases, countries have adopted new measures and implemented policies due to changes in their own circumstances such as power crises, a new national vision or regional or continental protocols. A prominent feature of these reforms is the emergence of regulatory institutions (Stern, 2000). Regulations are vital for the efficient performance of the energy sector. Indeed, Asantewaa et al. (2022) document several reasons for the regulation of the electricity sector. First, since the sector has natural monopoly characteristics, the market is not an optimal mechanism to achieve efficient outcomes. This is supported by Joskow and Tirole (2007) who stipulated that regulations guide economic activities. In addition, effective regulations are a pre-requisite for sector reforms. Finally, I. Ackah (B) Public Utilities Regulatory Commission, Accra, Ghana e-mail: [email protected] C. Gatete ECOWAS Regional Electricity Regulatory Authority, Accra, Ghana © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_1

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the regulator, if probably established and credible, balances the interest of stakeholders and gives confidence to both the investor and the consumer. The establishment of independent regulatory institutions is a signal that absolute state funding and control of the sector is coming to an end. Most African countries are setting up independent regulatory institutions and are witnessing an increased private capital, especially in generation. According to Hawdon (2003), such regulatory reforms improve sector competitiveness and economic performance. Clearly, regulations facilitate efficiency, encourage private sector participation and enhance energy access (Spiller, 1996; Pearce, 2006; Ackah et al., 2020). Despite its advantages, Hosoe (2006) argued that regulations, if not properly designed and implemented, can distort the market. This can happen when regulations are not predictable and have a high level of political interference (Kapika & Eberhard, 2013). The politicization of regulatory institutions and processes has a negative effect on private sector participation (Imam et al., 2019). In order for a regulatory institution to achieve its goals, it has to be fair, firm, transparent and accountable (Eberhard et al., 2016, Asantewaa et al., 2023). African regulators deal with several issues. First is the issue of inefficiencies and high losses of many distribution utilities across the continent. According to a World Bank study in 2016, only two utilities were identified to be financially viable on the continent. These inefficiencies negatively affect the ability of utilities to provide services in a sustainable and reliable manner. In order to deal with these losses, most regulators set high loss benchmarks for these utilities. Unfortunately, in all cases, customers pay for these losses through tariffs, taxes or reduced quality of service. For instance, Ghana has set a distribution loss benchmark of 21.4% while Kenya has set a loss benchmark of 19.9%. These high loss benchmarks burden the consumer and contribute to high tariffs. Second, some regulators on the continent have to deal with the complex issue of balancing the interests and influence of many stakeholders and excessive political interference. Such interference affects the ability of regulators to protect the independence of regulatory decisions as provided in the laws that set these institutions up (Ackah et al., 2021). According to the African Development Bank, 81% of 44 regulatory institutions surveyed by the Electricity Regulatory Index (ERI) lack full independence.1 This affects the regulators’ quest to make firm and optimal decisions. Third, funding has become a major challenge for some regulators on the continent. For instance, the African Development Bank posits that 14% of the regulators surveyed in 2021 on the continent do not have independent sources of funding. This leads to two main challenges. First, relying on government sources of funding can undermine the independence and effectiveness of regulatory institutions. This can happen through delays in disbursement, reduced allocation, or conditional disbursement among others. Second, without reliable and independent sources of funding, regulatory institutions may find it difficult to attract competent staff and build in-house capacity. 1

See Key highlights of the electricity regulatory index FOR AFRICA, 2022. | Africa Energy Portal (africa-energy-portal.org).

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Fourth, the level of political exposure and political influence of the head and Board of the utility is a major risk to effective regulation in Africa. According to Khan (1995)’s political settlement theory, the power relations between state organizations have a major impact on decision-making and implementation in the energy sector. Anecdotal evidence suggests that when the head of the utility and the Board are high-level politicians or are closer to the appointing authority (President/Minister), the regulator finds it difficult to enforce some critical decisions. This especially happens when the regulatory mandate is not strong enough or the regulator lacks adequate independence. These aforementioned regulatory challenges notwithstanding, several policy and regulatory initiatives have been implemented to tackle Africa’s energy issues. These include the ERI, the African Peer Review Learning Network, which is coordinated by the Power Futures Lab, the University of Cape Town, the African School of Regulation and other individual country initiatives. The good news is that there have been significant progress in utility regulation across the continent. Of the 44 regulatory institutions surveyed by the African Development Bank in 2022, 84% of them performed better in regulatory governance.2 The Electricity Regulatory Index (ERI), developed and published by the AfDB assesses the degree of effectiveness of the regulatory frameworks governing the electricity industry among 43 African countries with confirmed regulatory authorities. The ERI, which was first launched in 2018, is made up of three pillars, or sub-indices. 1. The Regulatory Governance Index (RGI) assesses how well the regulatory framework supports electricity sector reform, promotes efficiency and meets desired economic, financial, environmental and social objectives. It is concerned with the existence and content of electricity regulations. 2. The Regulatory Substance Index (RSI) assesses how well the regulatory framework is implemented in practice. 3. The Regulatory Outcome Index (ROI), assesses the outcomes of regulatory processes from the point of view of regulated entities and power consumers, providing insights into how the actions of regulators have affected the performance of the sector. This chapter traces the history and significant factors such as political systems, legal regimes and energy sectors that have shaped Africa’s energy regulatory regime. The chapter will also review the Electricity Regulatory Index published by the African Development Bank to examine the performance of regulators on the continent.

2 Energy Regulation Outcomes in Africa Energy regulation in Africa has contributed to attracting investments, expanding access to energy, promoting renewable energy adoption, fostering gender development, and addressing social issues like education and health. 2

See Slide 1 (africa-energy-portal.org).

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One of the tenets of effective energy regulation is to promote investor confidence and stability by enacting frameworks that provide clear guidelines, transparent processes, and fair competition to foster a conducive investment climate. According to a study conducted by the World Bank (2019), regulatory stability is crucial in attracting investments into the energy sector. Also, the International Renewable Energy Agency (IRENA, 2018) highlights the significance of transparent and consistent policies that align with long-term national energy goals. About tariff structures and cost recovery, the Energy Charter Secretariat (2017) admitted that transparent and predictable tariff structures, accounting for production costs and operational efficiency, are crucial in fostering investment in the sector. To sum it up, the International Energy Agency (IEA, 2020) underscores the benefit of robust legal frameworks and specialised energy dispute resolution mechanisms to facilitate investor confidence and mitigate investment uncertainties. Access to reliable and affordable energy is crucial for driving economic growth, social development and improving African living standards. Well-designed and effectively implemented regulatory frameworks in recent years have contributed to expanding energy access in Africa, particularly in underserved areas. The African Development Bank (AfDB, 2019) underscores the importance of policy implementation, specifically in the areas of rural electrification and renewable energy promotion, to enhance energy access for underserved populations. Also, the International Energy Agency (IEA, 2020) pointed to the significance of promoting public and private sector investments to accelerate energy access. An effective regulatory regime has created the enabling environment that continues to attract investments into the sector by establishing favourable investments policies, providing incentives and facilitating access to financing options leading to the expansion of the network infrastructure. According to a study by the International Renewable Energy Agency (IRENA, 2019), progressive tariff structures and innovative pricing mechanisms are crucial in enhancing affordability and promoting energy access. Renewable energy adoption is another important area African Regulatory regimes have been spearheading. Effective grid integration and infrastructure development are crucial for successfully adopting renewable energy sources. The World Bank (2020) outlined the importance of regulatory frameworks that facilitate grid connection and promote the deployment of smart grids and energy storage systems to support renewable energy integration. Again, energy regulation outcomes through setting feed-in tariffs, net metering policies, and other financial incentives have promoted the economic viability of renewable energy projects. According to the International Energy Agency (IEA, 2019) the importance of well-designed incentive mechanisms to attract investments and drive the transition to clean energy cannot be downplayed in promoting renewable energy adoption. African energy regulatory regimes through intentional policy frameworks have been instrumental in the development of gender, education, health and social cohesion in the energy sector. Policies and regulations have been designed to encourage gender diversity in leadership positions, promote equal opportunities for women in employment and entrepreneurship, and address barriers that hinder women’s participation in the energy workforce. The United Nations Development Programme (UNDP, 2019) asserted the importance of gender-responsive policies to unlock the

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full potential of women in the energy sector and foster social and economic development. Access to reliable energy is vital to improving educational opportunities and outcomes in Africa. Energy regulation in Africa has successfully promoted education by addressing energy accessibility, affordability, and reliability challenges. A study by the International Renewable Energy Agency (IRENA, 2019) concluded that by investing in renewable energy sources, such as solar power, and implementing supportive policies, African countries have made commendable progress in enhancing energy access for educational institutions. In addition, reliable electricity supply enables the operation of medical equipment, refrigeration for vaccines and medicines, and the provision of lighting in healthcare facilities, enhancing the quality and efficiency of healthcare services. The African Development Bank (AfDB, 2020) emphasised that energy access has contributed to improved sanitation, including clean water supply and waste management systems, which are essential for preventing the spread of diseases.

3 ERI and Trace Performance of Regulators Over Time The energy sector in Africa, specifically the electricity sector, has experienced changes since the end of the 90s. Countries implemented reforms for the electricity sector and opened the market liberalisation for private sector participation. Among all the reforms, the flagship measure was setting up a national body to carry out regulatory matters. Since the 90s, national regulatory institutions have been established in many African countries. The chart below shows that the first regulatory institution was established in 1995 in Zambia. One of the recently created regulatory institutions was established in 2022 in Tunisia (Fig. 1). There are three phases of the establishment of regulatory institutions in Africa. • The first phase comprised the pioneering countries that established regulatory institutions in the 1990s. These countries were the first to implement reforms in the sector and to initiate the first regulations in Africa through institutions separate from the services of the ministries in charge of energy or other structures working in regulation. These countries include Ghana and Zambia. • The second phase from 2000 to 2010 is composed of the majority of countries that launched reforms of the electricity sector and established regulatory institutions in the early in the 20 s in connection with international discourses on energy sector liberalisation and with the support of international multilateral institutions. Countries that fall under this phase include Nigeria, South Africa, Benin and Togo. • The third phase started from 2010 comprises countries that established regulatory authorities have been established. These countries include Liberia and Tunisia. The development of a robust regulatory framework, measures, and institutional framework to carry out appropriate regulations to develop a competitive electricity market is essential (Anuta et al., 2014; Lee & Usman, 2018; Mishra & Kumar, 2023;

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Fig. 1 Waves of regulator’s establishment in Africa

Stern & Cubbin, 2005). In this pattern, regulators play a key role in developing the electricity market. The evaluation of regulators on the way they work, the effectiveness of their regulations, or the effectiveness of the regulatory and institutional frameworks contribute to ensuring that regulators and implemented regulations allow the building of a competitive electricity market (Stern & Cubbin, 2005). Institutions such as ACER,3 NARUC4 prepared indicators, guidelines and supports to implement robust regulatory frameworks and institutions. In the African context, the African Development Bank developed and published the Electricity Regulatory Index (ERI) in 2018 to serve as a standard for periodic assessment of the sector’s regulatory environment in African countries. The Electricity Regulatory Index (ERI) is a composite index measuring the level of development of an African country’s electricity regulatory sector based on industry best practices (AfDB, 2018). It is composed of three components:

3 4

European Union Agency for the Cooperation of Energy Regulators. National Association of Regulatory Utility Commissioners.

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– Regulatory Governance Index (RGI): It assesses the level of development of a country’s regulatory and legal framework and the scope at which the laws, procedures, standards, and policies governing the electricity sector provide for a transparent, predictable, and credible regulator up to par with international best practices. – Regulatory Substance Index (RSI): It assesses the extent to which electricity sector regulators carry out their mandate and operationalise the regulatory practices and processes affecting regulatory outcomes. – Regulatory Outcome Index (ROI): from the utility perspective, it assesses the degree to which the electricity sector regulator has a positive or negative impact on the sector. It measures how regulatory action and decisions can achieve the expected results for the sector. RGI and RSI constitute the two main pillars of ERI and assess the effectiveness of the regulatory environment to support electricity sector reforms and electricity markets, promote efficiency and fulfil national objectives (AfDB, 2022). The ERI report refers to three questions to evaluate regulators’ performance and outcomes: • For RGI: How are regulatory authorities established, and how do they implement the regulatory tools and processes provided by law? • For RSI: Does the regulator take the regulatory actions and decisions required, as dictated by its mandate? • For ROI: Do regulators have an impact on utilities and the industry as a whole? RGI measures the performance of regulators on the following aspects: the legal mandate, clarity of roles and objectives, independence, accountability, transparency, predictability, participation, and open access to information. It measures the performance of the regulatory system that defines the framework within which the regulator makes decisions. The trend of the RGI in the chart below shows an increase in the average RGI score. The evolution of RGI from 2018 to 2022 shows that the regulatory authorities are more robust and able to establish and implement regulatory tools and processes. The regulators are more robust throughout the year because of the experience gained and competence acquired during the period. The RGI is a crucial sub-indicator of the ERI because it measures one of the key specificities of regulators that affect its performance: independence. Regulator independence defines the degree of the regulator’s financial/budgetary and decisionmaking autonomy, unfettered from the influence of governments, legislature and other stakeholders. RSI measures the level of implementation or enforcement of regulations through the following aspects: economic and technical regulation, licensing frameworks, institutional capacity, renewable energy development, mini-grid and off-grid systems, and energy efficiency.

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Fig. 2 Evolution of RGI, RSI and ROI from 2018 to 2022. Source From AfDB ERI reports 2018 to 2022

The trend of the RSI is increasing. This evolution of RSI from 2018 to 2022 (Fig. 2) shows that the regulatory authorities are making more progress in implementing and enforcing regulations. This has been achieved through improved licensing delivery, transparent tariff setting, the development of institutional capacity through training and implementation of many support programmes from international donors such as The World Bank, the African Development Bank (AfDB), GIZ, USAID, Millenium Challenge Corporation (MCC), etc. ROI is an indirect measure of regulators’ performance from the point of view of utilities and consumers. It measures how the regulator’s actions and decisions impact the utility and, consequently, the sector through measuring financial performance and competitiveness, the quality-of-service delivery, both commercial and technical, and facilitating electricity access. It evaluates the regulator’s role in supporting and monitoring the actions taken by the utility. The ROI trend shows a decrease in regulators’ performances due to poor performance in the Quality of Technical and Commercial Service Delivery, such as continuity of supply (SAIFI,5 SAIDI,6 frequency control and voltage quality; poor Financial Performance, such as high cost of service; operational inefficiencies (e.g. the level of technical and commercial losses and supply reliability); and Competitiveness and Facilitation of Electricity Access by legislative or regulatory instruments to provide electricity connection to a customer. The evolution of ERI from 2018 to 2022 shows a relative decline of the average value of ERI from 2018 to 2021 and an increase for 2022. notwithstanding the rise in regulators participating in the ERI evaluation, this evolution reflects a global decrease in regulators’ performance, explained by the majority of the decrease in ROI (Fig. 2), which reflect an inefficiency of regulator’s measures to fix issues related to the quality-of-service delivery, financial performance and competitiveness, electricity access.

5 6

System Average Interruption Frequency Index. System Average Interruption Duration Index.

1. Legal Mandate 2. Clarity of Roles and Objectives 3. Independence 4. Accountability 5. Transparency of Decisions 6. Participation 7. Predictability 8. Open Access to Information

1. Economic Regulation 2. Technical Regulation 3. Commercial Quality of Electricity 4. Licensing Framework

RGI

RSI

1. Economic Regulation 2. Technical Regulation 3. Commercial Quality of Electricity 4. Licensing Framework

1. Legal Mandate 2. Clarity of Roles and Objectives 3. Independence 4. Accountability 5. Transparency of Decisions 6. Participation 7. Predictability 8. Open Access to Information

Mains indicators of ERI components pillars from 2018 to 2022 ERI 2018 ERI 2019

Economic Regulation Technical Regulation Licensing Framework Institutional Capacity Renewable Energy Development 6. Mini-grid and Off-grid systems 7. Energy Efficiency Development

1. 2. 3. 4. 5.

1. Legal Mandate 2. Clarity of Roles and Objectives 3. Independence 4. Accountability 5. Transparency of Decision 6. Predictability 7. Participation 8. Open Access to Information

ERI 2020

1. Economic regulation, technical regulation 2. Licensing framework, Institutional 3. Capacities, Renewable energy development 4. Mini-grids and off-grid systems, energy 5. Efficiency development

1. Legal mandate 2. Clarity of roles and objectives 3. Independence 4. Transparency 5. Accountability 6. Predictability 7. Participation 8. Free access to information

ERI 2021

(continued)

1. Economic regulation, technical regulation 2. Licensing framework, Institutional 3. Capacities, Renewable energy development 4. Mini-grids and off-grid systems, energy 5. Efficiency development

1. Legal mandate 2. Clarity of roles and objectives 3. Independence 4. Transparency 5. Accountability 6. Predictability 7. Participation 8. Free access to information

ERI 2022

The Dynamics of Energy Regulation in Africa 11

UGANDA TANZANIA KENYA ALGERIA RWANDA

UGANDA NAMIBIA TANZANIA NIGERIA GHANA

TOP 5 countries

1. Financial Performance 2. Commercial Quality 3. Technical Quality 4. Electricity Access

ERI 2019

34

1. Financial Performance 2. Commercial Quality 3. Technical Quality 4. Electricity Access

ERI 2018

Participating Countries 15

ROI

(continued)

UGANDA NAMIBIA TANZANIA ZAMBIA KENYA

34

1. Financial Performance and Competitiveness 2. Quality of Service Delivery (Commercial and Technical) 3. Facilitation of Electricity Access

ERI 2020

ERI 2022

UGANDA KENYA TANZANIA NAMIBIA EGYPT

43

UGANDA EGYPT SENEGAL GHANA KENYA

45

1. Financial 1. Financial performance and performance and competitiveness competitiveness 2. technical and 2. Technical and commercial service commercial service quality quality 3. Access to electricity, 3. Access to electricity, electricity supply, and electricity supply, and billing billing

ERI 2021

12 I. Ackah and C. Gatete

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4 New African Dynamics and Energy Regulations in Africa Africa is facing several challenges on its pathway of development, among them the demographic dynamic and urbanisation, the limited access to energy chiefly in rural areas, the slow pace of industrialisation and the inadequate development of innovative industries linked with ICT, climate change and the protection of the environment, conflicts and supply security, etc. These challenges affect the energy sector and electricity markets. Therefore, it is relevant to consider these challenges in developing regulations.

4.1 Regulatory Challenges in Line with Demographic Dynamics, Urbanisation and Energy Access Since the 1990s, Africa has faced several changes, including demographic, social, environmental and technological changes. One of the most noticeable changes is the demographic change. Africa’s population is increasing rapidly. According to (Cilliers, 2021), 43 million Africans will be born yearly, reaching 53 million annually by 2040 Figs. 3 and 4. By 2077, Africa will constitute 29% of the World’s population (United Nations, 2019). Africa’s population is mainly young. In 2022, 40% of the population will be less than 15 years old, and 56% of this population will be between ages 15 and 64 (working age). This large cohort of the working-age population has the potential to contribute to industrialisation and economic development (Bloom et al., 2014; Sharma, 2016) and contribute to increased energy consumption. Electric connections will be needed to allow energy access to this significant part of the population for households and economic activities (SMEs, for example). The energy sector must respond to this challenge by developing generation, transmission and distribution infrastructures under legal and regulatory framework. This framework should be adapted to the new challenges, allowing, for example, the development of specific infrastructures based on renewable energy (generation plan, IPP, transmission, etc.) or facilitating IPP and off mini-grid development on some isolated or particular areas with regulations dealing with the condition on integration on the mini-grid especially in cases when the grid reaches the region, or conditions of operation of theses IPP in parallel with the utility grid. According to Nguea (2023), the mixed effect of the growing number of cities and high population growth rates has led to an increasing global demand for energy. For economic development, access to modern energy services is fundamental to improving human development, driving economic growth and achieving basic social needs. As a factor of production, energy impacts human development through economic activities and growth, employment opportunities, health, women’s education, safe water and communication services (Acheampong et al., 2021; ENERGIA,

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2018

2019

2020

2021

2022

Fig. 3 Map of the value of the regulatory indicator in Africa for 2018, 2019, 2020, 2021 and 2023. Source From AfDB ERI reports 2018 to 2022

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Fig. 4 The GHG emission by economic sectors. Source (IEA, 2021)

2018; Nguea et al., 2022). Access to modern energy also plays a critical role in the economic performance and the quality of delivery of social services such as education, health care, sanitisation and water (United Nations Development Programme, 2018; World Health Organisation, 2018). Urbanisation is also a key challenge regulators should consider when developing the grid. The United Nations (2019) estimated that more than 4.2 billion people resided in urban areas (more than half of the World’s population) and that this figure will reach 6 billion by 2041. In Africa, according to UN Habitat (2014), the urban population is expected to triple between 2011 and 2050 (from 471 million to 1.34 billion), and more than half the continent’s inhabitants will reside in cities by 2035. Africa’s urban population is expected to comprise 21 per cent of the World’s population by 2050. OECD and UNECA (2022) estimate that between 1990 and 2015, 5,000 new cities emerged in Africa, increasing from 3,300 to more than 7,600, leading to a tripling of the urban population. This galloping urbanisation results in a need for energy and an exponential growth in demand for African cities. Satisfying this growing demand constitutes a challenge in building production and transport infrastructures adapted to needs. Despite the difficulties of utilities in meeting investment needs in their infrastructure, regulatory imperatives also cover the need to create benign business environment to attract private investors and regulations which allow the electricity sector and market to increase their attractiveness.

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Concerning this new dynamic of African demography, urbanisation and the need for new connections, specific new challenges and questions arise for regulators, for example: • What regulations should be implemented to attract more investments in generation and transmission infrastructure to develop the grid to increase energy access, especially in rural areas? • What principles and green regulations can be developed for RE projects and IPP based on RE to allow more of the population access to affordable energy? • Which regulatory measures and instruments are implemented to prevent corruption and open the market for export?

4.2 Regulatory Challenges in Line with the Industrialisation According to Sadorsky (2013), industrialisation refers to the process of introducing and applying new, modern, sophisticated equipment and techniques to produce existing and new goods and services. Industrial activities differ from traditional activities such as agriculture, livestock or manufacturing because they use more energy and are energy intensive. The Climate crisis and the international commitment to sustainable development require a global transition from polluting technologies to green and clean energies. These bring a new requirement for Africa in its trajectory of industrialisation and development (Ackah & Graham, 2021). Indeed, Africa must find the balance between enabling industrialisation and mitigating its climate impact and pollution. This new path of industrialisation and development, recognised as sustainable development, requires the development of new policies with two critical objectives: (i) The deployment of viable renewable energy sources suitable for critical heavy and light industries and improving their production energy efficiency. (ii) The development and adoption of technologies to reduce process GHG emissions from key industrial products, including heavy manufacturing products (such as cement, mining and extractive industries) and some light manufacturing products (e.g. plastics). Most authors assume that industrialisation leads to higher energy usage because higher value-added manufacturing uses more energy than traditional agriculture or basic manufacturing (Anwar et al., 2022; Appiah et al., 2021; Ayinde et al., 2019; Jones, 1989; Liu, 2022; Mentel et al., 2022; Poumanyvong & Kaneko, 2010; Samouilidis & Mitropoulos, 1984; Sheng et al., 2017; Warsame, 2022). They recognise that energy is an engine of Africa’s industrialisation. Energy is used with technology for industrial production activities. It is a driver of sector productivity, competitiveness and accelerated industrialisation. To ensure Africa’s sustainable industrialisation, countries must deploy RE and energy efficiency projects.

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Implementing the objectives cited above is essential in all economic sectors, especially for the Power and transport sectors, responsible in 2017 for around 62% of Global GHG emissions and are the primary consumers of fossil-fuel energy. The government and relevant regulatory authorities must implement appropriate policies and regulatory frameworks to achieve the aforementioned industrialization objectives. Specifically, regulators must implement policies and actions that allow the energy sector to adapt to the needs of industrialisation. This include investment in production infrastructure, transmission and storage, distribution technologies but also, in connection with the climate issue, more clean/renewable energies. In this context of industrialisation, certain challenges and questions arise for regulators: • What regulations should be implemented to attract more production and transmission infrastructure investments? • What regulations should be implemented to attract and promote investments in clean energy and technologies? • Which energy technologies should be chosen to enhance Africa’s energy access, industrialisation and achieve the energy transition goals?

4.3 Regulatory Challenges in Line with Political Stability and Supply Security The current electricity generation and transmission capacities in most African countries still need to be improved to meet the electricity demand sustainably, which is growing faster. Thus, beyond the issues of organisation and governance of the sector, developing the electricity markets requires the development of generation assets, transmission and distribution of electric power, both at the national, regional and continental levels. To ensure the security of the power supply is maintained, the development of these generation and transmission capacities is imperative for the region. That is why the issue of mobilising financing for developing these infrastructures remains crucial for the continent. Africa is one of the continents that has experienced several political instabilities and armed conflicts. This situation is unattractive for investors who need stability and confidence in governance and institutions. In order for regulators and policy makers to implement strong energy sector governance, there should be effective and functioning political, legal, and regulatory frameworks. The World Bank Worldwide Governance Indicator (WGI) shows that African countries have high level of instability as compared to other continents.. This context of uncertainty and instability at the continental and national level affects the attractiveness of investments in economic sectors, particularly in the energy sector, including energy markets. Therefore, this requires regulators and policymakers to put in place regulations and a policy and regulatory frameworks that

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guarantee investors can continue their enterprise/business and profit from their activities despite the deterioration of the business climate. Indeed, investors need to be reassured about the possibility of continuing their investments and making a return on them despite changes in political regime, military coup d’état, ethnic, social, or religious crises, or conflicts. It must be recognised that if the investor is not attracted to the market and is not financially viable, other market participants, including the regulator, may be subject to financial difficulties and, therefore, to financing regulatory activities. Indeed, the low financial viability and liquidity in the energy market negatively affect the ability of the market system operator and the regulator to be financed by the fees derived from the market. The question of financial independence may arise, which has been a challenge for African regulators nowadays. This challenge is critical in the political and economic instability in which some African countries find themselves. In the context of risk linked to political and social instability that can affect the proper functioning of energy markets, regulators must also implement measures and regulations to mimic risks as best as possible. Indeed, according to the OECD (2011), risk management is a regulatory policy issue that is attracting increasing attention. Regulation can reduce the incidence of hazardous events or their severity. Some OECD countries have started to explore how regulatory policies can better reflect the need to assess and manage risks and put institutional structures, guidelines, and procedures in place for this purpose. Regulation is a fundamental tool for managing the risks present in society and the economy (societal risks such as environmental or health risks, as well as market-related risks). Regulation can reduce the incidence of hazardous events or their severity. One of the challenges related to insecurity and instability is ensuring supply security. To ensure that the security of electricity supply is maintained, the development of generation and transmission capacities is imperative. It is why mobilising financing for developing these infrastructures remains crucial for African states. To deal with the political instability and the issue of energy security, regulators are invited to redefine or adjust some regulations and ensure that energy stakeholders have, through an adapted/appropriate regulatory framework, some energy supply guarantee. Under this challenging context, the following questions as examples remain pertinent for regulators: • How can regulators guarantee a secure energy supply through a better, more collective approach and greater regional or continental cooperation? How can we ensure this security of supply while developing electrical interconnections between African countries and opening the national electricity markets to more competition and flexibility? • How can regulators alleviate the global energy crisis and economic challenges through regional cooperation by establishing positive interdependence between countries? • How can we mitigate the risks of regulatory and political instability and assure investors that political and economic fluctuations will not affect their investments or activities?

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• What specific regulation guarantees confidence in the market despite crises and instabilities?

4.4 Regulatory Challenges in Line with African Integration African integration is a long and complex process that began in the 1950s with the creation of the Organization of African Unity (OAU) in May 1963, which became the African Union in 2002. This political process at the continental level has taken place at the same time as sub-regional integration through the creation of regional economic communities such as ECOWAS, SADC, etc. Africa has eight Regional Economic Communities (RECs) (see Table). The African integration strategy is essentially based on the desire of States to pool their resources to support joint development efforts. Following the integration theory, the states have committed themselves to a complete integration of economies, which is articulated around jointly developing and implementing policies and decisions with a view to financial, monetary, economic, and cultural integration, etc. In addition to this process of integration and cooperation with a political dimension between States, they have embarked on a process of integration in many economic sectors such as health, education, energy, etc. At the energy level, the States have cooperated in creating energy pools. Thus, five energy pools have been created as part of or under the initiative of the RECs (Table 1). The African integration dynamic in the energy sector was formalised in 2021 with the initiative to create the Africa Single Electricity Market (AfSEM), which aims to integrate and unify all energy pools towards a single integrated electricity system and a continental electricity market. A challenge there will be how to synchronise all the electrical systems of the continent and what regulations are enforceable in all the RECs to integrate all the electrical systems. Regulation should be applicable in all the power pools relating to frequency control and stability of the system, balancing market, etc. Table 1 Regional economic communities and power pools Regional economic community

Arab Maghreb Southern Union (AMU) African Development Community (SADC)

Economic Community of West African States (ECOWAS)

Economic Community of Central African States (ECCAS)

The Common Market for Eastern and Southern Africa (COMESA)

Power pool

Maghreb Committee for Electricity (COMELEC)

The Southern African Power Pool (SAPP)

The African Power Pool (WAPP)

Central East African African Power Power Pool Pool (CAPP) (EAPP)

Date of creation

1989

1995

2000

2003

2005

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A key element in this challenge is the need for cooperation between all the regulators in the continent, both national and regional regulators. A robust cooperation platform for setting up all relevant regulations to prepare the synchronisation of the African Single Electricity system and the preparation of all the continental market rules is critical for the success of the AfSEM. The elements of communication and cooperation, such as the content for discussion, the language to be used and other communication aspects to facilitate daily cooperation of stakeholders, system operators, regulators and utilities from 54 countries, have to be seriously considered.

5 Conclusion Africa is transforming faster with many changes in its demography, the structure of its economy, urbanisation, industrialisation, economic growth, energy access, and social development. However, it is also facing challenges related to political and economic stability. All these challenges and changes affect the energy sector with precision on generation and transmission infrastructures, energy access and the need for energy for economic activities. The African energy sector has to adjust to these changes, and regulations must align with the new conditions and imperatives. This should lead to the application of practical theories of regulation with a new perspective, an African perspective that considers the current levels of development of our energy sectors and the African specificities. Regulators should be empowered with appropriate legal mandate, financial and administrative independence, and capacity development to perform their functions effectively.

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World Bank. (2022). World Development Indicators (database). https://data.worldbank.org/produc ts/wdi (accessed 12 December 2023).

Ishmael Ackah is the Executive Secretary of Ghanas Public Utilities Regulatory Commission (PURC). He chairs the Legal and Regulatory Committee of the Electricity Market Oversight Panel. He worked with the United States Agency for International Development (USAID) West Africa Energy Program, Deloitte, the Energy Commission, Ghana and the Africa Centre for Energy Policy. Hes an Adjunct Lecturer at University of Ghana Law School, GIMPA and University of Cape Coast. As a researcher, he has consulted for the AfDB, NRGI, SNV, UN, DFID/ GOGIG, Energy for Growth Hub among others. He holds a Ph.D. in Energy Economics from the University of Portsmouth-UK, an MSc. From University of Surrey, UK, and a Bachelors from University of Professional Studies, Ghana. Charly Gatete is a seasoned energy economist, holds a Ph.D. in Energy Economics from the University of Paris Sarclay (France) and another in Energy from 2iE (Burkina Faso). He is an economist expert at ECOWAS Regional Electricity Regulatory Authority (ERERA), contributing to economic regulation ECOWAS’s Regional Electricity Market. Previously, he managed some renewable energy projects in Africa, was an energy expert for UNDP, UNITAR and assistant professor and researcher at Thomas Sankara University, 2iE and CIRAD.

Africa’s Transition to Cleaner Energy: Regulatory Imperatives and Governance Dynamics Sidique Gawusu and Abubakari Ahmed

List of Abbreviations COP21 ACE TAF AFDB BT CBI CSP DEG DES DG ERC FiTs IEA IRENA IoE PPPs PURC PV R&D REFIT

21St Conference of the Parties Africa Clean Energy Technical Assistance Facility African Development Bank Blockchain Technology Climate Bonds Initiative Concentrated Solar Power Distributed Energy Generation Distributed Energy Sources Distributed Generation Energy Regulatory Commission Feed-in Tariffs International Energy agency International Renewable Energy Agency Internet of Energy Public-Private Partnerships Public Utilities Regulatory Commission Photovoltaic Research & Development Renewable Energy Feed-In Tariff

S. Gawusu (B) Whiting School of Engineering, Johns Hopkins University, Baltimore, MD, USA e-mail: [email protected]; [email protected] A. Ahmed Department of Urban Design and Infrastructure Studies, Faculty of Planning and Land Management, SD Dombo University of Business and Integrated Development Studies, Bamahu-Wa, Ghana e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_2

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RELP RPS SDGs REEEP UNFCCC USAID

S. Gawusu and A. Ahmed

Renewable Energy Learning Partnership Renewable Portfolio Standards Sustainable Development Goals Renewable Energy and Energy Efficiency Partnership United Nations Framework Convention on Climate Change United States Agency for International Development

1 Introduction Achieving climate change mitigation and sustainable development are dependent on a rapid and comprehensive clean energy transition. A clean energy transition occurs when there are systematic changes toward energy supply and consumption with a shift toward renewable energy sources making up a larger portion of the energy mix (IRENA, 2022). The confluence of economic development, technological innovation, and policy changes are the primary drivers of the current energy transition (Cherp et al., 2018). More importantly, policies and institutional arrangements for climate mitigation play a significant role in shaping this transition process (Jacobsson & Lauber, 2006; Ram et al., 2022). Despite this, Africa has a large population of individuals who lack access to electricity and resort to using unsustainable forms of fuels (see Fig. 1) (GonzálezEguino, 2015; IEA, 2020; Nussbaumer et al., 2012; Zhao et al., 2022). With the relatively abundant solar, wind, hydro, and geothermal energy resources, most African countries have failed to optimize the full potential of these resources in catalyzing energy transition. While the energy transitions of developed countries have been well-documented (Aldieri et al., 2022; Foxon, 2013; Haas et al., 2011; Hultman et al., 2012; Kim et al., 2022), there has been less focus on the analysis of such transitions in developing countries, particularly in Africa. Meeting the global climate change commitments, such as those outlined in the landmark Paris Agreement, the Kyoto Protocol, and the UN Framework Convention on Climate Change, presents a significant challenge for Africa (Olutola, 2020). While these agreements aim to address rising global temperatures, increase climate resilience, and promote transparency in reporting emissions, the African continent grapples with unique socio-economic and developmental issues. The obligations require nations to set ambitious targets to reduce greenhouse gas emissions, but many African countries, still striving for industrial growth and grappling with poverty, face hurdles in adhering to these mandates (Davidson, 1993). Furthermore, the need for financial and technical support, as recognized in the Paris Agreement, is especially pronounced in Africa. Despite the global consensus on climate action, the continent’s unique challenges underscore the importance of tailored solutions and international cooperation to help African countries meet these critical commitments. The continent’s fast-paced development trajectory means that it will emit more greenhouse gases, and it is unlikely to prioritize climate change mitigation over its developmental

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Fig. 1 Africa electricity generation by source (%), 2019. Source IEA (2023b)

goals. This can be seen from the recent oil and gas discoveries in several African countries and the excitement they generated (IAE, 2019). Despite the risks, fossil fuels are still widely used and favored because they are believed to be more costeffective than renewable energy sources. However, once the externalized risks are considered and a long-term perspective is adopted, the cost advantages of fossil fuels disappear. In this chapter, we look at how technical advancements have aided Africa’s clean energy transition, and we highlight the clean energy technologies that hold the most promise for the continent. We start with a review of the current landscape of clean energy technology adoption in Africa, along with an examination of the obstacles that must be surmounted. The chapter then discusses the potential deployment of these technologies in an African setting. New technologies that have the potential to alter Africa’s renewable energy landscape are also analyzed. Furthermore, we analyze how PPPs have been successful in other locations and how they can be used in the development and implementation of sustainable energy technology in Africa. We also examine the policy and regulatory frameworks that can assist the adoption of renewable energy technologies in Africa and the potential economic rewards of doing so. Future research directions are discussed, as well as the significance of technical innovation in Africa’s clean energy transition. This chapter attempts to contribute to the larger discussion on global efforts to mitigate climate

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change and achieve sustainable development by analyzing the nexus of technology and energy in Africa.

1.1 Current State of Clean Energy Technology Adoption in Africa Africa’s energy demand increases by 3% annually (PwC, 2021). Yet, more than 600 million people in sub-Saharan Africa don’t have access to electricity (IEA, 2020). Also, over, 700 million people in Sub-Saharan Africa still depend on biomass energy for cooking (Du et al., 2021). These unclean energy choices are noted to have negative social, economic, health, and environmental impacts at the household level and global scale (Gasparatos et al., 2017). Adoption of clean energy is reported to have prospects in addressing the multiple negative associated with biomass energy use in Africa (Gasparatos et al., 2017). For clean energy sources, renewable energy is placed high on the international agenda. The adoption of renewable energy technologies in Africa is currently at a crossroads. Only less than 3% of the global renewable energy installed is based in Africa despite the large potential (IRENA & AFDB, 2022). Statistics show that renewable energy generation grew by 7% between 2010 and 2020 with the majority coming from hydropower and solar (PwC, 2021). Nearly 60 million Africans have access to electricity through off-grid renewable energy solutions as shown in Fig. 2. Also, over 700,000 between 2016 and 2019 were connected to solar energy through a mini-grid (IRENA & AFDB, 2022). Increasing adoption is attributed to the high proliferation of off-grid and mini-grid renewable energy solutions under favorable regulatory frameworks that improve affordability (IRENA & AFDB, 2022). This is also largely supported by the active participation of the private sector. In terms of country specifics, Ethiopia, for instance, has constructed several massive hydroelectric facilities, and South Africa is home to one of the world’s largest markets for wind energy. Solar power deployment in Kenya has also seen tremendous growth over the past few years, with projected significant growth potential. In addition, smaller countries like Rwanda and Togo have successfully established off-grid solar schemes, providing power to people previously without it. The off-grid solar markets in East Africa are experiencing steady growth and are reaching even the most remote customers through innovative delivery models that utilize remote payment technologies. Tanzania and Nigeria are examples of countries that are increasing their use of mini-grids as part of their electricity mix (Odarno, 2019).

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Fig. 2 African population served by off-grid renewable power, 2009–2019. Source IRENA (2021a)

1.2 Potential Clean Energy Technologies for Africa Africa has a wealth of renewable energy resources that have yet to be fully exploited. Millions of people in the region have trouble gaining access to electricity, yet the continent is rich in renewable energy sources like solar, wind, hydro, and geothermal power. While coal and other fossil fuels still play a role in Africa’s energy sector, their use is mainly concentrated in South Africa. The rest of the continent has experienced substantial growth in renewables, with non-hydro renewables alone seeing a 250% increase since 2010, according to the 2019 Africa Energy Outlook report. Renewable energy sources, and other decentralized renewables, were responsible for providing electricity access to two-thirds of the total number of people who gained access to electricity in Africa between 2010 and 2015 (Odarno, 2019). The next section highlights the most promising clean energy technologies in Africa and how they might help spur long-term, equitable economic growth.

1.2.1

Solar Energy

Africa’s proximity to the equator and its abundance of dry, bright days makes it an ideal location for solar power generation (IRENA; LBNL, 2015). The continent’s consistent year-round sunshine makes it an excellent site for solar power generation facilities (Mutombo & Numbi, 2019). However, the solar potential in North and South Africa is unparalleled (see Fig. 3). Additionally, the price of solar technology has been steadily dropping in recent years, making it more accessible to countries in the region. To harness solar energy’s potential, most people turn to photovoltaic (PV) systems, which use solar energy to generate electricity. Another method of harnessing the

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power of the sun to create energy is through concentrated solar power (CSP) plants, which employ mirrors or lenses to concentrate sunlight on a tiny area. Africa is home to several thriving solar energy initiatives. One of the largest CSP projects in the world, the Noor Ouarzazate Solar Complex in Morocco powers over a million homes with sustainable energy. According to (Abdelrazik et al., 2022), the German Aerospace Centre, a top authority on renewable energy engineering, has stated that a solar farm covering only 0.3% of North Africa would be sufficient to fulfill the entire electricity consumption of the European Union, which is twice as much as Africa’s consumption. (Adenle, 2020) also estimates that South Africa’s solar photovoltaic and concentrating solar power potentials are respectively 43,275 and 42,243 TWh/year. According to (Ayodele & Munda, 2019), many areas in South Africa are likely to experience over 2500 h of sunshine per year, with an average solar irradiation of 220 W/m2 .

1.2.2

Wind Energy

One additional sustainable energy alternative with great potential for Africa is wind power. Electricity may be generated from the continent’s massive wind resources. Most wind power comes from either onshore or offshore wind turbines. Several wind energy projects in Africa have been completed (see Kazimierczuk, 2019). The Tarfaya Wind Farm in Morocco is the largest in Africa, with a capacity of 301 MW (El Hadri et al., 2019). The Ashegoda Wind Power Plant in Ethiopia is another example of a successful clean energy project in Africa. It has a capacity of 120 MW (Gebreslassie, 2020). Another prominent example of a successful sustainable energy project in Africa is the Lake Turkana Wind Power project in Kenya, which consists of a 310 MW wind farm and a 400 km transmission line (Simberg-Koulumies, 2023).

1.2.3

Hydro Energy

For Africa, hydropower offers a clean, affordable alternative. The continent’s plentiful water resources make it a prime location for hydroelectric power plants. The two most common forms of hydro energy generation are run-of-river and pumped-storage hydroelectricity. Africa is home to a number of thriving hydropower initiatives. The Inga III hydroelectric project in the Democratic Republic of the Congo is one of the largest hydro energy projects in the world, with a potential capacity of 11,050 MW (Oyewo et al., 2018; Warner et al., 2019). Another example of a successful renewable energy project in Africa is the Grand Renaissance Dam, which can generate 6,450 MW (Eldardiry & Hossain, 2021).

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Geothermal Energy

For African countries that have access to geothermal resources, geothermal energy is a promising clean energy technology. The earth’s internal heat is harnessed by geothermal power plants to provide usable electricity. Most geothermal power plants use either flash steam or binary cycle technology. The Olkaria Geothermal Power Station in Kenya is the largest geothermal power station in Africa (Tole, 1996). It has a capacity of 280 MW. In Kenya, geothermal energy now contributes about one-third of the country’s total generation capacity (Odarno, 2019). The Aluto-Langano Geothermal Power Plant in Ethiopia is another example of a successful clean energy project in Africa. It has a capacity of 70 MW (Alemayehu & Bogale, 2018; Samrock et al., 2015). These renewable energy sources hold the most promise for Africa. By making clean, affordable energy available, these technologies may help Africa’s economy grow in a way that benefits everyone (Abanda et al., 2012; Ben Aïssa et al., 2014; Eggoh et al., 2011; Kahsai et al., 2012; Kebede et al., 2010; Wolde-Rufael, 2006). Table 1 outlines a summary of renewable investments across Africa. Table 1 Summary of renewables investment in Africa (2010–2020) Region

Total

Notes on regional distribution

Distribution by technology

Southern Africa

$22.4 billion

South Africa accounted for 85% of the investment

Solar (PV and thermal): 60% Wind: 35% Other: 5%

North Africa

$17.5 billion

Morocco and Egypt received the bulk of the investment

Solar (PV and thermal): 68% Wind: 32%

East Africa

$9.7 billion

Kenya accounted for 58% of the total investment

Geothermal: 30% Wind: 30% Bioenergy: 20% Solar PV: 12% Small Hydro: 10%

West Africa

$3.9 billion

Distribution was relatively wide, with 21% going to Nigeria

Solar PV: 62% Wind: 16% Biofuels: 12% Small Hydro: 10%

Central Africa

$1.3 billion

Data Source IRENA and AFDB (2022)

Solar PV: 50% Small Hydro: 50%

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1.3 Challenges to Clean Energy Technology Adoption in Africa 1.3.1

Limited Infrastructure

Another challenge is the limited infrastructure and grid connections in many African countries, which makes it difficult to transport and distribute clean energy to rural and remote areas (Anugwom et al., 2020). This also limits the ability to generate enough power to meet the needs of the growing population.

1.3.2

Policy and Regulatory Challenges

Another major obstacle to the widespread implementation of sustainable energy technologies in Africa is the presence of restrictive policies and regulations (KachapululaMudenda et al., 2018). The policy and regulatory frameworks needed to enable the development and deployment of sustainable energy technologies are often lacking in many African countries. Because of this, it may be more challenging to entice the private sector investment necessary to scale up sustainable energy projects. In addition, several countries’ policies still prioritize fossil fuels over renewables, making it harder for clean energy solutions to compete.

1.3.3

Limited Investments and Innovation

One major challenge to clean energy adoption in Africa is the lack of access to financing for renewable energy projects. Many renewable energy projects require a significant upfront investment, and most African countries have limited access to capital markets and financial institutions that can provide long-term loans for these projects. According to the World Economic Forum, Africa received only 2% of global renewable energy investments in the last two decades (Ferroukhi et al., 2022). The cost of implementing sustainable energy solutions is a significant barrier to their widespread use in Africa (Wamukonya, 2007). Because of their higher initial costs, many forms of renewable energy are still out of reach for populations with lower incomes (Anugwom et al., 2020; Koranteng Nkansah et al., 2022; Murshed, 2023). In addition, many African countries lack the financial means to invest in renewable energy technology on the massive scale necessary for widespread adoption. New forms of financing, such as microfinance, impact investment, and green bonds, are required to meet these challenges head-on.

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Lack of Technical Expertise

Many African countries lack the technical expertise needed to design, install, and maintain renewable energy systems. This leads to a reliance on foreign contractors and suppliers, which can be expensive and can also lead to issues with quality control. According to (Lucas et al., 2018), the Renewable Energy Learning Partnership (RELP) data reveals that 40.9% of courses are located in Europe, 33.3% are in North America, 12.2% are in Asia, and just 6.7% are in Latin America, 6.7% are in Africa, and 3.2% are in Oceania. The distribution within each region naturally draws attention to the most productive centers of knowledge. The United States now offers more courses than any other country, with 662 recorded RE courses. Following after with 310 and 186 are the United Kingdom and Germany, respectively. With 104 courses documented, India is the leading emerging country and the fifth-best in the world. Addressing these challenges will require a concerted effort from governments, the private sector, and international organizations to increase investment in renewable energy projects, improve infrastructure, and build technical expertise in the region. For example, innovative financing mechanisms can help to address the affordability challenge by providing access to capital for clean energy projects. Governments and international organizations can also provide financial and technical assistance to support clean energy projects and infrastructure development. In addition, PPPs can help to overcome regulatory and infrastructure challenges by bringing together the expertise and resources of different stakeholders. Investing in the growth of domestic clean energy technology hubs is another viable option. Jobs can be created and reliance on imported technologies and skills can be reduced if African countries can manufacture and install their products and infrastructure. When this is implemented, local communities can have more say in the creation and implementation of technological solutions at lower prices. Further investigation and development of sustainable energy technologies with features that are unique to the African continent are also required. Special challenges, such as sporadic electricity, severe weather, and a lack of familiarity with technological solutions, can be mitigated with this approach. Clean energy solutions that are more cost-effective, efficient, and widely applicable to African countries’ specific energy needs can be developed through increased investment in Research & Development (R&D).

1.4 Emerging Technologies and the Future of Clean Energy in Africa Although there are many barriers to implementing renewable energy technologies in Africa, there are also many new technologies on the horizon with the potential

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to revolutionize the sector. Among these are energy storage, smart grids, and the blockchain (Andoni et al., 2019; Gawusu, Zhang, et al., 2022a, 2022b).

1.4.1

Energy Storage

The intermittent nature of power generation from renewables like solar and wind can be mitigated with the use of energy storage technology. Energy storage contributes to a steady and reliable power supply by absorbing surplus energy during times of high production and releasing it during times of low output (Gawusu, Mensah, et al., 2022a, 2022b). Energy storage technologies, such as batteries and pumped hydro storage, can provide a decentralized and adaptable option in Africa, where grid infrastructure is typically unreliable or nonexistent. While energy storage adoption in Africa is still in its early stages, the trajectory is positive. With the right investments, regulatory frameworks, and technological solutions, energy storage can play a significant role in Africa’s energy future.

1.4.2

Blockchain Technology

Blockchain technology (BT) is starting to show promise as a way to speed up Africa’s sustainable energy transformation. Blockchain’s distributed and secure ledger technology makes it possible for individuals to trade energy with one another, while also helping to integrate renewable energy sources into current grids (Lüth et al., 2018; Sousa et al., 2019; Vieira & Zhang, 2021; K. Zhang et al., 2020a, 2020b; Z. Zhang et al., 2020a, 2020b). This has the potential to lower energy prices, boost access to renewable sources of power, and improve market transparency (Andoni et al., 2019; Kirli et al., 2022). The key feature of BT is its ability to provide secure, transparent, and tamperproof transactions (Karame & Capkun, 2018). This is achieved through a network of nodes that validate and verify each transaction, ensuring that no single entity can manipulate the data (Hou et al., 2020). Another important feature of BT is its immutability (Afzal et al., 2022), which means that once a transaction is recorded on the blockchain, it cannot be altered or deleted. This feature enhances the security and reliability of the data stored on the blockchain. Table 2 highlights some blockchain projects in Africa.

1.4.3

Smart Grids

Smart grids are a promising new technology that could hasten Africa’s shift to renewable power sources (Masembe, 2015; Mugyenyi et al., 2021; Welsch et al., 2013). Smart grids use sophisticated sensors and communications systems to improve energy efficiency, cut down on waste, and make the grid more reliable (Hasankhani et al., 2021; Naus et al., 2014). This can improve the viability of renewable energy

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Table 2 Companies/projects in blockchain-enabled energy sector applications in Africa Company/Project

Country

Year launched

Blockchain application

Bankymoon

South Africa 2014

This company lets customers top off their smart meters in real time with Bitcoin

The Sun Exchange

South Africa 2015

This is a solar energy finance platform that combines blockchain technology and cryptocurrency. It allows individuals to buy solar cells and lease them

OneWatt Solar

Nigeria

2018

It utilizes blockchain technology to provide homes with access to renewable energy, especially solar, without the upfront costs of installation. Users monitor energy usage and make payments using tokens on the blockchain

Grid Singularity and the Web Foundation

Global

2016 & 2017

These organizations are working to create an open-source, scalable blockchain platform specifically designed for the energy sector’s regulatory, operational, and market needs. While they operate globally, there’s potential for their solutions to be applied in African contexts

Jirogasy

Madagascar

2017

A start-up that manufactures solar-powered computers in partnership with blockchain projects to ensure traceability of their devices and to create a decentralized, solar-powered computing network

sources like solar and wind by adjusting supply and demand in real time. (Aitzhan & Svetinovic, 2018), highlight the potential for smart grids to transform residential power generation sites into distributed energy trading platforms, including community microgrids, while also monitoring consumption.

1.4.4

Distributed Energy Sources (DES)

These are small-scale renewable energy systems that generate energy locally and independently from the grid, such as solar panels or small hydro, bioenergy, and wind turbines (Benavente et al., 2019; Harish et al., 2022; IEA, 2020). Although the term DES has not been formally defined, it is often used interchangeably with “distributed power,” “distributed generation,” “integrated renewable energy system,” and “hybrid renewable energy system.“ (Juanpera et al., 2020; Li et al., 2021). The adoption of DESs has increased in recent years due to their potential to reduce transmission losses and improve environmental outcomes (Amin et al., 2020; T. Zhang et al., 2018). By bringing energy generation closer to the point of use, DESs transform consumer-centric markets into producer-centric ones. Through DESs,

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microgrids provide a way for decentralized renewable energy sources to participate in regional power markets (Monacchi & Elmenreich, 2016). They are particularly useful in rural areas where the cost of grid extension is prohibitive (Gawusu, Mensah, et al., 2022a, 2022b). Although these new technologies have the potential to drastically alter Africa’s renewable energy environment, their implementation will necessitate heavy financial and policy support. The public sector, non-governmental groups, and the business sector can all contribute to the furtherance and dissemination of such technology. Africa can hasten the transition to clean energy and reap the social, economic, and environmental benefits of a low-carbon energy system by making use of these cuttingedge technologies.

1.5 Role of PPPs in Promoting Clean Energy Technology Innovation The transition to renewable energy sources and eco-friendly urban planning calls for joint efforts from the public and private sectors. PPPs are an important part of the transformation of the energy sector following energy reforms because of how they represent an organizational arrangement for tackling strategic sustainability challenges like lowering carbon emissions (Pinilla-De La Cruz et al., 2022a). These partnerships can be a potent mechanism for fostering new developments in Africa’s clean energy sector (Auth, 2023). However, PPP plans can be restrictive, making it harder to meet the objectives of the energy transition and sustainability goals. The many obstacles to adopting sustainable energy technologies, such as a lack of finance, a lack of technical skills, and regulatory impediments, can be solved with the help of PPPs. PPPs have expanded greatly in importance as a means of facilitating the adoption of greener technology and fostering long-term sustainability (Chen et al., 2019). (Thomas et al., 2018) state that “scalar lenses” (Castán Broto & Baker, 2018; Harrison & Popke, 2018; Smith & High, 2017) are necessary to understand and relate the energy transition across its various settings. Since the energy transition involves both technical reconfigurations and social and economic ramifications, it is important to recognize the phenomenon’s multidimensionality in order to comprehend the necessary transformation in collaboration between players (Smith & High, 2017; Thomas et al., 2018). Circular economy, industrial ecology, ecological economy, and political ecology (Harrison & Popke, 2018; Seager, 2008; Thomas et al., 2018) are some of the concepts that need to be investigated as we make the shift toward creating more sustainable systems for the access and use of energy resources (Sanderink, 2020). Accordingly, it is crucial to recognize the constraints of current systems to incorporate alternate solutions when cooperation in pursuit of the transition is effective (Thomas et al., 2018).

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Figure 4 shows a visual representation of how the five types of hybrid PPPs contribute to the realization of energy transition objectives. Hybrid PPPs come in many forms and take many different tactics, but they all share the common goal of facilitating the energy transition. There are a variety of reasons for the development of hybrid PPPs. For instance, the so-called Type II partnerships emerged as a result of international events like the Johannesburg Conference in 2002 as a means to implement Agenda 21 (Abbott, 2012). Type II partnerships are international alliances that provide financial or regulatory backing to activities that promote sustainable development and energy transition (Sanderink & Nasiritousi, 2020). Africa Clean Energy Technical Assistance Facility (ACE TAF) is an effective PPP in this field. Technical help and support are provided to renewable energy initiatives in Africa, with an emphasis on small-scale and decentralized projects, through this facility, which is supported by the governments of Denmark, the United Kingdom, and the United States. Clean energy initiatives in many African countries have been sped up thanks to ACE TAF’s efforts to pool private sector knowledge with public sector funding.

1.6 Clean Energy Adoption Policies and Regulatory Frameworks in Africa Even though Africa is home to a vast amount of renewable energy potential, the adoption of clean energy in Africa has been slow due to a lack of supportive policies and regulatory frameworks. Adopting new sustainable energy technology in Africa requires strong legislative and regulatory frameworks (Odarno, 2019). Governments may foster the development of the clean energy sector by setting clear incentives and laws that stimulate investment in clean energy infrastructure. Across the African continent, the significance of renewable energy is increasingly being recognized, leading to the implementation of several regulatory instruments. For instance, South Africa launched the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) to bolster private sector involvement in green energy ventures (Eberhard & Naude, 2016). Concurrently, Kenya’s 2019 Energy Act amalgamated various energy directives, thus establishing a holistic legal structure for renewable energy endeavors, inclusive of feed-in tariffs for select energy sources (Wako & Ngumo, 2109). Similarly, Ghana’s proactive stance is evident in its Renewable Energy Act of 2011 (Amoah et al., 2020; Appiah et al., 2022; Atuahene & Sheng, 2023). Both Morocco and Nigeria have also legislated policies No. 13–09 and the National Renewable Energy and Energy Efficiency Policy, respectively—to propel the renewable energy trajectory (Chanchangi et al., 2023). Countries like Tunisia and Uganda have not been left behind, with both nations formulating forward-thinking policies to champion renewable energy (Onyango, 2022). African nations are increasingly setting tangible renewable energy benchmarks. South Africa, for instance, is steering its energy sector with a goal of generating

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17,800 MW from renewable sources by 2030 (Renewable Energy Agency, 2015). Kenya’s aspiration is to harness over 70% of its energy from renewable installations by the end of this decade (Wako & Ngumo, 2109). Both Ethiopia and Nigeria have charted ambitious plans targeting a 65% renewable energy share by 2030 and ensuring that 10% of total energy consumption is derived from renewables by 2025 (Chanchangi et al., 2023), respectively (The World Bank Group, 2019). Meanwhile, Morocco’s strategy underscores a commitment to ensuring that over half of its energy matrix is renewable-based by 2030 (IEA, 2023a). Globally, African countries are active participants in initiatives aimed at championing renewable energy and mitigating climate change. The Paris Agreement, with its emphasis on nationally determined contributions (NDCs), has witnessed numerous African states pledging to enhance their renewable energy portfolios (Munang & Robert, 2016). The African Renewable Energy Initiative (AREI), a continental endeavor, seeks to add a minimum of 10 GW of renewable capacity by 2020 and targets a substantial 300 GW by 2030 (AREI, 2023). Additionally, the United Nations’ Sustainable Energy for All (SE4ALL) initiative resonates with the aspirations of several African nations, who are committed to ensuring ubiquitous energy access by 2030 (Nilsson et al., 2013).

1.6.1

Renewable Energy Feed-In Tariff (REFIT)

REFITs have been implemented in several African countries, including South Africa, Uganda, and Kenya. These policies require utility companies to purchase electricity generated from renewable energy sources at a fixed price, providing an incentive for investors to develop renewable energy projects (Azhgaliyeva & Mishra, 2022). Feed-in Tariffs (FiTs) are a powerful policy instrument for increasing the usage of renewable energy sources. FiTs ensure a minimum price for renewable energy, encouraging investment and bringing down the overall price of this form of energy production (Azhgaliyeva, 2020; Roberts, 2020). Several African countries, including South Africa and Kenya, have used this strategy with great success, and as a result, they have seen substantial investment in the renewable energy sector. Feed-in tariffs have been essential in many governments’ efforts to encourage private investment in the construction of new renewable energy capacity. The literature reveals that many countries with a high share of renewables got there because private investors saw a good opportunity to profit from renewable energy projects. Feed-in tariffs have been shown to increase capacity (Dijkgraaf et al., 2018; García-Álvarez et al., 2017), generation (Azhgaliyeva et al., 2018; Baldwin et al., 2017), innovations (Böhringer et al., 2017), and investments in renewable energy (Azhgaliyeva et al., 2018; Ma et al., 2021). FiTs can be efficient if they are designed properly. According to (Dijkgraaf et al., 2018; García-Álvarez et al., 2017; Ma et al., 2021), FiTs with more policy consistency/predictability, greater tariff rates, longer contract periods, and lower capacity caps have a greater impact on renewable energy. They allow government agencies

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to send a clear message about their long-term policy objectives. The less uncertainty there is for electricity producers about future revenue sources, the more stable the business climate is. According to (Du & Ma, 2022), feed-in premium systems promote the integration of wind energy into the market but discourage and delay investment in solar power technologies. They also suggest that compared to market mechanisms, a fixed-price feed-in policy provides greater investment security for solar power projects. The impact on government finances can be eased if some FITs account for technological progress and gradually decrease. Indeed, subsidy programs like FITs need to be adaptable enough to deal with fluctuating production and technology cost structures. FITs may be phased out and replaced by feedin premiums or other support instruments as technology and markets improve and evolve, encouraging power producers to adapt to new trends and innovations.

1.6.2

Net Metering

Net metering policies allow customers who generate excess electricity from their renewable energy systems to sell it back to the grid (Every et al., 2017; Yamamoto, 2012). African countries have vastly varying net metering policies, and many still lack established net metering regulations. While much work remains, some countries have made strides, and net metering is on the rise in places like Ghana, Rwanda, South Africa, and Tanzania. In South Africa, for instance, the policy of net metering was implemented in 2012 and has proven effective in increasing the prevalence of rooftop solar panels. It was revealed in 2020 that the Public Utilities Regulatory Commission (PURC) of Ghana was working on net metering regulations, and the policy is expected to be put into effect soon (Opoku et al., 2020). Net metering legislation was devised by the Energy Regulatory Commission (ERC) in Kenya, but their implementation is just getting started. In a net metering arrangement, the electric utility or grid company buys the excess electricity When the amount of electricity produced by a home’s PV system is greater than the amount of electricity used by the home, the electric meter will turn backwards under net metering. The net amount of electricity generated by PV is credited to the homeowner’s account at the end of the billing period at a predetermined price, while the net amount of electricity consumed is charged to the homeowner’s account at the standard electricity rate. However, the adoption of rooftop solar systems has been slow in other African countries with net metering policies, such as Egypt, Morocco, and Tunisia, for several reasons. These include a lack of public awareness and education about renewable energy, as well as limited access to financing.

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Renewable Portfolio Standards (RPS)

This refers to regulations that mandate utility companies generate a specific amount of power from greener sources. To encourage the development of renewable energy generation, numerous countries throughout the world have adopted RPS policies. Some African countries have already adopted RPS policies, while others are in the process of doing so. Among the first in the region to implement an RPS legislation, South Africa has set a goal of 10,000 GWh of renewable energy by 2025 (IRENA, 2022; IRENA & AFDB, 2022). Since the country has already met this goal, the government set a new one in 2019: 18,000 GWh of renewable energy by 2030. Morocco is another African country with an RPS strategy and a target of 52% renewable energy by 2030. The country has made great strides toward this goal, with about 35% of its electricity coming from renewable sources by 2021 (IEA, 2023a). Plans to implement RPS policies have also been announced by other African countries including Egypt, Tunisia, and Kenya. However, there are many factors, such as a lack of political will, limited access to financing, and challenges related to grid integration, that have slowed the implementation of these policies in some cases.

1.6.4

Tax Incentives

Governments use tax incentives as a tool of policy to encourage investment in particular sectors or activities by lowering the tax liability of individuals involved. Tax incentives for renewable energy come in many shapes and sizes, including credits, deductions, exemptions, and accelerated depreciation. Several African countries provide preferential tax treatment for renewable energy projects to attract capital for their development. For instance, investments in renewable energy sources can take advantage of accelerated depreciation and tax incentives for R&D in South Africa. Egypt also encourages renewable energy initiatives through reduced tax rates. In Kenya, the government offers a 100% investment deduction for the cost of renewable energy equipment and a 50% investment deduction for the cost of energy-saving equipment for renewable energy projects (Wako & Ngumo, 2109). Similarly, renewable energy projects in Morocco can take advantage of a lower tax rate and an expedited depreciation schedule. Unfortunately, many African countries still lack tax incentives for renewable energy and those that do may be poorly designed or difficult to access.

1.6.5

Green Bonds

Several African countries, including Egypt, Morocco, and Nigeria, have issued green bonds to finance clean energy projects. These bonds are designed to attract capital from international investors and promote the development of renewable energy infrastructure (Kung et al., 2022; Michoud & Hafner, 2021).

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The adoption of clean energy in Africa requires the implementation of supportive policies and regulatory frameworks (Auth, 2023). Governments across the continent are taking steps to create an enabling environment for clean energy adoption, and these policies are expected to accelerate the growth of renewable energy in Africa in the coming years. Figure 5 shows the public investment trends in the renewable energy sector in Africa. Figure 5 Presents access to the grid vs. connection to the grid in selected African countries. The grid infrastructure in many African countries is not sufficient to sustain large-scale renewable energy projects, especially in rural areas. This has resulted in an increased interest in “off-grid” options such as mini-grids and stand-alone solar systems, which may have a higher initial investment but can bring electricity to rural areas that are not expected to be wired into the grid anytime soon. However, even these remedies necessitate some form of infrastructure, such as roads for transit and maintenance, both of which can be absent in many locations. Figure 6 highlights the primary recipient of proceeds from fixed-income securities is renewable energy, followed by energy efficiency and clean transport. As a result, green bonds provide attractive investment opportunities, particularly for larger investors who have expertise in bond markets and are willing to invest in the clean energy sector. Both public and private entities, as well as financial and nonfinancial institutions, including sub-national agencies, national and local governments, development banks, commercial banks, and private entities, can issue green bonds.

Fig. 3 Access to the grid versus connection to the grid in selected African countries, 2019–2020. Source Hee et al. (2022)

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Fig. 4 Articulation of hybrid PPPs to achieve the energy transition. Source Pinilla-De La Cruz et al. (2022)

Fig. 5 Public investment trends on renewable energy. Source IRENA (2021b)

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Fig. 6 Green bonds: Elaboration (Michoud & Hafner, 2021) is based on the 2020 Climate Bonds Initiative (CBI)

To ensure that laws are effective and feasible and that they consider the specifics of the African setting, policymakers should collaborate closely with renewable energy sector players. They must also make sure that regulatory frameworks are clear and consistent so that renewable energy infrastructure can attract investment. Adopting new sustainable energy technologies in Africa requires strong legislative and regulatory frameworks. For the clean energy sector to flourish sustainably and efficiently, governments must provide clear incentives and rules that stimulate investment in clean energy infrastructure. Despite the progress made, there is still a need for further development of policies and regulations that support renewable energy adoption in Africa, as well as scaling up financing to replicate current efforts across the continent. A better understanding of the costs, benefits, and policies involved in both centralized and decentralized renewables is necessary to ensure that they have a significant developmental impact. Additionally, risk perceptions from the private sector hinder the development of innovative clean energy markets, and efforts are needed to build investor confidence in this area. Transparent grid electrification plans and clear regulatory arrangements that outline how decentralized renewables will interface with the central grid can help reduce risk perceptions in the industry.

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IRENA has created an all-encompassing set of policies to shift toward an energy system that emphasizes renewable energy and energy efficiency, as shown in Fig. 10. The framework includes various technological solutions and deployment strategies that can be implemented in the continent’s energy system. Although policies must be customized for specific national and regional situations, taking a comprehensive approach can assist in achieving a variety of social, economic, and environmental objectives.

2 Conclusion In this chapter, we looked at the clean energy landscape in Africa as it stands now, as well as the potential for new technologies to drastically alter that picture. It has also looked at the policy and regulatory frameworks that may be utilized to aid this transition and the opportunities and challenges of promoting the use of clean energy technologies in an African environment. Despite the continent’s many obstacles to the widespread use of clean energy technologies, the continent’s clean energy sector is ripe with potential for new developments and expansion. PPPs can play a crucial role in supporting the development and deployment of emerging technologies like energy storage, smart grids, and blockchain, which have the potential to drastically alter Africa’s clean energy landscape. While the implementation of renewable energy technology in Africa is a priority, governments must work to solve critical difficulties such as price, a lack of infrastructure, and regulatory barriers. This necessitates well-defined incentives and rules for clean energy investors, as well as effective policy and regulatory frameworks that are tailored to the specifics of the African context. Future research into the feasibility of implementing sustainable energy technologies in Africa can go in several fascinating ways. The possibility of alternative finance models, such as community solar, to increase the uptake of sustainable energy technologies is one area that could benefit from further investigation in the future. To foster sustainable and inclusive economic development in Africa, policymakers, entrepreneurs, and academics must continue to innovate and work across sectors to fuel the expansion of the continent’s clean energy sector. Conflict of Interest The authors declare no conflict of interest.

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Dr. Sidique Gawusu an early-career researcher in applied and computational mathematics, specializes in integrating blockchain technology with energy systems. His innovative work focuses on renewable energy, grid management, and energy trading, promising significant advancements in how we generate, distribute, and consume energy. Dr. Abubakari Ahmed is an early-career researcher whose work is centered around the nexus of renewable energy and sustainability. His research has focused primarily on understanding the impacts of renewable energy transitions on biodiversity and local sustainability. Dr. Ahmed received his PhD degree in Japan, where he specialized in Sustainability Science at the United Nations University and the University of Tokyo. His PhD research was centered on the sustainability impacts of biofuels as a renewable energy source in Ghana, using multicriteria analysis. Currently, Dr. Ahmed’s research is focused on the sustainable generation, distribution, and consumption of energy, with a particular emphasis on energy economics, renewable energy markets, and energy trading. However, his focus remains on understanding the sustainability implications of energy generation, distribution, and consumption at various scales. Dr. Ahmed has made significant contributions to the field, publishing his work in reputable journals such as Trends in Ecology and Evolution and Renewable and Sustainable Energy Reviews. He has over 40 publications and has co-edited three books. His work has received over 1448 citations in Google Scholar (h-index 20), 1103 in ResearchGate (h-index 17), and 689 in Scopus (h-index 14). Dr. Ahmed is a recipient of several international awards and grants, including the prestigious Green Talent Award for the best young sustainability scientist by the German government and the Alexander von Humboldt fellowship. He has also been awarded the Social Science Research Council grant and the International Foundation for Science individual grant. In addition, he is a member of the Ghana Institute of Planners.

The Political Economy of Electricity Sector Regulation in Africa: A Comparative Analysis Crispin Bobio, Ishmael Ackah, Dramani Bukari, John A. Jinapor, and Vida Aba Essuman

List of Abbreviations CHP IPPs SBF ESR SSA SDG ESI PURC EC GRIDCO ECG TANESCO ZSFPC IPTL ERA NERSA IRP

Combined heat and power Independent power producers Singapore Business Federation Energy Sector Reforms Sub-Saharan Africa Sustainable Development Goal Electricity Supply Industry Public Utilities Regulatory Commission Energy Commission Ghana Grid Company Electricity Company of Ghana Tanzania Electric Supply Company Zanzibar State Fuel and Power Corporation Independent Power Tanzania Limited Electricity Regulatory Authority National Energy Regulator of South Africa Integrated Resource Plan

C. Bobio (B) · I. Ackah Public Utilities Regulatory Commission, Accra, Ghana e-mail: [email protected] D. Bukari Kwame Nkrumah University of Science and Technology, Kumasi, Ghana J. A. Jinapor Stellenbosch University, Stellenbosch, South Africa V. A. Essuman Meinegy Technology Limited, Accra, Ghana © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_3

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ERB NSE ERC REA GDC KETRACO SEEG MoE EGTC EDSA EWRC MDAs DPs NPA ARSE ANPER CREG AfDB ROI ERI

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Electricity Regulatory Board Nairobi Stock Exchange Energy Regulatory Commission Rural Electrification Authority Geothermal Development Company Kenya Electricity Transmission business Société d’Energie et d’Eau du Gabon Ministry of Energy Electricity Generation and Transmission Company Electricity Distribution and Supply Authority Electricity and Water Regulatory Commission Ministries, Departments and Agencies Development partners National Power Authority Autorité de Regulation du Secteur de l’Energie Agence Nigérienne de Promotion de l’Electrification en milieu Rural Electricity and Gas Regulation Commission African Development Bank Regulatory Outcome Index Electricity Regulatory Index

1 Introduction The electricity sector in Africa is bedeviled with numerous challenges, including low capacity, unsustainable subsidies, poor quality of service, low access rate, and high energy losses (Asantewaa et al., 2022). According to Jamasb et al. (2017), the power sector globally has been subjected to structural reorientations and market reforms in an attempt to meet the growing and changing needs of people as well as the dictates of global dynamics. Bacon and Besant-Jones (2001) opine that, greater section of the OECD and more than 70 developing and transition countries had embarked on measures toward reforming their respective electricity sectors. These reforms were mostly centered on transitioning from a vertically integrated monopolistic stateowned utilities to allow private participation through a competitive and regulated manner (Newbery, 1999; Littlechild, 2000). Reforms in principle and practice is an act in continuum and has become a learning curve for many developing countries particularly in Sub Sahara Africa. Based on the success of electricity sector liberalizations in the United States and the United Kingdom (Yi-chong, 2006), the World Bank began to actively promote significant structural changes in the electricity sectors of developing countries, as part of a broader structural adjustment program (World Bank, 1993a, 1993b). The Bank, in particular, began to encourage private rather than state-provided electricity (Vedavalli, 2007). The World Bank emphasized three prerequisites for power-sector

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transformation in their 1993 seminal report: transparent regulation, more private sector involvement in service provision, and commercialization and corporatization (Kapika & Eberhard, 2013, p. 4). Despite the fact that no country in the region has completed all steps of comprehensive reforms, the reforms have effectively ended the period of state self-regulation of the industry. Instead, Independent Regulatory Agencies (IRAs) were established to regulate, set standards, specify conditions of network interconnection, issue, enforce, or modify licenses, and prevent misuse of dominant market position. SSA countries have struggled to provide efficient and affordable electricity services to businesses and households despite expected performance improvements from regulatory changes (Eberhard et al., 2011) due to low generation capacity and underdeveloped distribution and transmission networks (Ahlborg et al., 2015). The extent to which these reforms have yielded the expected benefits remains heavily contested. Some studies have attributed the failure of the reforms to bad design, erratic regulations, and political interference. In some countries, politicians and policymakers use their influence to stall the implementation, slow the pace of adoption, select only some of the proposed regulatory reforms, or even revert to earlier types of state-led models after reform-attempts have failed to produce the expected or anticipated results. Some literature directed focus on understanding the institutional and political climate in which IRAs operate (e.g., Imam et al., 2019; Pearce, 2006; Nepal and Jamasb, 2012a; Chang and Berdiev, 2011; Eberhard, 2007). Following, IRAs are vulnerable to tampering, particularly in nations with a long history of weak institutions and unpredictable political action. Electricity is considered as a social intervention, an economic tool and a political instrument in most SSA countries, particularly through how rates are sets. Because the region’s reforms did not result in the complete withdrawal of the state from the sector, but rather in the establishment of a system of hybrid electricity sectors with dominant state-owned utilities (Eberhard et al., 2016), there has been a lack of compatibility in these sectors between the governments’ political ideologies and the reforms, which were frequently viewed as a neoliberal agenda (Gore et al., 2018). Over the years, SSA regulators have attempted to balance the economic motivations of private utilities with government social objectives like as extending access to inexpensive electrical services. To further an understanding of these issues, this paper aims to conduct a comparative analysis of power sector reforms across Africa with the view of establishing lessons for future and ongoing reform actions. The paper utilizes the adapted regulation evaluation framework by Kapika and Eberhard (2013) based on Brown et al. (2006). Thus, the assessment of regulatory reforms in each country will cover regulatory governance, regulatory substance, and regulatory impact. Additionally, the paper will, on the basis of available literature and evidence, attempt to establish the extent to which stakeholder influences have helped to impair or advance the course of regulatory reforms in the electricity sector in Africa. The stakeholder groups of interest in this regard will include politicians and government actors, organized labor and consumer groups, donor agencies, and private sector players and independent power producers.

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2 Literature Review 2.1 Structure of Electricity Sector in Africa Africa’s power sector primarily engages in the production, transportation, and sale of electricity to consumers (or electricity and heat in the case of combined heat and power (CHP) plants) as well as transmission and distribution infrastructure. The sector in SSA at best, despite the efforts over the years reforming the sector, remains largely government-owned institutions saddled with the common energy sector challenges including high losses, irregular power supply, low recovery cost, etc. The above challenges, coupled with an evolving climate in terms of technologies and their costs, are spawning a number of “disruptors” in the industry, motivating a move away from conventional generation practices and mixes, modes of business, methods of operations and systems, funding channels and models, as well as the distribution of players and stakeholders, in favor of the implementation of fresh and cutting-edge technologies and dynamics in Africa’s power infrastructure. Utilities, independent power producers (IPPs), transmission system operators and distributors, rural electrification agencies and funds, as well as ministries and regulators (for policy design and policy implementation through regulation, respectively), are important players in the sector or in Africa. The electricity sector in SSA is adapting rapidly to both global trends and regional circumstances. While the current power shortages will be essential in enabling the next phase of Africa’s economic model, supply to date still continues to fall short of demand requirements. It is becoming more and more obvious that the current, centralized monopolies are giving way to unbundled structures and more decentralized power generation methods and models. Ghana, Kenya, Namibia, South Africa, Uganda, and Zimbabwe have all chosen structural reforms through vertical unbundling, which is the process of “unpacking” integrated utilities into distinct generation, transmission, and distribution businesses. Smarter energy systems supporting improved energy management and price structures are linked to changing market structures and dynamics, which are changing the connection between producers and customers, especially given new technological applications. Electricity supply networks, which employ digital communications technology to analyze, identify, and respond to local changes, are rapidly being incorporated into the action plans of African power utilities, including those of Kenya, Nigeria, and South Africa, among others. One of the main advantages of smart grid systems will be maximizing asset utilization and operational efficiency, in addition to other power utility management goals across the SSA region. Regarding revenue management, the majority of SSA nations have embraced a variety of payment options for energy, from the traditional walk-in cash purchases to mobile and Internet payments. Pre-funded metering, for instance, will enhance the country’s power sector’s revenue management system in South Africa. This is also true in regions where off-grid renewable energy projects are being piloted. According to (Conway & Nicoletti, 2006), electricity generation, transmission, distribution, and

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retailing have historically been considered a welfare enhancing effect and thus the province of the state and public sector and hence closed to private investment. In nations where the state dominates the economy, particularly in those where it does, (Victor & Heller, 2007) argue that the historical dominance of the state was mostly due to the belief that providing electricity is one of the fundamental duties of governments. As a result, vertically integrated state-owned utilities controlled the power sector in the majority of nations (Eberhardt et al., 2005). Even in nations with a sizable number of private utilities, such as the United States, government funding was used to develop and build the country’s electrical infrastructure in the 1920s and 1930s, including the Tennessee Valley Authority and the Hoover Dam (Garwood & Tuthill, 1963; Hirsch, 1999).

2.2 Political Economy Analysis SSA, the largest region on the African continent, is home to 34 of the continent’s 54 countries (Jérôme et al., 2008). South of the Saharan desert, the region includes all but a few of the Northern region’s nations. With a 24 million km2 area, SSA accounts for 18% of the entire planet’s surface (Jérôme et al., 2008). According to AntonanzasTorres et al. (2021) SSA is inhabited to around 1.14 billion people, a figure that has been growing tremendously in recent years. According to the International Monetary Fund (2020) 60% of the population is under 25 years old, and 80% of them live in rural areas. While Nigeria and its capital city Lagos rank as the most populated and fastest-growing nations and cities, respectively, in the continent, East Africa and Southern Africa are home to the most and least people, respectively (Shvili, 2021). SSA is regarded as the least competitive region in the world, and only its major economies have a considerable draw for foreign companies. GDP per capita in Africa increased by 0.25% between 2010 and 2019. The drop in the number of households living below the e1.77 per day threshold in SSA throughout that time period is evidence of a decline in poverty. Unluckily, SSA reflects the COVID-19 pandemic’s worst economic effects, leading to an increase in poverty during that time. The GDP grew by 3.1% in 2019, which was a modest comeback from the decline in 2015 (International Monetary Fund, 2020). SSA is divided into several regional economic communities, under which collective goals and strategies are established for a number of industries, including the energy industry. The difficulty of SSA countries extending their national grids to rural regions forces rural settlements, households, and commercial establishments, to rely on outdated energy sources like kerosene lamps and firewood stoves. Diesel generators are occasionally used by homes and businesses (Mai-Moulin et al., 2019, p. 10). About 900 million people use conventional primary energy sources including biomass, coal, and kerosene, and about half of the population of the region lacks access to electricity. Businesses without access to reasonably priced, let alone dependable, power suffer the same issue (IRENA et al., 2021). As of 2019, the rural and urban electrification rates in SSA were 25% and 71%, respectively, which were

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lower than the rates in the least electrified developed countries (Mai-Moulin et al., 2019, p.9). Due to high electricity prices and a reliance on traditional primary energy sources, West Africa’s electrification rate in 2019 was under 50%, 27% in rural areas, and 70% in urban areas (Antonanzas-Torres et al., 2021). In this era of global economic growth, where energy has become a significant contributor toward the achievement of the goals of various government. However, the sector in SSA has over the years suffered the numerous challenges as identified in this paper have glossed over the significant role the political economy plays in driving the growth of the power sector in the subregion. The policy direction, investment requirements that drive the power sector are within the prerogative of the political forces, which have not been given the necessary attention. Despite this enthusiasm, one of the pressing issues that has gotten much less attention is the function of politics. According to (Hughes & Lipscy, 2013) “politics will play a critical role in determining whether these challenges [securing the supply of reliable and affordable energy, and enacting a rapid and just transition to a low-carbon, efficient, and environmentally benign system of energy supply] will be successfully addressed.“ Prior research on energy sector reforms has mostly concentrated on top-down techno-economic solutions and market liberalization. Since Sub-Saharan Africa (SSA) has significant structural deficiencies and ongoing economic difficulties, the region’s electricity sectors are extensively studied. These sectors, which developed from colonial vertically integrated utilities, were generally organized as top-down, state-controlled infrastructure.

2.3 Power Sector Reform Following the alarming state of deplorable electricity sector, manifested by poor service quality, high-level energy losses, low electricity access, etc., the International Development Organizations, which were the traditional sources of funding for infrastructure projects in the 1980’s, indicated that they would only be willing to offer additional assistance if nations reformed their sectors to address the systemic problems causing the ongoing underperformance (World Bank, 1993a, 1993b, 2003a, 2003b). The past decades have seen countries in sub-Saharan Africa make deliberate attempts to implement some reforms within their power sectors. Although most of these reforms varied in nature and by design, the ultimate and common goal is to derive home-efficient electricity supply to meet the growing demand in the sector. These reforms according to (Godinho, 2020) can best be described as market-oriented reforms designed to break the chains of numerous challenges dwarfing its growth. Basically, reforms in the subregion have focused on some main pillars often referred “standard model” of reforms.

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Unbundling of the Power Utilities

The power utilities in most sub-Saharan Africa are faced with the major challenge of keeping the electricity stable for the majority of the fast-growing population while through the various stages of the electricity supply chain. Under very tied fiscal conditions, tariffs not reflecting actual production, high levels of illegal connection, etc., these utilities become non-competitive and efficient. Following the deplorable state of the electricity supply in the subregion, some countries have initiated steps to enhance power supply by reducing the monopolies of state-owned power corporations, particularly by separating utilities into their component elements for generation, transmission, and distribution. This kind of reform is typically intended to entice private sector investment and foster competition, but they may have the unintended consequence of dissolving utilities. A competitive market in generation has the ability to boost the transfer of skills and technology while also lowering costs for construction and operations and maintenance (O&M). To oversee competition and tariff regimes, which are frequently affected by government, an independent regulator is typically established at the same time. In order to encourage least-cost growth decisions, power utility unbundling eliminates conflicts of interest along the value chain and permits competition in competitive parts (such as generating and distribution).

2.3.2

Commercialization of the Power Utilities

Utility organizations in sub-Saharan Africa will certainly benefit from commercialization in a number of ways. The concept of commercialization allows utility organizations to introduce cost recovery techniques which often act as greater incentives for more effective management and operation of the available capacity as well as more effective transmission and distribution. Generally, cost recovery methods are implemented to encourage utilities to implement end-use efficiency initiatives, particularly to cut losses in rural areas where the income earned frequently falls short of the marginal cost of energy provision. Power utilities across Sub-Saharan Africa face financial peril. In nearly all of the electricity market in the subregion, the utilities are unable to fully recover their total costs; only Uganda and Seychelles operate with positive cash flow (Kojima & Trimble, 2016). Chronic insolvency promotes escalating debt and capital shortages, which restrict the initiation of new projects and limit necessary maintenance. Often, commercializing the power utilities is followed by reforms of tariffs that demand the removal of restrictions on electricity prices. Whereas reforms in the developed and rich countries would have led to improvements in efficiency and frequently lower prices, similar reforms in lower-income countries which often necessitate the removal of government-imposed price ceilings, mostly result in higher electricity prices. Following from the principle of cost recovery and more realistic pricing indications employed under commercializing power organizations, they are most often significantly motivated to find the least expensive means and ways to provide

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service to their customers. A utility that is unable to cover its costs would struggle to deliver stable electricity in sufficient quantity. The financial viability of power utilities in the subregion largely depends on the total amount of cost of electricity supply the collected cash cover; the amount of revenue shortfalls reduced should utilities increase their operational efficiency. According to Kojima et al. (2014), cost recovery financial viability can be interpreted using two approaches; the cash needs and full cost recovery. The cash requirement concept considers a utility’s short-term financial sustainability and includes all estimated cash payments to be made by the utility, including cash payments for minor capital expenses, debt obligations, taxes, insurance, and operating and maintenance costs, power purchases, and debt and debt-related charges. It excludes input subsidies, subsidized investments (such as concessional financing), and other forms of subsidies to compensate for costs that utilities are not obliged to fund. The full cost recovery strategy on the other hand accounts for all cash requirements as well as all capital costs, with capital costs and decommissioning costs, when necessary, being calculated using depreciation and the rate of return on invested capital. Long-term financial viability of the utility depends on full cost recovery from consumer payments. However, input subsidies and other sorts of payments for unbilled expenses might not be recorded. The primary distinction between the two strategies is that complete cost recovery covers future investment projects for both capacity growth and significant replacement or upgrading of current capacity. Therefore, the complete cost recovery strategy comprises allowances for future capital expenses and acceptable returns on investment, whereas the cash needs approach just considers known present cash considerations (ibid). Utilities’ revenue may not be sufficient to pay for operational costs (opex), let alone necessary investments (for capacity growth, upgrade, and maintenance). Although the phrase “financial viability” is frequently used in a generic sense without acknowledgment of the distinct levels, it is crucial to emphasize that there are various levels of financial viability. The World Bank developed a simple taxonomy referencing the basic components of capital expenditure; CAPEX and OPEX. As financial viability levels rise, expenses based on commercial principles approach costs where utilities pay all applicable taxes and market-based interest rates, devote enough resources to operations and maintenance, and provide returns on equity capital that are comparable with those in the industry.

2.3.3

Independent Regulation

A major and fundamental component of the Energy Sector Reforms (ESR) includes the establishment of a regulatory body that has independent oversight responsibility over the activities within the sector. Institutional independence refers to the operation of regulatory institutions without the interference from the executive and legislative through regulatory laws designed to keep political authorities at an arm’s length. According to (Asantewaa et al., 2022), the literature on institutional economics serves as the theoretical basis for reforms in the electricity sector. In the history of Energy

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Sector Reforms (ESR), countries use legislative acts to set out the general framework for restructuring, opening the sector up for private sector participation and the establishment of regulatory institutions (Jamasb, Mota, & Newbery, 2005). The governance structure of these institutions is critical in the agenda of energy sector reforms particularly in sub-Saharan Africa where institutions are largely considered weak. According to (Jamasb et al., 2014) institutional factors including the sectorand macro-level legislative and regulatory frameworks have an impact on and set the grounds for the continuation of the reform process. The role of a regulatory oversight and for that matter an autonomous regulator backed by a legislative act indeed becomes inevitable in the ESR. The works of (Pollitt, 2009) underscore the significant of a regulatory body, highlighting the strong correlation that exists between autonomous regulatory institutions and the performance of the sector reforms. The independence of regulatory institutions is measured by the degree of financial and decision-making autonomy it is allowed. Regulatory institutions perform key functions including the setting of adequate tariff levels, which creates the most critical enabling condition for infrastructure reform. Regulatory agencies therefore serve as avenues for the protection of the interest of investor utilities and the consumers. This creates the suitable environment for long-term private capital required to ensure the sector is viable enough for utilities to invest in reliable infrastructure services. Regulatory agencies further play the role of clarifying and allocating property rights, sensibly assuming that private investors would not be subject to regulatory opportunism (Bourguignon et al., 2004). The level of regulatory independence of institutions is assessed by the African Development Bank Group’s Electricity Regulatory Index under four major indicators; independence from government and the legislature; independence from stakeholders and market players, independence in decision making and financial and budgetary independence.

2.3.4

Private Participation in the Sector

The electricity sector in the sub-Saharan African countries is mainly dominated by the various central governments’ participation, which themselves are over-burdened by the numerous competing needs of the country as a whole and are unable to borrow to fund energy infrastructure without risking insolvency. Thus, the required investment to boost the supply of electricity is lagging in most countries. There is a significant lack of electricity in Sub-Saharan Africa (SSA). With a combined population of more than 800 million, the 49 Sub-Saharan African nations in 2014 had less installed producing capacity (92 GW) than Spain (106 GW), a nation with a population of 45 million (Findt et al., 2014; Sieminski, 2014). More power is desperately needed in Sub-Saharan Africa. To do this, private sector investment is essential. Independent Power Projects (IPP) are the fastest-growing sources of power investment in Sub-Saharan Africa, along with projects financed by China. The architecture of the electricity market is of little relevance to IPP investment flows, which are more likely to favor nations with strong capacities for planning, procurement, and contracting as well as high regulatory standards. In a briefing

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note for the Energy for Economic Growth, (Hogarth, n.d) indicated that private participation will not only bring in the much-anticipated investment but also harness the expertise of international energy developers and investors. (Abiodun & Bazilian, 2019) estimates that between 1990 and 2013, a total amount of $45.6 billion was invested in the electricity power sector in the subregion, which amounts to less than a paltry $2 billion per year for the continent. The World Bank estimates that a whopping $800 billion is required for the continent to achieve Sustainable Development Goal (SDG) 7 by 2030.

2.3.5

Regionalizing Electricity Trading

Regionalizing electricity trading is basically a policy measure that seeks to ensure and guarantee energy security while paving way for regional integration. Energy security, according to the IEA, is the uninterrupted availability of energy sources at competitive prices. There are numerous facets to energy security: Long-term energy security primarily entails making timely investments to deliver energy in accordance with the needs of the economy and the environment.1 Generally, energy security is measured by the 4A’s; availability, accessibility, acceptability, and affordability of energy services and most countries are aiming toward this for sustainable development. Africa is blessed with the enormous wealth of energy resources yet the proportion of population without access to electricity in sub-Saharan Africa is on average among the lowest in the world and (Nkiaka et al., 2021) posits that, the region is energy insecure. This is partly as a result of the uneven distribution of these energy resources across the continent. Following, while some countries are well-endowed with hydropower, natural gas, and solar resources that cannot be exploited due to the small size of domestic markets, their neighbor countries are heavily depending on expensive, environmentally disruptive oil-fired and diesel plants. Thus, electricity trade within the subregion is believed to be the panacea to lower energy costs by connecting nearby power systems and pooling energy resources, while also enhancing the region’s power systems’ resilience and dependability. Governments commitment to ensuring energy security in their countries alongside the distribution energy resources within the subregion creates a potential for firm power trade including the sharing of reserve margins, reduction in system expansion costs, etc. In West Africa alone for instance, the World Bank concludes that the regional power market is expected to generate $665 million in economic benefits annually, while also decreasing regional power outages equal to Togo’s whole electricity usage.2 The average cost of producing power in the area would decrease by a third, and the difference in electricity prices between nations would significantly decrease. 1

https://www.iea.org/about/energy-security#:~:text=The%20IEA%20defines%20energy%20secu rity,economic%20developments%20and%20environmental%20needs. 2 https://blogs.worldbank.org/energy/regional-electricity-trade-key-unleashing-west-africaspower.

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2.4 Comparative Case Studies: Algeria, Niger Ghana, Sierra Leone, Kenya, Uganda, South Africa, Tanzania, Gabon, and Chad. Reforms from the onset were intended to introduce structures, rules, and policies that would break up the monopoly of state-owned utilities and give private actors a chance to compete in the market (Jamasb et al., ). Reforms were anticipated to introduce new operational measures by unbundling the conventional, vertically integrated electrical utility, the vertical inequities in the Electricity Supply Industry (ESI). Thus, opening up such segments that might be competitive to new entrants from the private sector would foster and maintain competition in the segments of generating and retailing. The case studies briefly highlight some of the key reforms undertaken in these countries.

2.4.1

Case of Ghana

Power sector reform began in 1994, when the government commissioned research and established a Power Sector Reform Committee. The significant point of the reform was highlighted in 1997 and 1998, when the irregular supply of electricity was very prominent alongside the monopolistic adjustment of tariffs. The fundamental goal of the reform process was to create a competitive environment in order to attract private investment and participation in the ownership and operation of new generating and distribution networks. In 1997, the Public Utilities Regulatory Commission (PURC) and the Energy Commission (EC) were formed as the sector regulators. The PURC is in charge of economic regulation, primarily tariff fixing, whereas the EC is in charge of technical regulation, licensing, and policy guidance. As a result of the significant net financial loss recorded in the country by VRA in 1998, with the severity of the losses growing from year to year (except in 2001), cabinet approved a revamped strategy and five-year plan for electricity sector reform in April 2003. This strategy has led to the birth of Electricity Distribution Company (ECG) for power distribution and Ghana Grid Company (GRIDCO) for power transmission, separate from the electricity generation. Ghana operates a vertically unbundled system with private sector participation.

2.4.2

Case of Tanzania

The electricity sector Tanzania is largely has undergone several reforms including regulatory reforms. According to Tanzanian law, the EWURA Act, Cap. 414, the Energy and Water Utilities Regulatory Authority (EWURA) is an independent, multi-sectoral regulatory body. According to Cap 414 and sector legislation, it is in charge of technical and economic regulation of the power, petroleum, natural gas, and water sectors in Tanzania. Section 30(1) of the Electricity Act, Cap 131 requires

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the Authority to initiate systems and procedures to monitor and measure the performance of licensees. Over the years, the Authority is reported to have exercised its regulatory mandate including promoting customer service by ensuring competition, boosting electricity access, promoting affordability of electricity services particularly in rural areas, etc. Further also, it has undertaken a number of measures that have ensured the promotion of improvements in the operational and economic efficiency of the electricity supply industry while boosting efficiency in the sector. Tanzania Electric Supply Company (TANESCO) is a state-owned company that provides the majority of Tanzania’s power. Vertically integrated, the corporation generates, transmits, and distributes electricity across the country. The Zanzibar State Fuel and Power Corporation (ZSFPC) also buys bulk power from TANESCO. In addition to TANESCO, the grid is fed by two IPPs, Independent Power Tanzania Limited (IPTL) and Songas Limited. There are also a few modest self-generating units. Power imports from Zambia and Uganda supplement local generation capacity by feeding isolated border centers. Following the regulatory decisions and policies implemented over the years, the electricity sector of Tanzania has witnessed some number of achievements including an increase in customer connection by 16.66% between the 2021 and 2022 years alone, while demand for electricity grew by 11.63% within the same period. A 2021/2022 regulatory performance report indicates that, the EWURA, the regulatory organization in an attempt to promote affordability of electricity services, issued close to 1,107 licenses to electrical installation persons to handle electrical installation activities. Additionally, so as to promote least-cost investment and the security of electricity supply, the authority has since issued two licenses to add 12 MW in the national grid installed capacity. More also, the authority between 2017 and 2021 through its reforms led to a 74% increase in customer connection.

2.4.3

The Case of Uganda

As far back in 1933, the government of Uganda introduced the idea of commercialization of the generation, distribution, and supply of electricity in Uganda. By 1948, the Ugandan Electricity Board was established in line with the country’s plans for energy sector reforms. In accordance with reforms within the sector, the Electricity Act, 1999 (Chapter 145 of the Laws of Uganda) provided for the establishment of the Electricity Regulatory Authority (ERA) as a Statutory Body in the year 2000 to oversee the generation, transmission, distribution, sale, export, and import of electrical energy in Uganda. The Act requires ERA to award electricity generation, transmission, distribution, sale, and import licenses, establish license conditions, and monitor licensee compliance. Along with other duties, ERA is required to create a tariff framework and approve fee schedules. In 2022, as part of the country’s electricity sector reforms, the Electricity Act was amended to increase the net metering threshold cap from 100 kW to 5 MW. Additionally, the amendment included the break of monopoly power at the transmission level while introducing very tough penalties for power theft and vandalism of

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electricity properties. The funding for the regulator (ERA) was increased to further deepen its financial independence in executing its regulatory duties. The country has developed independent mechanisms such as specialized courts through which stakeholders of the energy sector may contest the decisions of the regulator. Similarly, with the introduction of the Electricity (Quality of Service Code) Regulations, 2003, it provided some assurances of tariff incentives for reliable electricity supply and incentives for customer service. The Ugandan system can best be described as a vertically unbundled system which only has government participation at the transmission level, all other levels of supply (generation and distribution) are led by private operators. Following from some of these regulatory reforms including the development of strong regulations and instruments, the Ugandan electricity sector has successfully attracted a lot of private sector operators to increase access and quality of electricity supply.

2.4.4

The Case of South Africa

The National Energy Regulator of South Africa (NERSA) is a statutory body established under section 3 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004). The Electricity Regulation Act, 2006 (Act No. 4 of 2006), the Gas Act, 2001 (Act No. 48 of 2001), and the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003) give NERSA the authority to control the electricity, piped-gas, and petroleum pipeline businesses. Despite being the largest power system in the region, the structure of the South African electricity sector is still vertically integrated. Close to 91% of the nation’s gross generation capacity is held by the wholly state-owned utility Eskom, with the other IPPs (7.2%) and 137 municipal power providers (1.8%) holding the remainder. It has 30 active power plants with a nominal generation capacity of 44,172 MW, made up of coal power plants (85.1%), gas power plants (5.6%), hydro power plants (4.7%), nuclear power plants (4.3%), and wind power plants (0.2%). Again, 95 percent of the nation’s transmission network is owned, operated, and maintained by Eskom, while 187 authorized municipal distributors share the distribution network. In July 2002, Eskom changed from being a statutory body to becoming Eskom Holdings Limited, a public business. Due to its reliance on public funding for sector investments, South Africa is only one of the four top achievers which began the implementation of reforms very late. The country was one of the few SSA nations with excess generation capacity in the early phases of reforms, and it still makes investments in new generation capacity today. Massive network investments, including grid extensions and reinforcements, were made in addition to the generation investments as a result of the new postapartheid government’s ambitious electrification agenda. As a result, South Africa is one of the few SSA nations that have both the resources and the motivation to develop in the power sector without using private finance. The country developed the Integrated Resource Plan (IRP) aimed at estimating the electricity demand in the country from 2019 to 2030, how the demand would be supplied and at what

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cost. In addition, the country introduced the new generation regulations which allow municipalities to establish new generation capacity. At the same time, the registration threshold was increased under the country’s tariff regulation. Similar to Tanzania, South Africa operates a vertically integrated system with private sector participation at the generation level.

2.4.5

The Case of Kenya

In Sub-Saharan Africa, Kenya was among the first nations to implement reforms in the power sector that were focused on the market. The extensive reforms have made significant progress, but there are still problems. In 1996, a first wave of reform got under way, melting a five-year funding freeze coordinated by donors. Generation and transmission and distribution were separated, the first two independent power producers (IPPs) started operating under seven-year contracts, and bids for two bigger 20-year IPPs were floated in order to comply with the terms of the new funding arrangements. A separate Electricity Regulatory Board (ERB) was established, the Electric Power Act of 1997 was approved, and tariffs were raised to 75% of long-run marginal cost. In 2002, the second wave of the sector reforms started, led by local leaders with assistance from newly elected President Mwai Kibaki. After the passing of the 2006 Energy Act, the Nairobi Stock Exchange (NSE) approved the initial public selling of 30% of the shares in the Kenya Electricity Generating Company Limited (KenGen), which increased openness and efficiency. In 2007, the Energy Regulatory Board (ERB) became the Energy Regulatory Commission (ERC), giving it more autonomy and power. In the process, the scope of its authority was expanded to cover the control of downstream petroleum operations and renewable energy resources. At the same time, the Energy Tribunal was created to handle appeals and disagreements resulting from ERC judgments. With the creation of the Rural Electrification Authority (REA) in 2007, the Kenya Electricity Transmission business (KETRACO), a different transmission business, and the Geothermal Development Company (GDC), also in 2008, the industry underwent further restructuring. As part of measures to attracting and boosting the confidence of prospective investors in the electricity generation, distribution, and transmission, the country developed guidelines to allow return on equity. At the same time, guidelines for indicative feed-in tariffs were developed to promote the use of renewable energy. The Kenyan system can best be described as a vertically unbundled sector with private sector participation at generation and transmission levels of supply chain.

2.4.6

The Case of Gabon

Gabon is one of SSA’s pioneers of reforms in the electricity sector, having granted a concession for its vertically integrated utility as early as 1995. The concession was intended to use the power of the market to strengthen business ethics and

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enhance the operational efficiency of Société d’Energie et d’Eau du Gabon (SEEG), the nation’s sole provider of electricity and water. A single bidding criterion, a proposed percentage reduction in tariffs with key performance improvements like service quality, expanding coverage at reasonable rates, and ending the sector’s fiscal burden to free up public resources for other sectors of the economy, were used to select the concessionaire. The concessionaire was also required to invest a minimum of $135 million in restoration (with 60% of that sum going toward water), as well as an unofficial commitment to spend an additional $130 million in the area during the concession period. Additionally, the Concession consortium bought 51% of SEEG and sold the remaining 44% of the company’s shares in an IPO, with SEEG workers receiving an exclusive 5% discount. While the Concessionaire was in charge of overseeing the generation infrastructures, the state continued to make investments in additional generation capacity. Gabon operates a vertically integrated sector with private sector participation at all levels of the electricity supply chain.

2.4.7

The Case of Sierra Leone

The energy sector in Sierra Leone is comprised of a network of stakeholders. Each has particular and well-defined tasks, but these must be in line with the larger goal of providing Sierra Leoneans with reliable, economical, and long-term power. The Ministry of Energy (MoE), the two electricity utility companies (the Electricity Generation and Transmission Company (EGTC) and the Electricity Distribution and Supply Authority (EDSA)), the Electricity and Water Regulatory Commission (EWRC) as the regulator, Ministries, Departments and Agencies (MDAs), parliament, development partners (DPs), and Independent Power Producers (IPPs) are key stakeholders. The MoE is at the heart of this network of stakeholders, led by the Minister of Energy (the political head) and the Permanent Secretary (the professional head). The MoE’s principal duty is to conduct oversight activities across the sector as well as to implement the central government’s energy agenda and policies. Sierra Leone’s energy policies have largely oscillated between the development ambitions of various political parties since independence. The operation of the transmission grid below 33 kV as well as consumer distribution and revenue collection fall under the purview of the EDSA. Above 33 kV, the EGTC oversees generation and transmission. Prior to its separation in 2011 as part of a sector reform process, these two were a unified organization known as the National Power Authority (NPA). Despite the completion of the reform process, several uncertainties about their relationship still exist. The fact that the EDSA and EGTC were meant to be separate organizations with a rigorous producer–consumer relationship is one example of this ambiguity. But as of now, the central government, which also picks their top executives and the board of directors, substantially funds their operations. The EWRC was likewise created as a result of the NPA’s decoupling. It controls how utility firms and IPPs operate, ensuring fairness by balancing their interests with those of the consumer. The National Electricity Act was modified in

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Sierra Leone to include provisions for concessions and to permit qualified customers to bargain directly with producers for electricity.

2.4.8

The Case of Chad

The Chadian government and development partners such as the World Bank prioritize electricity to promote economic growth and inclusivity. Electricity consumption per capita is among the lowest in the world, yet tariffs are among the highest. Chad had only 48,000 kW of installed power-producing capacity in 2016, according to the CIA World Factbook. The electric grid of Chad is limited to N’Djamena and experiences regular outages, and the country lacks a national electric power policy. Power generation is still extremely concentrated. Because of aged infrastructure and a lack of funding, the National Electricity Company SNE lacks the technical and human capacity to satisfy rising demand.

2.4.9

The Case of Niger

Niger’s government is aiming to extend electricity supplies and stimulate investment in the energy industry in order to meet its objective of universal electricity access by 2035. Niger has taken important steps to strengthen energy markets by establishing the Autorité de Regulation du Secteur de l’Energie (ARSE), which aims to increase transparency and fair competition among various energy providers. The government also established the Agence Nigérienne de Promotion de l’Electrification en milieu Rural (ANPER), which is in charge of designing, implementing, and monitoring rural electrification programs across the country. Other reforms include a joint Ministerial order that eliminates taxes on domestic solar energy production kits and wind generation equipment, a new electricity act that will allow the establishment of independent power producers (IPPs), and ongoing collaboration with consultants and the African Legal Support Facility to strengthen the legal and regulatory framework for mini-grids. Technical capacity and utility creditworthiness continue to be a challenge.

2.4.10

The Case of Algeria

The Algerian Electricity and Gas Regulation Commission (CREG) was established by statute n° 02–01 of February 5, 2002, concerning electricity and gas distribution. CREG is an autonomous body having legal status and financial autonomy. Institutional reforms in Algeria’s electricity and gas distribution sectors brought about considerable changes in the early 2000s. They resulted in the passage of Law 02–01 on 5 February 2002, relating to electricity and gas distribution via pipelines, the main goals of which were to reorganize the national electricity and gas distribution market by recommending the restructuring of the operator; the separation of electricity and gas activities; and the opening up of electricity production and energy

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marketing activities to public and private investors in order to promote the emergence of benchmarks.

2.5 Regulatory Reform Performance in Sub-Saharan Africa From the country-by-country case studies, it is obvious that regulatory reforms implemented in the various countries are implemented at various levels. In the same vein, countries have modified certain reforms to suit their context and political climate. For instance, some reforms have been modified or not implemented fully where such regulatory reform would have substantial implication for the political class of the country. It thus suggests that, the electricity sector reforms have different impacts in different countries, which buttresses the point that, a successful reform prescription for a specific country cannot easily and successfully be transferred to another one. For instance, unbundling of the electricity sector has been implemented at different levels with some countries vertically unbundling the sector, vertically integrated with PSP, and vertically integrated with no PSP. All these decisions have therefore yielded different impacts as would obviously be expected. Using the African Development Bank (AfDB)’s Regulatory Substance Index and the Regulatory Outcome Index (ROI) under the Electricity Regulatory Index (ERI) as measures of the regulatory performance of the various countries, this paper conducts a quick comparison on the relative impact or progress made by the respective country’s electricity sectors. The regulatory substance is a measure of the effectiveness with which regulatory bodies undertake their oversight mandate as per the Act that set them up while the regulatory outcome measures how effective the regulatory decisions and actions translate into desired outcomes. For the purposes of this study, we look at how these countries are performing under the two indexes and the progress made in electricity access rate, electricity consumption per capita, and renewable energy mix. From Table 2, the data suggest that although regulatory reforms and performance are important to influence impact, it does not necessarily impact on the country. For instance, Uganda has shown significant improvement and regulatory performance and as such, has ranked top of the ERI since 2018. Despite the fact that the country’s energy regulatory frameworks are relatively well established, and its utilities respond positively to regulatory instructions and recommendations and has a regulator that is forward-thinking and capable of exercising the required regulatory authority where necessary, it has not necessarily translated into impacts such as electricity access or electricity consumption per capita. Uganda’s electricity access (45.2%) as of 2021 is one of the lowest access rates in SSA, below the average electricity access in SSA. Similarly, Tanzania, Sierra Leone, etc. which have also demonstrated strong regulatory performances also report low electricity access rates and electricity consumption per capita. In this context, Eberhard (2007) posits that these fallouts are most likely to occur following “unstable and changing policy environments” as a result of political and government fragmentations (Bodea, 2010; Chang & Berdiev, 2011). Previous

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Table 1 Power sector reforms in Africa Country

Generation

Transmission

Distribution

Benin, Namibia, Rwanda, Somalia, South Africa, Burkina Faso, DR Congo, Eritrea, Ethiopia, Lesotho, Liberia, Malawi, Mozambique, South Sudan, Sudan, Swaziland, Burundi, CAR, Chad, Congo, Tanzania, Zambia

Public Ownership

Public Ownership

Public Ownership

Angola, Botswana, Djibouti, Niger, Senegal, Sierra Leone, Gambia, Ghana, Guinea-Bissau, Madagascar, Mauritania, Togo, Uganda, Zimbabwe

Mixed Public and Private Ownership

Public Ownership

Public Ownership

Equatorial Guinea, Guinea, Kenya, Mali, Sao Tome and Principe

Mixed Public and Private Ownership

Mixed Public and Private Ownership

Mixed Public and Private Ownership

Nigeria

Private Ownership

Mixed Public and Private Ownership

Private Ownership

Cote d’Ivoire, Gabon

Private Ownership

Private Ownership

Private Ownership

Cameroon

Private Ownership

Public Ownership

Private Ownership

Source Shirley and Attia (2020)

studies (Erdogdu, 2013; Nepal & Jamasb, 2012b and Imam et al., 2019) which have examined how political establishments have distorted the functions of regulatory institutions have concluded that there is strong evidence suggesting that political factors have a significant influence on regulatory decisions which eventually affect the general outcomes in those countries.

2.5.1

Impact of Reform on Affordability of Electricity (Prices, Cost, Tariffs, Etc.)

According to Yang et al. (2012), electrical reforms are anticipated to establish the pricing mechanism as the primary factor in the electricity market by stimulating competition, which would increase efficiency and result in lower energy costs. Reforms are expected to promote the entry of new players into the energy markets by offering better incentives, which would lead to new entrants using more efficient technology pushing down energy prices (Fan et al, 2007). However, there is no apparent agreement on the evidence of reforms’ effects on energy prices in developing nations. Global evidence reveals that privatization did not reduce industry costs in the short run once ownership was considered, whereas government interference with investment decisions raised costs (Pollitt, 1995). Furthermore, the data differs

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Table 2 Financial viability of utility companies Level of financial viability

Comment

Level 1: Not covering existing OPEX

Financially unviable, loss-making utility

Level 2: Utility covers at least existing OPEX

Utility dependent on the government for capital investments

Level 3: Utility covers existing OPEX plus concessional financing costs on new replacement value of existing assets

Utility dependent on access to concessional financing

Level 4: Utility covers existing OPEX and full CAPEX on new replacement value of existing assets

Base-case definition used in this study, using a 10-percent real discount rate for capex

Level 5: Utility covering efficient OPEX and full CAPEX on new replacement value of existing and future assets

Future assets based on a least-cost expansion plan

Level 6: Utility covers efficient OPEX and full Definition of financial viability that may be CAPEX on new replacement value of existing used in high-income economies and future assets plus environmental externalities Source World Bank

Table 3 Regulatory performance of selected countries Country

Regulatory Substance Index (RSI)

Regulatory Outcome Index

Electricity access (%)

Electricity per GDP per capita use (kWh) Capita

Niger

0.604

0.349

61.8

264

749.7

Ghana

0.87

0.625

86

339

2410.9

Sierra Leone

0.599

0.612

27.5

35

504.6

Kenya

0.880

0.537

76.5

167

2069.6

Uganda

0.975

0.747

45.2

215

883.4

South Africa

0.697

0.404

89.3

4184

7055

Tanzania

0.937

0.493

42.7

102

1146

Gabon

0.136

0.108

91.8

1119

8635

Chad

0.080

0.069

11.3

13

685

Algeria

0.699

0.542

99.8

1600

3690

Source Extracted from ERI Report

between emerging regions, as do the effects of various reform actions on energy prices. Generally, tariff reforms and electricity sector reforms at large have led to an upward trend of electricity tariffs. This (Asantewaa et al., 2022) believes is as a result of intend of countries to make tariffs cost reflective such that utilities operating within the sector would be competitive and invest in quality infrastructure.

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According to (Klug et al., 2022), electricity tariff reforms are mechanisms used to minimize the huge burden of electricity subsidies which are common in SSA. In their analysis, (Clark et al., 2005) established that, reforms in Uganda introduced a new pricing regime, which, although greatly improving the financial status of utilities and allowing them to extend access rates, put pressure on customers, particularly households, who faced the greatest increase in tariffs. Similarly, the study also revealed that, during the reform period in Tanzania, average retail tariffs grew from 18.38 Tanzanian Shillings (TS) in 1992 (6.5 US/kWh) to 80 TS in 2001 (9.2 US/kWh), representing a 20% yearly increase in TS. In Ghana, the analysis showed that, since the beginning of the electricity sector reform, prices have fluctuated dramatically, from roughly Cedis 75 per kWh in 1998 to just under Cedis 800 per kWh in 2003, the average nominal residential rate has increased.

2.5.2

Impact of Reform on Electricity Generation

Imam et al. (2019) found a positive correlation between the functional regulatory institutions and increases in SSA’s generation capability. This is consistent with findings from a number of previous researches, including those by Cubbin and Stern (2006) and Nakano and Managi (2008). In particular, Eberhard et al. (2016) found that nations that established regulatory institutions including Ghana, Kenya, Nigeria, and Uganda were able to grow installed capacity by luring new IPPs in comparison to those without IRAs. This is due to the fact that IRAs give investors some guarantee of honest operations and serve to reduce or insulate IPPs from investment risks, especially when operating in settings with weak institutional frameworks. For instance, the Energy Regulatory Commission of Kenya contributed to a significant decrease in power purchase agreement costs between the first set of IPPs signed in the country and the second (Eberhard and Gratwink, 2011). According to Eberhard et al. (2016), private utilities now account for more than a quarter of total installed power capacity in SSA nations. This is consistent with Imam et al. (2019), who discovered a positive relationship between privatization and utility performance in their analysis, indicating that privatizations of previously stateowned utilities and other forms of private participation have increased utility generation capacity in SSA. Furthermore, several empirical studies have demonstrated that private-sector investments in the energy industry are positively connected with improved performance (Cullmann & von Hirschhausen, 2008; Zhang et al., 2008; Megginson and Netter, 2001; Nagayama, 2010). On the other hand, Imam et al. (2019) revealed that unbundling of the electricity sector has no significant impact on electricity access. This confirms the outcome of Bacon (2018) analysis, which opined that unbundling reforms in “isolation is found to have hardly any significant impact on utility performance.” In Asantewaa et al. (2022), they concluded that when a nation has access to a bigger market, the effects of unbundling might be intensified.

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Impact of Reform on Quality of Electricity Service

Electricity sector reforms as explained are expected to enhance the status of electricity situation in the implementing country. Quality of service refers to how electricity is supplied to the end-user. The extent to which the decisions of an established regulator have defined standards for technical and commercial quality of service; frequency and duration of outages; time for provision of grid connection and restoration of supply; conditions and technical requirements for grid connection; the grid code for interconnected, and other factors are used to assess the impact of reforms on the quality of electricity service. Despite the fact that reports still point to very poor power quality issues with the subregion, including the stability of supply and voltage quality within set standards and thresholds. It is worth mentioning that some patchy progress has been made by some of these countries emanating from some of these regulatory reforms including; regulatory ceilings on SAIDI and SAIFI set by the regulators; factoring the SAIDI and SAIFI into tariff setting and regulatory sanctions on utilities, etc. All these have yielded some gains and can only grow to yield greater impact with the necessary political commitments. All the countries considered in this study have developed quality of service regulation which gives powers to the regulator to frequently monitor the supply of electricity by utilities.

3 Conclusions and Policy Recommendations The establishment of independent regulatory authorities has been a regular and significant aspect of the power sector reforms in Sub-Saharan Africa over the past decades. The main objective of these reforms is to ensure targeted structural institutional changes that ensure efficient and effective electricity sector. These regulatory institutions were established with the specific task of controlling, monitoring, and protecting the interests of consumers and utilities while regulating the electrical market. Eventually, these reforms were expected to yield impacts including attracting the necessary investments increase generation and ensure quality transmission and distribution of electricity, increase access to electricity while also ensuring that tariffs paid are cost reflective. Notwithstanding some progress in some of the countries, the overall verdict is that the region’s electricity sector is still plagued with low generation capacity, poor network infrastructure, and inadequate access to electricity services. The study concludes that the establishment of regulatory authorities alone does not translate into regulatory impact on the country. For countries to materialize their regulatory impact, there is the need to ensure political commitment to allow the system to operate to its strength. It is obvious from Table 2 that, most of the countries with higher GDP per capita have made significant progress in terms of electricity access and consumption per capita although their regulatory indexes are very low.

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Crispin Bobio is an Energy Economist with a knack for research and data analysis, spanning over 6 years with a number of peer reviewed journals. He holds MSc in Energy Economics and his research works basically seeks to investigate the many ways of deploying affordable, clean and secure energy to the very poor in society. He has a strong background in quantitative and qualitative data analysis and very conversant with STATA, ATLAS-ti, EVIEWS, NVIVO, Power-Bi and OXMETRICS data management tools. Ishmael Ackah is the Executive Secretary of Ghanas Public Utilities Regulatory Commission (PURC). He chairs the Legal and Regulatory Committee of the Electricity Market Oversight Panel. He worked with the United States Agency for International Development (USAID) West Africa Energy Program, Deloitte, the Energy Commission, Ghana and the Africa Centre for Energy Policy. Hes an Adjunct Lecturer at University of Ghana Law School, GIMPA and University of Cape Coast. As a researcher, he has consulted for the AfDB, NRGI, SNV, UN, DFID/ GOGIG, Energy for Growth Hub among others. He holds a PhD in Energy Economics from the University of Portsmouth-UK, an MSc. From University of Surrey, UK, and a Bachelors from University of Professional Studies, Ghana. Dramani Bukari is an energy and sustainability analyst with a focus on energy access and transition, energy systems modelling, and the economics of energy policy & regulation. He holds a Ph.D. in Sustainable Energy Technologies from the Kwame Nkrumah University of Science & Technology, Ghana, and is a seasoned professional with a career spanning almost two decades in the energy sector.

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John Abdulai Jinapor is currently the member of Parliament for the people of Yapei Kusawgu Constituency in the Savanna region of Ghana. He has a strong background in energy and finance is the ranking member of the Mines and Energy Committee of Parliament and a member of the Finance Committee in the 7th Parliament of Ghana. He also served as the Deputy Minister of Energy from 2013 to 2016. He has a Post Graduate Diploma from the University of London, a Master of Science in Development Finance, a Master of Science in Energy Economics, MBA in Marketing and currently a pursuing his PhD in the Stellenbosch University, South Africa. Vida Aba Essuman holds an MSc in Energy Economics and is a certified Project Management Professional. She possesses almost half a decade’s experience in a Multicultural Private Sector, specializing in Renewable Energy development. She is proficient in English, French and Spanish, with a limited working proficiency in Mandarin Chinese.

The Political Economy of the Next Wave of Power Sector Reforms in Africa: Evidence from Zimbabwe, Kenya and Namibia Christine Juta

List of Abbreviations SOEs ERI KANU NARC ICC SWAPO PDM DTA UDF ESAP GNU ZESA REA ZERC ZERA CAPCO ESC ZPC ZETCO ZETDC IPPs APRA SB

State-owned utilities Electricity Regulatory Index Kenya African National Union National Rainbow Coalition International Criminal Court South West Africa People’s Organization Popular Democratic Movement Democratic Turnhalle Alliance United Democratic Front Economic Structural Adjustment Programme Government of National Unity Zimbabwe Electricity Supply Authority Rural Electrification Agency Zimbabwe Electricity Regulatory Commission Zimbabwe Energy Regulatory Authority Central African Power Corporation Electricity Supply Commission Zimbabwe Power Company Zimbabwe Electricity Transmission Company Zimbabwe Electricity Transmission and Distribution Company Independent Power Producers Accelerated Partnership for Renewables in Africa Single Buyer

C. Juta (B) Graduate School of Business, University of Cape Town, Cape Town, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_4

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MSB SAPP ECB CEOs KETRACO REREC EPRA CCAK GDC NLC AFSEM EAPP

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Modified Single Buyer Southern African Power Pool Electricity Control Board Chief Executive Officers Kenya Electricity Transmission Company Rural Electrification Fund and Renewable Energy Corporation Energy & Petroleum Regulatory Authority Clean Cooking Association of Kenya Geothermal Development Company National Land Commission African Single Electricity Market East African Power Pool

1 Introduction In recent times, the relationship between the power sector and political systems has undergone a transformation due to energy trade across borders and technological advancements. This shift has led to political and economic systems becoming influential factors in energy transitions (Lee & Yang, 2019). Power sector reform, as defined by Gore et al. (2019), involves policy or legislative changes aimed at reducing or eliminating state monopolies in electricity generation, transmission, distribution, and regulation. While situating the power sector reform within the broader energy transition, this chapter focuses specifically on power market design, regulation, and system operation reforms in relation to the increasing use of variable renewables and distributed energy resources in Africa. The term “power sector” encompasses the entire electricity supply infrastructure, including generation, transmission, distribution, and retail. The study also adopts the term “variable renewables” to refer to intermittent renewable energy generation technologies like wind and solar photovoltaic (Solar PV). Additionally, the definition of “distributed energy resources” is based on Akorede et al. (2010), which includes electric power generation resources connected to medium or low-voltage distribution systems, encompassing energy storage technologies and electric vehicles. Over the past decade, the growth of renewable energy and distributed energy resources, due to reduced cost of variable renewable energy technologies, electrification of end-use sectors, and country commitments to reduce emissions, has mainly been accelerated by two phenomena. First, the emergence of innovative business models that have created a case for the provision of new services to enhance system flexibility. Second, is the creation of systems that enable the integration of variable renewable energy technologies such as wind and solar PV. These unprecedented changes have implications for power market design, and system operation. This underscores the need to explore how the political and economic context of African countries will shape the next wave of power sector reforms to balance

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affordability, security, and sustainability of supply, in line with the objectives of the energy transition.

2 Structure of Power Markets in Africa In Africa, the electricity supply industry is dominated by vertically integrated utilities run by state-owned enterprises (SOEs). Most of these utilities are in a vicious cycle of financial deficit and exhibit poor technical performance, with the consequence of insufficient investment in generation and supply infrastructure, poor system reliability, and low access rates (Trimble et al., 2016). The under-pricing of electricity is widely considered a major factor contributing to the financial woes plaguing most African utilities. Additionally, issues such as high system losses and poor revenue collection further exacerbate this persistent challenge. Driven by the principles of the Washington Consensus, efforts were made to reform the African power sector in the 1990s. These reforms aimed to establish independent regulatory authorities, implement cost reflective tariffs, vertical and horizontal unbundling of electricity generation, transmission, distribution, and retail, and promote commercialization and corporatization. The efforts were also to encourage private sector participation in generation and distribution, and introduce competition through wholesale markets (Foster et al., 2021). However, it is important to note that no African country has fully adopted all these elements of what came to be known as the standard model of reform (Foster et al., 2017). While some African countries have partially implemented vertical unbundling, only Nigeria and Uganda have carried out horizontal unbundling. Zimbabwe and Kenya are among the few African countries that have partially or completely unbundled their power sectors, with varying degrees of private sector involvement. Currently, no African country has established a wholesale power market, although third-party wheeling is now permitted in a few countries (Kapika & Eberhard, 2013).

3 Sub-Saharan Africa’s Electrification Challenge Figure 1 shows that Sub-Saharan Africa is home to much of the world’s largest populations without access to electricity. Out of the top-20 countries with populations without electricity access, 15 are in Sub-Saharan Africa (Foster et al., 2021; International Energy Agency et al., 2022). This highlights the critical role that electrification efforts in these 20 countries play in closing the energy access gap and achieving universal access to energy worldwide. Nigeria, the Democratic Republic of Congo, and Ethiopia are countries with the largest populations lacking electricity access. These three countries account for 92 million, 72 million, and 56 million people without access to electricity, respectively.

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Fig. 1 Population without electricity access in top-20 countries. Own diagram, based on International Energy Agency et al. (2022)

The objectives for African policymakers include achieving universal access to energy, improving service quality, and ensuring affordability. Meeting the growing demand and consumption of electricity will require cost-effective expansion and maintenance of the power sector to enhance technical efficiency. Reducing inefficient subsidies will also improve the financial efficiency of utilities. Promoting regional trade can facilitate economies of scale for Africa’s smaller power systems and enhance energy security. Finally, the utilization of variable renewable energy

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technologies such as wind and solar PV, along with distributed energy resources, can better serve remote and rural communities, ensuring that no one is left behind as the continent transitions towards a clean energy future (Foster et al., 2021).

4 Governance and Technical Challenges in the Power Inadequate electricity supply in Africa stems from technical inefficiencies compounded by governance challenges as shown in Fig. 2. Technical shortcomings include insufficient generation capacity because of limited investment in newgeneration infrastructure and inadequate maintenance of existing infrastructure. On the other hand, governance challenges such as the disregard for the rule of law, alleged corruption fuelled by a lack of transparency and accountability, perceived political instability, and policy inconsistency all contribute to the complex political economy of the electricity supply industries in Africa. Both technical and governance challenges are exacerbated by unreliable regional power trade contracts and the impact of climate change on hydropower generation potential (Cervigni et al., 2015; Foster et al., 2021). While the establishment of regulatory authorities has been widely implemented across African countries, the performance of these regulatory agencies falls below expectations, as indicated by the Global Power Sector Reform Index and the Global Electricity Regulatory Index (Foster et al., 2017; Rana et al., 2022). These findings

Fig. 2 Governance and technical challenges in the electricity supply industries of Africa

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align with the Electricity Regulatory Index (ERI), which assesses regulatory governance, regulatory substance, and regulatory outcomes in Africa (African Development Bank, 2022). The ERI shows that Uganda, Egypt, Senegal, Ghana, and Kenya electricity regulatory frameworks and their utilities demonstrate positive responsiveness to regulatory guidelines. However, regulatory independence remains elusive in 93% of the African countries surveyed in 2021, with governments and influential actors exerting undue influence over regulatory authorities (African Development Bank, 2021). Figure 3 illustrates the factors that influence the independence of regulators from government interference. These factors include funding sources for regulatory activities, the appointment of commissioners, and the rules governing their conduct during and after their terms (Foster & Rana, 2020). Foster et al. (2021) describe a complex intertwining of government and regulatory interests, which explains the disconnect between the de jure and de facto regulatory frameworks, particularly concerning tariff setting. African countries still exhibit inadequate tariff setting and licencing frameworks compared to global best practices. The median electricity tariff for SubSaharan Africa is significantly lower at US $0.04/kWh, in contrast to the global median electricity tariff of US $0.15/kWh (Trimble et al., 2016).

5 Enabling and Constraining Multi-level Political Economy Context in Kenya, Namibia, and Zimbabwe This section discusses the long-term political, geographical, socioeconomic, and macroeconomic context at country levels and links these to the electricity sector level political economy in each of the case study countries.

5.1 Country-Level Political Economy Foundational Factors This section discusses the political, geographical, socioeconomic, and macroeconomic context of three countries located in different regions of Africa, each with its unique political contexts—Kenya, Namibia, and Zimbabwe. Kenya, Namibia, and Zimbabwe are presidential representative, democratic republics with multiparty systems. Of the three countries, Kenya and Zimbabwe were under British colonial rule until June 1, 1963, and April 18, 1980, respectively. Namibia on the other hand, was under German colonial rule from 1884 until Germany’s defeat in World War I. From 1920, South Africa, then under British colonial rule, administered Namibia under the name South-West Africa until March 21, 1990 when they attained independence.

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Fig. 3 Factors influencing regulatory independence, own diagram based on (Foster & Rana, 2020)

Kenya Political Context Since gaining independence from colonial rule, Kenya has experienced waves of political stability and periodic political tensions. The East African country’s political landscape is dominated by a few major political parties, with power struggles and ethnic rivalries occasionally influencing the political dynamics. His Excellency (H.E.) Jomo Kenyatta led the country from 1964 to 1978 and was succeeded by H.E. Daniel arap Moi from 1978 to 2002. Both Kenyatta and Moi represented the Kenya African National Union (KANU) party. KANU was the only legal party from 1969 to 1992, when multiparty politics was reintroduced (Throup & Hornsby, 1998). The Moi regime was marked by authoritarian rule, political repression, alleged corruption, and an attempted coup in 1982. Multi-party elections held in 1992 were tainted with ethnic clashes and significant incidents of instability continued during Moi’s tenure (Branch, 2011; Young & Brown, 1995). From 2002 to 2013, H.E. Mwai Kibaki led Kenya under the banner of the National Rainbow Coalition (NARC) in the 2002 election and the Party of National Unity (PNU) in the 2007 election. Following the disputed outcome of the 2007 elections,

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a coalition government was formed, with Mwai Kibaki remaining as the President and veteran opposition leader Raila Odinga as Prime Minister (Chazan et al., 1999; Hornsby, 2013). Following Kenya’s military intervention in Somalia in 2011, Kenya has faced significant security challenges, including terrorist attacks by the Islamist group Al-Shabaab. In 2013, President Uhuru Kenyatta became president of Kenya and led the country for two terms. Kenyatta faced post-election violence charges at the International Criminal Court (ICC) related to the 2007 election (Murithi, 2013). These charges stirred up significant controversy and were eventually dropped in 2014 due to insufficient evidence (Fisher & Anderson, 2015). Throughout Uhuru’s second term in office from 2017 to 2022, Kenyatta and his then Deputy President William Ruto prioritized key elements of Kenya’s Vision 2030 in their economic strategy, known as the Big 4 Agenda. In 2022, William Ruto was elected the 5th President of Kenya and remains in office at the time of writing. Barely a year into his tenure, the Ruto regime has faced significant challenges following several sporadic protests in 2023. Namibia Political Context Namibia gained independence from South African administration in 1990, after a protracted struggle. The South West Africa People’s Organization (SWAPO) was the leading force against South African control and remains the dominant party since independence. The two significant opposition parties Popular Democratic Movement (PDM) which was formerly known as Democratic Turnhalle Alliance (DTA) and United Democratic Front (UDF). Both PDM and UDF have not managed to unseat SWAPO to date. Following its independence from South Africa in 1990, Namibia has maintained a relatively stable political environment. President Sam Nujoma was a prominent figure in Namibia’s independence struggle and became the country’s first president in 1990. Nujoma served three terms and was succeeded by President Hifikepunye Pohamba in 2005. Pohamba’s tenure in office was marked by a commitment to economic development and stability. In 2015, President Hage Geingob who had previously served as Prime Minister under both Nujoma and Pohamba became Namibia’s third president. Since independence, Namibia has shown a commitment to democracy, with regular elections and peaceful power transitions. Although SWAPO remains the ruling party, the results of the presidential and national assembly elections in 2019, as well as the regional and local authorities’ elections in 2020, suggest a slow deterioration of the SWAPO’s popularity (Melber, 2022). This can be attributed to escalating socioeconomic challenges and perceived governance shortcomings as the country grapples with severe socioeconomic disparities, stemming from the historical legacy of past apartheid regimes. These inequalities have been further exacerbated by the COVID-19 pandemic, while additional challenges such as structural limitations have hindered the creation of employment opportunities.

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Zimbabwe Political Context Zimbabwe attained independence from colonial rule in April 1980. Since then, the Southern African country has had a tumultuous political history, marked by a prolonged period of authoritarian rule under President Robert Mugabe, who retained power for nearly four decades. Mugabe’s rule oversaw various economic phases impacted by Western sanctions, periodic droughts, and policy failures, all of which contributed to Zimbabwe’s economic decline. Kanyenze (2021) describes six stages of economic development in postindependence Zimbabwe. First, the decade of independence (1980–1990) was characterized by strong economic growth in the aftermath of the liberation war. During this period, economic growth in Zimbabwe surpassed the regional average for sub-Saharan Africa. Second, the period of the Economic Structural Adjustment Programme (ESAP) from 1991 to 1996. Third is the crisis period from 1997 to 2008, often dubbed Zimbabwe’s “lost decade”. During this period, Zimbabwe lost 65% of its output, an unprecedented phenomenon for an economy outside a war situation. Sustained decline of economic activity between 2000 and 2008, led to a cumulative decline of close to 50% in real GDP growth. This crisis was largely due to Zimbabwe’s fast-tracked land reform program and subsequent loss of international support, as well as economic mismanagement, capital flight, and limited investment. Fourth is the period from 2009 to June 2013 during which ZANU-PF and opposition political parties united to form a Government of National Unity (GNU). During the GNU period the country’s economy saw a significant reduction in hyperinflation, stabilization of the currency, and the gradual return of economic growth. Although structural challenges such as limited investment and high unemployment persisted, economic reforms such as dollarization resulted in increased stability. Fifth, the post-GNU Mugabe period from August 2013 to Nov 2017 was characterized by a return to full ZANU-PF rule after the GNU was disbanded and in 2013, a new constitution was promulgated. During this period Zimbabwe’s economy experienced a slowdown in economic growth and faced challenges such as high unemployment rates and liquidity shortages. Structural issues including a shortage of foreign currency, limited investment, and fiscal deficits further crippled the economy. The slowdown in economic reforms combined with a series of droughts caused GDP growth to slow down from 2014 onwards. Finally, from November 2017 to date, the change in political leadership, resulted in implementation of economic reforms, and efforts to attract foreign investment. A dip during the COVID-19 pandemic was followed by a modest growth rate of 6.3% in 2021 largely due to a rebound in the agriculture sector and improved performance of the mining sector (World Bank, 2023). However, challenges such as currency instability, inflationary pressures, and limited access to financing negatively impact economic performance.

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Socioeconomic Context In recent years, Kenya experienced consistent economic growth and a reduction in poverty rates, driven by sectors such as agriculture, manufacturing, and services. However, income inequality and unemployment remain key challenges, particularly in rural areas. Namibia has also made strides in achieving socioeconomic development since its independence and country has a relatively high GDP per capita compared to other African countries. However, Namibia continues to grapple with income inequality, high unemployment rates, and significant socioeconomic disparities, with a considerable portion of the population living in poverty. Zimbabwe, on the other hand, has faced severe economic challenges, including hyperinflation and a sharp decline in GDP in recent decades. These economic difficulties have resulted in widespread poverty, food insecurity, and high unemployment rates. Although Zimbabwe is working towards economic recovery, structural reforms and foreign investment are needed to address the underlying challenges (World Bank, 2021). Macroeconomic Context Zimbabwe, Kenya, and Namibia have diverse economic profiles, due to their unique historical trajectories, resource endowments, and policy environments. Zimbabwe’s economy is mainly driven by, agriculture, mining, and manufacturing, but it has faced economic challenges largely attributed to its land reform programs in the early 2000s and subsequent political instability. Kenya’s economy, on the other hand, is a melange of agricultural output (notably tea and coffee), burgeoning technological advancements, especially in its capital Nairobi, and a vibrant tourism sector. Namibia’s economy, in contrast, is anchored in the extraction and processing of minerals for export, with mining contributing a substantial chunk of its GDP. As of 2021, Zimbabwe had a GNI per capita of around $1,000, significantly trailing behind Namibia’s $4,350, but comparable to Kenya’s $1,620. The GDP Purchasing Power Parity value of $190 billion illustrates Kenya’s economic size and potential, as compared to Zimbabwe and Namibia at approximately $40 billion and $26 billion, respectively. While GDP growth in Kenya has oscillated around 5–6% in the late 2010s to 2020, Zimbabwe grappled with negative growth rates during some of these years, and Namibia charted a slower growth of around 2–4%. Inflation rates further differentiate these countries: Zimbabwe, once notorious for its hyperinflation, has seen relative stabilization, while Kenya’s inflation typically falls between 5 and 10%, and Namibia’s rate generally remains below 5%. The Gini Coefficient, a measure of income distribution inequality, reveals stark disparities across all three nations, with both Zimbabwe and Kenya scoring above 50 and Namibia registering one of the highest globally, often surpassing 60. The average Gini Coefficient for Sub-Saharan Africa is 44.2. There are different sources of revenue for these nations. Zimbabwe relies heavily on taxes, customs duties, and mining revenues while Kenya’s fiscal landscape is similarly anchored on taxes, spanning Value Added Tax, income tax, and import

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duties. Namibia’s treasury, in contrast, is predominantly replenished by its mineralrich mining sector. However, a shared concern among the three is the escalating public debt and the ensuing constraints on financial resources. Maintaining currency stability remains a crucial concern for these economies. Zimbabwe’s currency collapsed due to hyperinflation, so they now use a mix of currencies, exposing it to currency risks and liquidity challenges. Even though Kenya’s shilling also faced devaluation pressures, it still maintains some stability. Namibia’s dollar is pegged to the South African rand, which means it inherits both the stability and vulnerabilities of its southern neighbour. Kenya has implemented various macroeconomic reforms such as fiscal consolidation and monetary policy measures, to maintain macroeconomic stability. The country has also embraced regional integration initiatives and diversified its economy to reduce reliance on agriculture. Additionally, Kenya has implemented infrastructure projects to support economic growth. Namibia has pursued prudent macroeconomic policies to maintain stability and attract foreign investment. The country has a strong focus on fiscal discipline, monetary policy management, and diversifying its economy beyond mining and agriculture. However, Namibia faces challenges such as high public debt and unemployment, which necessitate sustained economic reforms. Zimbabwe has faced significant macroeconomic challenges, including high inflation and fiscal imbalances. Efforts to stabilize the economy have involved currency reforms and liberalization measures. However, Zimbabwe continues to grapple with limited access to foreign exchange, high public debt, and structural weaknesses, hindering sustained economic growth. Foundational Factors of Political Economy at the Electricity Sector Level This section focusses on several aspects at the electricity sector level, from the political economy perspective. We probe how the country-level political economy context affects the growth of variable renewables and distributed energy resources as well as viability of the electricity sector in Kenya, Namibia, and Zimbabwe. The political economy of a country plays a pivotal role in shaping its energy sector, particularly in the development and integration of variable renewables and distributed energy resources. In Kenya, Namibia, and Zimbabwe, the interplay of politics, economics, and social dynamics greatly influences decisions on energy infrastructure, resource allocation, and policy direction. For instance, Kenya has seen significant growth in the renewable sector, particularly in geothermal and wind energy, due in large part to its conducive policy frameworks which encourage international partnerships. Namibia, with its abundant solar resources, has also leveraged its political stability and progressive energy policies to attract foreign investments, leading to the proliferation of solar farms. Conversely, Zimbabwe’s electricity sector has faced challenges due to political instability and economic sanctions, which have impeded the growth of renewable energy initiatives. Several African countries have led the way in the adoption of wind and solar photovoltaic technologies. Namibia with 25% adoption rate, Morocco at 17%, and

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Fig. 4 Kenya electricity generation by source (GWh) based on IEA electricity information 2022

Kenya at 16% are frontrunners in the use of wind and solar energy (Wiatros-Motyka et al., 2023). However, in other African countries, the contribution of variable renewables is well below the global average. Figure 4 shows a steep decline in the share of oil in Kenya’s energy mix from 2010. This corresponds to significant growth in geothermal and wind power generation during the same period. In 2020, fossil fuels accounted for only 7% of electricity generated in Kenya, while geothermal, hydro, and wind contributed 44%, 36%, and 11% respectively. Namibia has a peak demand of 640 MW and an installed capacity of about 662 MW of which 74% is owned and operated by the state-owned utility NamPower. Renewable IPPs contribute 26% of the total installed capacity while the total installed rooftop solar capacity is about 60 MW. Figure 5 shows that hydropower generation accounts for most of the electricity generation in Namibia. However, Namibia is heavily reliant on electricity imports primarily from Eskom, ZESCO, ZPC, and STEM (through South Africa Power Pool—SAPP). The country’s energy profile for February 2022 as reported by the ECB, showed that local generators contributed only 21% of electricity generation. Namibia’s reliance on Eskom’s coal-based energy production ties the country’s electricity supply to a source with high greenhouse gas emissions. In Zimbabwe, electricity generation is dominated by the state-owned utility, Zimbabwe Electricity Supply Authority (ZESA) despite policy and regulatory reform to promote private sector participation. ZESA operates five major power stations, four of which are coal-fired and the Kariba hydropower plant. The ageing coal fleet and increasing variability of rainfall patterns have greatly constrained Zimbabwe’s dependable capacity. To address this deficit, Hwange thermal power station was expanded by 600 MW in 2023. However, this expansion has only marginally elevated the reliable capacity to around 1,800 MW, which still falls short of the nation’s demand.

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Fig. 5 Namibia electricity generation by source (GWh) based on IEA electricity information 2022

Furthermore, the viability of the electricity sector in these countries is also determined by their unique political economy landscapes. National priorities, governance structures, and the presence (or lack thereof) of robust regulatory frameworks play crucial roles in the successful operation and expansion of the power sector. For example, while Kenya’s forward-looking energy policies and frameworks have allowed for greater private sector participation and accelerated the growth of offgrid solutions in remote areas, Zimbabwe’s electricity sector struggles with issues of infrastructure maintenance and foreign currency shortages, largely rooted in its broader political and economic challenges. On the other hand, Namibia’s commitment to sustainability and regional energy trade makes it a compelling case for examining how political will, coupled with strategic economic decisions, can positively influence the growth and stability of the electricity sector (Figs. 6 and 7).

6 Evolution of the Power Sector This section delves into the past reform activities in Kenya, Namibia, and Zimbabwe considering the different phases of political and economic development that each country has gone through. We discuss the drivers and outcomes of past reforms and explain how the growth of variable renewables and distributed energy resources has been stunted by governance challenges and the complex political economy context of Zimbabwe. Finally, we highlight the innovation in enabling energy technologies and new business models in Zimbabwe that are driving a new wave of power sector reforms amid the growing share of variable renewables and distributed energy resources.

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Fig. 6 Zimbabwe electricity generation by source (GWh) based on IEA electricity information 2022

Fig. 7 Electricity supply structures in selected cases based on Eberhard and Godinho (2017)

The electricity sector reforms in these countries have been historically influenced by both the political and economic phases of development unique to each country. In Zimbabwe, a once thriving economy took a downturn in the early 2000s, leading to serious challenges in its electricity sector characterized by capacity constraints, load shedding, and inefficiencies. These challenges were largely due to governance challenges and political instabilities that impacted state utilities, leading to underinvestment and mismanagement. As a result, while there was an interest in harnessing

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variable renewables and distributed energy resources (DERs), the complexities of Zimbabwe’s political economy stifled the growth and expansion of these resources. In contrast, Kenya has been at the forefront of energy sector reforms in East Africa. Kenya has attracted private investment leading to a notable increase in electricity access rates. Namibia, on the other hand, has been comparatively stable both politically and economically. Despite its vast renewable energy potential, especially solar and wind, the country has been slow in implementing reforms to fully exploit these resources. Much of this delay has been attributed to an over-reliance on electricity imports from neighbouring countries, primarily South Africa. Recent innovations in energy technologies and business models have paved the way for a new era of electricity reforms across these countries. In Kenya, the rise of pay-as-you-go solar systems and mini-grids has democratized access to electricity in remote areas, prompting the government to reconsider its centralized grid expansion strategies. Namibia has started exploring the feasibility of utility-scale solar and wind farms, driven in part by decreasing renewable energy costs and energy security concerns. Zimbabwe, despite its challenges, has witnessed the emergence of off-grid solar providers catering to the energy needs of its population, indicating a potential paradigm shift in its power sector. As the share of variable renewables and DERs grows, there is a palpable move towards further reforms to integrate these resources into the countries’ respective power sectors. Drivers of Past Reform Activities The electricity sectors of Kenya, Namibia, and Zimbabwe have undergone reforms in the past driven by various factors that reflect the unique goals of each region. The Zimbabwe Electricity Supply Authority (ZESA), struggled to carry out crucial maintenance and power purchase issues due to transmission bottlenecks that hindered efficient energy distribution across the nation. Moreover, the tariff structure during this period was skewed, failing to reflect the actual cost of electricity production and distribution which led to inefficiencies and discouraged both domestic and foreign investment in the sector. Perhaps the most glaring issue was the dismally low level of electricity access among the population, revealing a significant infrastructural gap that desperately needed addressing. Past Reform Activities Historically, Zimbabwe’s power sector underwent several legislative reforms aimed at consolidating and decentralizing its electricity infrastructure and regulatory bodies. The Electricity Act of 1985 initiated this reform by merging the electricity supply industry into a unified, state-controlled entity: the Zimbabwe Electricity Supply Authority (ZESA). Pursuing further inclusivity, the Rural Electrification Act of 2002 established the Rural Electrification Agency (REA), to focus on expanding access to remote areas. Concurrently, the National Electricity Act of 2002 (amended in 2003) created the Zimbabwe Electricity Regulatory Commission (ZERC) and began the vertical unbundling of ZESA. This trajectory was sustained with the

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Energy Regulatory Act of 2011, which instituted the Zimbabwe Energy Regulatory Authority (ZERA) as ZERC’s successor, cementing its role as an autonomous regulator (Table 1). Furthermore, the sector witnessed significant restructuring. In 1985, entities like the Central African Power Corporation (CAPCO) and the Electricity Supply Commission (ESC) were integrated vertically into ZESA. However, in 2002, a strategic unbundling took place, spawning entities like the Zimbabwe Power Company (ZPC) and Zimbabwe Electricity Transmission Company (ZETCO). A subsequent rebundling in 2010 merged ZETCO and ZEDC into the Zimbabwe Electricity Transmission and Distribution Company (ZETDC). The sector also opened doors for private sector participation and competition was introduced to stimulate growth and efficiency. Past reform significantly shapes contemporary stakeholder perceptions of the Zimbabwean electricity sector. The oscillations between integration and unbundling, and the intertwining roles of public and private entities have created a complex landscape, impacting on stakeholders’ trust, expectations, and aspirations for the sector’s Table 1 Country-level political economy foundational factors based on World Bank Group Data Social context Indicator

Kenya

Namibia

Zimbabwe

Poverty headcount ratio at $2.15 a day (% of population at 2017 PPP, 2015)

29.4

15.6

39.8

Life expectancy at birth, total (years, 2021)

61

59

59

Land size

(km2 )

569,140

832,290

391,000

Population (million, (2022)

54

2.6

16.3

Population growth (annual %, 2022)

1.9

1.4

2.0

Population living in slums (% of urban population, 2020)

51

41

22

Net migration (2021)

–52,549

–4,301

–25,005

Human Capital Index (scale 0–1, 2020)

0.5

0.4

0.5

GDP (current US$, 2022 billion)

111.42

12.61

20.68

GDP per capita (current US$, 2022)

2,009.3

4,911.3

1,267.0

GDP growth (annual %, 2022)

4.8

4.6

3.4

Gini index (2015)

40.8

59.1

50.3

GNI (current US$)

111.7

12.2

20.1

GNI per capita growth (annual %)

3

2.3

6.0

Unemployment (% of total labour force, 2022)

5.5

20.8

7.9

Inflation, consumer prices (annual %, 2022)

7.7

6.1

104.7

Personal remittances, received (% of GDP, 2022)

3.6

0.4

9.9

Foreign direct investment, net inflows (% of GDP, 2021)

0.4

7.4

0.6

Access to electricity (% of population)

76.5

55.2

49.0

Economic context

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future. Table 2 summarizes the common reform activities in the selected case study countries. Innovation in Enabling Energy Technologies and Business Models In Zimbabwe, the intricate political economy context, marred by economic challenges and political upheavals, has impacted the growth of variable renewables. The state-owned utility, ZETDC, burdened with mounting debts and operational inefficiencies, has been a bottleneck in advancing the renewable sector. However, innovation has shown a promising way forward. With the emergence of new business models that strategically bypass the beleaguered ZETDC, there has been a noticeable uptick in the adoption of variable renewables and distributed energy resources. However, Independent Power Producers (IPPs) in Zimbabwe, although pivotal to the energy transition, face significant obstacles in reaching financial close due to currency risks and the broader political-economic environment, thus limiting their impact. Kenya’s success in the adoption of off-grid solar solutions is attributed to the innovative pay-as-you-go business model. This model allows consumers to access solar energy through small, incremental payments, thereby democratizing energy access, especially for remote and previously underserved populations. This innovation has significantly accelerated off-grid solar uptake, positioning Kenya as a leader in decentralized renewable energy solutions. In September 2023, Kenyan President, William Ruto, launched the Accelerated Partnership for Renewables in Africa (APRA) during the inaugural Africa Climate Summit. The APRA partnership aims to secure funding, enhance technical proficiency, and collaborate with the private sector, including Namibia and Zimbabwe among several African countries to achieve 100% renewable power by 2030. The Namibian electricity sector has gone through significant change from the traditional Single Buyer (SB) model to the more progressive Modified Single Table 2 Common reform activities in case study countries Reform activity

Zimbabwe

Kenya

Namibia

Regulation

Regulatory authority, Zimbabwe Energy Regulatory Authority (ZERA)

Regulatory authority, Energy and Petroleum Regulatory Authority (EPRA)

Regulatory authority, Electricity Control Board (ECB)

Restructuring

Partial vertical unbundling

Partial vertical unbundling with horizontal unbundling in generation

Vertically integrated with partial horizontal unbundling in generation and distribution

Private Sector Participation

Private sector participation in generation only

Private sector participation in generation only

Private sector participation in generation and distribution

Competition

Single buyer model with Independent Power Producers

Single buyer model with Modified single buyer Independent Power model with Independent Producers Power Producers

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Buyer (MSB) approach. The SB model, was flawed and resulted in a monopolistic stronghold by NamPower. This dominance led to a heavy dependence on electricity imports and was further compounded by a sluggish decision-making framework. In contrast, the MSB model promotes competition by involving the private sector in electricity generation. The primary objectives of the MSB are multifaceted: to strengthen local generation capabilities, promote efficient competition which could result in consumer-friendly tariffs, and offer more choices available to consumers. The MSB model also aims to alleviate the financial pressures traditionally borne by NamPower and the Namibian government. The broader goals underpinning these shifts in the power sector are: to enhance Namibia’s energy autonomy and establish its electricity trading capabilities, especially within the Southern African Power Pool (SAPP). The MSB model aligned with the key national directives, such as Namibia’s National Development Plan, its Energy Policy, and the policy guiding Independent Power Producers. An ambitious projection which aims to make 30% of total energy volumes contestable for transmission customers. To ensure focused management and growth, the MSB has been encapsulated as a separate, ring-fenced entity within NamPower, setting the stage for the evolution of power exports.

7 Institutions in the Power Sectors of Kenya, Namibia, and Zimbabwe The evolving landscape of the electricity supply industry in Kenya, Namibia, and Zimbabwe is intrinsically tied to both codified regulations and implicit norms. This section first provides a comprehensive analysis of the written laws, policies, and regulatory frameworks governing the electricity supply industries in Zimbabwean, Kenyan, and Namibian. Second, we discuss the unwritten norms governing the electricity supply industry in these three countries and how these either undermine or enhance the effectiveness of the formal institutions. In Zimbabwe, the electricity industry is primarily regulated by multiple of laws and policies, including the Electricity Act 13:19, the National Renewable Energy Policy 2020, and the ZERA Tariff Code, among others. Of particular significance is the ZERA CSPMS Guidelines 2021, which provides specific guidelines for sustainable energy. The country is committed to supporting renewable energy sources, as evidenced by policies such as the National Energy Policy. The Energy Regulatory Authority (ZERA) oversees the adherence to these guidelines, ensuring that the sector aligns with national energy goals. Namibia, on the other hand, relies on the Electricity Act 2007 (Act No. 4 of 2007) and the National Renewable Energy Policy (2017) to the electricity supply industry. It also emphasizes the significance of independent power producers with its National Policy for Independent Power Producers (2018). Furthermore, the Modified Single Buyer Market Rules offer technical guidelines for the market, while the Net Metering

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Rules (2016) lay the foundation for decentralized energy production. Oversight is provided by the Electricity Control Board (ECB), to ensure a robust and sustainable energy landscape. Unwritten norms and how these interfere with formal institutions Despite the strong legal underpinnings, each nation’s electricity sector is equally influenced by unwritten norms. These traditions, rooted in cultural and historical undercurrents, often shape the reception and success of formal policies. Understanding this interplay between formalized regulations and deeply rooted local norms is essential. In Zimbabwe, in most cases, utility Chief Executive Officers (CEOs) are more accountable to the line ministry than to the board. This can cause reporting lines and operational problems if not properly managed. However, it can be corrected by ensuring the Board has a role in the appointment and removal of the CEO—and that the roles of CEO and Board Chairman are clearly defined. The synergy or misalignment between these parallel systems can make or break projects. Navigating the electricity sectors of Kenya, Namibia, and Zimbabwe requires a nuanced understanding of both formal legal landscapes and the subtler societal conventions. This intricate balance between formal regulations and unwritten traditions holds the key to unlocking the sector’s potential, presenting both challenges and opportunities for stakeholders.

8 Power Sector Reform Actors—Their Interests, Ideologies, and Influence The power sectors in Kenya, Namibia, and Zimbabwe have experienced significant transformations in the past decade, with diverse actors playing pivotal roles in shaping the course of these reforms. This section discusses where the locus of political and economic power lies, and which actors benefit the most from maintaining the status quo. This section identifies the winners and losers created by the increasing variables in renewables and distributed energy resources and how each group influences decision-making in the electricity supply industry. We explore how changes in the material and political interests of actors influence institutional change in the electricity supply industry and highlight which actors may contribute to the success or failure of reform. In Kenya, IPPs were introduced in response to drought-induced power shortages in the early 2000s. By 2018, there were 11 IPPs contributing one-third of Kenya’s total installed capacity. Central to the sector is the state-owned Kenya Electricity Generating Company (KenGen), which is 70% state-owned. The transmission domain is spearheaded by the Kenya Electricity Transmission Company (KETRACO), overseeing all post-2008 transmission lines, while Kenya Power manages the older transmission infrastructure. Kenya Power remains the primary electricity distributor, with supportive roles played by entities like the Rural Electrification Fund and Renewable Energy Corporation (REREC), previously known as REA.

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The Ministry of Energy is responsible for creating the policy and regulatory frameworks that govern the energy sector and supervises the Energy & Petroleum Regulatory Authority (EPRA), established in 2019 as the successor to the Energy Regulatory Commission. EPRA plays a pivotal role in executing energy policies and ensuring regulatory compliance. Other actors include the Clean Cooking Association of Kenya (CCAK), which aims to foster a conducive market for clean cooking solutions, the Geothermal Development Company (GDC), and the National Land Commission (NLC) aiding in land acquisition for energy projects. The Energy Tribunal, with support from the government, also functions as a vital recourse for dispute resolution in the industry.

8.1 Vested Interests: Winners and Losers in the Power Sector This section distinguishes between winners and losers in the electricity supply industry and how these actors maximize their gains and minimize their losses. We discuss issues of alleged corruption, rent seeking, and the use of patronage in the electricity supply industry. As renewable energy sources become more prevalent in Kenya, independent diesel-based thermal electricity producers, reliant on non-renewable sources, may face challenges given the policy agenda to move Kenya to 100% renewables by 2030. Across the three countries, renewable IPPs and consumers are, without doubt, the winners in the shift towards more renewables. Domestic and industrial consumers will benefit from the environmental benefits of the clean energy transition, more affordable, and reliable electricity. On the other hand, as more industrial consumers adopt renewables, the traditional utilities may well be the biggest losers. In Namibia, the 30% threshold for contestable customers serves to protect NamPower as 30% of total energy volumes will be guaranteed for transmission customers. While Namibia has introduced competitive procurement of renewable energy IPPs, Kenya and Zimbabwe continue to entertain unsolicited IPP projects. As such, the introduction of IPPs has not been without controversy amid claims of “political godfathers” fast-tracking the licencing of some projects. In some state-led projects, it has been alleged that the way tenders are awarded to private individuals is not always above board. In Zimbabwe, the infamous Gwanda Solar project was awarded to Intratek Energy. The company would later be brought before parliamentary hearings amid allegations that company owner was fronting for political elites.

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8.2 Influence: Capabilities of Actors to Advance Their Interests This section places emphasis on where the locus of power truly lies. We discuss political pressures encountered by reform actors, the motivation for these pressures, and from whom these pressures come. We discuss the political and economic factors that could influence the growth of variable renewables and distributed energy resources in Kenya, Namibia, and Zimbabwe. In analyzing the electricity sectors of Kenya, Namibia, and Zimbabwe, it is imperative to ascertain where the controlling power genuinely resides. This task requires a nuanced understanding of the myriad of political pressures that reform actors face, the underlying motivations for these pressures, and their sources. Often, state-owned entities, such as Kenya’s KenGen, Namibia’s NamPower, and Zimbabwe’s ZPC, wield considerable influence given their dominant market positions and state backing. However, in Kenya, the rise of Independent Power Producers (IPPs), backed by international investors and facilitated by favourable government policies, suggests a dynamic shift in the dominant forces controlling the power sector. Such shifts are influenced by both political and economic determinants, potentially impacting the proliferation of variable renewables and distributed energy resources. For instance, in Zimbabwe, financial constraints coupled with electricity shortages have compelled a gradual transition towards IPP inclusion, despite the traditional state dominance. In 2022, ZERA issued licences to 18 new projects with a cumulative capacity of about 80 MW. As these countries navigate their respective power sector terrains, the balance between state control, market liberalization, and external pressures becomes an important area of inquiry.

8.3 Ideological Foundations and Power Sector Reform In this section, we explore the dominant ideologies and values which shape views around the electricity supply industry in Zimbabwe. We probe perceptions on the role of the state in electricity provision and whether electricity is viewed as a public good to be provided by the state. Additionally, we interrogate how these entrenched ideologies either support or hinder transformative change within the sector. Figure illustrates the extent of state involvement in the electricity supply industry in Kenya, Namibia, and Zimbabwe. In Kenya, the state views electricity as a fundamental public good. This is evident in the substantial investment directed towards universal accessibility. Kenya’s Vision 2030 aligns with this commitment to democratic access to electricity. Concurrently, the state has demonstrated a willingness to incorporate market-driven strategies, evidenced by its receptivity to Independent Power Producers (IPPs) following market liberalization initiatives.

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Namibia, similarly, supports the shift towards market diversification in the electricity sector, primarily channelled through NamPower. However, recent policy frameworks, notably the National Integrated Resource Plan, suggest an emerging inclination to diversify the market. This indicates an increasing receptiveness to integrate IPPs, signifying a potential shift in the state’s traditionally dominant role. Zimbabwe’s electricity landscape is characterized by a predominant state hegemony. Yet, the state’s financial limitations and persistent electricity deficits have propelled it towards considering alternative provisioning methods, notably through the inclusion of IPPs. This ongoing negotiation between maintaining state control and embracing market liberalization typifies the complexities inherent in the nation’s electricity reform discourse. In synthesis, while Kenya, Namibia, and Zimbabwe each manifest distinct characteristics within their respective electricity supply sectors, a common thread emerges. The intricate interplay between state actors, market forces, entrenched interests, and prevailing ideologies collectively constructs a multifaceted tapestry, shedding light on the intricate nuances of power sector reforms in these African countries.

9 Implications for a New Wave of Power Sector Reforms This section discusses the implications of the growing share of variable renewables and distributed energy resources driven by unprecedented innovation in enabling technologies and business models. We describe the market readiness to push the products and services that distributed energy resources such as battery storage and electric vehicles offer.

9.1 Power Market Redesign With the exponential growth of grid-tied variable renewable energy technologies and distributed energy generation, market systems face an imperative to adapt. The dynamic nature of these sources necessitates innovative reforms to integrate them seamlessly. The integration challenges are underscored by aspects of time and spatial constraints, the need to encourage ancillary services markets, and considerations for optimal power dispatch, especially against existing bilateral export or importation contracts. Kenya, Namibia, and Zimbabwe each present distinct energy profiles, yet the emerging business models and technological advancements dictate a universal redesign approach. Addressing regional integration becomes essential, particularly in the context of the African Single Electricity Market (AfSEM) and its promise for a unified energy strategy. Regional power pools, such as the Southern African Power Pool (SAPP) and the interconnection with the East African Power Pool (EAPP),

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provide a collaborative platform. These present vast opportunities for both public and private stakeholders in the electricity supply domain, promoting energy exchange, and enhancing grid reliability.

9.2 Regulation of the Power Sector This section discusses the role of the regulator in driving the uptake of variable renewables and distributed energy resources in Kenya, Namibia, and Zimbabwe. We explore the implications of a lack of regulation for emerging technologies given the unprecedented pace of innovation and discuss the independence of the regulatory authority from undue political influence We investigate the relationship between electricity tariffs and electricity sector performance from a regulatory perspective. Finally, we review the current activities of the regulatory authority and whether these satisfy the scope of its mandate. In the evolving energy paradigm, regulators play a pivotal role in driving the adoption of new technologies. A lack of adequate regulation, especially in the face of rapid innovation, can impede sectoral growth. Furthermore, the independence of regulatory authorities from political pressures is crucial to ensure unbiased, effective decision-making. An in-depth examination reveals a nuanced relationship between electricity tariffs and the overall sector performance, emphasizing the role of regulators in maintaining a balance between affordability and sustainability. Kenya’s EPRA, Namibia’s ECB, and Zimbabwe’s ZERA are instrumental in shaping their respective energy landscapes. Ensuring their organizational, management, and financial independence is paramount. The relationship dynamics between these regulatory bodies and their respective line ministries also warrant scrutiny to ensure regulatory efficacy. Regulatory decisions around market entry and licencing profoundly impact the sector’s competitive landscape. By revising rules, regulators can foster an environment conducive to innovation while ensuring grid reliability. As countries grapple with the dual challenges of affordability and sustainability, tariff setting becomes a crucial point of regulatory decisions. Simultaneously, environmental considerations now play a more significant role than ever, emphasizing green energy and reduced carbon footprints. The power markets of Kenya, Namibia, and Zimbabwe are in a flux, driven by technological advancements and the imperatives of sustainability. While challenges abound, so do opportunities. Through effective market redesign and robust regulatory frameworks, these countries can lead the charge towards a sustainable energy future in Africa.

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9.3 Integrating Variable Renewables and Ensuring Reliability The power systems in countries like Kenya, Namibia, and Zimbabwe, are rapidly evolving with the integration of variable renewables and distributed energy resources. This transformative shift has several implications for system reliability, necessitating a rethinking of traditional system operation paradigms. The system integration of variable renewables and distributed energy resources requires meticulous planning, advanced forecasting, and sophisticated grid management techniques. As these renewable energy sources are inherently variable—the intermittency of Solar PV and the unpredictability of wind can challenge system stability and reliability. While the variability of wind and solar PV raises concerns on consistent power availability, when effectively harnessed, these resources can significantly diversify the energy mix, reducing dependency on any single energy source and potentially enhancing overall system resilience. To address the challenges brought by renewables, supply-side management takes the centre stage. One of the promising strategies here involves the flexible operation of conventional power plants. Especially in Zimbabwe, there is increasing discourse on how these plants can be adapted to act as reliable backup options, filling the gaps when renewables are not generating at their peak. Such flexibility ensures a harmonious blend of old and new, as conventional power sources complement renewables, ensuring a steady power supply. Demandside management offers another avenue to ensure system reliability. The mechanisms and policies that influence consumer demand for energy can be put in place to forecast demand patterns more accurately. With the integration of advanced metering systems and real-time data analytics, it is possible to forecast demand patterns more accurately and flexible demand-side operations can pave the way for ancillary services, ensuring that power demand is modulated in response to supply-side fluctuations. The success of this integration also requires robust cooperation between transmission and distribution system operators. A synergized effort between these operators can streamline the flow of renewables into the grid, harmonize demand–supply imbalances, and foster an environment where variable renewables and distributed energy resources can thrive. In summary, the journey towards a renewable-driven power system demands a multifaceted approach. While the challenges are numerous, with the right strategies in place, Kenya, Namibia, and Zimbabwe can unlock the immense potential of renewables, ushering in a new era of sustainable and reliable energy.

10 Conclusion The interplay between politics and economics is ever-present in the power sectors of Kenya, Namibia, and Zimbabwe, as indicated by our comprehensive research. Through our primary research question, we sought to understand how the political economy contexts would influence imminent power sector reforms, especially with

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the burgeoning wave of variable renewable and distributed energy resources in Africa. The trends and patterns observed bring to the fore some salient points, interwoven with the intricacies of political manoeuvring and economic strategy. In Namibia, there is a clear political inclination towards maintaining cost reflective tariffs, an approach which might be perceived as an endeavour to promote economic sustainability and foster investor confidence in the energy sector. In contrast, the political landscapes in Kenya and Zimbabwe lean towards a different strategy, where low tariffs become more than just an economic policy. They metamorphose into political tools, especially during election seasons, facilitating leaders in cementing their authority and garnering popular support. Such strategies underscore how intertwined the power sector is with the political ambitions and electoral strategies. Probing further into the challenges these nations confront, it is evident that power sector complexities are deeply embedded in broader socio-political and economic contexts. While technical and infrastructural challenges within the electricity domain are tangible, they often are symptomatic of broader challenges within the political economy. National agendas, geopolitical considerations, and overarching governance frameworks often overshadow specific sectoral challenges. As our subsidiary research questions prompted, the design and evolution of power markets in Africa, considering the increasing share of variable renewables and distributed energy, are pivotal. The political economy of many African nations is better suited to a middle-ground approach. Outright privatization of the power sector seems less favoured, while regulatory frameworks that allow private participation without ceding complete control are more prevalent. This balanced strategy ensures a synergy of private sector efficiency and state oversight, potentially leading to sustainable energy markets. However, the effective integration of distributed energy resources faces numerous challenges. To fully harness their potential, there is a pressing need to consider the nuanced economic mechanisms. These mechanisms should incentivize distributed energy generation while accounting for the variability of renewable energy sources. The granular approach, both spatially and temporally, to policy formulation and tariff setting is crucial to achieving success. However, this level of sophistication might currently surpass the capabilities of several African power markets. In conclusion, while technological advancements and innovative business models promise a brighter future for Africa’s power sector, the pace and direction will be dependent on each country’s political economy landscape. The complex interplay between political strategies, economic policies, and sectoral challenges will dictate the trajectory and rapidity of these power sector reforms in the foreseeable future.

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References African Development Bank. (2021). Electricity Regulatory Index for Africa 2021. https://africa-ene rgy-portal.org/sites/default/files/2020-11/ElectricityRegulation Index 2020.pdf. African Development Bank. (2022). Electricity Regulatory Index for Africa 2022. www.afdb.org Akorede, M. F., Hizam, H., & Pouresmaeil, E. (2010). Distributed energy resources and benefits to the environment. Renewable and Sustainable Energy Reviews, 14(2), 724–734. Branch, D. (2011). Kenya: Between hope and despair, 1963–2011. yale university press. Cervigni, R., Liden, R., Neumann, J. E., & Strzepek, K. M. (Eds.). (2015). Enhancing the climate resilience of Africa’s infrastructure: the power and water sectors. World Bank Publications. Chazan, N., Mortimer, R. A., Rothchild, D., Lewis, P., & Stedman, S. J. (1999). Politics and society in contemporary Africa. Bloomsbury Publishing. Eberhard, A., & Godinho, C. (2017). A review and exploration of the status, context and political economy of power sector reforms in Sub-Saharan Africa, South Asia and Latin America. Energy and Economic Growth State-of-Knowledge Paper Series. University of California eScholarship Repository. Fisher, J., & Anderson, D. M. (2015). Authoritarianism and the securitization of development in Africa. International Affairs, 91(1), 131–151. Foster, V., Eberhard, A., & Dyson, G. (2021). The evolution of electricity sectors in Africa: Ongoing obstacles and emerging opportunities to reach universal targets. Edward Elgar Publishing. Foster, V., & Rana, A. (2020). Rethinking Power Sector Reform in the Developing World. In Rethinking Power Sector Reform in the Developing World. https://doi.org/10.1596/978-1-46481442-6 Foster, V., Witte, S., Banerjee, S. G., & Moreno, A. (2017). Charting the Diffusion of Power Sector Reforms across the Developing World (issue November). https://doi.org/10.1596/1813-94508235 Gore, C. D., Brass, J. N., Baldwin, E., & MacLean, L. M. (2019). Political autonomy and resistance in electricity sector liberalization in Africa. World development, 120, 193–209. Hornsby, C. (2013). Kenya: A history since independence. Bloomsbury Publishing. International Energy Agency; IRENA; United Nations Statistics Division; The World Bank; & World Health Organisation; (2022). TRACKING SDG7 A joint report of the custodian agencies. www.worldbank.org Kanyenze, G. (2021). Zimbabwe Leaving So Many Behind. Kapika, J., & Eberhard, A. (2013). Power-sector reform and regulation in Africa: Lessons from Kenya, Tanzania, Uganda, Zambia, Namibia and Ghana. http://www.gsb.uct.ac.za/files/Powers ector.pdf Lee, J., & Yang, J. S. (2019). Global energy transitions and political systems. Renewable and Sustainable Energy Reviews, 115, 109370. Melber, H. (2022). Namibia since Independence. In Oxford Research Encyclopedia of African History. Murithi, T. (2013). The African Union and the International Criminal Court: An Embattled Relationship? Rana, A., Ngulube, M., & Foster, V. (2022). GERI 2022 Global Electricity Regulatory Index. https:// esmap.org. Throup, D., & Hornsby, C. (1998). Multi-party politics in Kenya: The Kenyatta & Moi States & the triumph of the system in the 1992 election. Trimble, C., Kojima, M., Perez Arroyo, I., & Mohammadzadeh, F. (2016). Financial Viability of Electricity Sectors in Sub-Saharan Africa: Quasi-Fiscal Deficits and Hidden Costs. Financial Viability of Electricity Sectors in Sub-Saharan Africa: Quasi-Fiscal Deficits and Hidden Costs, August. https://doi.org/10.1596/1813-9450-7788 Wiatros-Motyka, M., Jones, D., Broadbent, H., Fulghum, N., Bruce-Lockhart, C., Dizon, R., Macdonald, P., Moore, C., Candlin, A., Lee, U., Copsey, L., Hawkins, S., Ewen, M., Worthington,

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B., Benham, H., Trueman, M., Yang, M., Lolla, A., Shahram Edianto, A., … Bachelet, M. (n.d.). Global Electricity Review 2023. Oliver Then. World Bank. 2021. 10 Things You Didn’t Know About the World Bank Group’s Work on Climate Change. Factsheet, October. World Bank. (2023, May 22). Data for Zimbabwe. Young, C., & Brown, W. H. (1995). The African colonial state in comparative perspective. History: Reviews of New Books, 24(1), 39–40.

Christine Juta is a Ph.D. Candidate at Power Futures Lab at the University of Cape Town. Her research focuses on the role of new business models and enabling technology innovation in the political economy of power sector reform in Africa. Christine has participated in the Open Africa Power and Enertracks Fellowships. She was formerly a research trainee at the Florence School of Regulation (FSR). She holds a Master of Science degree in Renewable Energy Engineering and a Bachelor of Technology (Hons) degree in Electronic Engineering.

Legal and Regulatory Pathways for Sub-Saharan Africa’s Energy Access and Energy Transition Agenda Ivie Ehanmo and Oghosa Erhahon

List of Abbreviations EL SSA USAID UNOPS UKNiAF USTDA CEPMLP SDG7 CBDR-RC UNFCCC NDC GHG IEA UN AU ECOWAS AFCFTA AFSEM EU

Electricity Lawyer Sub-Saharan Africa U.S. Agency for International Development United Nations Office for Project Services United Kingdom Nigeria Infrastructure Advisory Facility U.S. Trade and Development Agency Centre for Energy, Petroleum and Mineral Law& Policy Sustainable Development Goal 7 Common but Differentiated Responsibilities and Respective Capabilities United Nations Framework Convention on Climate Change National Determined Contribution Greenhouse Gases International Energy Agency United Nations African Union Economic Community of West African States African Continental Free Trade Area Africa Single Electricity Market European Union

I. Ehanmo (B) Electricity Lawyer and, Centre for Energy, Petroleum and Mineral Law & Policy, University of Dundee, Scotland, United Kingdom e-mail: [email protected] O. Erhahon Sustainability and Energy Consultant, Abuja, Nigeria © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_5

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General Block Exemption Regulation World Economic Forum United States of America Nigeria’s Energy Transition Plan National Electricity Regulation Agency Department of Energy

1 Introduction to the Global Energy Transition Agenda 1.1 Global Energy Mix and the Global Decarbonization Agenda All through the nineteenth century, energy security from traditional biomass and coal was predominant. The depletable resources served into the early 1960s when oil and subsequently natural gas industries took hold on energy supply. Since then, countries and industries have relied on these energy resources and their commodities in what now constitutes a Global Energy mix.1 In 2023, according to the Energy Institute Statistical Review of World Energy, the energy consumption from Oil, Coal, and Gas accounts for 50, 45, and 38 thousand terawatt hours2 respectively. Without including the current utilization of traditional biomass which is mainly used in lower income economies for energy access; fossil fuels remain the dominant source of energy. Despite its impressive role in energy consumption sources, fossil fuels emit the largest proportion of pollutants into the environment. These have a negative impact on the planet, and repercussions that are heavily felt with the rising global warming. While an energy mix of coal, natural gas, and oil has led to massive industrialization and advancement, the speed and utilization of these fuels have also left many countries suffering from the impacts of climate change. These impacts include but are not limited to rising sea levels, heat causing wildfires, air pollution, floods, and heavy rainfalls. International climate change instruments and agreements such as the United Nations Framework Convention on Climate Change (UNFCCC) and several national laws which will be discussed further; play a role in bringing attention to how governments and industries can support to drive down the speed of climate change. This is where the concept of decarbonization agenda is introduced. The energy sector accounts as the largest emitter within the most developed countries (China, the United States of America, Germany, Russia, and Canada as the 1

IEA, IRENA, UNSD, World Bank, WHO. 2020. Tracking SDG 7: The Energy Progress Report. World Bank, Washington DC. ©World Bank. License: Creative Commons Attribution—Noncommercial 3.0 IGO (CC BY-NC 3.0 IGO). 2 Energy consumption by source, 2023, Energy mix—Our World in Data.

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largest emitter economies)3 contributing 15 times more than the emissions of the bottom 100 countries. The international and national commitments under the UNFCCC aim to keep countries (via industries) in check. Most parties ratified to the respective agreements have shown commitments especially from low developing economies with 177 of the 198 parties to the Paris Agreement submitting an updated or second National Determined Contribution (NDC) which demonstrates national plans and activities towards achieving lower emissions. Forty countries and counting have announced a Net-Zero emissions target year (either through law, policy, or political pledge)4 to emphasize on their commitment to slowing down their emissions, to align with global Greenhouse Gases (GHG) emission reduction targets.

1.2 Africa’s Energy Mix and the Energy Transition: Energy Access V Energy Transition Europe’s attempts to reduce emissions contribution is rightly its priority to meeting global climate targets and the decarbonization agenda in its energy transition. The concept of energy transition is a transformative measure of consumption, supply, and environmental impacts from energy sources. As energy transition is heterogeneous, several countries are at different stages in many aspects of the global energy and climate nexuses. The transition involves reducing emissions through decarbonization, while promoting renewable and low-carbon energy solutions for a sustainable future. For Africa, the task is not as straightforward as monitoring carbon-intensive imports; it goes beyond, providing energy access and ending energy poverty, while utilizing available resources for a dynamic energy mix. The intrinsic relationship between equitable energy access and climate action to sustainable development and poverty eradication is where the definition of a Just energy transition comes into play. Africa remains one of the most abundant continents with renewable energy and fossil fuels, however, it also is the region with the highest population without access to electricity. Despite global energy mix potentials, each country has its own cocktail of energy resources. There is considerable pressure to adopt clean energy resources and limit carbon emissions. While Africa bears the resources (sun, wind, hydro), it is yet to actualize the technology necessary to harness the resources into energy. In addition, the introduction and implementation of legal frameworks including enabling business environments have dwindled the progress of many projects, plans, and ambitions. The current energy mixes across countries largely include gas and hydropower. While this is obviously not a sufficient baseload for the increasing population, the adoption of additional energy sources could speed up the rate of electrification 3 4

World Resources Institute|This Interactive Chart Shows Changes in the World’s Top 10 Emitters. Net-zero Target Status|Net-Zero Targets|Climate Watch (climatewatchdata.org).

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across the region. The Just Energy Transition supports African countries utilizing their resources to ensure fair and just inclusion and put an end to energy poverty, while using low-carbon processes for power generation. Finding a balance where energy access is met without building on the rising GHG levels and encouraging decarbonization is a priority for African countries towards economic growth. While the world is experiencing a shift from traditional fossil fuels to an energy mix dominated by low-carbon energy, African countries have a strong response to utilize their energy resources in processes that combine renewable energy and energy efficiency with the integration of other sources. According to the United Nations, Africa accounts for less than 4%5 of the world’s emissions. While this is an astonishing amount with the percentage equivalent to that of Germany alone—Africa must have their climate ambitions in mind while integrating their energy mix and enabling a just energy transition. To accomplish these ambitions for Africa’s energy transition, there must be guiding frameworks that operate to support financing, development, and infrastructure growth and identify relevant gaps international communities can provide support. Legal frameworks as witnessed in countries in the Global North have provided substance to their energy supply, energy security, and climate change commitments. The case is no different for Africa, but there are nonetheless barriers that exist and limit prospects for the energy transition.

1.3 Barriers to Africa’s Energy Transition and Prospects Legal frameworks are a fundamental catalyst for national development. Countries participating in economic growth overtime have introduced, launched, and published directives towards meeting their respective government goals. Hence, bold ambitious commitments towards the energy transition are mere sentiments, unless supported by relevant and integrative legislative frameworks, implementing regulations and overall actionable commitments. The International Energy Agency (IEA) in its 2019 Africa Energy Outlook report notes that effective policies are what would guide Africa to an inclusive and sustainable energy future. As the continent takes account of dynamic changes within the energy sector via the energy transition, legal frameworks will be required instruments to drive the transition. Recent frameworks aid additionality for climate change and decarbonization commitments, especially when considering global commitments. The dichotomy set for the energy transition policy in Africa rests between The United Nations (UN) Sustainable Development Goals (SDGs) and the UN Framework Convention on Climate Change (UNFCCC). In 2011, the UN Secretary General launched the Sustainable Energy for All initiative for Africa, to support developing nations, hoping to provide as many as 600 million people with access to modern energy supply and sustainable electricity by 2030. 5

UNEP, Emissions Gap Report, October 2021, https://www.unep.org/resources/emissions-gap-rep ort-2021.

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Leapfrogging to meet global socio-economic and climate measures, international financing bodies and governments have subsequently instigated reduced financing for polluting fuels to reduce carbon emissions. It is therefore without doubt that approaching the next decade requires renewed frameworks and legislation(s) that contribute to implementation and responsiveness. This cue for responsiveness must be country-focused and region-driven to enable adequate commitment. Unlocking energy transition in Africa requires a myriad of factors from globalized value chain, innovative technology, human capital, and commitment. The commitment needed in this era of energy transition means advancing in the reaction and active participation towards net-zero, through low-carbon energy solutions. This suggests putting Africa at the forefront for sustainability and ‘green fuels’, notwithstanding the indication of finance cutbacks on heavy polluting fuels. While this attraction to the African continent to be the ‘green hub’6 is hopeful and could be a chance for economic restoration for traditional fossil fuel heavy countries, meeting this demand requires African nations to be conscious of their carbon generation to match the global priority, albeit the current minimal percentile contribution of the region to the overall global emissions. As trade and industrialization speed up—African countries must adopt legal and regulatory pathways that promote low-carbon fuel production and processes, for Africa to be and remain competitive within the global energy transition agenda. The barriers (legal and regulatory) for energy access and transition in Africa take a revolutionary viewpoint as many African governments are exposed to the rudiments of energy transition as beginners, while grappling with finding a solution to address energy access shortages. The IEA describes this as a ‘stage set for a new wave of dynamism among African policy makers’. Primary considerations for the energy transition are towards increasing investments for energy infrastructure to meet energy demand, while contributing to decarbonization through energy markets. Achieving energy access as witnessed in developed nations requires stringent measures, enabling investment environments and partnerships. This is also true for the African demographics, as they coherently strive to reduce the amount of people without reliable electricity access and at the same time explore the pathway towards the energy transition. Collective measures for partnerships have been identified across the continent, with the African Union (AU) being a centrepiece for addressing the African dilemma of ‘rich in energy resources, but poor in energy accesses. Across the 15 West African countries alone, several frameworks and policies exist backing the energy access and transition agenda. The overarching umbrella of the Economic Community of West African States (ECOWAS)7 of which fifteen countries are members and established in 1975, operates through its own agenda on energy. 6

African countries have been praised for their role to play in the global green energy movement as witnessed in the rise for green hydrogen traction. This also includes development of indigenous green energy companies and knowledge exchange. 7 Other Regional Economic Communities include Arab Maghreb (AMU), Common Market for Eastern and Southern Africa (COMESA), Community of Sahel-Saharan States (CEN-SAD), East African Community (EAC), Economic Community of Central African States (ECCAS) and Southern African Development Community (SADC).

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Nonetheless, private, and regional efforts to fund and promote energy transition and access directives have recently taken a front seat in the Just Energy Transition agenda. Considering there is no set standard for energy transition or increasing energy access as it is heterogeneous,8 individual countries must access their existing infrastructure and introduce their respective frameworks, albeit regional community aspirations. The general speed of adoption of laws and frameworks across the respective energy sectors also presents barriers for in-time implementation and progress on actualization of works such as disruptive changes relating to change in government, re-focusing of political party priorities, and slow adoption time for African countries (and investors) accessing laws for energy access. The culprit is then racing to catch up with developing nations, thus leaving investments hanging to no fruition. Across electricity market frameworks within countries, a recurring aspect involves some form of energy trade to amplify security. These have involved through direct promotion or some resemblance of cross-electricity trade. Therein, the need to prioritize regional electricity markets has never been as critical, particularly from an energy security standpoint to drive energy access. As Africa cannot lift millions of people out of poverty without reliable and accessible electricity, the option for Interconnected (or decentralized) networks to facilitate energy access involves trade between countries. This concept of decentralization approaches has increased in relevance within the last decade 2010s–2020s, with standalone solar and mini-grids infrastructure emerging as viable alternatives to the national grid facilities. It is relevant to mention that this does not exist in competition with the centralized systems but as a complementary option and an extension of electricity pools for energy security. Frameworks within the African Continental Free Trade Area (AfCFTA)9 present a stimulus for energy access through interconnected continental electricity markets.10 In time, these country-to-country connections will scale to meet the intervention for the Africa Single Electricity Market (AfSEM), which seeks to promote energy access and competitiveness to develop the respective energy markets. The purpose behind this concept of connectivity is to attest to the fact that countries with the largest capacity to generate energy realistically (without forecast for industrialization) do not have sufficient demand for energy use to match supply. Therefore, regional electricity laws seek to operate and extend electricity access and supply to neighbouring countries. This projection while having set up ideologies and design faculty will only be successful with adequate legal, policy, and regulatory measures that serve both ends of the connection between countries. A prime addition to consider while addressing existing barriers is the protection of natural minerals. Minerals like lithium, nickel, cobalt, and rare earth elements have 8

Lawhon et al. (2018) Thinking through heterogeneous infrastructure configurations. Urban Stud 55(4):720–732. 9 AfCFTA aims to create a single market for goods, services, facilitated by movement of persons to deepen the economic integration of the African continent. Africa Union. (2012) Agreement establishing the Africa Continental Free Trade Area, African Union. Addis Ababa, Ethiopia. 10 USAID (2018). Power Africa Transmission Roadmap to 2030: A practical approach to unlocking electricity trade. USAID Power Africa.

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been coined as essential components in the rapidly growing clean energy technologies market. Africa which is endowed with these resources must actively seek to (1) promote the use and protect the value of these minerals as witnessed in Namibia11 and Zimbabwe12 placing bans on the export of unprocessed critical minerals as Africa loses billions yearly in illegal outflows of minerals; (2) support innovation and technology development within Africa that drives energy access; and (3) encourage optimization of locally manufactured technologies. Towards the African energy transition, promoting continent-wide local manufacturing of renewable energy solutions is a welcome step in achieving energy transformation for the continent. However, the realization holds that meeting the demand for energy access technologies requires energy-intensive processes, of which the continent is currently not able to match, thus constituting another catch-22 for Africa.

2 The Role of Legal and Regulatory Frameworks in Driving the Energy Transition 2.1 Introduction Recognizing that energy plays a vital role in the development and prosperity of nations, there is the need to ensure that climate emission reduction goals do not jeopardize the availability, accessibility, affordability, and reliability of energy. Therefore, the term energy transition has been coined to pioneer a shift in the source of energy supply from traditional fossil fuel sources to cleaner energy sources. Energy law plays a pivotal role in driving this transition to a low-carbon economy13 by playing three central roles in the energy transition. Firstly, energy law plays a facilitative role by triggering the actions needed for the transition. Secondly, it plays a restrictive role by defining boundaries, constraints, or even outright prohibition in relation to the developments needed in the transition. Thirdly, it plays a steering role by acting as a navigator that guides the developments that take place or ought to take place in the energy transition.14 This section explores the legal and regulatory frameworks driving the energy transition of select jurisdiction(s) from an international and Africa-wide perspective, 11

Namibia is seeking to profit from the growing global demand for metals used in clean energy technologies, 2023 Namibia bans export of unprocessed critical minerals|Reuters. 12 Zimbabwe through its Base Minerals Export Control Act has banned the export of lithium bearing ores, 2022 Zimbabwean lithium ban now in force—The Zimbabwe Mail. 13 Kaisa Huhta, ‘The contribution of energy law to the energy transition and energy research’ (Global Environmental Change, March 2022) https://www.sciencedirect.com/science/article/pii/ S0959378021002338. 14 Kaisa Huhta, ‘The contribution of energy law to the energy transition and energy research’ (Global Environmental Change, March 2022) https://www.sciencedirect.com/science/article/pii/ S0959378021002338.

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adopting a country case assessment approach to proffer pathways that can be adopted in the African context.

2.2 Overview of the International Legal and Regulatory Framework(s) Related to the Energy Transition The legal and regulatory frameworks related to the energy transition are divided into international, regional, and/or national frameworks. The international framework relating to the energy transition is spear-headed by the United Nations Framework Convention on Climate Change (UNFCCC). The UNFCCC lays the foundation for international cooperative action on climate change. The UNFCCC imposes obligations on rectifying states to limit greenhouse gas emissions (GHG).15 While the UNFCCC paved the way for international cooperation and collaboration on climate change, it was quickly realized that the lack of binding obligations on state parties was inadequate for the purpose of addressing the urgency of climate change. Recognizing the need for binding obligations and commitments to advance climate change mitigation and adaptation, the signatory parties agreed to the Kyoto Protocol in Kyoto, Japan. The Kyoto protocol was the first the World’s legally binding treaty to reduce greenhouse emissions. As the Kyoto Protocol’s first commitment period came to an end, Parties convened in Doha, Qatar, to agree on a second commitment period (2013–2020). The Kyoto Protocol second commitment period introduced new rules on how developed countries are to account for emissions. Building on the pillar of the UNFCCC after the second Kyoto commitment period, is the Paris Agreement. The Paris Agreement firstly sets a more concrete universal target to ‘hold the increase in the global average temperature to well below 2 °C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5 °C above-pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change’.16 In furtherance of this goal, parties are expected to ‘undertake and communicate as nationally determined contributions to the global response to climate change, ambitious efforts as defined in the Agreement with the view to achieving the purpose of the Agreement as set out in Article 2’.17 Pursuant to the Paris Agreement, parties have developed a first and first updated Nationally Determined Contributions (NDCs) to climate change. A recurring theme in the NDCs of most nations is to reduce emissions in the energy sector by diversifying the energy mix and increasingly utilize renewable energy sources for electricity

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GHG are gaseous constituents of the atmosphere, both natural and anthropogenic, that absorb and re-emit infrared radiation. 16 Article 2(1)(a), Paris Agreement 2015 https://unfccc.int/sites/default/files/english_paris_agre ement.pdf. 17 Article 3, Paris Agreement 2015.

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generation. On a national level NDCs have further spurred several legal, regulatory, and policy decisions, such as climate change laws in several countries.

2.3 Regional Energy Transition Framework(S) On a regional level, the European Union (EU) has an energy transition framework which consists of the 2023 Climate & Energy Framework. The 2023 Climate & Energy Framework sets out a framework for EU climate and energy policies in the 2020–2030 period.18 The framework includes targets for reducing greenhouse gas emissions and increasing the use of renewable energies.19 Furthermore, the EU Green Deal Industrial Plan is aimed at enhancing the competitiveness of Europe’s net-zero industry and supporting the fast transition to climate neutrality.20 The European Green Deal sets the EU’s green transition ambitions, including EU’s climate targets towards net-zero by 2050.21 The EU proposes to put forward a Net-Zero Industry Act to underpin industrial manufacturing of key technologies in the EU.22 Additionally, in 2022, following Russia’s attack on Ukraine territory: Donetsk and Luhansk, the EU created its Temporary Crisis Framework for State Aid measures to support the EU economy. Together with the amendment to the General Block Exemption Regulation (‘GBER’) that the Commission endorsed, the Temporary Crisis and Transition Framework is expected to help speed up investment and financing for clean tech production in Europe. Lastly, in the EU regional energy transition framework are the Fit for 55 package23 and REPowerEU Plan.24 The European climate law makes reaching the EU’s climate goal of reducing EU emissions by at least 55% by 2030 a legal obligation. In response to the hardships and global energy market disruption caused by Russia’s invasion of Ukraine, the European Commission is implementing its REPowerEU Plan. REPowerEU is helping the EU save energy, produce clean energy, and diversify its energy supplies. 18

European Council: Council of European Union, ‘The 2030 climate and energy framework’ (European Council) https://www.consilium.europa.eu/en/policies/climate-change/2030-climate-and-ene rgy-framework/. 19 Ibid. 20 https://commission.europa.eu/system/files/2023-02/COM_2023_62_2_EN_ACT_A%20G reen%20Deal%20Industrial%20Plan%20for%20the%20Net-Zero%20Age.pdf. 21 Ibid. 22 Ibid. 23 https://www.consilium.europa.eu/en/policies/green-deal/fit-for-55-the-eu-plan-for-A-green-tra nsition/. 24 REpowerEU https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/europeangreen-deal/repowereu-affordable-secure-and-sustainable-energy-europe_en.

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2.4 The Legal and Regulatory Framework in Select Jurisdictions (United Kingdom (U.K.), Germany, and the United States of America (U.S.A.)) As stated in the introduction to this chapter, energy law plays a pivotal role in driving the transition to a low-carbon economy. Consequently, the World Economic Forum (WEF) in its annual Energy Transition Index recognized legislation, policy, and regulations as key indicators of a country’s energy transition readiness, thus, highlighting the importance of legal and regulatory frameworks in charting the energy transition pathway. This section considers the legal and regulatory frameworks of three countries from the Global North that are recognized for putting forward ambitious frameworks for a low-carbon future. These jurisdictions include The United Kingdom, Germany, and the United States of America (USA). Lessons from these jurisdictions will be gleaned in the context of Africa, based on the selected countries highlighted in the later section of this chapter. The lessons from these countries inform the suggested legal and regulatory pathways for Africa’s energy transition, identified in the subsequent Sect. 3.

2.4.1

United Kingdom

The United Kingdom’s Energy Transition Legal and Regulatory Framework consists of UK’s laws and retained EU law(s). The retained EU law is a form of UK domestic law which was created to preserve the substantive law of the UK after EU law was ‘cut-off’ as a source.25 The purpose of preserving the substantive law was to provide legal continuity and certainty in the aftermath of Brexit, for individuals, government, businesses, and other organizations.26

UK Climate Change Act 2008 The Climate Change Act 2008 is the foundation for the UK’s approach to tackling and responding to climate change. The Act requires that emissions of carbon dioxide and other greenhouse gases are turned down and that climate change risks are adapted to, while establishing the framework for achieving these requirements. The Act supports the UK’s commitment to urgent international action to tackle climate change.

The UK government has set a target to significantly reduce UK greenhouse gas emissions by 2050. 25

UK Parliament. ‘Retained EU Law (Revocation and Reform) Bill 2022-23’ (House of Commons Library, 17 October 2022) https://commonslibrary.parliament.uk/research-briefings/cbp-9638/#: ~:text=Retained%20EU%20law%20is%20a,government%2C%20businesses%20and%20other% 20organisations. 26 Ibid.

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UK Low Carbon Transition Plan The UK Low Carbon Transition Plan was presented to the UK parliament in 2009 pursuant to the Climate Change Act 2008. The plan reiterates the goal of the Paris Agreement which is to hold global temperatures to well below 2 °C.27

2.4.2

Germany

Germany began to develop its climate change policies around 1987, making Germany one of the oldest countries in terms of climate change regulation. Greenhouse gas emissions in Germany have decreased since 1990, falling from 1,242 million tonnes of CO2 equivalents in 1990 to 762 million tonnes in 2021.28 Germany ranks as one of the world leaders in the energy transition.

Federal Climate Change Act, 2021 Germany’s Climate Change Act provides a framework for the upcoming years. The Act which was amended in 2021 lays out Germany’s path to climate neutrality raising the carbon dioxide (CO2 ) emission reduction targets by 10 percentage points, to at least 65 percent.29 This means that by the end of the decade (2030), Germany seeks to reduce its greenhouse gas emissions by 65 per cent from the 1990 levels. This even more ambitious target will impact on the CO2 reduction targets in individual sectors up to 2030.30

Renewable Energy Sources Act, 2021 On the basis of Germany’s Renewable Energy Sources Act, 2021, Germany aims to fulfil all its energy needs with supplies from renewable sources by 2035, compared

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Climate Change Committee, Climate Change Act (2008) https://www.theccc.org.uk/what-is-cli mate-change/a-legal-duty-to-act/#:~:text=The%20Climate%20Change%20Act%20commits,20% 25%20of%20the%20UK’s%20emissions. 28 Federal Ministry for Economic Affairs and Climate Action, Climate Action in Figures, July 2022 https://www.bmwk.de/Redaktion/EN/Publikationen/Klimaschutz/climate-action-in-fig ures.pdf?__blob=publicationFile&v=1. 29 Climate Change Act 2021 (Germany) https://www.bundesregierung.de/breg-de/themen/klimas chutz/climate-change-act-2021-1936846. 30 Climate Change Act 2021 (Germany) https://www.bundesregierung.de/breg-de/themen/klimas chutz/climate-change-act-2021-1936846.

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to its previous target to abandon fossil fuels by 2045.31 The Act supported the largescale build-up of renewables under a feed-in tariff scheme.32 The policy led to the creation of a considerable ‘green’ industry: German companies became global champions in the production of solar-PV cells and wind turbines, developing cutting-edge technologies and creating jobs for several hundred thousand employees. Additionally, the Coalition Agreement of 2013 mandated the German stakeholder consultation ‘Citizen Dialogue’ (‘Buergerdialog’). The consultation took six months over a period of 1.5 years, from November 2015 to March 2016. The consultation led to a joint stakeholder catalogue of climate protection measures that aim to reach the German target of 80–95% reduction in greenhouse gas emissions by 2050 compared to the 1990 baseline.33

2.4.3

The United States of America

Since the Biden Administration commenced in January 2021, the United States of America (U.S.) has put climate change at the forefront of its agenda beginning with the signing of the instrument to re-commit the United States of America to the Paris Agreement. Several policy decisions have been made to emphasize the U.S. commitment to the global energy transition.

Inflation Reduction Act, 2022 On the point of law, the U.S.’s Inflation Reduction Act is set to make a historic down payment on deficit reduction to fight inflation, invest in domestic energy production and manufacturing, and reduce carbon emissions by roughly 40 per cent by 2030.34 The Act directs new federal spending to the reduction of carbon emissions, lowering healthcare costs, funding the Internal Revenue Service, and improving taxpayer compliance.35 The Act also portrays the government’s intention to invest $369 billion in Energy Security and Climate Change programmes over the next decade.36

31

International Trade Administration, ‘Germany—Country Commercial Guide’ https://www.trade. gov/country-commercial-guides/germany-energy . 32 Fridolin Pflugmann, Ingmar Ritzenhofen, & Fabian Stockhausen and Thomas Vahlenkamp, ‘Germany’s Energy Transition at a Cross Road’ (McKinsey & Company, 21 November 2019) https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/germanys-ene rgy-transition-at-a-crossroads. 33 https://www.euki.de/wp-content/uploads/2019/01/1_ClimateRecon_Input-Stakeholders.pdf. 34 United States Senate, ‘Summary: The Inflation Reduction Act of 2022’ https://www.democrats. senate.gov/imo/media/doc/inflation_reduction_act_one_page_summary.pdf. 35 McKinsey & Company, ‘The Inflation Reduction Act: Here’s what’s in it’ https://www.mckinsey. com/industries/public-sector/our-insights/the-inflation-reduction-act-heres-whats-in-it. 36 Supra, Note 34.

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Bipartisan Infrastructure Law, 2021 The legislation will advance public transportation in America’s communities through four key priorities. One of the four priorities is Climate. It aims to replace thousands of transit vehicles, including buses and ferries, with cleaner, greener vehicles:

Threefold Net-Zero Technology Action Plan, 2023 The three-fold net-zero technology was developed for technologies needed to achieve net-zero GHG emissions by 2050.

2.5 The Legal and Regulatory Framework Across Africa (Nigeria, Kenya, South Africa, Morocco, etc.) The crux of this section is to chart several legal and regulatory pathways for Africa’s energy transition, following a cursory assessment of the existing frameworks in select countries across Africa. According to the recently released report by the World Economic Forum (WEF), Fostering Effective Energy Transition 2019, countries with strong regulatory frameworks and policy stability are experiencing more success in their efforts to transition towards a low-carbon economy.37 The legal and regulatory framework(s) across select African countries will be enumerated and viewed alongside the global counterparts in the Global North as earlier highlighted.

2.5.1

Nigeria

In 2020, greenhouse gases (GHG) in Nigeria totalled 126.9 million tonnes.38 The energy sector accounts for the largest source of GHG emissions (60% of total emissions).39 Nigeria has recently indicated her desire and plan to transition to a lowcarbon future with the creation of her novel Energy Transition Plan, 2022. The Plan places the country as a pacesetter, being the first African nation to put forward a clear pathway for achieving net-zero emissions. The Energy Transition Legal and 37

World Economic Forum, ‘Fostering Effective Energy Transition 2019 edition: Insights Report’ (World Economic Forum, 25 March 2019) https://www.weforum.org/reports/fostering-effectiveenergy-transition-2019. 38 IUCN, ‘A Review of Nigeria’s 2021 Climate Change Act: Potential for Increased Climate Litigation’ (IUCN, 28 March 2022) https://www.iucn.org/news/commission-environmental-eco nomic-and-social-policy/202203/a-review-nigerias-2021-climate-change-act-potential-increasedclimate-litigation. 39 Ibid.

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Regulatory Framework in Nigeria consists of the Climate Change Act 2021; Nigeria Energy Transition Plan 2022; and the newly enacted Electricity Act, 2023.

Climate Change Act, 2021 The Act codifies national climate actions by mandating the Ministry of Environment to set, among others, a carbon budget, keeping the average increase in global temperature within 2 °C and pursuing efforts to limit the temperature increase to 1.5 °C above pre-industrial levels.40 The Act provides a framework for achieving low greenhouse gas emission objectives (GHG), inclusive of green growth and sustainable economic development.

Nigeria’s Energy Transition Plan, 2022 Nigeria’s Energy Transition Plan (NETP) seeks to achieve carbon neutrality by 2060. The NETP targets key sectors of the energy economy which are the power sector; transport sector; oil & gas sector; cooking and industry.41

Electricity Act, 2023 The recently enacted Electricity Act, 2023 promotes the development and utilization of renewable energy in Nigeria’s energy mix; alongside, other clean energy efficient technologies.

2.5.2

Kenya

In recent years, Kenya has notably created laws that positively affect her transition to a low-carbon economy. Two of these key laws include her Climate Change Act 2016 (in respect of which a Climate Change Amendment Bill is before Kenya’s parliament to amend the Act and notably includes extensive provisions on carbon trading, as of the time of writing this chapter) and her Energy Act 2019.

40

Jumuoke Lambo & Ors, ‘Nigeria: The Climate Change Act 2021: Key Points For Considerations’ (Mondaq, 10 February 2023) https://www.mondaq.com/nigeria/climate-change/1281268/ the-climate-change-act-2021-key-points-for-consideration. 41 Ibid.

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Climate Change Act, 2016 Kenya’s Climate Change Act 2016 provides a regulatory framework that promotes an enhanced response to climate change and provides mechanisms and measures to improve resilience to climate change, while promoting low-carbon development.

Energy Act, 2019 The Energy Act 2019 has created a regulatory framework to ensure Kenya achieves its goal of universal energy by 2030, while reducing its greenhouse gas emissions.

2.5.3

South Africa

South Africa’s energy sector is heavily dependent on dirty fuels. Particularly, her electricity generation is based majorly on coal. However, in recent years, the South African government has begun to take steps to diversify its energy sector with renewable energy auction rounds.

Just Energy Transition Investment Plan South African President Cyril Ramaphosa launched the new Just Energy Transition Investment Plan (JET IP) 2023–2027 for South Africa in November 2022.42 In October 2022, the South African cabinet approved a five-year investment plan for the USD 8.5 billion package. The JET IP is aligned with the Cabinet-approved National Just Transition Framework.

2.5.4

Morocco

Morocco has made the energy transition a national priority to lead the fight against climate change and engage the country in a sustainable development trajectory. Morocco has played a key role in the development of renewable energy. Its energy industry, which accounts for about 26% of its greenhouse gas emissions, has undergone significant transformation in recent years, making Morocco to be recognized as one of the pioneers of the energy transition in Africa.43

42

ZAWYA, ‘South Africa: The latest developments in Just Energy Transition’ (Africa Business, 27 February 2023) https://www.zawya.com/en/economy/africa/south-africa-the-latest-developmentsin-just-energy-transition-ubs2ykju. 43 ISPI, ‘Morocco’s Future Energy: The Path Forward’ (19 January 2023) https://www.ispionline. it/en/publication/moroccos-future-energy-path-forward-32908.

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Morocco’s energy sector transformation began in 2009 with the National Energy Strategy. The aim of the Strategy was to strengthen its power supply security by diversifying its energy mix. The country has further worked to provide the legal and regulatory frameworks necessary for deploying its broader transition strategy, focusing on market creation. Some of which are discussed below.

2.5.5

Law 13–09 on Renewable Energy (Revised), 201544

Morocco adopted Law 13–09, also called the ‘Renewable Energy law’, which is the regulatory framework for the production and sale of electricity from renewable energy sources in the context of private projects. Law 13–09 has since been amended by Law no. 40–19 on renewable energy and Law no. 48–15 on the regulation of the electricity sector and the establishment of the National Electricity Regulation Agency (ANRE) enacted by Dahir no. 1–23-20 dated 10 February 2023 and Law no. 82–21 on self-generation of electricity enacted by Dahir no. 1–23-21 dated 10 February 2023 (together the Reform).45

Revised Nationally Determined Contribution In its new NDC, the country has increased its emissions reduction targets to 45.5%, moving forward from the business-as-usual scenario by 2030 fixed at 42%, also including an unconditional reduction target of 18.3% from 17%.46

2.6 Gaps Identified in the Legal and Regulatory Framework Across Africa (Nigeria, Kenya, South Africa, Morocco, etc.) in Comparison With the Frameworks in the Identified Countries From the Global North The following gaps have been identified based on a comparison of the frameworks in the select countries in the Global North, alongside the Global South.

44

Ouns Lemseffer & Ors, Renewable Energy Sector Reform in Morocco – How will it impact the market (Clifford Chance, April 2023) https://www.cliffordchance.com/content/dam/cliffordc hance/briefings/2023/04/renewable-energy-sector-reform-in-morocco.pdf. 45 Law 13-09 on renewable energy, regulated by Decree 2-10-578 https://climate-laws.org/doc ument/law-13-09-on-renewable-energy-regulated-by-decree-2-10-578-and-amended-by-law-5815_ab3e. 46 Ibid.

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Legally Binding Targets

The UK has a legally binding net-zero target by 2050 under its Climate Change Law and new interim targets to reduce emissions by 78% by 2035. African countries have set targets in Nationally Determined Contributions and related policies to reduce GHG by stipulated percentages and increase the utilization of low-carbon energy sources. However, the correlation between the set targets and the actions to achieve the stipulated targets is missing. The inclusion of legally binding targets may stir the action needed to effectively transition in a manner and a pace that considers the unique dynamics of the respective countries.

2.6.2

Political Will

The policy actions required to drive the attainment of climate change targets and goals are somewhat lacking in the African context. While some African countries have proceeded to develop action plans, particularly in pursuance of targets in Nationally Determined Contributions, the key policy actions to steer the achievement of the goals are lacking. For example, some countries have indicated plans to transition to the deployment of electric vehicles, but the granular details in terms of the strategic mechanisms and transition plans have not been itemized. Illustratively, the U.S. Bipartisan legislation portrays the government’s intention to invest $369 billion in Energy Security and Climate Change programmes over the next decade. In contrast, Nigeria’s Energy Transition Plan, for example, itemizes the cost associated with the intended transition but fails to map out the financing strategy for the attainment of the transition goals by the government.

2.6.3

Innovation and R&D

Illustratively, the U.S. Department of Energy (DoE) in pursuant to its climate goals has developed several Energy Earthshots initiatives which are aimed at driving major innovative breakthroughs; required to solve the climate crisis, reach 2050 net-zero carbon goals, and create the jobs of the new clean energy economy. A gap exists in this regard in the policy actions of African countries. Beyond naming capacity building and promotion of innovation as key pathways, efforts must be put in place to operationalize/steer innovation and the needed capacity building required to drive the energy transition in countries across the continent.

2.6.4

Inadequate Incentives

Although it is recognized that African governments may not possess the capacity to fund major incentives, considering other competing interests, alongside the need for basic infrastructural development such as good roads, public health facilities,

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and engineering energy access, indirect financial incentives such as tax reductions, import duty reductions, etc., can be explored to fill this gap. Nevertheless, each country must sufficiently develop its tax base, to earn sufficient tax revenues that will form the basis of proposed incentives scheme(s). Africa is a unique terrain with its unique investment challenges. Therefore, a lot more needs to be done to incentivize private sector financing of the energy transition.

2.7 Legal and Regulatory Pathways to Scale up Africa’s Energy Transition and Increase Energy Access in the Region Having considered the legal and regulatory frameworks of select countries in the Global North and the Global South and identified gaps in the frameworks in the Global South when compared with that of the Global North, this section proffers legal and regulatory pathways that can be considered for Africa’s transition to a low-carbon energy future. The legal and regulatory pathways identified for Africa in this section are patterned based on the key parameter(s) of the legal and regulatory framework(s) in the select jurisdictions from the Global North, with recommended variations where necessary to adapt to the uniqueness of the African region, on a region-wide and country focus perspective.

2.7.1

Legal and Regulatory Pathways/Frameworks Across the Globe47

Climate Change Regulation Each of the identified countries in the Global North has developed climate change laws. The United Kingdom has its Climate Change Act, 2008, the United States of America has its Inflation Reduction Act, 2022, and Germany has the Federal Climate Change Act, 2021. Each of these frameworks communicates each country’s commitment to climate change and buttresses the centrality of their energy sector to climate change mitigation, thus informing energy investment decisions. In the case of the assessed African countries, while Nigeria and Kenya have climate change laws, Morocco and South Africa still have these components missing. Although Morocco has other climate-related policies, a robust climate change law serving as a framework for climate action in the country is not yet in place. However, it is worth noting that South Africa has a Climate Change Bill which is under review. In particular, the United Kingdom’s climate change obligation committed the U.K. government to a binding commitment of net-zero by 2040. Such self-binding commitment(s) by 47

World Economic Forum, ‘Fostering Effective Energy Transition 2021 edition: Insights Report’ (World Economic Forum, April 2021) https://www3.weforum.org/docs/WEF_Fostering_Effective_ Energy_Transition_2021.pdf.

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the government is worth considering in the context of Africa. Governments and government agencies are more likely to take decisions in line with climate change frameworks where there are binding emission reduction obligations.

Regulations on Finance Mechanisms for financing clean energy projects should be incorporated into laws and regulations. For example, the Bipartisan Infrastructure Law of the United States incorporates $5.6 billion in Low- or No- Emission Bus Grants to transition to low- or zero-emission buses and purchase fuelling and maintenance infrastructure.48 While African governments may not have such funds at their disposal to outrightly finance clean energy solutions, laws could incorporate measures such as public–private partnerships and concessions to finance key clean energy technology sectors.

Incorporation of Consumer Side Indirect Finance Mechanisms The United States Inflation Reduction Act of 2022 incorporates consumer-side tax incentives to influence consumer behaviour in favour of clean energy technologies. Commendably, Kenya has also introduced the Kenya Draft Net Metering Regulation, 2022 which seeks to provide a consumer side incentive by incentivizing selfproduction and consumption of renewable energy. More African countries can introduce such mechanisms to influence individual energy consumption patterns. This is particularly important considering the high cost of clean energy technologies.

Promoting the Development of Clean Energy Technologies The availability and deployment of clean energy technologies are central to the transition to low-carbon economies globally. The United States of America has developed several energy shots including Hydrogen shot; Long Duration Storage shot; Carbon Negative shot; Enhanced Geothermal shot; Floating Offshore Wind shot; and Industrial Heat shot. Each shot is developed as a department-wide initiative to develop cost-competitive technologies in the different sectors with stipulated greenhouse gas emissions reduction targets. Africa could adopt such an approach and design initiatives/programmes through its parastatals/ministries that spur technological development in the various clean energy technology sectors. The obligation to create these programmes could be incorporated into climate change laws with stipulated provisions for monitoring the actual implementation of developed programmes and their effectiveness. 48

Federal Transit Administration, Bipartisan Infrastructure Law https://www.transit.dot.gov/BIL#: ~:text=The%20Bipartisan%20Infrastructure%20Law%2C%20as,transportation%20in%20the% 20nation’s%20history.

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Stakeholder Consultation Germany’s legal and regulatory framework to a large degree incorporates stakeholder consultation in climate change decisions, as it relates to the energy sector. The result has been the willingness of energy sector stakeholders to take up obligations and measures that advance the transition to a low-carbon economy. Africa should consider such an approach rather than autocratic decision-making. Stakeholders’ consultation should be legally incorporated in key climate change/energy transition regulations. The ripple effect of such legal and regulatory measures is that stakeholders will be a part of the decision-making processes and where stakeholders are a part of the decision-making process, the willingness to abide by the decisions is higher. Furthermore, it limits the propensity for investor-state disputes arising because of changes in government policies.

2.8 Conclusion and the Way Forward The role of laws, regulations, and policies in driving the energy transition cannot be overemphasized, particularly in Africa. The established energy processes in comparison with the cost of transitioning to cleaner energy sources naturally militate against the utilization of clean energy technologies and clean energy processes. Therefore laws, regulations, and policies can be viewed as instruments for steering energy investment and energy consumption decisions in support of the energy transition. The assessment of legal and regulatory frameworks in the selected African jurisdictions alongside the global counterparts reveals gaps and lessons in Africa’s energy transition pathway. Lessons and practices in jurisdictions within the Global North provide insights on workable legal and regulatory pathways that could be explored in Africa, alongside consideration regarding the region’s dynamic energy mix potentials.

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Kaisa Huhta. The contribution of energy law to the energy transition and energy research. Global Environmental Change. (2022). https://www.sciencedirect.com/science/article/pii/S09593780 21002338 Kenya Ministry of Energy. Renewable Energy Auctions Policy. (2021). https://communications.bow manslaw.com/REACTION/emsdocuments/Renewable%20energy%20auction%20Policy.pdf Kenya Ministry of Energy. Feed-in-Tariffs Policy on Renewable Energy Resource Generated Electricity (Small-Hydro, Biomass and Biogas). (2021). https://communications.bowmanslaw.com/ REACTION/emsdocuments/fitPolicy.pdf KPMG. Commentaries on The Electricity Act 2023. (2023). https://assets.kpmg.com/content/dam/ kpmg/ng/pdf/commentaries-on-the-electricity-act--2023.pdf Lawhon, M., et al. (2018). Thinking through heterogeneous infrastructure configurations. Urban Stud, 55(4), 720–732. Meyer-Renschhausen, M. (2013). Evaluation of feed-in tariff-schemes in African countries. Journal of Energy in Southern Africa, 24(1), 00. Retrieved June 23, 2023, from http://www.scielo.org. za/scielo.php?script=sci_arttext&pid=S1021-447X2013000100008&lng=en&tlng=en. Mineral resources & energy. https://www.energy.gov.za/files/iep_frame.html Namibia is seeking to profit from the growing global demand for metals used in clean energy technologies, 2023 - Namibia bans export of unprocessed critical minerals | Reuters National grid. https://www.reuters.com/business/energy/renewable-energys-share-german-poweruse-tops-50-q1-2023-04-28/#:~:text=Renewable%20energy’s%20share%20of%20German% 20power%20use%20tops%2050%25%20in%20Q1,-Reuters&text=Germany%20wants%20g reen%20power%20from,mostly%20for%20grid%20back%2Dup. Office of Economic Impact and Diversity, ‘Justice40 Initiative’. https://www.energy.gov/diversity/ justice40-initiative Office of Economic Impact and Diversity, ‘DOE Justice40 Covered Programs’. https://www.ene rgy.gov/diversity/doe-justice40-covered-programs Ouns Lemseffer & Ors. Renewable Energy Sector Reform in Morocco—How will it impact the market. Clifford Chance. (2023). https://www.cliffordchance.com/content/dam/cliffordchance/ briefings/2023/04/renewable-energy-sector-reform-in-morocco.pdf Paris Agreement 2015. https://unfccc.int/sites/default/files/english_paris_agreement.pdf PIDA, Policy and Regulatory Framework. (October 2021) - Policy and Regulatory Framework | Virtual PIDA Information Centre - vPIC (au-pida.org) Power Africa. Eswatini Power Africa Fact Sheet. https://www.usaid.gov/powerafrica/eswatini Renewable energy’s share of German power use tops 50% in Q1. (2023). https://www.reu ters.com/business/energy/renewable-energys-share-german-power-use-tops-50-q1-2023-0428/#:~:text=Renewable%20energy’s%20share%20of%20German%20power%20use%20t ops%2050%25%20in%20Q1,-Reuters&text=Germany%20wants%20green%20power%20f rom,mostly%20for%20grid%20back%2Dup Republic of South Africa. Renewable Independent Power Producer Programme. https://www.gov. za/about-government/government-programmes/renewable-independent-power-producer-pro gramme South Africa: The latest developments in Just Energy Transition. Africa Business. (2023). https:// www.zawya.com/en/economy/africa/south-africa-the-latest-developments-in-just-energy-tra nsition-ubs2ykju UK Parliament. Retained EU Law (Revocation and Reform) Bill 2022–23. House of Commons Library. (2022). https://commonslibrary.parliament.uk/research-briefings/cbp-9638/#:~:text= Retained%20EU%20law%20is%20a,government%2C%20businesses%20and%20other%20o rganisations United Nations. Amplified Efforts in Renewable Energy: United Nations Eswatini. (2021). https:// eswatini.un.org/en/175395-amplified-efforts-renewable-energy-are-needed United Nations Environment Programme, Emissions Gap Report, October 2021, https://www.unep. org/resources/emissions-gap-report-2021

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Ivie Ehanmo is a renowned multi-jurisdictional expert in the energy sector with over 15 years’ experience. She is the Founder of Electricity Lawyer (EL), which seeks to promote energy access through knowledge access. Ivie has consulted for global institutions such as the World Bank, U.S Agency for International Development (USAID), United Kingdom Nigeria Infrastructure Advisory Facility (UKNiAF), etc. Ivie holds a PhD in Electricity Law and Regulation, and is a Doctoral Researcher at the Centre for Energy, Petroleum and Mineral Law & Policy, University of Dundee. Oghosa Erhahon is a qualified lawyer and holds a Masters in Energy and Environmental Law from Nottingham Law School, UK. She has experience working as a policy professional on intersectionality topics across electricity markets, energy transition and sustainability and most recently carbon markets. She previously worked with the Global Hydrogen Diplomacy Programme and is a co-author of the acclaimed ‘Touching Hydrogen Future’ book. She has published several works including Power in Nigeria: The Decade of Gas (2020), Natural Gas and the Energy Transition – Implications for the Nigeria Energy Industry (2022), Lighting Africa’s Path to Sustainable Energy Transition: The Role of Green Bonds (2023) and others. Oghosa has also given sector-wide presentations, workshops, interviews and a TEDx Talk on Carbon Neutrality in 2021. She is a notable contributor to Social Impact and Climate Change work streams and provides support as a Discourse, Reporting and Communications Advisor.

Policy Framework and Regulations to Promote Clean Energy and Renewable Energy Transition in ECOWAS Countries Charly Gatete and Haliru Dikko

List of Abbreviations RE RES IPP RET ACEC EAPP SAPP NRA CEMGs ECOWREX GOGLA SHS GMG EREP NREAPs EE WP 1 WP 2 NERC RES REFIT RES-E

Renewable energies Renewable energy sources Independent Power Producer Renewable energy transition African Clean Energy Corridor framework Eastern Africa Southern Africa Power Pools National Regulatory Authority Clean energy mini-grids ECOWAS Observatory for Renewable Energy and Energy Efficiency Global Off-Grid Lighting Association Solar home systems Green mini-grids ECOWAS Renewable Energy Policy National Renewable Energy Action Plans Energy Efficiency Work Package 1 Work Package 2 Nigeria, The Electricity Regulatory Commission Renewable energy sources Renewable Energy Feed-in Tariff Renewable energy-sourced electricity

C. Gatete (B) · H. Dikko ECOWAS Regional Electricity Regulatory Authority (ERERA), Energy Commission Building, Ghana Airways Avenue, Airport Residential Area, Accra, Ghana e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_6

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1 Introduction The international commitment against climate change encourages countries to set up progressive policies and initiatives to promote investment in electricity projects based on clean energy sources. The progressive trend towards higher shares of electricity from renewable energy sources (RES) in the mix of energy is manifest across the ECOWAS region. Some Independent Power Producer (IPP) projects on RE (target solar Photovoltaic) and clean energy mini-grid projects have been launched in some countries to improve energy access in urban and rural areas. This situation comes with two challenges: how to promote clean energy to increase energy access in the region? And how do we regulate clean energy project activities to guarantee their economic sustainability and meet local and national needs in terms of electricity access? In this context, policies and regulations play an essential role, and regulators at the national and regional levels (ERERA) must set up some practices to encourage the development of electricity from RES. This paper aims to describe the current policies and analyses the role and practices of national regulators in ECOWAS countries in promoting clean energy and energy transition in the region. The paper is based on empirical data to highlight the situation on the ground and identify best practices and potential solutions in regulatory practices. After a brief literature review and methodology, the second part presents a review of the initiatives and policies to promote clean energy in the ECOWAS region, and the last part discusses the regulatory challenges, role, solutions, and current regulatory practices adapted by regulators to promote investment in clean energy in ECOWAS region.

2 Literature Review and Methodology 2.1 Literature Review of Renewable Energy Transition (RET) in Africa The evolution of the global agenda to shift to a low carbon economy became more pronounced around 1992 and after when international treaties such as the UNFCCC, Kyoto Protocol, and Paris Agreement were formulated, discussed, and agreed upon by countries to contribute to stabilising carbon emissions, managing the impacts and best route for the RE transition. Energy is among the five sectors contributing to high carbon emissions with cities, food, water, and land use (Smil, 2016). Analysing the drivers for transitioning to RE (Gielen et al., 2019) and Sovacool and Griffiths (2019) found that technical and economic characteristics can accelerate RE transition. They define technical characteristics as energy efficiency, resource access, and various scalable renewable energy technologies. Economic characteristics are mainly underpinned by significant socio-economic benefits such as customer-quality energy service and job creation.

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According to Smil (2016), enabling policy frameworks designed by governments have also served as foundations for successful RE transition. Smil (2016) identified some examples, including Brazil’s ProAlcool Programme of 1975—designed to reduce oil import by capitalising on biofuels from the sugarcane industry; Germany’s Energiewende of 2010, designed to reduce fossil fuel consumption without including nuclear energy; and Denmark’s Energy Strategy 2050 (adopted in 2011). Other countries with explicit policies for energy transition also include India, Turkey, Russia, the United States of America, and China (Gielen et al., 2019; Smil, 2016). The African continental narrative about the energy sector is somewhat dominated by the debate around fossil fuels and natural gas (Africa Union, 2022). However, several notable policy developments support a more sustainable, lower-carbon energy system. The African Union recently launched the African Single Electricity Market, creating a more robust, integrated continental power system (AU, 2022). Renewable energy objectives may not drive initiatives like the AfSEM. However, they could help optimise African renewable energy sources, further strengthening the business case for utility-scale solar and wind power. This is also the idea behind the African Clean Energy Corridor framework (ACEC), an intergovernmental partnership with IRENA for developing North–South power transmission chain across the 21 countries in Eastern Africa (EAPP) and Southern Africa Power Pools (SAPP) (IRENA, 2021). While still very far from a reality, these initiatives help develop more granular clean energy policy scenarios, even if the political and financial conditions for their success are not yet entirely in place. More recently, the AU’s 2022–2032 climate strategy shows a clear commitment to clean energy as a critical driver of climate-resilient development (Africa Union, 2022). According to the United Nations, Africa’s off-grid route to access energy is critical. It is expected that a significant increase in electricity access will be achieved due to progress in the off-grid model. One objective of the commitment to RE Transition and to achieve the United Nations SDG 7 in Africa. In parallel to utility-scale developments is to increase decentralised renewable energy. It is primarily solar in both rural and (peri-)urban areas (Le Picard & Toulemont, 2022; Lighting Global/ ESMAP, GOOGLA, and Efficiency For Access, Open Capital Advisors 2022). In some regions, decentralised renewable energy is emerging as an alternative to highly ineffective rural electrification programmes, cost-effectively reaching underserved areas and replacing often expensive diesel backup power. Off-grid solar power generation in Africa increased rapidly from 2011 (see Fig. 2). Between 2016 and 2019, 8.5 million people in Sub-Saharan Africa gained access to electricity through solar home systems; the majority are in East Africa (IRENA, 2022), while the World Bank estimates that between 2010 and 2019, access to mini-grid systems more than doubled from 5 to 11 million people (World Bank, 2021).

2.2 Methodology Framework One of the objectives of this study is to highlight the status of RE promotion, policies, and regulatory practices in the ECOWAS region.

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To identify and review the role of national regulators, and their regulatory measures, and how they promote clean energy at the national level, we used a mixed source of data and information. The first sources are secondary source documents such as Renewable Energy Policies and Action Plans, Laws, and Regulations both at regional and national levels. Secondly, we conducted data collection and investigation with a questionnaire sent to the National Regulatory Authority (NRA) to collect specific primary data and information on IPP, mini-grid initiatives, and practices. Data on the clean energy mini-grids (CEMGs) in the region used in this analysis came mainly from ECOWAS Observatory for Renewable Energy and Energy Efficiency (ECOWREX), The Africa Energy Portal of AfDB, NRA, private operators, donors, etc. The methodology framework from data and information collection to policy and regulatory practices analysis is the following (Fig. 1).

Primary source documents

Renewable Energy Policies/ Regulations/Action Plans

Data collection

Data collection (ECOWREX, IPP, IEA, etc.) and interviews with National Regulators Authority

Theoretical research papers

Policy and regulatory practices analysis

Status of RE promotion and regulatory framework /practices in ECOWAS region

Literature review

Fig. 1 Methodology framework

Fig. 2 Energy access in % of the population (national, rural and urban) in ECOWAS from 2000 to 2019. Source Authors from the Africa Energy Portal database

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The estimated number of stand-alone renewable energy systems was based on available data and may be over- or understated by 20% of the actual number. The estimation was the sum of the values provided by different sources such as relevant official institutions in charge of energy and national statistical services; regional and country programmes (PRODERE, GIZ Energizing Development Program); the Global Off-Grid Lighting Association (GOGLA) annual market reports from 2016 to 2018 (GOGLA, 2018); private operator and donor activities.

3 Clean Energy Promotion and Policies in the ECOWAS Region The ECOWAS region comprises fourteen mainland countries and one island nation, Capo Verde. The region’s demography is marked by a robust annual population growth estimated at 2,67%, with a population of 401,861,255 in 2020 and a projection of 526,868,764 people in 2030 (United Nations 2019). This demographic growth poses a challenge to energy access in the region. Even if energy access has increased in the region since 2000 (Fig. 2), more than 170.4 million people in the region need access to electricity. The Africa Energy Portal mentions that this is around 18.4% of the population in the urban areas and 72% in the rural areas. In this situation, the main challenge is facing the ECOWAS region, improving people’s energy access through new connections.

4 Challenges for New Connections in Energy Access and Opportunities from Green Mini-Grids (GMG) For that, there are three main options to provide new connections: (i) the extension of the national grid to unserved areas, chiefly in rural areas, (ii) the development of off mini-grids, and (iii) the deployment of autonomous production systems like solar home systems (SHS) that provide energy to households. Each approach has its benefits and challenges, and the authorities can combine the three in an adapted energy access strategy. Suppose the grid-extending approach is generally not economically viable because of the large size of the countries and the dispersion of the consumers. The two other approaches to providing electricity to populations through on-grid or off-grid mini-grids seem most appropriate and accessible for Sub-Saharan African populations, including West Africa. According to the International Energy Agency (2014), by 2040, 70% of the new electricity connections in rural areas in sub-Saharan Africa will come from offgrid solutions and mini-grids, two-thirds of which will be powered by RE due to lower costs, technological advancements, and more efficient devices. Thus, the most advantageous approach is using RE sources, such as solar, wind, hydro, or bioenergy

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in power mini-grids. They are economically beneficial because these energy sources are widely available in the region and cheaper. They are also climate-friendly because of their lower-carbon emission. These kinds of mini-grids are called Green mini-grids (GMG). They are small-scale electricity networks developed by private businesses, communities, or utilities to provide energy to users such as households, SMEs, or rural communities. The power is generated from RE sources, such as solar, wind, biomass, or hydropower, and hybrid combinations of all the above, including diesel generators for backup and peak loads. The total capacity is estimated at 95 GW, predominating thermal sources (47%) (WAPP, 2020). Regional Key performance on RE on-grid installed capacity (excluding medium and large hydro) shows that the first RES is hydro with 277 MW, followed by solar with 259.9 MW. Intending to promote RE and accelerate the deployment of GMG, there is a significant challenge for the public authorities, which is the establishment of an appropriate political and regulatory framework that involves the development of technical codes, standards, rules, and procedures for the interconnection of green mini-grids and offgrid systems to the power system so that the system can function as one. In taking up this challenge, many countries in the ECOWAS region developed and launched initiatives and projects in RE.

5 Initiatives and Clean Energy Projects Clean energy can be understood as energy obtained from renewable sources that have low carbon emission or net zero emission (Dell & Rand, 2004). Based on this definition, solar, hydro, wind, geothermal, and biomass energy are considered clean energies (Bensebaa, 2013). In the least developed countries and especially in the ECOWAS region, most of the initiatives and projects on clean energy are focused on traditional renewable energy and bioenergy. Most of these projects were launched during the 2006–2007 energy crisis. We can identify two periods in the development of clean energy projects. The first period was from 2007 to 2009. It was the post-energy crisis to identify and develop initiatives and projects for the renewable energy transition. The international discourse, the results of research on clean technologies, and the interest shown by the various economic players in finding cheaper energy sources have been critical factors in promoting renewable energies. The second period in promoting renewable energies and the RE transition begins with the everyday awareness and the ambitious and engaging speech of the various stakeholders during the Paris Conference in 2015 (United Nations, 2015). Indeed, the Paris Agreement is an international treaty to reduce global warming, which concerns mitigation and adaptation to climate change and its financing (COP 21 Agreement). The agreement, in particular articles 4, 6, and 7, promotes the definition by States of their nationally determined contributions (CDN) and the consideration of mitigation measures, including the promotion and greater use of renewable energies and energy efficiency initiatives (Fig. 3).

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Fig. 3 Two periods in the development of RE projects in the ECOWAS region from 2000 to 2022. Source Authors from ECOWREX

a. Electricity Generation Figure 4 compares the ECOWAS electricity generation from 2000 to 2020 per source. It shows that the generation from renewable and clean sources increased from 2007 but remained marginal compared with generation from fossil sources. It can be observed that from 2000 to 2002, electricity mainly came from hydro and fossil fuels at almost the same rate. However, from 2003, electricity generated from fossil fuels rose exponentially from 21,455.10 MW to 55,210 MW in 2020, while electricity from hydro only increased from 14,814.5 MW in 2003 to 18,694.7 MW in 2020. In addition to hydropower and fuel fossil electricity, electricity was also generated from Renewable sources; however, electricity generated from these sources is still relatively low and represents only a tiny percentage (about 1%) of the total electricity generated. The electricity generated from Renewables here can be grouped into two (2). First is the electricity generated from Biofuels and waste, which, from 2000 to 2003, stagnated at around 100 MW. From 2003, electricity from this source increased steadily from 108 MW to 311.7 MW in 2017. From 2017, the electricity from these sources fell again to 243 MW by 2020. Second, is the electricity generated from solar, wind, and other renewable sources? This category is still relatively low but increased after 2013 from 24 MW to 522.3 MW. b. PP and Mini-Grid Development The development of mini-grids and some independent power producers (IPP) based on RE sources have been significant in the ECOWAS region since 2000. Public actors

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Fig. 4 Electricity generation per source in ECOWAS from 2000 to 2020. Source Authors from ECOWREX

or utilities mostly launch the green mini-grids (GMG). Figure 5 shows progress between 2014 and 2019 in grid-connected RE capacity and the development of RE mini-grid projects. Within this period, private investors have developed many IPP projects, which can be explained by the most suitable and appropriate political and regulatory framework promoting investors’ confidence (S4All Africa and AfDB, 2015).

Fig. 5 Comparison of grid-connected RE capacity in 2014 and 2019. Source Authors

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6 Clean Energy Promotion through Regional and National Policies The ECOWAS has adopted the RE policy as contained in the supplementary act A/ SA.3/7/13 on the ECOWAS Renewable Energy Policy (EREP). This policy aims to contribute to achieving universal access to sustainable energy services in the ECOWAS region by 2030. Especially for grid-connected RE, the policy seeks to increase the share of RE in the overall electricity mix, including large hydro, to 35% by 2020 and 48% by 2030 and excluding large hydro, to 10% by 2020 and 19% by 2030 (from wind, solar, bioenergy and small-scale hydropower). Considering decentralised RE solutions, the policy aims to increase the share of the rural population served by decentralised renewable electricity services (e.g. mini-grids and stand-alone systems) to 22% by 2020 and 25% by 2030 (ECREEE, 2013). At the national level, all 15 ECOWAS Member States have set up some policies and/or strategies to promote RE and increase the share of RE in their overall electricity mix. Table 1 summarises the mix of national RE policies and strategies in the ECOWAS region. To promote the implementation of the ECOWAS Renewable Energy Policy (EREP), The ECOWAS Centre for Renewable Energy and Energy Efficiency (ECREEE) assisted the Member States in elaborating National Renewable Energy Action Plans (NREAPs) for the period 2015–2020. They were perfectly aligned with Table 1 Comparative analysis of RE/bioenergy policies in ECOWAS countries Bioenergy BENIN BURKINA FASO

P/S

CABO VERDE COTE D’IVOIRE

RE

Solar/off-grid on grid

P/S-AP

P/S

*

Biofuel P/S

P/S AP

AP

THE GAMBIA

L/A-AP

GHANA

L/A-AP

GUINEA

*

GUINEE-BISSAU

P/S-AP

LIBERIA

P/S

MALI

P/S-AP

NIGER

P/S-AP

NIGERIA

P/S

P/S-AP

SENEGAL

P/S

P/S-AP

SIERRA LEONE

P/S

P/S-AP

TOGO

P/S

L/A

P/S

P/S P/S

Description L/A: Law or Act P/S: Policies or Strategy AP: Action plan *Energy policy with a section on RE

P/S

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the broader strategic goals of ECOWAS Vision 2020 and were based on scenarios and targets by 2030 of the EREP. The analysis of different Member States Policies and Laws also shows that the majority are old and out of time. The targets for the majority are 2020 or 2022 and need to be adjusted according to the new ECOWAS Energy Policy, which is in development, and the ECOWAS Vision 2050 on energy. To promote RE generation and integration in the ECOWAS regional electricity market, the WAPP Master Plan, which provides the overall strategy and framework for preparing and implementing all WAPP priority projects tailored to the conditions in the West African energy market, considers the development of the following renewable energy generation: Hydroelectric power plants, Solar photovoltaic power plants, and Wind turbines.

7 Regulatory Challenges, Role, and Practices in Promoting Clean Energy and Renewable Energy Transition in ECOWAS Ensuring a renewable energy transition in the ECOWAS region requires developing and implementing regulations that promote and encourage the integration of clean energies in the supply and consumption of each Member State. The challenge is defining an appropriate regulatory framework for the established legislation, policy, strategy, and regulatory tools. It is essential to define a framework that defines the structure and organisation of the clean energy market, the conduct of daily operations for the promotion/development of innovative technologies and clean energies, and the regulation of generation projects and purchase contracts of clean energies (Fig. 6). The regulations that can be implemented by acting three (3) tools.

LEGISLATION AND OTHER POLICY

REGULATION QUALITY

TARIFFS

QUANTIT

MARKET STRUCTURE AND ORGANISATION DAY-TO-DAY OPERATIONS MINI-GRID PROJECTS REVENUE Fig. 6 An adapted regulatory framework

Policy Framework and Regulations to Promote Clean Energy …

NEEDS AND EXPECTATIONS

REGULATION OBJECTIVES Tariff Reliability Funding Affordability

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Resilience TECHNICA L AND ECONOMIC REGULATI ON OF RE

Environmental and economic performance

Expanded choice

Innovation

Fig. 7 Objectives, needs, and expectations of regulations on RE. Source Authors

Price: attractive price for investors, profitable price to avoid missing money/market, etc. Quality: quality of technology, innovations, quality of service for electricity providers, etc. Quantity: quantity of the offer, following the IPP, is the offer satisfactory, what conditions/rules in the case of our respect for commitments, etc. Regulation options and objectives in RE and clean energy development are to respond to/answer modern needs and expectations concerning the renewable energy transition, whether these are resilience issues, environmental and economic performance, research/development, or innovation. To meet its expectations, the objectives/ means of technical and economic regulation regarding renewable energies revolve around tariff, reliability, financing, and affordability. Indeed, the regulations must make it possible to have remunerative and sufficiently attractive prices for the clean energy market; they must promote and contribute to providing stable/reliable and affordable energy; and finally, they must make the market attractive to investors (Fig. 7).

8 Regulatory Approaches for Renewable Energy Transition Many regulatory measures and actions exist and can be used to promote renewable energy and renewable energy transition (NARUC, 2011). Actions can be incentives for investors/entities installing RE, for RE development, or for encouraging the voluntary sector. All the measures can be grouped into the following categories: • Legal and regulatory obligations: It is constituted by a set of rules and responsibilities of all stakeholders, which define how the promotion and development of RE are going on. It also provides enforcement measures for the regulator.

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• Financial instrument and tariff-based incentive: Tariff-based incentives result in favourable tariff rates, ensuring that investors are guaranteed income that covers costs and additional return on capital sufficient to motivate investment, often in the form of feed-in tariffs or Preferential Tariff Systems. It is a set of instruments such as tax and tax exceptions, VAT, subventions, guarantees, and various financial supports to stakeholders to favour the financial and economic viability and bankability of RE projects and support renewable energy transition. Regulators must avoid missing money or missing market issues by building an attractive environment for investors and stakeholders in renewable energy transition activities through political and legal frameworks. • Market-based incentives: These are a set of incentives, including tradable certificates, tenders, and demand-side management, to support the development of RE technologies and the RE market or electricity market using RE sources. For instance, by tendering incentives, investors compete for a project through a competitive bidding system initiated by a government department or agency. • Voluntary agreements include some measures to allow stakeholders to take voluntary agreements favouring the promotion of RE technologies: Quota systems, green credits/certificates, or any activities that make green look good. • Energy audits: It is a set of measures based on regular audits to assess the level of integration of RE and Energy Efficiency (EE) actions that regulators can take to force stakeholders to take appropriate steps for RE development and renewable energy transition. • Consumer education and information provision: These measures, including billing regulation, net metering, and intelligent metering, can be taken to promote RE development and energy efficiency. • Establish rules and measures to promote investment and for the attractiveness of IPP on RE: prices-reflecting costs; Concession Contracts, specific Power purchase agreements for RE, etc. • Put rules that promote mini-grid and regulation rules when the main grid reaches the area of mini-grid to repurchase residual or remainder of the value of assets, specific tariff rules for IPP, etc.

9 Current Regulations and Regulatory Practices in Clean Energy and Renewable Energy Transition Promotion in the ECOWAS Region Some ECOWAS countries have developed regulations on RE to promote and develop green off-grid and on-grid projects. Regulation covert includes concession contracts, licensing, tariffs, and connection rules (Table 2). (a) Laws and Policies on RE in ECOWAS Countries (b) Regulators’ Practices in Promoting Clean Energy and RE Transition.

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Table 2 Laws and policies on RE in ECOWAS countries BENIN

DECREE N° 2018—415 of 12 the 12 of September 2018 Regulating off-grid electrification

BURKINA FASO

• Decree No. 2014-636/PRES/PM/MS/MEF: Concluding conditions for public service delegation contracts, licensing, permissions, and submission to the reporting obligation of facilities in the electricity sub-sector in Burkina Faso • LAW N°014-2017/AN on general regulations of the energy sector • Act No. 053-2012/AN: General regulation of the electricity sub-sector in Burkina Faso • Decree No. 2014-635/PRES/PM/MS/MEF: Public service obligations, requirements, and exemptions. Their implementation in the electricity sub-sector in Burkina Faso

CABO VERDE

• Decree-Law No. 7/2010: Regulates access to transformer stations (PT) of the Private and your maintenance • Decree-Law No. 52/2010: Regulates the activity of the Technical Responsible for Electrical Installations Private Service (TRIESP) • Decree-Law 1/2011: Establishes Provisions on the promotion, encouragement and access, licensing, and exploitation inherent in the exercise of production activity independent and in self-production in energy electrical Sets Incentive scheme for the production of renewable energy • Law No. 26/VIII/2013: Establishes the general principles and rules on tax benefits, establishes • Decree-Law No. 18/2014: Amends Decree-Law 1/2011, of the 3 of January, giving more powers to the Agency Economic regulation

COTE D’IVOIRE

• Interministerial Decree No 187/MPE/MIE: Regulating the procedures Connection to the public power grid • Act No. 2014-132 of 24: Laying electrical code defining the Electricity Sector’s general principles of organisation, operation, and development • Inter-Ministerial Order No. 325/MPE/MPMEF/MPMB: Amending the electricity tariffs • Rural Electrification Master Plan (PDF) 2015–2020

GUINEE

Law L/92/043 of the 8 of February 1992, on the economic activities code and allowing the privatisation of the operation of the public electricity service

LIBERIA

Rural Energy Strategy and Master Plan for Liberia Until 2030 AND 2015 Electricity Law

MALI

Ordinance No. 019 of the 15 of March 2000, on the organisation of the electricity sector

SENEGAL

• Decree No. 2011–2013, implementing the orientation law on RE and relating to the conditions for purchasing and remuneration of power stations’ electricity from RE sources and the conditions for their connection to the network • Decree No. 2011–2014 implements the orientation law on RE relating to the conditions for purchasing and remuneration of surplus electrical energy of renewable origin resulting from production for own consumption • Decree No. 2011–2014 relating implementation of the framework law RE on the buying conditions remuneration on the more of electrical energy of origin renewable resulting from own production

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This section presents regulatory practices in some ECOWAS counties to support clean energy and renewable energy transition. The selected countries are based on the level of advance in the regulation, and six countries responded to our data and information collection. Two questions guided the analysis: first, What Regulation or Regulatory Measure have regulators done to promote clean energy (renewable energy)? Furthermore, how did regulators regulate or relate with Mini-Grids operators, and how did they deal with them when the grid reached the area? • Regulation or Regulatory Measure Set by Regulator to Promote Clean Energy (Renewable Energy) 1. About the first question, in Burkina Faso, regulations are adopted by the Government through the Ministry of Energy. The regulator ensures that the regulations are applied. The simple opinion of the regulator is required as part of the regulatory development by the Government. In this context, several texts have been adopted by the Government after simple advice from the regulators (ARSE-BF) to promote renewable energies. No specific pricing methodology has been set for renewable energy, even for minigrids or isolated cooperatives, and no particular subsidy is allocated for the benefit of renewables. Regarding renewable energy, the Government has adopted provisions in the budget since 2013 to reduce taxes on solar energy production materials and equipment imports. 2. In Cote d’Ivoire, the regulator (ANARE-CI) still needs to take measures to promote renewable energies, particularly regarding tariffs, connection and evacuation costs, and investment promotion. However, by the legislation in force, it should be noted that electricity from renewable energies is carried out either as part of a self-production activity or as a production for selling. For renewable energies, the regulator is responsible for proposing guaranteed purchase prices within the framework of calls for proposals for selecting independent production or self-production operators. The determination of tariffs obeys the cost coverage principle and considers customers’ ability to pay. The regulator is responsible for making public the conditions of access to transmission and distribution networks and their mode of regulation of electricity produced from renewable energies. The regulator is also responsible for proposing to the State the tariffs for the use of the transmission or distribution network for independent producers or self-producers wishing to inject their production into the network. The independent production of electricity for sale from renewable energies is subject to prior authorisation by the regulator and an agreement with the utility or consumers. At the same time, for self-production, depending on the case, the IPP is free to launch production, or it is subject to prior declaration or authorisation. In all cases, the conditions and modalities of the sale of electricity are defined in the agreement concluded on the one hand between the State or the eligible customer

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and, on the other hand, the independent producer or the self-producer, based on the model purchase contract approved by the regulator. 3. In Sierra Leone, The SLEWRC’s Mini-grid Regulations promote using solar, hydro, and other renewable energy technologies in mini-grids. The regulation proposes a tariff-determination methodology and other technical standards relating to the country’s mini-grid operation. In terms of tariff, the Commission determines a tariff for mini-grid operators using a multi-year tariff calculation methodology. This tool determines the tariff for a given year and then projects a rate for the next five years, the rate to be adjusted considering inflation and exchange rates for the years ahead. The tariff pattern is a cost-based tariff. In terms of connection, consumers are charged a fee of one hundred and fifty thousand leones (Le 150,000) or USD 15 for Work Package 1 (WP1) sites and one hundred and seventy thousand Leones (Le 170,000) or USD 17 for Work Package 2 (WP2) sites for connection per household. Flexible subsidy mechanisms, such as an up-front cash grant/results-based financing hybrid scheme (as opposed to an ’in-kind’ subsidy), could be explored to further reduce project costs and potentially lower tariffs. The value of the subsidy would be high enough to achieve significant tariff reduction. 4. In Senegal, the promotion of clean energies, in particular renewable energies, is included in the development policy letter of the Energy Sector; in this context, the regulator ensures by validating the production plans when determining the tariff, compliance with the guidelines government mainly on the penetration rate of renewable energies in the energy mix. Law No. 2010–2021 of the 20 of December 2010, on the orientation law on renewable energies, constitutes the legal framework for the implementation by the State of Senegal of this renewable energy promotion policy. It is supplemented by implementing decrees. It provides for the selection by tender of independent electricity producers with conditions for the purchase and remuneration of electricity. There are also plans for operators to produce electricity by RE for self-consumption and the conditions for buying back the surplus electricity produced. In accepting an Independent Power Producer (IPP), the Commission participates in negotiations between the IPP and the electricity company as an observer. The Commission delivers its notice of no objection to the Minister of Energy in processing the application for a license for the production and wholesale of IPP. 5. In Mali, although there are regulations and policies concerning renewable energies, in practice, there is no effective implementation: • Regulation N°00-019/P-RM of the 15 of March 2000 on the electricity sector organisation, Article 8: Operating regime • Decree N°00-184/P-RM of the 14 of April 2000 setting the terms of application of order n ° 00–019/p-rm of the 15 of March 2000 on the organisation of

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the electricity sector, ARTICLE 13: Management of the transmission network, and ARTICLE 26: Rational use of energy and renewable energies. 6. In Nigeria, The Electricity Regulatory Commission (NERC) has focused on four renewable energy sources that have the potential for immediate contribution to Nigeria’s energy supply mix, namely Solar, Wind, small hydro, and biomass. In 2016, the Commission issued a feed-in tariff regulation as an instrument for promoting the generation of electricity from renewable energy sources (RES) by allowing power producers to sell renewable energy-sourced electricity (RES-E) to a distributor at a predetermined tariff guaranteed for a given period, usually 15–20 years. The main features of Nigeria’s Renewable Energy Feed-in Tariff (REFIT) Framework are Costs covering REFIT prices determined by NERC and socialised among all customers via retail tariff. There is a limit on the maximum size of the power plant for programme eligibility. Nationwide programme caps are established for each technology and for the REFIT programme as a whole to manage the impact of renewable energy on the final consumers’ tariff. The feed-in-tariff regulation gives priority connection and dispatches to renewable energy-sourced power; it mandates the Distribution companies to offtake all renewable energy-sourced electricity under the programme up to 5% of its total demand. Furthermore, it specifies a financial penalty for not meeting its portfolio standards. The Commission is also working on the regulatory framework for net metering for minimal capacities (typically below 1 MW). Preliminary works on the standards, guidelines, and regulations for net metering are in progress. The net metering programme is targeted at solar rooftops and owners of small wind farms who may wish to feed to the grid for compensation in energy terms. Net metering measures the energy produced by a renewable energy generation system. If more energy is produced than needed, a credit can be issued to the resident. The credits can be utilised to pay utility bills in months when less energy is produced. The Commission requires grid-connected renewable power producers to go through competitive tender for capacities above the feed-in tariff thresholds to be procured. Section 67 of the EPSR Act 2005 requires that all contracts for bulk purchase of power by a distribution licensee shall be awarded in an open, transparent, and competitive manner. Other regulations promoting renewable energy include: • The embedded generation allows the distribution company to buy power from eligible sources on their networks and supply it to customers via a competitive process. • Eligible customer regulation allows consumers with regular consumption profiles above 2MWh/h over a month to contract for power directly from a generator of their choice. It may pay wheeling charges to the network operator to convey the power to its premises.

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• Regulations related to grid operators and provisions were put in place when the grid reached the mini-off-grid area 1. Regarding the second question, we note in Burkina Faso that mini-grids have no specific regulatory provisions. Consequently, we have not yet made any regulations (technical, economic, and financial) for the Mini-grids. When the SONABEL grid reaches the area and the public electricity service is provided following the regulations, the cooperative connects to the network. It continues distribution in the area concerned because it is the concession holder. On the other hand, if the public service is not provided, then the Concession is withdrawn and ceded to SONABEL. 2. In Cote d’Ivoire, there are regulations governing isolated grids in Côte d’Ivoire, which are subject to the regime of the Convention. The following texts will be mentioned in particular: • Decree No. 2016-787 of the 12 of October 2016 set the conditions and modalities for exercising the production activity associated with distributing and marketing electric energy by mini-grid or individual autonomous production systems. • Decree of the 13 of December 2019, relating to the installed power thresholds under the legal regimes applicable to any self-production activity and the conditions for obtaining the authorisation to exercise the self-production activity. • Decree of the 13 of December 2019, determining the type of installations, subscription terms, operation, invoicing, payment, and termination of subscriptions to electricity supplied by pico, micro, and mini-grids and/ or by individual stand-alone systems. The regulator only intervenes to formulate a simple opinion on the draft agreements to grant operators concession scopes. The texts currently in force do not provide solutions concerning the situation where the interconnected network reaches an area hitherto operated using an isolated network. 3. In Sierra Leone, The Commission’s mandate is based on providing access to the market through licensing and permits, regulation of rates and tariffs, and regulation of quality through performance and compliance monitoring. Based on these, mini-grid operators have obtained a license from the Commission for their operations in the mini-grid market space; they have also applied for tariff approvals by submitting the required documentation and data for analyses and are submitting data on their operations to enable technical performance to be monitored by the Commission. Relations with the mini-grid operators also include joint public engagements on improving service quality, ensuring safety, connection guidelines, and community sensitisation of the rate charged for the services provided. 4. The legislation in SENEGAL allows operators carrying ERIL projects (Electrification Rurale d’Initiative Locale) to set up in the perimeters allocated to

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rural electrification concessionaires to develop electrification projects in localities where the concessionaire does not envisage setting up in the short-term (3 years) and at least 7 km from the network (Medium Voltage line). On arrival of the operator in the area where the mini-grid is installed, early termination of the Concession Agreement is provided. As a result, the clause relating to the regimes of return goods and repossession goods is applied. It is planned for the return goods, which are the works and equipment contributing to the distribution of electricity constituted by the concessionaire, that the concessionaire or the network authority take back at the net book value all the goods produced by the mini-grid operator (Low Voltage lines, connection, etc.) On the expiry date of the Concession, the Licensing Authority may take back, without, however, being compelled to do so, in whole or in part and against compensation, the take-back goods necessary for the regular operation of the licensed service. 5. In Mali, the CREE mission covers only the urban and semi-urban areas. This concerns the scope conceded to EDM-S.A., which a Concession Agreement binds to the Client. Usually, this Convention defines the centres to be integrated and their year of integration into the scope of the operator. However, apart from such cases, these centres are regulated by AMADER (Malian Agency for the Development of Domestic Energy and Rural Electrification). 6. In Nigeria, The Mini-grid regulation 2016 specifies the terms and conditions under which Mini-grid investors may operate in Nigeria. The regulation requires the Mini-grid investors to go into unserved /underserved communities outside the extant five-year expansion plans of the host distribution companies. Where the community is within the five-year plan of the Distribution Company, written consent from the Disco must be obtained before embarking on the project to enable the Commission to discount such community from the disco obligation under the expansion plan. For remote communities without Disco’s presence and outside Disco’s expansion plan, the investor signs relevant agreements with the community and forwards them for the HR Commission’s approval. Afterwards, the investor can go online to the Commission’s Mini-grid website and apply for a permit (for capacities between 100 KW and 1 MW) or registration (for capacity below 100 kW).

10 Conclusion Promoting clean energy and renewable energy transition in ECOWAS countries is faced with many challenges, such as access to finance and the need for enabling environments for private sector investment to sustainable business models with prices that reflect the cost. However, the main challenge is to build a regulatory and political framework about questions relating to tariffs, licenses, and the arrival of the national network in the GMG area.

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This paper shows that most ECOWAS countries have designed regulatory framework and practices that allow countries to develop green mini-grid projects based on renewable energy to favour renewable energy transition. The best practices implemented by these countries contributed to increasing energy access and developing GMG generation.

References Africa Union. (2022). Africa Speaks with Unified Voice as AU Executive Council Adopts African Common Position on Energy Access and Just Energy Transition|African Union. African Union Launches World’s Largest Single Electricity Market (AFSEM) | African Union. (2022). https://au.int/en/pressreleases/20210604/african-union-launches-worlds-largest-singleelectricity-market-afsem. Bensebaa, F. (2013). Clean energy. Interface Science and Technology, Elsevier, 19, 279–383. Dell, R., & Rand, D. A. (2004). Clean energy (Vol. 5). Royal Society of Chemistry. ECREEE. (2013). High-level review of a pipeline of medium and large-scale renewable energy infrastructure projects in ECOWAS. Report edited by Sinclair Knight Merz Limited (SKM). Capo Verde: ECREE. Gielen, D., Boshell, F., Saygin, D., Bazilian, M. D., Wagner, N., & Gorini, R. (2019). The role of renewable energy in the global energy transformation. Energy Strategy Reviews, 24(April), 38–50. https://doi.org/10.1016/j.esr.2019.01.006 GOGLA. (2018). Off-Grid Solar Market Trends Report 2018. GOGLA. International Energy Agency. (2014). Perspectives de l’énergie En Afrique : Un Point Sur Les Perspectives Énergétiques En Afrique Subsaharienne. Vienne, Autriche: IEA. IRENA. (2021). Planning and Prospects for Renewable Power Eastern and Southern Africa. https:// www.irena.org/publications/2021/Apr/Planning-and-prospects-for-renewable-power-Easternand-Southern-Africa. IRENA, and AfDB. (2022). Renewable Energy Market Analysis: Africa and Its Regions. Abu Dhabi and Abidjan: International Renewable Energy Agency and African Development Bank. Le Picard, H., & Toulemont, M. 2022. Booming Decentralized Solar Power in Africa’s Cities: Satellite Imagery and Deep Learning Provide Cutting-Edge Data on Electrification. Briefings de l’Ifri, 14. Lighting Global/ESMAP, Not Given, GOOGLA, and Efficiency for Access, Open Capital Advisors. 2022. 2022 Market Trends Report: State of the Sector. DOE/EE—0989, 1220825. The World Bank. https://doi.org/10.2172/1220825. NARUC. (2011). Encouraging renewable energy development: A handbook for international energy regulators. NARUC. Renewable Capacity Statistics 2022. International Renewable Energy Agency. https://www.irena. org/publications/2022/Apr/Renewable-Capacity-Statistics-2022. S4All Africa, and AfDB. (2015). Green mini-grid (GMG) Africa strategy. STC Technical Paper 16. Abidjan, Côte d’ivoire: S4All Africa and AfDB. Smil, V. (2016). Examining energy transitions: A dozen insights based on performance. Energy Research & Social Science, 22(December), 194–197. https://doi.org/10.1016/j.erss.2016.08.017

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United Nations. (2015). COP 21 Agreement. United Nations. World Population Prospects. Online Edition Rev. 1. UN, Department of Economic and Social Affairs, Population Division. World Bank. (2021). Report: Universal Access to Sustainable Energy Will Remain Elusive Without Addressing Inequalities. Press Release. https://www.worldbank.org/en/news/press-release/ 2021/06/07/report-universal-access-to-sustainable-energy-will-remain-elusive-without-addres sing-inequalities.

C. Gatete is a seasoned energy economist, holds a Ph.D. in Energy Economics from the University of Paris Sarclay (France) and another in Energy from 2iE (Burkina Faso). He is an economist expert at ECOWAS Regional Electricity Regulatory Authority (ERERA), contributing to economic regulation ECOWAS’s Regional Electricity Market. Previously, he managed some renewable energy projects in Africa, was an energy expert for UNDP, UNITAR and assistant professor and researcher at Thomas Sankara University, 2iE and CIRAD. H. Dikko is an energy economist with over 30 years of experience in the banking industry, research, and energy regulation. He was General Manager and Head of Market Competition and Rates Division, Head of Tariff and Rates Regulations and Head of Renewable Energy, Research and Development Division at the Nigerian Electricity Regulatory Commission before joining ECOWAS Regional Electricity Regulatory Authority as Commissioner and Council MemberEconomist in 2017.

Effective Regulation and the Energy Transition in Zambia Naa Adjekai Adjei

1 Introduction The Republic of Zambia (Zambia), which is situated in Southern Africa, is strategically located as it is “land-linked” to Angola, Botswana, the Democratic Republic of Congo (DRC), Malawi, Mozambique, Namibia, Tanzania and Zimbabwe. Each of these eight neighbouring countries forms part of the Southern African Development Community (SADC), an economic community of states collaborating to foster sustainable and equitable socio-economic development and integration in the subregion. Like most countries in Sub-Saharan Africa, Zambia does not produce enough power to meet its electricity needs. As its mineral wealth, most notably copper, forms the backbone of its economy, the country’s mines use approximately 50% of all electricity produced (Dobler & Kesselring, 2019; Mbilima, 2021). Its intensive mining activity consumes the largest share of power in the country, and insufficient attention has been channelled to electrifying Zambia’s rural population, who make up the majority of the country’s population. For decades, Zambia was considered to have an overcapacity of electricity, as its electricity supply outweighed its demand (Sinyolo, 2020; World Bank Group, 2015). This assessment of the state of Zambia’s electricity supply industry was not entirely accurate as it did not account for the large majority of the population who lived in isolated or remote communities that did not have access to electricity (Haanyika, 2008; Mihalyi, 1977). Beginning in 2015, Zambia began experiencing one of its worst electricity crises, and those connected to the grid found themselves without power for substantial periods. This crisis peaked in 2019, during which the country experienced daily blackouts for eight months. These load-shedding periods could

N. A. Adjei (B) University of Cape Town, Graduate School of Business, Cape Town, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_7

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last up to 20 hours daily in some parts of the country. Low rainfall, droughts, insufficient investment in generation infrastructure, and non-cost-reflective tariffs played a crucial role in Zambia’s electricity crisis (Sinyolo, 2020). In addition to insufficient installed generation capacity and energy insecurity, Zambia has relatively low access rates. In 2021, only 46% of Zambians had access to electricity (World Bank et al., 2023). This number is disproportionately skewed towards the urban population, whose access rate is 81%. Only 14.5% of Zambia’s rural population have electricity although over 60% of the population resides in rural areas. Rural areas have been defined as isolated and remote areas far from main cities and towns (Zomers, 2001). Low population densities and dispersed clusters of dwellings generally characterize these areas. In many developing countries, rural areas are also populated by the more economically disadvantaged population. The distance of rural areas from main cities (and the main grid), low population densities, and limited earnings of people living in rural or remote communities make the electrification of these communities more complex (Haanyika, 2008). In recent years, distributed renewable energy systems such as solar mini-grids have surfaced as an innovative and viable means to address the energy access gap. A strong case for the installation of solar mini-grids globally has emerged due to the falling prices of the technology, the improvement of regulatory and policy environments to support these technologies, and the proven nature of the technology. Less than 1% of Zambia’s electricity is produced from non-hydro renewable energy sources. With approximately 3000 annual sunshine hours and an average irradiation of 5.5 kWh/m2 / day, Zambia is a prime site for solar power plants and solar mini-grid development (United Nations Development Programme, 2014; Zambia Ministry of Energy, 2022; ZESCO, 2020). Despite this tremendous solar potential, it is virtually untapped, with only a limited number of solar PV plants and mini-grids commissioned in the country. This chapter tries to identify why and provide recommendations on how to channel increased investments to distributed renewable energy. In this chapter, we consider Zambia’s regulatory, policy, and legislative environment and how these can be improved to better support the implementation of solar mini-grids to help address Zambia’s low electricity access rates. The chapter is structured as follows: Sect. 2 provides an overview of Zambia’s electricity supply industry. It considers aspects such as the institutional structure and the state of rural electrification in Zambia to give context to the reader. Section 3 provides an overview of mini-grid development in Zambia. Section 4 considers Zambia’s regulatory environment for mini-grids by tracking the changes in Zambia’s regulatory environment for mini-grids and outlining the current status. Section 5 provides recommendations for Zambia’s mini-grid regulatory environment, and Sect. 6 concludes the chapter.

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2 Overview of Zambia’s Electricity Sector 2.1 Institutional Structure Zambia’s Ministry of Energy (ZMoE) undertakes policy development and implementation. It also provides strategic direction to the energy sector (Zambia Ministry of Energy, 2021). The ZMoE is mandated to develop energy resources sustainably to benefit the people of Zambia (Zambia Ministry of Energy, 2021). The Office for Promoting Private Power Investment (OPPPI) was created within the ZMoE in 1999 to increase private sector investment in power generation infrastructure in Zambia (Zambia Ministry of Energy, 2021). The Energy Regulation Board (ERB) was created under the Energy Regulation Act of 1995 and began operations in 1997. The ERB issues the licences and permits required to operate in Zambia’s electricity and petroleum sector (Kapika & Eberhard, 2013). It is also responsible for setting electricity tariffs and monitoring compliance with license conditions and quality of supply (Zambia Ministry of Energy, 2021). The Rural Electrification Authority (REA) was established in 2003 following the Zambian government’s recognition of the urgent need to electrify rural areas. REA’s functions include managing the rural electrification fund, overseeing the implementation of rural electrification projects, and developing models for the operation of rural grids to help address the electricity access gap plaguing rural areas in Zambia. REA has developed a Rural Electrification Master Plan (REMP), which sets out a roadmap for achieving a 50% rural electrification rate by 2030. This is strikingly in contrast to Sustainable Development Goal 7, which aims for universal access to clean, modern, reliable, and affordable energy services. An annual investment of USD 50 million will be required to meet this target (Lanfranconi, 2018). Zambia Environmental Management Agency (ZEMA) is Zambia’s environmental regulator and coordinator. Established through the Environmental Management Act No. 12 of 2011, ZEMA provides strategic policy direction for protecting the environment and controlling pollution. ZEMA is mandated to integrate environmental considerations in overall national planning. Regarding mini-grid development, ZEMA reviews environmental impact assessment (EIA). Zambia has not undertaken complete power sector reforms. It still has a vertically integrated state-owned utility which carries out generation, transmission, and distribution services, as well as owns the infrastructure required to carry out each of these services (Bayliss & Pollen, 2021). The Zambia Electricity Supply Corporation Limited (ZESCO) sits at the core of Zambia’s electricity sector because it owns over 90% of the country’s generation, transmission, and distribution infrastructure (Sinyolo, 2020). The state-owned utility, ZESCO, has been in financial distress since 2015, when the droughts started [Brautigam]. In 2016, ZESCO procured emergency power at tariffs of USc 15/kWh and sold this power at an average price of USc 6/ kWh (Bayliss & Pollen, 2021). In 2019, ZESCO reported an operating loss of just

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under USD 400 million (ZESCO, 2020). The reasons for these losses included noncost-reflective tariffs, low collection rates, and exchange rate fluctuations (ZESCO, 2020).

2.2 The Current State of Affairs of Electricity Supply in Zambia At the end of 2022, Zambia had an installed generation capacity of 3777.7 MW. Over 80% of this electricity generation capacity is from hydropower sources and only benefitted the 46 of Zambians with access to electricity. Of this number, only 14.5% were in rural areas where most of Zambia’s population resides. Because the greater part of Zambia’s installed generation capacity is from hydropower, climatic changes have left the country vulnerable to energy insecurity. Droughts and low rainfall have a devastating effect on the country’s electricity supply and have triggered some of the worst electricity crises that the country has seen. Another critical reason for the country’s low electrification rates and unstable power supply is the limited levels of investment in power generation infrastructure. For approximately 30 years, no large-scale generation infrastructure was built in Zambia. Between 1977 and 2010, a limited amount of investment was made in new power generation infrastructure. This is because, for several years, the country had an oversupply of electricity and stagnated economic growth, impacting electricity demand. As a result, investing in additional generation infrastructure did not appear to be the most economically sound decision. The country’s economy began growing exponentially from 2010 onwards, at rates as high as 6% per annum (World Bank Group, 2015). This spurred an increased demand for electricity in, and because of the stagnation in investment in electricity generation infrastructure, this increased demand could not be adequately met. A third key reason for Zambia’s low electrification rates and power instability is the country’s exceptionally low tariffs and the highly indebted state utility, ZESCO. Tariffs in Zambia were, on average, USc5/kWh and the lowest on the continent for some time. In many instances, ZESCO sells power for a lower price than the cost of producing the power (Bayliss & Pollen, 2021). These low tariffs, coupled with a financially distressed vertically integrated state utility, affect the sector’s stability and dissuade private investment. Prior to 2013, the majority of Zambia’s generation infrastructure was built in the 1960s and 1970s. As a result, the loans for this infrastructure had been fully repaid for decades, allowing Zambia to believe it could keep its tariffs low as it had limited capex costs (Ahmed, 2021). In 2015, the country began to undertake measures to bring its tariffs up to cost-reflective levels, however, this is still a work in progress. Zambia’s electricity sector is currently characterized by a dominant and financially distressed vertically integrated state utility, an overreliance on hydropower, and tariffs that are not cost reflective. Although neither of these characteristics is unique to

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Zambia, their combination seems to have stifled the development of the country’s generation infrastructure, leading to low electrification rates. To address the country’s supply challenges, efforts will need to be directed at improving the cost reflectivity of tariffs, diversifying the country’s energy mix, implementing power sector reforms most suitable for the country context, and addressing ZESCO’s financial challenges.

2.3 The State of Rural Electrification in Zambia: Then and Now Mihalyi (1977) conducted a review of Zambia’s electricity sector, with a focus on rural electrification in the country. When Mihalyi (1977) conducted the study, there were reports that Zambia would be self-sufficient in electricity production by 1980, as its installed generation capacity would outweigh demand by then. He assessed the possibility of Zambia reaching universal access to electricity by 1980, as was being proposed. At the time, Zambia’s electricity sector catered predominantly to the mining sector, with over 75% of electricity generated in the country being used to service the mines in Zambia’s Copperbelt. This state of affairs has not changed too much in the present day. The claim that Zambia’s electricity supply would outstrip its demand by the 1980s was not the most accurate assessment of the state of electrification. Although the installed generation capacity at the time seemed to outweigh demand, the country had a notably low household electrification rate of less than 16% nationwide. In addition, almost none of the generated electricity was used to supply rural areas (Haanyika, 2008; Mihalyi, 1977). In Mihalyi’s (1977) assessment of rural electrification in Zambia, he found that over 65% of Zambia’s population outside of cities and towns were subsistence farmers with per capita incomes of less than USD 100 a year. He also found that demand for electricity in rural areas was not high, and villages were widely disbursed, making their electrification taxing. These factors presented severe challenges to efforts to electrify these areas. In 1994, the government of Zambia set up a Rural Electrification Fund (REF), which drew its capital from taxes levied from the sale of electricity to address the low rural electrification rates in the country (Japan International Cooperation Agency, 2008). In 2003, the REA was established to lead efforts, to address the electricity access gap burdening Zambia’s rural population and to manage the REF. At the time, less than 2% of Zambia’s rural population had access to electricity (Haanyika, 2008). One of the first tasks undertaken by the REA was to prepare a Rural Electrification Master Plan (REMP). The REMP was developed with the assistance of the Japan International Cooperation Agency and adopted in 2008. The REMP sought to increase Zambia’s rural electrification to 51% by 2030 through, amongst other things, the identification of 1217 Rural Growth Centres (RGC). The RGC were areas within a rural locality that were sufficiently populated and formed the centre of rural economic

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activities, making electrification projects more feasible (Japan International Cooperation Agency, 2008). In the 20 years that the REA has been in operation, it has been able to increase rural electrification rates by just over 12%. Although Zambia has developed immensely since Mihalyi’s, 1977 assessment of the state of electrification, some of the challenges faced then are still present today. In 2022, Zambia’s population stood at 19,610,769. Of these almost 20 million people, 60% still reside in rural areas (Zambia Statistics Agency, 2022). In the 1970s, this figure stood at 65% of the population illustrating that in the 40 years since Mihalyi conducted his study, most Zambians have continued to reside in rural areas. Further, in 2015, over 80% of Zambia’s rural population were subsistence farmers with average incomes of approximately USD13 per month.1 Zambia’s per capita income in 2022 was USD 1,487.9, which is lower than the Sub-Saharan Africa average of USD 1,690.4.2 Comparing these figures with that of Mihalyi more than 40 years prior, what comes to the fore is that a vast majority of Zambians are still low incoming earning subsistence farmers. These reduced income levels translate to low energy affordability by end-users. In addition, limited productive use and economic activity impact the financial feasibility and social sustainability of minigrids in Zambia (Mulenga et al., 2023; Stritzke & Jain, 2021b). Nonetheless, the REA has identified mini-grids as a critical avenue for improving rural electrification in Zambia (Kapole et al., 2023). With seven years to go until 2030, substantial coordination between the private and public sectors and regulatory reform related to mini-girds would be required to meet the goal set out by the REA of 51% rural electrification by 2030. In the section below, we discuss Zambia’s experience with mini-grids.

3 Zambia’s Experience with Solar Mini-Grids The electricity supply industry in Zambia has been dominated by the development of state-owned utility-scale power generation infrastructure by ZESCO. Private sector participation in Zambia’s electricity supply industry has been few and far between, only emerging in 2001. Currently, the private sector is responsible for less than 15% of the power produced in the country. Due to the vast majority of Zambians residing far away from the main grid in remote or isolated communities, mini-grid development has been identified as an essential pillar to achieving universal electricity access in Zambia. One of the critical objectives of Zambia’s National Energy Policy of 2019 is to increase electricity access to improve the lives of Zambians. To operationalize this, it has included the development of mini-grids in the integration plan for the policy, implemented between 2020 and 2025 (The National Energy Policy, 2019). 1

Republic of Zambia Central Statistical Office. Zambia 2015 Living Conditions Monitoring Survey Key Findings; Government of Zambia: Lusaka, Zambia, 2016. 2 https://www.data.worldbank.org/indicator/ny.gdp.pcap.cd?locations=zm&most_recent_value_ desc=false.

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Mini-grid development in Zambia is still relatively nascent, but off-grid solutions are gradually penetrating Zambia’s electricity supply sector (Renewable Energy and Energy Efficiency Partnership, 2019). Studies carried out by the World Bank and USAID have revealed that Zambia has the potential to develop between 1,448 and 2,390 mini-grid sites, which have product use elements that could help secure the financial viability of the mini-grids (Sustainable Energy for All & Rockefeller Foundation, 2023). Despite the vast potential, at the time of writing (June 2023), there were only 40 operational mini-grids in Zambia, most of which are owned by private sector developers (Sustainable Energy for All & Rockefeller Foundation, 2023). These mini-grids range in technologies, including solar PV, solar-diesel hybrid, mini-hydro, and biomass (Fig. 1). Zambia’s mini-grid sector consists of 23 private sector-owned projects, ten public sector-owned projects, three implemented under a PPP model, and four owned by non-governmental organizations (Sustainable Energy for All & Rockefeller Foundation, 2023). Standard Microgrid, Zambia’s leading private-sector developer, has developed three projects with the REA and the Zambia Cooperative Federation (ZCF) under a public-private partnership model. In addition to this, Standard Microgrid owns and operates 12 mini-grid projects. Solera trails closely behind Standard Microgrid, having developed eight mini-grid sites in Zambia. Together, Standard Microgrid and Solera have developed more than 50% of the operational mini-grids in the country. Other private sector players such as Virunga Power, Engie Power

Fig. 1 The location of viable mini-grid sites. Source Sustainable Energy for All & Rockefeller Foundation, 2023

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Corner, and Muhanya Solare operate one mini-grid each in Zambia (Sustainable Energy for All & Rockefeller Foundation, 2023). Most mini-grids in Zambia have been developed by private sector developers using donor or grant funding, subsidizing 50–100% of the project (Stritzke & Jain, 2021a). These grant subsidies aim to make the mini-grids more financially viable, crowd in investment into the sector, and improve the affordability of the electricity generated from the mini-grids. Although mini-grids have been identified as crucial to achieving universal electrification in Zambia, their successful implementation has been complex, causing stagnation in the sector’s growth. To scale up the rollout of mini-grids in Zambia, an enabling investment environment needs to be created to attract increased private sector investment. A supportive and transparent regulatory framework is critical in creating an enabling environment. In the next session, we consider Zambia’s legal and regulatory framework for mini-grids.

4 Zambia’s Legal and Regulatory Environment for Mini-Grids Prescripts of power sector reform indicate that the existence of an effective and independent regulator aids in increasing private sector participation by boosting transparency on the country’s requirement of investors and reducing risks of arbitrary tariff changes (Eberhard et al., 2016; Foster & Rana, 2020). A practical and independent regulator aids in ensuring positive outcomes for the investor and the host state by balancing their (sometimes) competing interests (Eberhard, 2013; Kapika & Eberhard, 2013). Clear, transparent, and predictable regulatory frameworks are essential to attract private sector investment in power generation infrastructure in Sub-Saharan Africa because they promote certainty in tariff pricing and licensing requirements, reducing the risk associated with investing. In this section, we consider the role of regulation in (i) the licensing of mini-grid projects in Zambia and (ii) mini-grid tariffs. In considering these aspects, we seek to determine how regulation can be improved in Zambia to facilitate the development of a robust mini-grid sector in the country.

4.1 Licensing and Permitting At the time of writing, Zambian laws did not provide a separate or dedicated legal and regulatory framework for implementing mini-grid projects. Mini-grid development and operations are regulated by the Energy Regulation Act, 2019 (ERA) and the Electricity Act, 2019 (EA), which imposed the same obligation of grid-connected utility-scale projects onto mini-grid projects. Although well suited for large-scale grid-connected projects, the provisions of the ERA and EA significantly burden mini-grid developers and operators.

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Under the ERA and the EA, all operators of mini-grids are required to apply to the ERB for a license. The operation of mini-grids constitutes a commercial activity for producing, generating, transmitting, distributing, or supplying electrical energy. In terms of section 8 of the ERA, it is an offence to operate a power plant except under a license issued by the ERB. The licensing requirements are arduous and timeconsuming, creating additional constraints and burdens that negatively impacted the mini-grids’ deployment timeline. These requirements mandate mini-grid developers to obtain approval from various agencies, including ZEMA, which is required to indicate the proposed project will not adversely affect the environment, the Department of National Parks and Wildlife, which is necessary to provide clearance to construct the mini-grid if the proposed development site is located within a Game Management Area or a National Park, traditional chiefs or the Ministry of Lands, Natural Resources and Environmental Protection for land use authorizations and concessions, and ERB for tariff approvals. Obtaining these approvals under the current framework and processes may take months. As evident from the above, besides regulatory agencies assuming responsibility for issuing all legally mandated documentation for generating, distributing, and providing electricity, multiple other entities must be engaged before developers may start constructing mini-grids. These include environmental regulatory bodies, land management authorities, and business registration agencies. This can be timeintensive for project developers, particularly when necessitating frequent commutes between central administrative hubs and geographically distant regions where the small-scale power grids are situated. A protracted developmental timeline may incur substantial financial and project realization implications. Noting the challenges presented to mini-grid developers by the provisions of the ERA and EA, and in a bid to attract investment into Zambia’s off-grid sector, in 2018, the Zambian Energy Regulation Board “road-tested” the Regulatory Framework for Mini-Grids. This framework introduced a dedicated license for off-grid operators combining generation, distribution, and supply of electricity. Requirements and procedures were differentiated based on the use of the produced energy (selling, own, use) and capacity thresholds (less than 100 kW, between 100 kW and 1 MW, greater than 1 MW, and solar home systems). The package of the Mini-Grid Regulatory Framework comprised of the following documents: 1. Executive Summary of the licensing and regulatory framework; 2. Rule on Tariffs Applicable to Mini-Grids in Zambia; and 3. Technical Requirements for Mini-Grid in Zambia. In developing these regulations, the ERB undertook the following decisions: 1. There will be three categories of mini-grids for purposes of the EA and the ERA, namely 1 MW. This provides the opportunity to differentiate between mini-grids based on size and complexity. 2. The different sizes of mini-grids would all be licensed, but there would be a differentiation in how they are regulated. Mini-grids 1 MW like the grid. The differentiation would lie primarily in how tariffs are regulated, what standards need to be complied with, and compliance and monitoring requirements for the different sizes. 3. To address one of the critical concerns for developers and financiers, namely the possibility of grid encroachment, the ERB undertook to try and address this to the extent possible by ensuring that (a) mini-grid licences would be issued for a fixed term (maximum 20 years) (b) the geographical licensed area for the licensed term will be defined and set out in the licence, and (c) the mini-grid on the application may be given exclusivity of supply in greenfield areas for a pre-defined period. The process and timelines for obtaining the requisite approvals, permits, and licences to operate mini-grids in Zambia under the Regulatory Framework for Mini-Grids are set out in Table 1. A mini-grid team of the European Union developed the Regulatory Framework for Mini-Grids and supported consultants and ERB officials in consultation with key stakeholders, including government, private sector, civil society, and development partners. This framework was “road-tested” from November 2018; however, the regulations were not ultimately gazetted and are not in effect. These mini-grid regulations favoured developers because they offered a less demanding and more efficient rollout of mini-grids below a specific capacity. The reason for not ultimately gazetting these regulations is not apparent. Although these regulations were not gazetted, the Zambian government is cognisant of the need to have different license requirements for mini-grids. As a result, at the time of writing, the Zambian government was in the process of passing a Statutory Instrument which will exempt mini-grids below a specific installed capacity that are not connected to the main grid from the provisions of the ERA and the EA. This exemption will, however, need to be supported by a regulation on mini-grids to give certainty on the requirements for operating mini-grids.

4.2 Mini-Grid Tariffs As noted earlier in the chapter, Zambia has historically had low tariffs which were not cost reflective. In some cases, ZESCO procured electricity from emergency power producers for almost three times the price that it sold it for (Bayliss & Pollen, 2021). Zambia has initiated a transition away from its previous practice of maintaining low and heavily subsidized electricity tariffs towards adopting cost-reflective pricing structures. Before 2008, Zambia had notably one of the lowest electricity tariffs in Southern Africa (IRENA, 2023). These heavily subsidized tariffs created challenging economic conditions for private developers and the state-owned utility, ZESCO. Beginning in 2009, Zambia embarked on a path to gradually shift towards costreflective tariffs, aligning with the goals of the SADC. In a span of five months in

Business registration

Securing land

Game management area clearance

Concession from the national heritage conservation commission

1

2

3

4

Requirement

National Heritage Conservation Commission

Department of National Parks and Wildlife

Zambia’s traditional authorities (Chiefs) Ministry of Lands, Natural Resources and Environmental Protection (MLNREP)

Patents and Companies Registration Agency

Competent authority

(continued)

The developer must apply for a National Heritage Conservation Commission concession if the project site is within a protected cultural heritage area

If a proposed development site is located within a Game Management Area (GMA) or a National Park, the developer must apply to the Director of National Parks & Wildlife requesting clearance

There are two categories of land in Zambia: Customary land, comprising about 94% of land in Zambia, is held under customary tenure and falls under the jurisdiction of Zambia’s traditional authorities, the Chiefs Statutory (or state) landcomprises around 6% of land and is governed and administered by several statutory institutions, including the MLNREP. To use state land, the MLNREP is required to grant consent. If consent is not given within 45 days of applying, the application is deemed to be granted. If permission is refused, the reasons for refusal must be furnished to the applicant within 30 days

Companies in Zambia must be registered. There are no local ownership requirements for businesses registered in Zambia. However, more than half of the directors of a company must be residents of the country. Registering a private company in Zambia can be completed within 24 h

Explanation

Table 1 Approvals, permits, and licences to operate mini-grids in Zambia under the regulatory framework for mini-grids

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Environmental permits

Investment endorsement application

5

6

Requirement

Table 1 (continued)

ERB

ZEMA

Competent authority

(continued)

The developer must apply for the investment endorsement according to the guidelines issued by the ERB Although developers of off-grids with a maximum installed capacity of up to and including 100 kW are exempt from the Tariff Regulation, they must apply tariffs which reasonably recover the costs of providing service to customers, including a reasonable profit, and must reduce their tariffs to reflect any one-off capital or recurrent subsidies. This application can be processed within 10 days, after which a draft investment endorsement may be issued. The final investment endorsement depends on the timing of the Board’s decision

A developer cannot implement a project until ZEMA has granted a no-objection letter with conditions for the project. ZEMA may also request a more streamlined Environmental Project Brief (EPB) or a more thorough Environmental Impact Statement (EIS) A letter of no objection can be processed in approximately five (5) working days (longer if on-site inspection is required) Environmental project brief: 45 days Environmental impact assessment: 65 working days

Explanation

162 N. A. Adjei

Combined licence for generation, transmission, distribution, supply of electricity from the ERB

8

The developer can only request the licence after completing the construction of the mini-grid ERB then carries out an on-site technical inspection of the developed project, advising the developer of any needed remedial actions. Next, ERB undertakes a financial/economic assessment of the project based on the viability of the business plan. If not economically justifiable, the developer is asked to undertake remedial actions ERB then carries out an on-site technical inspection of the developed project, advising the developer of any needed remedial actions Next, ERB undertakes a financial/economic assessment of the project based on the viability of the business plan. If not economically justifiable, the developer is asked to undertake remedial actions The developer must pay a processing fee once both technical and financial assessments are positive 9 days (7 for financial/economic assessment and 2 for invoicing and payment) Provisional Licence Two days for the issuing of provisional licence. Thirty days for advertisement of the licence application in GRZ

For off-grid developers with installed capacity above 100 kW and up to and including 1 MW, ERB’s up-front tariff approval is required. The following steps must be followed: Developers must submit a tariff proposal to ERB at least 150 business days before their effective date. Asset lives by category applied in calculating the proposed tariffs ERB reviews the tariff proposal. If the submitted tariffs are reasonable, ERB publishes a statement for public consultation at least 130 business days before their effective date. After this consultation, ERB approves the tariff at least 15 business days before its effective date If ERB does not consider the proposed tariffs reasonable, it initiates a periodic tariff review that commences at least 100 business days before the upcoming regulatory period, during which ERB notifies stakeholders of the indicative timeline of the periodic review, including public consultations

Explanation

SourceAuthor’s creation (Adapted from Zambia Off-grid electricity portal)

ERB

Tariff approval (Not ERB required for systems less than 100 KW)

Competent authority

7

Requirement

Table 1 (continued)

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2017, tariffs were raised by approximately 75% with the objective of achieving fully cost-reflective electricity tariffs by 2019. For mini-grids to be rolled out successfully, tariffs need to be cost reflective to allow developers to receive a return on their investment. Tariffs also need to be affordable to the end-user, many of whom would be more economically disadvantaged and fall into the lifeline customers category. Achieving an equitable balance between the interests of the developers and the consumers is essential to ensure the viability and scale-up of mini-grids in Zambia. It is, however, not easy to achieve, and a range of innovative financing mechanisms will be required to help realize these mini-grid projects in Zambia.

5 Recommendations Access to reliable electricity is a fundamental driver of economic development and improved quality of life. In Zambia, as in many parts of the world, the mini-grid sector has emerged as a promising solution to address energy access challenges in remote and underserved areas. However, the sector faces various regulatory, financial, and operational hurdles that must be addressed to unlock its full potential. This set of recommendations outlines a strategic roadmap for enhancing the minigrid sector in Zambia. By streamlining permitting processes, standardizing regulations, and addressing key challenges, Zambia can create an enabling environment for mini-grid development. These recommendations are essential for improving access to modern energy services, advancing sustainable development goals, promoting economic growth, and enhancing energy resilience nationwide. To improve Zambia’s mini-grid sector, it is recommended that the country: 1. Establish a suitable and standardized regulatory framework for developing and operating mini-grids. In this regard, it should establish a streamlined license and permitting process for mini-grid projects to reduce administrative burdens and expedite project development. Subjecting mini-grids to the same demanding requirements and scrutiny of utility-scale projects hampers the development of the relatively nascent industry in Zambia. In addition, Zambia should strive to strengthen the role of the ERB in setting reasonable and cost-reflective electricity tariffs, taking into account the interests of both developers and consumers. 2. Regularly review and update tariffs, as appropriate, to cater for changing market dynamics and to ensure cost-reflectivity. 3. Undertake rigorous community and stakeholder engagement to cultivate and promote productive use activities as well as to ensure the affordability of tariffs. 4. Ensure policy consistency to support a stable regulatory environment to attract long-term investments in the mini-grid sector. 5. Develop and implement a robust grid code that addresses technical aspects of integrating mini-grids into the national grid, promoting grid stability and reliability.

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6. Undertake robust data collection and monitoring to track the performance and impact of mini-grid projects to help inform future regulatory decisions. Implementing these recommendations may help Zambia unlock the full potential of mini-grids to expand access to reliable electricity in remote and underserved areas, stimulate economic development, and contribute to the country’s sustainable development.

6 Conclusion In examining Zambia’s experience with solar mini-grids and its regulatory support for mini-grid development, it becomes evident that the nation faces a multifaceted challenge in achieving widespread electrification, particularly in addressing the wide energy access gap in rural areas. Whilst Zambia boasts significant potential for solar power generation and has recognized the importance of mini-grids as a solution, there are several critical factors that hinder their effective implementation and scaling. Most of Zambia’s population resides in rural areas, and despite some efforts, rural electrification rates remain significantly low. This is due to low-income levels and limited productive activities in these remote and distributed communities, which, by nature, are complex to electrify. Mini-grid development in Zambia is still in its early stages as only a limited number of operational mini-grids exist, with most owned by private sector developers. The number of operational mini-grids will need to be significantly scaled up to help address Zambia’s energy access gap and to help electrify the most remote communities. A key challenge to scaling mini-grids in Zambia is its current legal and regulatory framework. Zambia’s regulatory framework for mini-grids faces challenges, primarily due to the lack of a dedicated legal framework tailored to distributed renewable energy solutions. The existing framework imposes obligations on mini-grid developers that are more suitable for large-scale projects, leading to inefficiencies and delays. In addition to the regulatory and licensing framework, Zambia’s historically low tariffs have discouraged private-sector investment in the power sector. Although there have been efforts to transition to cost-reflective tariffs, this transition remains a complex task as an intricate balance must be struck between cost reflectivity of tariffs and affordability of electricity to the consumer—many of which may be “lifeline” consumers or low-income earners. Zambia will need to adopt a comprehensive and robust approach to address these challenges to close its energy access gap and reach universal access to clean, modern, reliable, and affordable energy. It must prioritize the provision of electricity to its burgeoning population by scaling up mini-gird investment. Some approaches it will need to adopt to achieve this include developing transparent, efficient regulatory framework tailored explicitly to mini-grid—this key to attracting private sector investment and expediting project deployment. In addition to developing clear and

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appropriate legal and regulatory frameworks, Zambia needs to ensure a gradual transition to cost-reflective tariffs that balance affordability for end-users with the financial viability of mini-grid projects. It would benefit Zambia to continue its public-private collaboration with developers as these business models help to address challenges in project development more speedily as different sector players have an interest in the project. These PPP arrangements also enhance financial feasibility and ensure sustainable project outcomes. Further, Zambia’s mini-grid sector would be positively impacted by developing strategies and initiatives that help stimulate economic activities in rural areas to improve income levels, energy affordability, and the financial viability of mini-grids. Zambia’s journey towards achieving widespread electrification, particularly in remote and rural communities, is marked by challenges and opportunities. As a first step, Zambia needs to prioritize the electrification of its rural population more robustly. By addressing regulatory and economic challenges, whilst also fostering multistakeholder collaboration in the sector, Zambia can harness its vast solar potential through mini-grid technology to make significant strides towards universal energy access and sustainable development. The success of these efforts will benefit Zambia and serve as a valuable lesson for other countries facing similar challenges in electrification.

References Bayliss, K., & Pollen, G. (2021). The power paradigm in practice: A critical review of developments in the Zambian electricity sector. World Development, 140, 105358. https://doi.org/10.1016/j. worlddev.2020.105358 Dobler, G., & Kesselring, R. (2019). Swiss extractivism: Switzerland’s role in Zambia’s copper sector. Journal of Modern African Studies, 57(2), 223–245. Cambridge University Press. https:// doi.org/10.1017/S0022278X19000089 Eberhard, A., Gratwick, K., Morella, E., & Antmann, P. (2016). Independent power projects in Sub-Saharan Africa: Lessons from five key countries. World Bank. https://doi.org/10.1596/9781-4648-0800-5 Eberhard, A. (2013). Contributing elements to success of IPPs in sub-Saharan Africa. Foster, V., & Rana, A. (2020). Rethinking power sector reform in the developing world. Haanyika, C. M. (2008). Rural electrification in Zambia: A policy and institutional analysis. Energy Policy, 36(3), 1044–1058. https://doi.org/10.1016/j.enpol.2007.10.031 Japan International Cooperation Agency. (2008). The study for development of the rural electrification master plan in Zambia final report summary report. Kapika, J., & Eberhard, A. (2013). Power-sector reform and regulation in Africa: Lessons from Kenya, Tanzania, Uganda, Zambia, Namibia and Ghana. HSRC Press. http://www.gsb.uct.ac. za/files/Powersector.pdf Kapole, F., Mudenda, S., & Jain, P. (2023). Study of major solar energy mini-grid initiatives in Zambia. Results in Engineering, 18. https://doi.org/10.1016/j.rineng.2023.101095 Lanfranconi, C. (2018). Regulation for universal access to energy in Zambia. https://doi.org/10. 13140/RG.2.2.33335.37289 Mbilima, F. (2021). Extractive industries and local sustainable development in Zambia: The case of corporate social responsibility of selected metal mines. Resources Policy, 74. https://doi.org/ 10.1016/j.resourpol.2019.101441

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Mihalyi, L. J. (1977). Electricity and Electrification for Zambia. In Source: Geographical review (Vol. 67, Issue 1). Mulenga, E., Kabanshi, A., Mupeta, H., Ndiaye, M., Nyirenda, E., & Mulenga, K. (2023). Technoeconomic analysis of off-grid PV-Diesel power generation system for rural electrification: A case study of Chilubi district in Zambia. Renewable Energy, 203, 601–611. https://doi.org/10. 1016/j.renene.2022.12.112 Renewable Energy and Energy Efficiency Partnership. (2019). Beyond the grid fund for Africa (BGFA)- Zambia: Outcome report private stakeholder consultation workshop. Sinyolo, O. (2020). Challenges and possible solutions in Zambia’s electricity supply industry. Stritzke, S., & Jain, P. (2021a). The sustainability of decentralised renewable energy projects in developing countries: Learning lessons from Zambia. Energies, 14(13). https://doi.org/10.3390/ en14133757 Stritzke, S., & Jain, P. (2021b). The sustainability of decentralised renewable energy projects in developing countries: Learning lessons from Zambia. Energies, 14(13). https://doi.org/10.3390/ en14133757 Sustainable Energy for All, & Rockefeller Foundation. (2023). Deploying 1000 mini-grids in Zambia. Unpublished Report The National Energy Policy. (2019). United Nations Development Programme. (2014). China-Zambia south-south cooperation on renewable energy technology transfer. World Bank Group. (2015). Powering the Zambian economy. World Bank, IRENA, UNSD, IEA, & WHO. (2023). Tracking SDG 7: The energy progress report. Zambia Ministry of Energy. (2021). Zambia power development framework. Zambia Ministry of Energy. (2022). Renewable energy strategy and action plan for Zambia. Zambia Statistics Agency. (2022). 2022 Census of population and housing. http://www.zamstats. gov.zm ZESCO. (2020). Integrated report 2020. Zomers, A. (2001). Rural electrification: Utilities’ Chafe or challenge. Twente University.

N. A. Adjei is a Ph.D. Candidate, University of Cape Town Graduate School of Business and serves as a Pre-doctoral Fellow at Boston University Global Development Policy Centre. Her research considers the role of Chinese investment in power generation projects in SubSaharan Africa. She is an admitted attorney of the High Court of South Africa and specializes in corporate and commercial law.

The Rationale of Economic Regulations: Theoretical Review Haliru Dikko

List of Abbreviations EC TR PQ ECOWAS

Economic Regulation Total Revenue Price and Quantity Economic Community of West Africa

1 Introduction Economic Regulation (EC) is all about price, quality of service, and entry and exit from the market. The price must reflect the quality of service and the quality of service must contemplate the price to be paid. Equally, the comfort and level of protection or walls created for a new entrant to the market must be reflected in the price to be recovered from the market. The consumers also must compensate for tight exit conditions reposed on the operators as a safeguard against the cessation of supply by the operators to take advantage of new market opportunities. The core focus of economic regulation revolves around the concept of price—the amount that service providers anticipate collecting from customers for the consumption or enjoyment of a unit of service consistently provided to them at a predetermined level of quality). This central issue encapsulates the pivotal role that pricing plays in the regulatory framework, as it directly influences the dynamics of economic transactions between service providers and consumers. The determination of this H. Dikko (B) ECOWAS Regional Electricity Regulatory Authority (ERERA), Energy Commission Building, Ghana Airways Avenue, Airport Residential Area, Accra, Ghana e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_8

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price is a critical aspect of economic regulation, shaping the interactions within the market and serving as a mechanism to balance the interests of both service providers and customers. By emphasizing the centrality of price in economic regulation, the discussion underscores the significance of establishing transparent and equitable pricing structures to foster a fair and sustainable relationship between service providers and consumers in the provision of continuous, quality services. In unregulated markets, monopoly firms often employ various tactics to exploit captive customers, taking advantage of their limited options. These deceptive practices can lead to unfair exchanges and hinder healthy market competition. Economic regulation plays a crucial role in curbing such unscrupulous behavior and fostering a level playing field. As highlighted by Viscusi et al. (2018), regulatory measures are designed to prevent monopolies from engaging in activities that would compromise fair competition and harm consumers. By establishing rules and standards, economic regulation aims to safeguard the interests of consumers and promote a more transparent and equitable marketplace. Through the enforcement of these regulations, authorities seek to ensure that monopoly firms operate responsibly and adhere to ethical business practices, ultimately fostering an environment where consumers can make informed choices without falling victim to monopolistic abuses. In pursuit of the overarching goal of addressing the crucial challenges encountered by economic regulators, a variety of regulatory policy options are employed. These options serve as strategic tools to guide and govern economic activities, particularly in sectors where regulation is deemed necessary. The core policy options deployed in economic regulation encompass a range of measures aimed at achieving specific objectives. The core options employed in economic regulation are the regulated prices, the minimum allowed investment of capital assets, reasonable return for and on investment, rules for entry and exit to market, and finally minimum level of quality of service. Regulated price often called tariff is critical to economic regulation and the central theme of this paper. A tariff can simply be defined as a price fixed or set by an independent government-established institution and the price must be made contingent on a continuous supply of service at a predetermined quality and quantity and with a proviso of penalties in the event of low-quality of service by the firm and non-payment of the approved tariff by consumers. The central goal of electricity regulation is to institute a pricing or tariff framework that enables the utility to generate sufficient cash flow. This financial stability is intended to cover all justifiable business expenses, offer a minimum return to investors, and ensure the maintenance and replacement of deployed assets at specified levels and intervals (Willis & Philipson, 2018). The overarching objective is to strike a balance that guarantees the financial viability of the utility, provides returns to investors commensurate with their investments, and facilitates the sustainable upkeep of infrastructure. According to Willis and Philipson (2018), tariffs, being a pivotal component of electricity regulation, carry both legal and economic implications. Crafting tariffs involves a meticulous process guided by the final decisions of the regulatory authority, following all requisite statutory and procedural steps. This

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emphasis on adherence to legal and procedural protocols underscores the importance of a transparent and accountable regulatory framework. The regulatory objective, as outlined, reflects a multifaceted approach. It encompasses considerations of financial viability for the utility, investor returns, and the long-term sustainability of assets. By prioritizing these elements, electricity regulation seeks to ensure the delivery of reliable and high-quality services to consumers while fostering an environment that attracts and retains necessary investments in the electricity sector. The general assumption in the electricity tariff setting is revenue neutrality, thus the Total Revenue [TR] is determined by the product of Price and Quantity [PQ] and the utility must fully recover its approved revenue. This is necessary as electricity is like any other product or service and its costs are made up of critical inputs such as gas, capital assets; such as the power stations for converting heat into electrical energy and delivery systems; an unbroken electrical connection between the point of production and the point of consumption. However, it differs from other products in that it cannot be stored or transported in the usual way. Apart from this, it is similar in all respects, being inherently monopolistic (except generation) its pricing cannot be left to the market forces of demand and supply, and realistic tariffs must be fixed. Tariff is very critical to the success of the electricity market because it determines what consumers are going to pay, it is also the critical bid valuation criteria for the majority of projects executed under bidding/negotiated contracts, key to establishing the payback period and viability of the project, as it defines future revenues of the project and thus of prime interest to all stakeholders including lenders and shareholders. The central issue of this paper is to investigate and articulate the most efficient means of determining the price of electricity within a regulated environment.

2 Theoretical Review In considering the fundamental aspects of electricity pricing outlined in the preceding section, it becomes evident that the most suitable economic rationale and theoretical foundation for evaluating regulated prices stem from the theory of value rather than the theory of market price. The theory of market price traditionally relies on the principles of demand and supply within a competitive market setting. However, when it comes to electricity pricing, the dynamics involve unique factors that extend beyond the conventional market forces. The theory of value, on the other hand, offers a more comprehensive perspective by delving into the intrinsic worth of the product or service, considering factors such as utility, necessity, and broader societal implications. In this context, the theory of value is better equipped to address the intricacies of electricity pricing, which may not be fully captured by the simplistic demand and supply dynamics of the market price theory. Moreover, emphasizing the theory of value allows for a more holistic examination that incorporates elements beyond mere production costs, acknowledging the broader impact and value that electricity holds within a given socio-economic context.

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Smith (1776) has identified two concepts of value: the value in use and the value in exchange. According to him the things, which have the greatest value in use, may probably, have little or no value in exchange conversely those which have the greatest value in exchange, might have little or no value in use. The classical example of this statement is that of air and gold. While air is very useful and indispensable to existence, under normal circumstances has no exchange value. Conversely, gold, though of little use in comparison with air, will be exchanged for a great number of other assets and services. Smith further described the exchange value, as the power of purchasing other goods, which the possession of that object conveys, to the owner. The rate or quantity that one other person will give out to possess, utilize, or consume the other objects. For example, if a one-megawatt hour of electricity is given to a consumer in return for $1, 000.00 the exchange value of that volume of electrical power is $1, 000.00, thus, the value of $1, 000.00 is one-megawatt hour of electricity. The value in use denotes the pleasure, satisfaction, or utility, enjoyed for or by the consumer. The dwelling of a personal house or the comfort of riding a personal car by an individual or his family is all considered as a value in use. Following Smith, the use value is determined following the needs, which are not uniform in different environments and circumstances. Some natural things possess use value need value and even necessity value, at the same time; they do not have any exchange value. Conversely, there are other things, which have no use value but possess large exchange value depending on environments and circumstances. According to Ricardo (1988), the value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labor, which is necessary for its production, and not on the greater or less compensation, which is paid for that labor. Ricardo’s statement is based on the early stages of society and certain assumptions, such as all commodities are produced through human labor only, no specialization, no intermediary or middlemen, and no monopoly thus exists equal competitiveness. He was quick to admit that the above scenario might not hold in the later stages of society. The different qualities of labor and the difficulties of comparing person-hour labor, in different employment, are factors to be considered and further postulated that the labor of different qualities should be rewarded differently. Such as, the day’s labor of a jeweller is more rewarded than the day’s labor of a bricklayer. According to Schumpeter (1986), Galiani anticipated Ricardo and other classical economists’ theory of value as he defined value as a relation of subjective equivalence between a quantity of one commodity and a quantity of another. Another remarkable breakthrough was the concept of the paradox of value developed by Galiani which came close to satisfying the theory of price. Because according to Galiani price drive utility and scarcity. Also, price limits the quantity of commodity consumers can procure, thus it regulates and is regulated by demand. The views of classical economists can be summarized thus, in the long-term price and hence the exchange value of an item is determined by its cost of production (supply). However, it is the fact, that demand must exist, for that determines whether an item has any value at all. In contrast with Ricardo and other early economists who regarded value as a function of the cost of production, Menger (1817) and Jevons described value as a function of utility. Jevons postulates the Law that the ratio of exchange of any two

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commodities will be reciprocal of the ratio of the final degree of utility of quantities of commodity available after the exchange is completed. He states that the cost of production affected the value of goods through the forces of scarcity. By spending more or less labor on the production of supply, the marginal utility of the commodity can be affected and in turn would vary its value in the market thus: Cost of Production Determines Supply; Supply Determines Final Degree of Utility; Final Degree of Utility Determines Value (Bahatia, 1978:307)

Marshall (1890), a neoclassical, criticizes the views of Jevons and Manger on the concept of value, more especially on the Jevans’ statement. Marshall’s objections are; i. Ambiguity of the terms “cost of production” and “supply” ii. The market price is determined not only by the final degree of the product’s utility but in conjunction by the amount of purchasing power at the disposal of the buyers iii. That, Jevons’ statement portrays that, supply price, demand price, and the amounts produced are mutually exclusive. Marshall re-formulated the Jevons’ statement differently, thus. Utility determines the amount that has to be supplied, the amount that has to be supplied determines the cost of production, Cost of production determines value because it determines the supply price which is required to make the producers keep to their work. (1890:674).

Marshall’s perspective encapsulates the idea that the theory of value essentially serves as the theory of price, where the interplay of demand and supply forces plays a pivotal role. In this framework, both demand and supply are intricately linked to the concepts of marginal utility and marginal cost. According to Marshall, the determination of prices is intricately connected to these marginal factors, reflecting the equilibrium established by the interplay of market forces. On the contrary, the labor theory of value, as outlined earlier, takes a different approach by positing that market prices are influenced and determined by the proportionate amount of labor time embedded in commodities. This perspective diverges from Marshall’s view, emphasizing the intrinsic value derived from the labor invested in the production of goods or services. Unlike the marginal utility and marginal cost considerations in Marshall’s theory, the labor theory of value contends that the socially necessary labor time involved in production significantly shapes and influences market prices. This conceptual contrast highlights the diversity of economic theories in explaining the mechanisms that underlie pricing dynamics, showcasing the ongoing discourse within the field of economics. However, the idea of non-market determined price is in fact according to Smith determined by fair returns to factors of production, “wages, profit and rent are the

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three sources of all revenue as well as of all exchangeable value”. This according to Schumpeter (1986) was in the opinion of many students of economic history, Smith’s theory of value, and what later came to be called the cost of production theory. The gamut of the revenue requirement concept as widely used in the regulation of electricity tariffs as we shall explain in this paper is based on Smith’s postulation of cost of production theory. The evolution of economic thought, propelled by modern economists like Robinson (1933) and Chamberlain (1933), delves into a nuanced analysis of prices within the framework of imperfectly competitive environments. This advancement has led to the examination of various degrees of firm operations, each characterized by distinct market structures. These include ordinary monopoly, natural monopoly, quasi-monopoly, oligopoly, and duopoly, reflecting the recognition that real-world markets often deviate from the idealized conditions of perfect competition. The differentiation introduced by these modern economists highlights the diverse forms of market power and competition that exist, acknowledging the complexities and variations in how firms operate within imperfectly competitive landscapes (Martens, 2023). This analysis goes beyond the traditional understanding of perfect competition and incorporates a more realistic portrayal of market dynamics. Moreover, the modern value theory, as articulated by these economists, introduces a dual perspective in the analysis of value. It acknowledges the classical emphasis on the supply side of value, wherein production costs and factors influencing producers play a central role. Simultaneously, it recognizes the significance of the demand side, a focus underscored by the marginalist school of thought. This dual perspective reflects a comprehensive approach that considers both the factors influencing production and the factors influencing consumer preferences and choices. The concept of value is very fundamental to the determination of price. Conversely, the price of an asset is considered the monetary payment of its value. Such pricing may be fair or unfair, just, or unjust in the market. As explained by Bashar (1991a, 1991b), the market could not produce the fairest, just, and most efficient product price based on the cost of production and the existence of private monopolies in the utility business that among other factors necessitated intervention by government in forms of regulation and price control to ensure optimal welfare and protection against various market imperfections.

3 Rationale for Economic Regulation According to Kahn (1988), there are at least two large chunks of the economy that the competitive model obviously does not describe or even attempt to describe. These are huge growing public sectors, the allocation of resources to which is determined not by the autonomous market but by political decision, and the public utilities, in which the organization and management are for most private, but the central economic decisions are subject to direct government regulation. These institutions’ performances are not

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governed by any competition or self-restoration but by governmental policies and socioeconomic objectives. According to Kahn (1988) for these institutions more especially the public utilities the government attempts to remove the imperfection of competition by control of entry, price fixing, prescription of quality and condition of service, and imposition of an obligation to serve all customers under reasonable conditions. Coyle (2012) writing on the nature of the intervention, says that “Electric power, in common with other network industries, has characteristics that make public control necessary, through either regulation or public ownership, to minimize the cost to society of providing the service and to deliver just reasonable and non-discriminatory rates” (Table 1). According to Viscusi et al. (2018), where natural monopolies emerged for the reason of economic efficiency, it is desirable to have a monopolistic market structure. However, these economic giants must be controlled by a legal institution, so they will not charge excessive prices. According to Bashar (1991a, 1991b), it is socially desirable to control them and socially harmful to allow their unfettered operations. According to Melody, as cited by Miller and Samuels (2012), the institutions tasked with regulating and controlling monopolies serve a multifaceted purpose. The Table 1 Value of estimated energy (Gas and Electricity) Consumptions and GDP of major economies in Billion US$ for the year 2019/2000 Value of electricity consumption

Value of gas consumption

Total GDP expenditure on electricity and gas

% of total expenditure to GDP

1

USA

1,072.53

498.94

1,571.47

19,490.00

6%

2

Japan

425.72

155.82

581.54

5,443.00

8%

3

Russia

228.86

154.28

383.14

4,016.00

6%

4

Germany

262.27

61.62

323.89

4,199.00

6%

5

Canada

174.06

118.18

292.24

1,774.00

10%

6

Brazil

97.91

27.65

125.56

3,248.00

3%

7

Korea, South

92.57

36.22

128.79

2,035.00

5%

8

France

137.38

42.71

180.08

2,856.00

5%

9

UK

147.69

67.29

214.98

2,925.00

5%

10

Italy

171.46

95.44

266.90

2,317.00

7%

11

Mexico

113.85

74.27

188.11

2,463.00

5%

12

Spain

80.26

24.45

104.71

1,778.00

5%

13

Taiwan

50.01

18.43

68.44

1,189.00

4%

14

Turkey

230.10

31.36

261.46

2,186.00

11%

15

Australia

94.74

39.68

134.42

1,248.00

8%

Source Estimate by the author from the database of EIA

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primary objective, as outlined by Melody, is to facilitate the efficient functioning of markets. In this context, regulatory institutions are designed to create an environment where competition can thrive, preventing monopolies from stifling market dynamics and restricting consumer choices. By fostering fair competition, these institutions aim to promote innovation, enhance efficiency, and prevent monopolistic abuses. Furthermore, Melody suggests that regulatory institutions play a crucial role in compensating for market failures. In instances where the market mechanism alone is insufficient to address certain shortcomings or inefficiencies, regulatory bodies step in to correct imbalances and ensure the proper functioning of the economy. This may involve interventions to rectify information asymmetry, address externalities, or mitigate other market failures that could impede the optimal allocation of resources. Historically, classical economists have advocated for less government regulation or intervention in the market activities, “they made a case that a greatly expanded role for private initiative and thereby private market in a mixed economy would stimulate economic activity, growth, and wealth of nations. By reference to today’s classification of economic issues, classical economists were attacking unduly restrictive over-regulation by government, including the widespread granting of privileged monopolies as barriers to economic growth” (Melody, 26: 2002). In the final analysis the justification of regulation rests on the critical role played by the utilities, because of their size, being critical to economic development and growth and great economies of scale. In practice, firms providing utility services such as transmission and distribution networks are naturally monopolistic, in that their services are best/efficiently provided by one entity or best shared by different users. With limited potentials of competitive activities such as generation and retailing, the government policy in such industries usually attempts to address the questions of structure and price, specifically of vertical integration, liberalization, horizontal structure, regional structure, price regulation, entry and exit barriers and regulation of the quality of service (Armstrong et al., 1994). Within the ECOWAS member countries, the market structure of the electricity sector varies, as highlighted in the AfDB/ERERA (2019) study. The analysis, based on data from the end of the year 2017, reveals a diverse landscape with a mix of liberalization degrees across the member nations. In certain countries like Nigeria and Ghana, the electricity markets have undergone full unbundling, characterized by the separation of generation, transmission, and distribution entities, with a notable prevalence of private sector involvement. This reflects a more advanced stage of market liberalization, where private enterprises play a dominant role in various segments of the electricity supply chain. On the other hand, countries such as Benin, Sierra Leone, and Togo have adopted a parcial unbundling approach. In these cases, the generation, transmission, and retail components are visibly separated, but private sector participation is limited. This suggests a somewhat intermediate level of liberalization, where elements of market segmentation are evident, but the degree of private sector involvement is constrained compared to fully unbundled systems. Meanwhile, countries like Burkina Faso, Ivory Coast, Senegal, among others, operate under vertically integrated systems. Despite maintaining a consolidated

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structure, they have introduced limited liberalization by permitting independent power plants to participate in the market and sell electricity to the main state-owned monopoly utilities. This approach represents a form of controlled liberalization, allowing external entities to contribute to the energy supply without a complete overhaul of the traditional, vertically integrated model. According to Joskow and Noll (1981), the economics literature is ambivalent about the desirability of regulating monopolies. Because economic theory is firm in concluding that monopolies create economic inefficiency, social intervention to prevent, undo, or control monopolies is potentially attractive. However, because social interventions generate direct and indirect costs through the peculiar kinds of inefficiencies they cause, attempting to deal with a monopoly may be at least as costly as leaving it. However, the consensus is the need to reduce its negative consequences through regulation and control, as it is impossible for competition to function in such an environment. Historically, evidence of government intervention in the market could be seen in England in the last three decades through various legislations to influence the market behavior of firms with dominant power in public utility services such as electricity, gas, and transportation. However, the first legal institution with the power to regulate public utilities was created in the United States of America through the Interstate Commerce Act of 1887 which established the federal regulation of railroads; it was followed by the Sherman Act of 1890 which established the first antitrust law. Today almost all nations and countries of the world have established one or more institutions charged with responsibilities for economic regulation and anti-trust activities. But one of the gaps in the literature on economic regulation is the absence of a consensus on what, to an outsider, must appear to be one of the best-defined methods to make price regulation more effective. From the traditional cost of service-based rate of return (cost plus) to the modern hybrid of incentive regulation paradigm, non-can be considered as perfect or pit for all environments, as shown in the table below of the various tariff methodologies adopted by countries of the Economic Community of West Africa (ECOWAS) (Fig. 1). Cost Plus

Benin Cote d'Ivoire Gambia Liberia Mali Sierra Leone Guinea Guinea Bissau

Price Cap

Cabo Verde Niger Senegal

Revenue Cap

Burkina Faso Togo

Hybrid

Ghana Nigeria

Fig. 1 Tariff methodology in ECOWAS member countries. Source AfDB/ERERA 2019

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4 Cost of Production Theory of Price The central concern in the exchange of goods and services lies in determining the counter value that must be sacrificed to gain control or consummate the transaction. This counter value, contributed by the buyer, consumer, or the party availing the services, is what constitutes the payment made to acquire control over the product or service, commonly referred to as the price. This concept underscores the essence of reciprocity in economic transactions, where parties involved must relinquish something of value in order to obtain the desired goods or services. To navigate the complexities of commercial transactions and minimize the potential for misunderstandings and conflicts, both economic and legal texts have defined the notion of prices. These definitions serve as guiding frameworks that help establish a common understanding among transacting parties and provide a basis for resolving disputes. By delineating the parameters of what constitutes an acceptable price, these definitions contribute to the establishment of clear expectations and foster a more transparent and harmonious exchange of goods and services within the marketplace. The Black’s Law dictionary defines price as the amount of money or other consideration asked for or given in exchange for something else or the cost at which something is bought or sold. The Oxford Dictionary of English also defines price as the amount of money expected, required, or given in payment for something. In all the above definitions the underlying issues are the product/service, payment, and cost. Economists have done justice as to the definition and discussing the concept and practice of price over the last decades. According to Adams Smith “Give me what I want, and you should have this which you want”. Contrastingly, Kotler et al. (2012) simplifies the concept of price by defining it as the amount one pays to acquire a product or service. This definition succinctly captures the transactional aspect of pricing, emphasizing the monetary exchange involved in obtaining a desired product or service. Kotler’s definition aligns with the practical and transaction-focused perspective often employed in marketing and business contexts. Adam Smith, often considered the father of modern economics, further expounds on the concept of price by identifying three sources of revenue: wages, profit, and rent. According to Smith, these sources collectively contribute to the exchange value or price of commodities and services. Moreover, Smith introduces the distinction between the natural (normal) price and the market price of goods and services. This differentiation acknowledges the dynamic nature of prices in the market, influenced by various factors beyond their inherent or natural value. The normal price is determined by the total cost of production i.e., rent, wages, and profit while the market price is that price that oscillates around the normal price. It may either be above, below, or the same as the normal price. While the market price is determined by forces of demand and supply and varies over a short time, the normal price is based on the total cost of production given a normal return to the stock of capital and varies over the long term.

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According to Smith, “when the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour and the profit of the stock employed in raising, preparing and bringing it to the market, according to their natural (normal) rate, the commodity is then sold for what may be called it’s natural (normal) price”. While we have seen in literature graves of many firms operating in a competitive market due to oscillating prices and market imperfections, little is observed among the firms charging regulated normal prices. Although those firms charging regulated normal prices may often become bankrupt, forensic investigations show that the courses are not the pricing regime but due to corruption and lack of strict adherence to what constitutes the normal cost of production and just price. According to Lee (1980, 155), the public enterprise or nationalized industry will be expected to set what may be called just price—a price which is set with some regard for its effect on the distribution of wealth as well as for its effect on the allocation of resources. Definite value judgments are naturally required for the determination of a just price. Early scholars and philosophers like Aristotle, Ibn Khaldum, and Ibn Taimiyah attempted the definition of just price from an ethical perspective before the period of Mercantilist and Adams Smith. According to Bashar (1991a, 1991b), both Ibn Taimiyah and Ibn Khaldum thirteen century Islamic scholars have reflected on the phenomenon of price as that price determined by the market through the process of demand and supply. Aristotle’s perspective on just prices revolves around the idea that prices assigned to individuals, particularly those stemming from competitive forces in a free market under normal conditions, are deemed just. In this context, a just price is one that emerges organically in a competitive environment, reflecting fair and equitable market dynamics. The notion implies that, when left to the influences of supply and demand in a free market, prices naturally reach a state of balance that is perceived as just and reasonable. Similarly, St. Aquinos contributes to the discourse on just prices by defining them as those that consider not only the intrinsic value of the item being sold but also the losses incurred by the seller in parting with it. This perspective introduces a moral dimension, emphasizing the consideration of fairness in pricing that goes beyond mere market forces. St. Aquinos’ definition underscores the ethical considerations involved in determining just prices, acknowledging the potential hardships faced by sellers in the exchange process. Ibn Taimiyah aligns with Aristotle’s viewpoint by introducing the concept of the “price of equibalance.” This idea centers on achieving equality in the exchange, incorporating both the cost of production and the value as perceived by customers. The notion reflects a holistic approach that considers not only the expenses incurred in creating a commodity but also recognizes the subjective assessment of its worth by consumers. By blending these elements, Ibn Taimiyah’s concept seeks to establish a balanced and just pricing mechanism that takes into account both the producer’s efforts and the consumer’s valuation. According to Ibn Taimiyah as reviewed by Islahi (1988) a just price does not lead to exploitation or oppression inflicting harm to one party and benefits to the other. Prices must fairly reflect advantages to both the buyer and the seller. And the seller must get a normal profit and the buyer gets benefits equal to the price paid (the price of equivalence). The fundamental function shared by the majority of economic

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regulatory institutions globally is the establishment of a just price, rooted in prudence and reasonable cost. This central role underscores the critical responsibility of these regulatory bodies in ensuring fairness and balance in economic transactions. The concept of a just price reflects the aim of aligning economic activities with principles of prudence and cost reasonableness, acknowledging the need for equitable pricing structures. By emphasizing the core function of setting a just price, economic regulatory institutions contribute to maintaining stability in markets and safeguarding the interests of both consumers and service providers. The notion of prudence implies a cautious and sensible approach to pricing, while consideration of reasonable cost ensures that the economic value attributed to goods and services is reflective of the resources and efforts invested in their production. This overarching role of economic regulatory institutions in establishing just prices underscores their significance in fostering a transparent, competitive, and ethical economic environment. It highlights the commitment to principles that go beyond profit motives, aiming to strike a balance that promotes the well-being of both stakeholders and the overall health of the economy. Following the review carried out above, it is apparent that market price under a perfectly competitive market is the just price. However, due to the electricity industry structure with natural and legal monopolies and the need to protect consumers of basic utilities like water and electricity, institutions were established to mimic the market to set a just and reasonable price for utility services. To achieve that objective some basic and generic principles or objectives to guide price regulation could be drawn from the analysis carried out in this paper. They include the following: 1. Cost recovery—to ensure the sustainability of operation regulated entities should be permitted to recover their (efficient) costs, including a reasonable rate of return on capital to maintain sound financial viability. This principle will also attract more investment in the sector. The is determined through the cost of service or benchmarking and recovered through the tariff design based on revenue cap, price cap, or other hybrid approaches. 2. Benefit Distribution: All explicit benefits accruing to the operator such as gas subsidy, and contribution of capital assets by the consumers, consumer groups, governments, or any civil society must be taken into consideration in pricing. As informational asymmetry may lead to a substantial portion of benefits accruing to one party, all cost data and information must be disclosed to the regulators and utilities by each other to ensure any apparent and potential financial benefits are included in the price at different stages of tariff filing, consultation, or negotiation. This principle is aimed at ensuring that benefits do not accrue to one side alone but are fairly distributed among all. 3. Certainty and stability of the pricing framework are also important for private sector investment. As it reduces the cost of doing business and higher uncertainty pushes tariffs to a higher level, utilities and consumer groups should be able to predicate the outcome of tariff outcome with a higher degree of certainty following the approved tariff framework.

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4. Efficient use of the network—To promote efficient use of transmission or distribution networks, it requires “efficient” prices that reflect the marginal costs that users impose on the system and the removal of cross-subsidies among different users. 5. Allocation of risk—pricing arrangements should allocate risks efficiently to those who are best placed to manage them. Gas risk, foreign exchange risk, and collection risks must be appropriately allocated and reflected in the price. 6. The economy cost- simplicity—The Tariff framework and administration must be cost-effective to ensure that the cost is reasonable and does not become a burden on the state or consumers. This principle will ensure that the tariff structure and regulatory system are easy to understand and not excessively costly to implement. 7. Incentives for improving performance—The prices should be set giving appropriate incentives for operators to reduce costs and/or increase the quality of service. Utilities should only be allowed to make an extra profit above normal profit if they are innovative beyond the normal performance expected from such businesses. 8. Transparency/fairness—prices should be non-discriminatory and transparent. Discrimination should only be based on cost not on quality or access or availability. Non-discriminatory access to monopoly networks is also a key prerequisite for effective competition in the contestable sectors. 9. Flexibility—the pricing framework needs to be able to cater to unforeseen changes in predictable circumstances. It must provide for minor short-term adjustment and long-term major review and unexpected economic and social circumstances such as COVID-19. 10. Social and political objectives—the pricing framework must be in tandem with the government policies, it must provide for the achievement of the government’s social policy goals such as user affordability, universal access, and specific policies such as the Universal tariff policy, etc.

5 Conclusion The paper is based on economic principles and rationality, providing an exploration of the subject of public utility pricing through the lens of conventional economic theory. The primary objective is to elucidate key aspects of public utility pricing, delineate central issues to be addressed, and establish a theoretical framework that not only serves as an anchor but also justifies the regulation or setting of electricity prices within a market economy. The paper accepts that no approach to the determination of tariffs is perfect, but briefly introduces the different models of economic regulation systems and regulatory cost control. Acknowledging the inherent imperfections in any approach to tariff determination, the paper concisely introduces various models of economic regulation systems

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and regulatory cost control. These models encompass traditional rate of return regulation, price/revenue cap regulation (often referred to as incentive regulation), benchmarking, and hybrid rate regulation. Each model is briefly outlined, providing an overview of their unique characteristics and the ways in which they address the complexities of regulating electricity prices. The paper concludes with basic principles for regulating electricity tariffs to ensure fairness and justice for captive customers.

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Kotler, P., & Keller, K. L. (2012). Marketing mangement. 12e Pearson Prentice Hall. Lee, L. W. (1980). A theory of just regulation. The American Economic Review, 70(5), 848–862. Marshal, A. (1872). Review of Jevon’s theory of political economy. Academy April 1, Reprinted in Pigou, 1925. ———, (1890). Principles of economics: An introductory volume. 1990 reprint of 1920 edition Philadelphia: Porcupine. Marshall, A. (1890). Some aspects of competition. The address of the president of section F-Economic Science and Statistics--of the British Association, at the Sixtiet Meeting, held at Leeds, in September, 1890. Journal of the Royal Statistical Society, 53(4), 612–643. Martens, B. (2023). What should be done about Google’s quasi-monopoly in search? Mandatory Data Sharing Versus AI-Driven Technological Competition. Melody, W. H. (2002). Designing utility regulation for 21st century markets (pp. 25–81). The Institutionalist Approach to Public Utility Regulation. Menger, C. (1817). Principles of economics. 1981 edition of 1971 translation. New York University Press. Miller, E. S., & Samuels W. J. (Eds.). (2012). An institutionalist approach to public utilities regulations. Michigan State University Press. Mpholo, M., Mothala, M., Mohasoa, L., Eager, D., Thamae, R., Molapo, T., & Jardine, T. (2020). Determination of the lifeline electricity tariff for Lesotho. Energy Policy, 140, 111381. Ricardo, D. (1988). Ricardo on population. Population and Development Review, 14(2), 339–346. Roberts, A., & Lamp, N. (2022). Navigating complexity: Globalization narratives in China and the West. China International Strategy Review, 4(2), 351–366. Robinson, J. (1933). The Economics of Imperfect Competition. Rothwell, G., & Gomes, T. (2003). Electricity economics: regulation and deregulation. IEEE press and A John Willey & Sons Publication. Schuenemann, F., & Kerr, W. A. (2019). European Union non-tariff barriers to imports of African biofuels. Agrekon, 58(4), 407–425. Schumpeter, J. A. (1954). History of Economic Analysis. Elizabeth B. Schumpeter (ed.) Oxford University Press. Schumpeter, Joseph A. (1986). History of economic analysis-Routledge Smith, A. (1776). An inquiry into the nature and causes of the wealth of nations. 1981 reprint of 1976 Oxford edition. Sowell, T. (1994). Classical economics reconsidered (Vol. 422). Princeton University Press. Viscusi, W. K., & Harrington, J. E. (2005). Economics of Regulation and Antitrust (5th ed.). MIT Press. Viscusi, W. K., Harrington Jr, J. E., & Sappington, D. E. (2018). Economics of regulation and antitrust. MIT press. Willis, H. L., & Philipson, L. (2018). Understanding electric utilities and de-regulation (Vol. 27). CRC Press.

Dr. Haliru Dikko is an energy economist with over 30 years of experience in the banking industry, research, and energy regulation. He was General Manager and Head of Market Competition and Rates Division, Head of Tariff and Rates Regulations and Head of Renewable Energy, Research & Development Division at the Nigerian Electricity Regulatory Commission before joining ECOWAS Regional Electricity Regulatory Authority as Commissioner and Council Member-Economist in 2017.

Power Sector Regulation in Africa in an Energy Transition Era Pauline Anaman, Jennifer Boca, Tenele Habangaan, and Akua Chrappah Ayippey

1 Introduction The energy sector is the largest contributor of global Greenhouse Gas (GHG) emissions (United Nations, 2023), with electricity generation responsible for about 40% of energy-related carbon dioxide (CO2 ) released into the atmosphere (World Nuclear Association, 2022). The trend is very similar in Africa with the energy sector producing the largest emissions at 55% of total emissions as of 2019 (Attard et al, 2022) excluding the emissions from land use, land use change, and forestry (LULUCF). Some of Africa’s top GHG emitting countries such as South Africa, Ghana, and Nigeria (Agbetiloye, 2023) have high electricity access rates with huge amount of power generated from coal, fossil fuel, and gas, while other African countries with high renewable energy mix have low electricity access rates. Energy transition in the power sector would involve a shift to increased investment in cleaner electricity system that is affordable, reliable, and accessible for all. Energy transition connotes significant change in energy systems that is mainly driven by demand for and availability of different fuels, or that results from depletion of energy sources. Energy transition is not a new concept. It has been a feature of P. Anaman (B) · A. C. Ayippey AB & David Africa, Accra, Ghana e-mail: [email protected] A. C. Ayippey e-mail: [email protected] J. Boca JBOCA Associates Limited, Cambridge, England e-mail: [email protected] T. Habangaan Eswatini Electricity Company, Mbabane, Eswatini e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_9

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Industrial Revolution since the nineteenth century when subtle energy transitions have been occasioned by new discoveries of energy sources. From coal in the first Industrial Revolution, the world moved on to electricity and oil and gas in the second revolution. Driven by climate change imperatives to limit global warming to 1.5 °C below pre-industrial levels, energy transition in the fourth Industrial Revolution is understood as the move from fossil-based energy to cleaner energy towards net zero—the taking out of exactly the number of emissions that is produced in our human activities so that the net effect is zero. Africa has enormous untapped renewable power generation potentials that can address energy poverty of over 600 million people on the Continent (Chandler, n.d.) and support the Continent’s green growth and industrialization agenda. In addition to hosting abundant wind and biomass sources of power, the Continent has the world’s highest average amount of solar radiation each year to supply solar power, a 1,800 TWh per year hydropower capacity, and a 15,000 MW geothermal capacity (African Union, 2015). Although Africa has abundant resources for the generation of clean energy, only about 2% of the world’s investment in clean energy is directed to Africa (IEA, 2023). Undoubtedly, opportunities abound for private sector and public sector investment in infrastructure that supports renewable power generation, transmission, distribution, and storage. The Continent’s power sector is undergoing a transformative shift toward sustainable and clean energy sources, driven by the urgent need to address energy poverty, reduce greenhouse gas emissions, and foster economic development. Many African countries have taken various initiatives to expand their renewable energy generation mix in line with their SDG7, the AU Agenda 2023, and Nationally Determined Contributions. As of 2019, renewable energy (predominantly hydropower) was the primary source of electricity in 22 African countries, constituting more than 50% of total electricity generation with countries like Ethiopia (100%), Lesotho (99.9%), and Eswatini (99.8%) in the lead (Chandler, nd). In Kenya, geothermal energy accounts for almost half (46.0%) of electricity generation, more than any other country in the world. In Namibia, almost one-fifth of electricity (19.1%) is generated through solar, the fourth highest share globally (ibid). The successful transition to a cleaner and more resilient energy landscape in Africa heavily relies on, among other things, the presence of robust regulation in attracting investments and fostering the energy transition in the continent’s power sector.

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2 Importance of Effective Regulation in Facilitating Energy Transition Investments in Africa’s Power Sector The scope of power sector regulation includes robust legal and institutional frameworks that govern the electricity sector, how regulatory bodies operationalize their mandate by formulating and executing essential regulatory instruments and frameworks specific to the sector, and the impact of regulatory decisions, actions, and processes on the sector from the standpoint of regulated entities. Regulation has major influence on power sector investment, with both the regulator-developed guidelines and the responsiveness of utilities to these guidelines noted as critical in the decision to invest in the power sector. Effective regulation provides a stable and predictable environment for investors. Research indicates that regulatory stability is a key factor influencing investment decisions in the energy sector (Smith et al., 2019). Investors are more likely to commit capital to projects when they can anticipate a consistent regulatory environment, reducing uncertainty and risks associated with policy changes. Well-designed regulations can help mitigate risks associated with energy projects. Regulatory frameworks that address issues such as off-take agreements, permitting processes, and project bankability contribute to attracting financing (IEA, 2020). Researchers emphasize the role of clear and transparent regulations in facilitating access to capital for renewable energy projects (Adefulu, 2018). Effective regulation also fosters competition in the energy market, encouraging innovation and driving down costs. Research by Khanna and Zilberman (2019) highlights the positive correlation between competitive regulatory environments and increased innovation in renewable energy technologies. This, in turn, contributes to the affordability and scalability of clean energy solutions. Regulations further play a pivotal role in facilitating the integration of renewable energy into existing power grids. Policies that promote grid flexibility, smart technologies, and energy storage solutions are essential for managing the variability of renewable sources (IRENA, 2021). Effective regulation ensures that the power system can accommodate higher shares of renewable energy without compromising reliability.

3 Legal Perspective to Power Sector Regulation in an Energy Transition Era 3.1 Institutional Arrangements in a Transitioning Power Sector Institutional arrangements play a pivotal role in shaping the policies, regulations, and operations of the power sector across the continent. Typically, the key components of institutional arrangements in Africa’s power sector include law makers, ministries,

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regulatory authorities, state-owned utilities, independent power producers (IPPs), power pools and regional cooperation, rural electrification agencies, development partners and international organizations, research and development institutions, and various public and private partnership (PPP) arrangements. Institutional arrangements may, however, differ from country to country depending on the structure of power sector value chain. Traditionally, power sector value chain is categorized into generation, transmission, and distribution. In many African countries, the private sector dominates power generation while state entities and parastatals dominate transmission and distribution systems. In Ghana for example, independent power producers (IPPs) generate power alongside state-owned Volta River Authority (VRA) and Bui Power Authority (BPA). The Ghana Grid Company (GRIDCo) has monopoly over transmission lines while Electricity Company of Ghana (ECG) and the Northern Electricity Distribution Company (NEDCo) manage power distribution to consumers in Southern and Northern hemispheres of the country respectively. On the other hand, South Africa’s national utility provider, Eskom, dominates the entire power sector value chain, operating about 90% of power generated in the country while controlling all major high voltage transmission system infrastructure through its National Control Center (Ngusale et. al, 2021). Eskom also owns and manages about 76% of the country’s electricity distribution network and supplies 60% of the power it produces to businesses and some households in rural communities while the remaining 40% of power it generates is sold to municipalities for redistribution to urban residential and small business consumers (ibid). The emergence of energy transition within Africa’s power sector is poised to reshape established value chain frameworks, introducing innovations like off-grid/ stand-alone renewable energy infrastructure, mini-grids, and net metering systems. These advancements bring new stakeholders into the arena, particularly consumers who also act as electricity producers (prosumers). Consequently, the diverse interests of these stakeholders may not consistently align. Power sector regulation invariably extends across all entities within the institutional arrangement ecosystem, necessitating effective coordination by dedicated regulators along each segment of the value chain. Regulators are tasked with enhancing relationships among stakeholders by means such as crafting operational guidelines, providing vigilant oversight, and establishing effective mechanisms for resolving disputes. Across the region, there are disparities in the responsiveness of utilities to regulator guidelines due to the general poor financial health of utilities (IEA, 2023). This affects the development of the power system adversely, as more independent generators and load centers come online, leaving the utilities with the burden to provide routes for wheeling through often expensive transmission lines. While instruments supportive of the clean energy transition exist in most countries (including grid connection codes incorporating all generation technologies, wheeling frameworks, embedded generation regulations, and market liberalization policies), issues persist that limit the full development of the sector in line with these instruments (Arnoldi, 2021). Some of the issues include the development of guidelines which are not mandatory or enforceable, the long lead times in developing the required instruments, arduous

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licensing processes, and the minimal availability of human resources with experience in managing the enforcement of the instruments.

3.2 Power Sector Legal and Regulatory Frameworks The African continent has come a long way in the development of power sector laws and regulations, with some countries leading the charge in each of the economic regions. It is important for regulators to assess progress against regional counterparts and against international best practices in addition to measuring their effectiveness within their jurisdiction (AfDB, 2018). Case Study: Granting Legal Support to Empower Bui Power Authority for the Advancement of Renewable Energy and Other Sustainable Energy Alternatives in Ghana In its pursuit of increasing the share of renewable energy in the national energy mix to 10% by 2030, Ghana has taken legislative steps to empower the Bui Power Authority. The Parliament of Ghana amended the Bui Power Authority Act in December 2020, designating Bui Power as the nation’s renewable energy development entity. The amendment, specifically in Subsect. 1 of Section 11 of the Act, outlines that the Authority, in alignment with the Renewable Energy Act, 2011 (Act 832), is tasked with executing renewable energy projects assigned by the Minister, managing stateassigned assets in the renewable energy sector, and conducting renewable energy activities for power generation. As part of this initiative, the Bui Power Authority has initiated the development of the 250 MW Bui RE Park, incorporating solar, wind, and smaller hydropower units along the Western rivers. As of November 2019, the RE park saw the deployment of 50 MW land-based solar power plants after about a two-year construction period. Further enhancements include the upgrade of an existing floating 1 MW solar plant to a 5 MW capacity in July 2023. These utilityscale solar projects contribute to the national grid through interconnected utility lines. Currently, the Bui RE Park boasts 55 MW of deployed solar power plants, and the Authority is implementing a hybrid approach, combining hydropower during the night and solar power during the day. Contracts have been signed to expand the solar deployment, including a 100 MW solar plant to be developed by Meinergy and an additional 55 MW solar project in Yendi, Northern Region, Ghana. The Authority has strategically acquired land to facilitate the construction of transmission lines, aiming to reduce costs and transmission losses upon project completion. This comprehensive strategy reflects Ghana’s commitment to advancing renewable energy and achieving its ambitious targets by using legislation to leverage the expertise and capabilities of the Bui Power Authority. Power sector regulation in Africa has both strengths and weaknesses from a technical perspective. A major strength in Africa’s power sector regulation is the realization of large potential for diverse energy mix through clean energy policies and national targets across the continent, which has resulted in large investment and

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continued development of clean energy solutions that are reducing the reliance on fossil fuels. Additionally, many countries are investing in the expansion of their power infrastructure, including transmission and distribution networks. Regional collaborations are also evident, with the Southern African Power Pool (SAPP) on a charge to connect to the Eastern African Power Pool through Tanzania, as well as to connect Angola and Malawi to the SAPP network. Such projects help in improving access to generation capacity and facilitating greater power trading across the continent (SAPP, 2023). In the ECOWAS region, the West Africa Power Pool (WAPP) has been established to promote and develop power generation and transmission infrastructures as well as to coordinate power exchange among the ECOWAS Member States. The promotion of regional integration in the power sector through cross-border electricity trading and interconnections is evident. Having an interconnected power system increases the system reliability, allowing improved stability and reduced likelihood of blackouts. Notwithstanding these strengths, inadequate regulatory frameworks addressing the challenge of aging infrastructure exist. This exacerbates the electricity access issue, and is mainly due to slow infrastructure development processes, high cost of projects, and challenges in reaching remote areas. Moreover, the regulatory frameworks in African countries may be complex or lack transparency which can discourage private sector participation, hinder competition, and slow down the pace of sector reforms. Inadequate level of capacity for regulators to effectively carry out mandates due to the lack of skills and experience of personnel in the power sector is another major challenge. This often leads to an over-reliance on the utilities for decisions, which often appears as a lack of separation between utility and regulator. This is further exacerbated by the insufficient publicly accessible assessment of utility technical and financial performance, which is a key requirement for investment decisions. Case Study: Power Sector Regulatory Reforms and Issues in Southern Africa Power sector regulation in the Southern African countries has a mostly uniform structure, with ministerial departments tasked with policy development and implementation, and energy regulators tasked with regulating licensing and operations, power quality, pricing, tariffs, as well as customer advocacy. The region also has an association of regional regulators, which is yet to be established. Regulatory frameworks in the region are designed to ensure fair competition, promote investment, and provide reliable and affordable electricity to consumers. This is done through various instruments that govern the power sector. One of the leaders in power sector regulation is South Africa, with an independent regulator that ensures power sector operates in transparent and fair manner, levelling the playing field for all participants. Namibia is also leading the charge, demonstrating forward thinking and ability to quickly pivot in licensing and compliance, with changes in processes effected to intensify power sector development in the country. Technical regulation in the region is growing, with multiple regulators developing grid codes to govern the development and operation of the grid code.

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A regional grid code also exists, which aims to align requirements for the regional interconnected power system. Despite the great strides made in power sector regulation in the region, some issues remain. Inefficiencies and bureaucracy are a common trend in African government, and the power sector is not exempt. Regulatory processes are often slow, bureaucratic, and inefficient which hinders development and implementation of new projects and technologies. In Eswatini, the regulator revised the generation license application process after having identified the impact of timelines on project development. This was achieved by streamlining and standardizing the application process, making requirements and expectations readily available and providing clear timelines and regular updates. One other regulatory challenge is the inadequacy of regulatory frameworks in addressing the challenge of aging infrastructure, leading to reliability and maintenance issues. In many of the regions, the history of the tariff decisions has left utilities with a major burden to develop and maintain existing infrastructure with minimum financing. This has led to challenges with the integration of new generation, which now often requires development of new lines to evacuate power, and the strengthening of the grid to maintain reliability. At distribution level, it risks inflating the cost of embedded generation as prosumers will be required to bear the cost of network upgrades for their systems to be grid-tied.

3.3 Key Messages 1. The energy transition in Africa’s power sector is contingent upon the establishment and implementation of effective regulatory frameworks. These frameworks create an environment conducive to investment, foster innovation, and address critical challenges associated with the integration of renewable energy sources into the power mix. As African nations continue to strive for a sustainable and resilient energy future, policymakers must prioritize the development and enforcement of robust regulations that support the goals of the energy transition. 2. The emergence of energy transition introduces innovations like renewable energy infrastructure, but diverse stakeholder interests pose challenges. Regulatory coordination is crucial, and disparities in utility responsiveness, financial health issues, and obstacles to implementing clean energy instruments present challenges that need to be addressed for the full development of the sector. 3. The development of power sector laws and regulations in Africa has seen substantial advancements, with certain nations leading within their economic regions. Regulators are urged not only to evaluate their progress internally but also to benchmark against regional peers and global best practices. 4. Despite notable advancements in power sector regulation in African countries, persistent issues include inefficiencies, bureaucracy, and slow regulatory processes hindering project and technology development. Noteworthy examples like Namibia and South Africa demonstrate progressive regulatory frameworks,

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ensuring fairness and transparency. However, challenges related to aging infrastructure and tariff decisions need attention to guarantee reliable and cost-effective grid integration.

4 Engineering Perspective 4.1 Overview of Technical Requirements for Integrating Renewable and Clean Energy into Africa’s Power Sector Despite Africa’s endowment with plentiful resources to allow for the generation of renewable energy, some of the best solutions like wind and solar are variable and unpredictable (Hafner, et al., 2018). Instances have been observed where the unpredictability of wind has resulted in rolling blackouts in a regional interconnected power system due to frequency excursions. This variability and unpredictability pose a technical challenge to the mostly old transmission network. Over and above the challenge to integrate renewables into the existing power grids, there exists the opportunity to build whole new networks that will be able to cope with the increased generation and load, as well as with the variable, and often decentralized, renewable power generation (Hafner, et al., 2018). Network development has, in the past, often been left as a responsibility of the national utilities, but with the continued liberalization of the power sector, this may likely change. The main driver of the transformation in this regard rests in the hands of the regulators, who must demonstrate to investors that transmission line development and operation is a viable investment. This requires the development of regulatory frameworks that allow for simplicity in interpretation and predictability to facilitate investment decisions. Integration of renewable and clean energy into the African power sector requires careful consideration and technical requirements, given the different stages of development across the continent. Key considerations include resource assessment for the development of generation from renewable and clean sources. Although some areas may be suitable for a specific type of technology, other factors need to be considered such as the availability of other secondary resources needed in the operation of the plant, climate and weather patterns, availability of land, etc. For example, some areas suitable for solar power generation experience severe hailstorms, which may increase the operations and maintenance (O&M) costs of the plant overtime. Another example is that of hydro plants, which in most of Africa will source water from rivers often used for irrigation. This means operations of the plant are likely to be dictated by the irrigation processes, which is the case for the Maguga Hydro Power Plant in Eswatini (Townshend, 2013). This means before investment decisions are made, all risks relating to the project development, operation and decommissioning must be adequately assessed and factored into the investment decision by both the regulatory body and the project developer.

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Secondly, grid integration which is the ability of the existing grid infrastructure to accommodate renewable energy sources and clean energy technologies is crucial to the investment decision. Some projects may require upgrades and expansion of the grid, and oftentimes, this may result in delays in the project as acquisition of throughways for transmission lines is often an unpredictable exercise, both in terms of time and cost (CLDP, 2021). Balance in this regard is difficult to strike, as transmission line projects are often expensive and, if not justified by generation or load developments, can be difficult to finance. The flexibility and balancing of the power system is also critical in managing variable renewable energy sources, requiring large investment in tools for demand response, advanced forecasting, and smart grids to balance the supply–demand equation. Without these tools, management of the power system becomes extremely challenging. Managing the energy mix and location of renewable energy power plants is another key aspect, as co-locating a large number of variable renewable plants can affect technical capacity of lines, as well as result in rolling blackouts if a large amount of generation is suddenly lost (either suddenly or over time). This phenomenon is often observed where there is overreliance on solar, wind or hydro generation. Interconnection and regional collaborations must be factored into technical regulation because interconnected power systems are more resilient and stable as they harness and share large amounts of renewable energy (Imdadullah, et al., 2021). This allows for faster energy transition, as a more balanced power system boosts confidence for investment because development costs are likely to be reduced due to resource sharing. Investment in energy storage solutions is critical to the energy transition in Africa as the continent is developing, and thus requires a base load supply to meet the economic and industrial growth demands, as well as meet demand during periods of low renewable generation. Storage solutions can also be critical in meeting peak demand, particularly with the electrification of other industries such as transportation. The charging of electric vehicles (EVs) is envisioned to follow the current domestic consumer pattern, which will further increase peak time demand.

4.2 Identification of Engineering Challenges, Gaps, and Opportunities in Energy Transition Investments in Africa Africa faces a number of challenges in power sector regulation; however, this opens up a large array of opportunities that can be leveraged to the advantage of all power sector participants. The successful implementation of energy transition projects relies on a skilled workforce. Some regions of Africa trail behind in the development of a local skilled workforce, and this presents an opportunity for investment and collaboration across

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the continent. Investment in training programs and educational institutions is necessary to build the needed human capacity to address the technical challenges in the sector. Some notable collaboration and investment efforts include the African Network of Centres of Excellence in Electricity (ANCEE) established by the Association of Power Utilities of Africa (APUA), and the GET.Transform and GET.Invest programs which support high-impact regions in Africa on regulatory and investment advice to accelerate electrification and scale up investments in off-grid renewable energy solutions. The African School of Regulation, established by the Florence School of Regulation at the European University Institute, exists to provide African energy regulators and policy makers with the knowledge products and skillset to address the wide range of challenges associated with the transition to sustainable energy models in Africa. Closing the energy access gap on the African continent requires innovative solutions and bold investments. Off-grid renewable energy systems, mini-grids and decentralized energy solutions are all viable, and the regulatory environment in the continent must allow for the ease of implementation and investment in such solutions. This requires regulators to invest in performing the necessary studies and developing policies and instruments that will open the market up for these solutions. Namibia developed an Off-Grid Energisation Master Plan as early as 2007, with the aim to eradicate the barriers to renewable energy development. This coupled with credit financing to make energy solutions more affordable and energy shops which bring information, technologies, and solutions closer to communities (CSA, 2007) is one such solution that can be explored to improve access to energy. Clean energy transition will result in the electrification of many industries, such as transportation and industrial processing. This requires a further emphasis on the element of energy efficiency in buildings, industrial processes, technology design, etc. Responsible energy consumption can have various positive effects, such as decreasing public investments in new energy sources, reducing emissions, and cutting consumer costs. Regulatory frameworks should not ignore this very important aspect of the transition, as it has the potential to manage the demand on the power system through energy management systems, promotion of conservation and energy storage as well as adoption of energy efficient technologies.

4.3 Impact of Country-Specific Policies on African Power Pools and Renewable Energy Integration Across Africa In developing regulatory instruments, regulators must be cognizant of the impact of these instruments on not only the country’s energy transition investments, but also on the greater impact on cross-country and cross-regional investments. With the increased efforts to establish power pools, cross-border interconnection and electricity trade should be promoted through regulatory instruments.

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The African Development Bank (AfDB) is currently implementing Phase 1 of the Africa Energy Transition Catalyst (AETC) Programme, which consolidates the AfDB’s support for regional energy transition initiatives. Specifically, it involves the development of a Just Energy Transition Framework and Deep Decarbonization Pathways for AU Member States aimed at achieving decarbonization of Africa’s energy sector, attract investments in renewable energy (RE) to increase RE’s share of the Continent’s energy mix, and enhance power trade among AU Member States with spill-over developmental outcomes including increased access to clean and affordable energy and creation of green jobs that promote socio-economic development (AfDB, 2023). The Programme thus creates the necessary roadmap for the various AU Member States at different levels of energy resource endowment and development to meet their development aspirations under the AU’s Agenda 2063, while also fulfilling their obligations under the SDGs and Paris Agreement in a manner that is fair, just, and equitable. Grid Codes and policies within regions, and eventually the continent, should be aligned and result in minimal conflict in rules and expectations. This will ensure that investors, utilities, and participants are able to take advantage of the potential and opportunities in the region. Policies that support renewable energy integration should be developed, highlighting such issues as feed-in tariffs or renewable energy targets, as they can encourage investment in renewable energy projects and facilitate their integration into the power grid. These policies can also promote collaboration between countries in the African Power Pools, leading to increased cross-border electricity trade and sharing of renewable energy resources. Policies that prioritize fossil fuel-based energy sources or impose barriers to renewable energy development can hinder the integration of renewable energy across Africa, thus slowing the energy transition. It is important to note that the impact of country-specific policies on African Power Pools and renewable energy integration can be complex and multifaceted. Factors such as political will and influence, regulatory frameworks, and economic considerations also play a significant role.

4.4 Key Messages 1. Successful implementation of energy transition relies on a skilled workforce. Investment in training programs and educational institutions to build the needed human capacity to address the technical challenges in the sector is necessary. 2. Closing the energy access gap on the African continent requires innovative solutions and bold investments. Off-grid renewable energy systems, mini-grids, and decentralized energy solutions should be promoted together with large renewable power plant development. 3. Emphasis on energy efficiency in transportation, buildings, industrial processes, technology design, etc. must accompany generation expansion. Regulatory frameworks should not ignore this very important aspect of the transition.

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4. Streamlining and Standardization of procedures such as simplified application processes can help reduce delays and investment decisions. This may involve creating clear guidelines, checklists, and digitized platforms for submitting and processing applications. 5. Increasing transparency in the application process can help applicants understand the requirements and expectations. Enhanced transparency in technical regulation of utilities can also provide confidence to investors. 6. Relevant cross-industry collaborations, such as with power producers, industry experts, and government agencies, can help identify bottlenecks and streamline processes.

5 Business Perspective Power sector regulation in Africa in an energy transition era should take account of business mindset of investors to create the enabling environment for investments to thrive. Some of these considerations include financing needs, business models and financing structures, key challenges, opportunities, and risks to investments.

5.1 Overview of the Business Models and Financing Structures for Energy Transition Investments in Africa’s Power Sector The Climate Policy Initiative (CPI) estimates Africa’s climate finance needs at an average of USD 250 billion annually from 2020–203 (CPI, 2022). The amount of climate finance currently available according to the African Development Bank (African Development Bank, 2022) is dramatically short to what is needed—the Bank estimates total annual climate finance mobilized in 2020 to be USD 29.5 billion. How the just energy transition is financed in Africa will be key in ensuring no one is left behind and that African countries develop low carbon resilient economies without sacrificing growth and prosperity (African Development Bank, 2022). The business models and financing structures for energy transition in Africa’s power sector vary depending on the specific project, country, and the goals of the transition. The continent with its diverse set of energy challenges and opportunities has been exploring a range of approaches to accelerate the transition to cleaner and more sustainable energy sources. Below are some common business models and financing structures used in Africa: Many African countries have adopted Public–Private Partnerships (PPPs) to attract private sector investment and expertise into the power sector. In this model, the government and private companies collaborate to develop, finance, and operate energy projects. PPPs often involve long-term contracts and risk-sharing mechanisms.

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Several African nations have established Renewable Energy Independent Power Producer (IPP) Programs to encourage private investment in renewable energy projects. Under these programs, independent power producers develop and operate renewable energy projects, selling the generated electricity to the national grid or utilities under long-term power purchase agreements (PPAs). Some countries have implemented Feed-in Tariffs (FiTs) programs, where renewable energy producers are guaranteed a fixed price for the electricity they generate over a specified period. FiTs provide revenue certainty and attract investors to renewable energy projects. In 2013, Kenya took a significant step by enacting the Public Private Partnership Act, a regulatory framework designed to oversee and facilitate private sector investments, thereby instilling greater confidence among investors. Concurrently, the government introduced investment incentives in the form of Feedin Tariff (FiT) policies. These policies empower independent power producers to vend electricity generated from renewable sources to the national off-taker at a predetermined fixed rate, spanning a substantial 20-year period. It is noteworthy that these tariff structures have undergone two revisions, a testament to the government’s proactive responsiveness to address challenges faced by investors in the private sector to improve renewable power access in the country (Somorin and Nduhiu, 2021). In areas where the main grid infrastructure is lacking or unreliable, businesses are adopting off-grid and mini-grid solutions. These models often involve a mix of public and private investment and can be financed through grants, subsidies, microfinance, and private capital. Energy Service Companies (ESCOs) provide energy-efficient solutions to businesses and institutions. They typically finance, design, implement, and maintain energy-efficient projects, and their income is derived from a share of the energy savings generated. African governments and corporations have the option to issue green bonds to raise capital specifically for renewable energy and energy efficiency projects. These bonds are attractive to environmentally conscious investors and can provide a stable source of funding. African countries often receive multilateral and bilateral financing from international organizations, such as the World Bank, African Development Bank, and bilateral donors. These organizations provide loans, grants, and technical assistance to fund energy projects and build capacity. The sale of carbon credits through mechanisms like the Clean Development Mechanism (CDM) or voluntary carbon markets can generate revenue for clean energy projects in Africa. This can be combined with other financing sources. Innovative financing methods like crowdfunding and impact investment are gaining popularity in Africa’s energy transition. These platforms allow individuals and organizations to invest directly in renewable energy projects or startups with a social and environmental impact. Governments may offer subsidies, tax incentives, and grants to encourage investment in renewable energy and energy efficiency projects.

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5.2 Identification of the Financing Challenges, Gaps, and Opportunities in Energy Transition Investments in Africa Financing the energy transition in Africa presents several challenges and gaps that need to be addressed, as well as opportunities to accelerate the adoption of clean and sustainable energy sources. Some of these key financing challenges, gaps, and opportunities are highlighted below:

5.2.1

Challenges

The IPCC’s latest report stated that “climate finance in support of a just transition is likely to be key to a successful low-carbon transition globally” (IPCC, 2022). For Africa, this is especially critical given the disproportional impacts climate change is already having on the continent and the myriad of challenges in accessing affordable capital for energy transition projects particularly for renewable energy and grid infrastructure development. The high upfront cost of renewable energy projects can deter investment. Infrastructure development and technology deployment often require significant initial investments. Another challenge is associated with political instability and changing regulatory environments which can create uncertainty for investors, making it difficult to secure financing for long-term projects. Fluctuations in currency exchange rates can also pose risks for investors, especially when project revenues are generated in local currencies, but debt service is in foreign currencies. Creditworthiness is also a key challenge with some African countries and utilities having low credit ratings, making it more expensive to borrow money for energy projects. Lastly there is a lack of investable projects due to a shortage of well-structured and bankable projects in the pipeline, which can discourage investors from entering the market.

5.2.2

Gaps

A key gap is on skills required to deliver the energy transition. There’s a need for capacity building and skills development among local institutions and governments to effectively plan, implement, and manage renewable energy projects. Another key gap is on project origination/preparation due to the resource-intensive nature of project development required to attract private investment. There’s a gap in funding for project preparation activities like feasibility studies, environmental assessments, and risk analysis resulting in a poor pipeline of bankable projects.

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Finally, there is a gap in having innovative financing instruments tailored to the unique challenges of African energy transition projects, such as green bonds, climate funds, and impact investment vehicles. While financing instruments are still evolving, there is a gap in access to financing that is able to respond to the challenges the continent faces.

5.2.3

Opportunities

While there are challenges and gaps in the financing of Africa’s energy transition, opportunities also exist which, if effectively exploited, can facilitate and deliver investment in the sector. Some of the opportunities include Global Climate Finance. The international community has committed significant funds to support climate action and clean energy transition in developing countries. African nations can tap into these funds through mechanisms like the Green Climate Fund and the Global Environment Facility. Encouraging private sector participation through public–private partnerships, independent power producer programs, and other mechanisms can unlock substantial investment in the energy sector. Advances in renewable energy technology are making projects more costeffective, and the declining cost of renewables is making them more attractive to investors. African countries can leverage regional cooperation to pool resources and invest in cross-border transmission infrastructure and regional energy markets. Encouraging local financial institutions to play a more active role in financing energy projects can help reduce dependency on external funding sources. Investments in energy efficiency projects can provide quick returns and reduce energy consumption, offering opportunities for cost savings and sustainability. Developing and piloting innovative financing models, such as pay-as-you-go solar and community-based energy solutions, can help reach underserved populations.

6 Summary of Key Risks and Rewards with Different Business Models for Energy Transition Investments in Africa Investing in energy transition in Africa comes with a set of risks and rewards that vary depending on the specific business models chosen. Below is an outline of some of the key risks and rewards associated with different business models (Table 1).

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Table 1 Key risks and rewards with Business Models Business model

Risks

Rewards

Public–Private Partnerships (PPPs)

Political instability: PPPs can be vulnerable to political changes, and governments may alter agreements or policies, affecting investor returns Regulatory uncertainty: Changing regulations and policies can create uncertainty for private investors Currency risks: Fluctuations in exchange rates can impact the profitability of projects Project delays: Bureaucracy and red tape can lead to project delays, increasing costs and risks

Access to expertise: Governments can tap into private sector expertise and financing Risk sharing: Risks are shared between the public and private sectors Long-Term revenue streams: PPPs often involve long-term contracts, providing stable revenue streams for investors

Renewable Energy Independent Power Producer (IPP) programs

Regulatory changes: Changes in feed-in tariffs or power purchase agreements (PPAs) can impact project economics Grid integration issues: Grid instability and limited grid capacity can affect project performance Project siting and land rights: Securing suitable land for renewable energy projects can be challenging, and disputes over land rights can delay projects

Stable revenue: Long-term PPAs provide revenue predictability Green investment: Renewable energy projects align with global sustainability goals and attract green investment Job creation: Projects can create local jobs and stimulate economic development

Off-grid and Mini-grid solutions

Limited scale: Off-grid solutions may have limited scalability and can be susceptible to economic downturns in remote areas Operational challenges: Remote project locations can present logistical and maintenance challenges

Energy access: Off-grid solutions can provide electricity to remote and underserved areas Market Niche: Companies that provide off-grid solutions can establish a niche market and build brand recognition Innovative financing: Opportunities for innovative financing models, including pay-as-you-go systems (continued)

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Table 1 (continued) Business model

Risks

Rewards

Energy Service Companies (ESCOs)

Performance risk: ESCOs often guarantee energy savings, so they bear the risk if savings targets are not met Market Competition: The market for ESCOs can be competitive, leading to pricing pressures

Energy efficiency: ESCOs can help organizations reduce energy costs and improve sustainability Long-Term Contracts: ESCOs often sign long-term contracts, providing a stable revenue stream

Green bonds

Market Risks: The success of green bonds depends on investor appetite for green investments, which can be influenced by market conditions Project Risks: The underlying projects financed by green bonds may have their own set of risks

Access to Capital: Green bonds provide access to capital specifically for renewable energy and sustainability projects Investor Appeal: Attracting environmentally conscious investors can improve a company’s reputation

Multilateral and bilateral financing

Conditionality: Financing from international organizations may come with conditions and requirements that impact project design and implementation

Low-interest loans and grants: Multilateral and bilateral financing often offers concessional terms, reducing financing costs Technical Assistance: These organizations often provide technical expertise and capacity building

6.1 Key Message 1. The Energy transition trilemma in Africa cannot be overstated and energy transition investment decisions must balance competing interests in energy security and reliability, equity in affordable energy access, and sustainability. For a just transition to take place, business models and financing structures must be adopted within this context. The success of the identified business models and financing structures will depend on various factors, including political stability, regulatory frameworks, the availability of local expertise, and the willingness of international investors to engage in the African energy market. Additionally, projects will often require a mix of financing sources to mitigate risks and ensure sustainability. 2. While there are significant challenges to financing the energy transition in Africa, there are also numerous opportunities for creative solutions. A combination of international climate finance, private sector engagement, regulatory improvements, and capacity building can help bridge the financing gaps and accelerate the transition to cleaner and more sustainable energy sources on the continent.

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3. The rewards of investing in energy transition in Africa can include stable revenue streams, access to green financing, and alignment with sustainability goals. However, risks such as political instability, regulatory changes, and projectspecific challenges can affect returns on investment. It is crucial for investors and stakeholders to conduct thorough due diligence and risk assessments when selecting and implementing different business models for energy transition projects in Africa. Diversifying investments and considering risk mitigation strategies can also help manage these risks effectively.

7 Conclusion The trajectory of Africa’s energy transition underscores the pivotal role played by effective regulatory frameworks in fostering an environment conducive to innovation and sustainable investment. The journey toward a resilient and eco-friendly power sector has seen notable strides, with certain nations leading the way in shaping robust regulatory landscapes. However, persistent challenges necessitate a continued focus on addressing inefficiencies and bureaucratic obstacles. Central to the success of this transition is the imperative to cultivate a skilled workforce, emphasizing the need for investment in training programs and educational institutions. The deployment of diverse solutions, including off-grid renewable energy systems and decentralized options, is crucial to narrowing the energy access gap. Simultaneously, prioritizing energy efficiency and simplifying procedures through standardization and transparency emerge as critical components for a seamless transition. Confronting the energy transition trilemma demands a delicate equilibrium between security, affordability, and sustainability. Tailoring business models and financing structures to the African context requires careful consideration of political stability, regulatory frameworks, and international collaboration. Overcoming financial challenges becomes plausible through a strategic blend of international climate finance, private sector engagement, regulatory enhancements, and capacity building. While the potential rewards of investing in Africa’s energy transition are substantial, a discerning approach is paramount. Thorough due diligence and risk assessments are imperative, considering factors such as political dynamics, regulatory shifts, and project-specific intricacies. Diversification of investments and the implementation of effective risk mitigation strategies become integral to ensuring the triumph of energy transition projects across the continent. Through these concerted efforts, Africa stands poised to harness its vast potential and usher in a future marked by sustainability, resilience, and inclusive energy practices.

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Pauline Anaman has nearly a decade of combined multidisciplinary professional experience as a lawyer, an energy and extractives specialist, a green transition consultant, and a valuations and estates surveyor. She works at AB & David Africa; a pan-African business law firm dedicated to the success of projects and businesses in Africa. She is also an external advisor on Africa to the EU’s Horizon 2020 Negative Emissions (H2020 NEGEM) Project. Pauline has authored many technical papers and spoken on various local and international platforms about energy and extractives sector governance, energy transition and carbon markets. Pauline is an alumna of the International Visitor Leadership Program of the U.S Department of State. She is committed to seeing an Africa where businesses and governments harness energy and extractive resources sustainably to transform economies and improve lives. Jennifer Boca has over 20 years’ experience working in Environmental and Sustainability consulting. She has advised a wide range of clients in the public and private sector including the World Bank, Development Financial Institutions, commercial banks and project developers. She has successfully led and delivered numerous environmental and social due diligence and impact assessments for major infrastructure projects across Africa. Her experience spans across a number of African countries including South Africa, Senegal, and Ghana. She also leads the company’s ESG due diligence on projects. Jennifer has more than 15 years of experience working in the areas of environmental and sustainability, and consulting for a wide range of public and private sector clients, including the World Bank, Development Finance Institutions, commercial banks and project developers. Tenele Habangaan is an Electrical Engineer with nearly a decade’s experience at the Eswatini Electricity Company. As a Systems Operator and Compliance Engineer, she is responsible for ensuring compliance to Grid Code and SZNS Standards, report to regulators and undertaking scheduling, dispatch and loan management. She is passionate about power sector business development, regulation and reform, compliance, policy, and new technologies to increase access to energy. Tenele is an alumna of the International Visitor Leadership Program of the U.S Department of State. Akua Chrappah Ayippey nis a lawyer with a wide array of experience in providing legal advisory services to both private and public sector clients in the power sector, from business establishment, financing and investments, transaction structuring and advisory, regulatory compliance, project support, and private mergers and acquisitions. She has also consulted on various power regulation programs such as the West Africa Energy Program and energy sector reforms in Ghana. She currently works at AB & David Africa, a pan African business law firm where her practice is focused on Energy, Infrastructure, Corporate Compliance, Finance and Oil and Gas; As a published author on pertinent legal issues in the energy sector, her most recent publication examined whether Ghana’s power sector is ready for renewables.

The Role and Challenges of Energy Regulators in Africa’s Energy Transition Benjamin Ashitey Armah

1 Introduction The transition to sustainable energy is a key challenge for Africa, where access to energy is a key development challenge. According to the Africa Energy Outlook 2022, “energy efficiency and renewable, especially solar, are key pillars for building Africa’s new energy economy” (IEA, 2022; p. 4). The energy transition is defined in the reports as a structural restructuring of the energy sector that necessitates investments for new infrastructure and efficiency measures. While the pace, scale and objectives of this energy transition vary by geography, there is an emerging inclination to think of it as a global shift (Solomon & Krishna, 2011). In Africa, the concept of energy transition is intertwined with the major challenge of energy access (CastánBroto et al., 2017). Access to modern energy services is critical for meeting fundamental social demands while encouraging economic development. Electricity and gas, in particular, have an impact on productivity, health, education, safe drinking water and communication services (International Energy Agency, 2014). Energy per capita and electricity consumption are significantly correlated with economic development and other measures of modern lifestyle, with the assumption that higher levels of power consumption are associated with a better life and well-being (Starr, 1972). This stresses the importance of focusing attention on the productive sector as a change agent (Sokona et al., 2012). Most studies of energy transitions in Africa emphasize the importance of mobilizing a diverse range of actors functioning at various scales. Energy regulators in particular have a key role in facilitating this transition by ensuring the efficient and effective operation of the energy sector while balancing the interests of consumers, industry stakeholders and the environment. Regulators are crucial to the clean energy transition globally because of their role B. A. Armah (B) Strategy, Super Cargo Logistics, Tema New Town, Ghana e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_10

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in turning policy targets and objectives into real action by promoting investment in new clean technologies and changing the paradigm of management for increasingly decentralized and decarbonized power systems (Abdullah et al., 2014). As always, regulators must strike a balance between a wide range of goals in order to optimize for least-cost service delivery while maintaining high standards of quality and dependability (Bazilian et al. 2013). However, as laws and technology advance, they come under more and more pressure to solve social and environmental issues, particularly through a greater use of clean energy technologies. The key challenge facing modern-day power sector regulation is harmonizing the evolving regulatory landscape’s new regulatory aims with the already challenging work of balancing existing objectives (Zinaman, (2014). African energy regulators in addition face several challenges, including limited resources, regulatory coverage and inadequate institutional frameworks. This paper analyzes the roles and challenges of energy regulators in the African energy transition and offers recommendations for addressing these challenges.

2 Energy Regulators In a broad sense, regulation refers to any action that includes guiding, managing, controlling, restricting, overseeing, supervising or assuring the limitation of conduct and the prohibition of certain undesirable acts. When seen as a concept, it encompasses all areas of government action. Regulation, according to Selznick (1985), is “a sustained and focused control exercised by a public agency over activities valued by a community.” Descriptively, Baldwin et al. (2011) argue that regulation has three key features: it might be a set of precise directives, an intentional governmental impact or any type of social and economic influence. It also refers to all rules enacted by governments or public authorities that apply to market-based activities, including rules enacted to “influence consumers and suppliers (including public suppliers) of infrastructure services by either restraining or facilitating certain forms of behavior” (Wallenfels, 2003). Energy regulators in Africa have a responsibility to ensure the efficient and effective operation of the energy sector, balancing the interests of consumers, industry stakeholders and the environment. Their responsibilities include setting tariffs, monitoring market competition, enforcing regulations, promoting renewable energy and ensuring energy security (Mandava & Pueyo, 2021). According to Berg (2015), sector regulators have responsibilities to play in promoting Energy Efficiency (EE) in addition to implementing Renewable Energy (RE) projects, because EE could be increased through utility measures (incentivized and monitored by the regulator) and actions by other agencies. Reduced line losses, improved load patterns and system dependability, decision-relevant customer billing information, energy audits and smart grids are examples of the former. Utility program adequacy and

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cost-effectiveness plainly fall under regulatory scrutiny. Other organizations establish appliance standards and give government funding. When analyzing the costeffectiveness of utility-based programs, the sector regulator must consider the interdependencies across EE programs. Because EE encourages energy saving, such programs have an effect on utility revenues and expenses (directly through changes in consumption and production patterns, as well as program costs). These consequences imply that the energy sector regulator has the authority to support or oppose specific EE efforts undertaken by electric utilities. In terms of legal obligations, African energy regulators are established by law and their roles and responsibilities are defined in national energy policy and regulatory frameworks. They are typically responsible for implementing and enforcing regulations related to the energy sector, such as electricity tariffs and licenses, and ensuring compliance with environmental and safety standards. For example, in Nigeria, the Nigerian Electricity Regulatory Commission (NERC) is responsible for regulating the electricity sector, promoting competition, setting tariffs and ensuring the reliability and quality of electricity supply (NERC, 2020). Similarly, in South Africa, the South African National Energy Regulatory Authority (NERSA) is responsible for regulating the power, gas and oil industries, promoting competition and protecting consumer interests (NERSA, 2021). Ghana’s main energy regulatory body is the Energy Commission. The Energy Board was established under the Energy Board Act 1997 (Law 541) and is the statutory body to regulate and administer the energy sector in Ghana. The Energy Commission is responsible for regulating the generation, transmission, distribution, supply and use of electricity, natural gas and other forms of energy in Ghana. In addition to the Energy Commission, there are other bodies that play a regulatory role in Ghana’s energy sector. These include the Public Utilities Regulatory Commission (PURC), which is responsible for regulating tariffs and quality of service for utilities such as electricity and water, and the National Petroleum Authority (NPA), which is responsible for regulating the downstream petroleum sector. Other institutions playing an important role in Ghana’s energy sector are the Ministry of Energy which is responsible for formulating energy policy and overseeing sector development, and the Ghana Grid Company Limited (GRIDCo), which is responsible for managing the transmission system.

3 Role of Energy Regulators in Africa’s Energy Transition Energy regulators play a critical role in Africa’s energy transition by ensuring that the energy sector operates efficiently and effectively while also balancing the interests of consumers, the environment, and industry stakeholders. a. Balancing the Interests of Consumers Energy regulators balance consumer interests by setting rates and quality standards, ensuring market competition and protecting consumer rights. This is achieved

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through various regulatory mechanisms, such as licensing and monitoring energy service providers, setting quality and safety standards for energy services and promoting energy efficiency and renewable energy. For example, in Ghana, the Energy Commission has established a Consumer and Public Relations Department. This department is responsible for protecting consumer interests and ensuring that consumer rights are not violated by energy service providers. This department educates consumers on their rights and obligations, monitors energy service providers to ensure compliance with legal requirements and resolves consumer complaints (Energy Commission of Ghana, n.d). Similarly, in South Africa, the South African National Energy Regulatory Authority (NERSA) has established various mechanisms to protect consumer interests. These include setting electricity and gas tariffs, monitoring service quality and safety and promoting consumer education and participation (NERSA, n.d). In addition, energy regulators work with consumer representatives to ensure that consumer interests are properly reflected in the regulatory process. For example, in Kenya, the Energy Regulatory Commission (ERC) established the Consumer Advisory Council (CCC), bringing together consumer representatives and energy stakeholders to facilitate dialogue on regulatory issues affecting consumers (ERC, n.d). b. Balancing the interests of the environment Energy regulators balance environmental concerns by promoting the use of renewable energy sources, setting emissions and waste management standards and enforcing environmental regulations. These efforts are essential to reduce the negative environmental impacts of energy production and consumption. For example, in Kenya, the Energy Regulatory Commission (ERC) is responsible for ensuring that energy service providers comply with environmental regulations. The ERC conducts environmental impact assessments of energy projects, sets emissions and disposal standards and monitors compliance with environmental regulations (ERC, n.d). Similarly, in South Africa, the South African National Energy Regulatory Authority (NERSA) has introduced regulatory mechanisms to encourage renewable energy and reduce greenhouse gas emissions. NERSA’s feed-in tariff for renewable energy provides incentives for the development of renewable energy projects, while its integrated resource plan sets targets for renewable energy use in the country (NERSA, n.d). In addition, energy regulators work with environmental groups to ensure that environmental issues are properly reflected in the regulatory process. For example, in Nigeria, the Nigerian Electricity Regulatory Commission (NERC) established the Consumer Advocacy Forum (CAF) to bring together consumer and environmental groups to discuss regulatory issues that affect consumers and the environment (NERC, 2020).

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c. Balancing the interests of industry stakeholders Energy regulators balance the interests of industry stakeholders by promoting fair competition, ensuring regulatory compliance and facilitating dialogue between industry stakeholders and regulators. These efforts are essential to ensure a level playing field for all industry players and promote sustainable growth in the energy sector. For example, in Ghana, the Energy Commission is responsible for promoting fair competition in the energy sector. The Commission accomplishes this by licensing energy service providers, monitoring compliance with regulatory requirements and encouraging industry participation in the regulatory process (Energy Commission of Ghana, n.d). Similarly, in Nigeria, the Nigerian Electricity Regulatory Commission (NERC) is responsible for promoting competition in the electricity sector. NERC licenses distribution companies to provide regulatory functions, such as setting prices for electricity services (NERC, date unknown). NERC also works with industry stakeholders to promote sustainable growth in the power sector. For example, NERC established the Nigeria Electricity Supply Industry (NESI) to facilitate dialogue between industry stakeholders and regulators to facilitate the development of a sustainable electricity sector in Nigeria (NERC, n.d). In addition, energy regulators work with industry stakeholders to develop and implement policies that promote sustainable growth in the energy sector. For example, in South Africa, the South African National Energy Regulatory Authority (NERSA) is working with industry stakeholders to develop policies and regulations that promote sustainable growth in the power and gas sector (NERSA, n.d).

4 Challenges of Energy Regulators in Africa’s Energy Transition The African continent is in the midst of an energy transition as countries seek to increase access to electricity and switch to renewable energy sources. Energy regulators will play a key role in this transition as they are responsible for ensuring the efficiency, competitiveness and transparency of energy markets. However, African energy regulators face many challenges in managing this transition. These challenges include lack of financial and technical capacity, limited stakeholder engagement, and a rapidly changing political climate. It has been difficult to establish robust infrastructure regulation that is recognized by the private sector, guarantees the regulated firms’ effective economic performance and provides high-quality services at reasonable costs. On paper, a large number of African nations have made great strides in creating autonomous infrastructure regulatory bodies in various industries. In reality,

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though, the picture is not that rosy, with depressing trends in several nations and industries. Furthermore, it is uncertain how effectively these agencies will function going forward given the difficulties they have faced, which are mostly the consequence of the current political climate but also somewhat related to their institutional structure. This section examines these challenges in detail and proposes strategies that energy regulators can use to overcome them and support Africa’s energy transition. I. Limited Resources Available to Regulators Limited resources are a major challenge for energy regulators in the African energy transition. This challenge stems from the lack of financial and human resources required to effectively regulate the energy sector. Due to limited resources, enforcement by African energy regulators is poor. They require vehicles in the shape of institutions and organizations to propel them forward and operationalize the processes, directing them toward sustainability. Institutions boost private investment by assuring the security and return on those assets, as well as protecting against expropriation (Mijiyawa, 2006). For example, in Nigeria, resource scarcity has hampered the ability of the Nigerian Electricity Regulatory Commission (NERC) to monitor and enforce compliance in the power sector (Oyewale, 2020). This has led to non-compliance by distribution companies, resulting in poor service quality, higher charges and consumer dissatisfaction. Again, limited resources have slowed the development of regulatory frameworks by African energy regulators. Institutional frameworks that should support, restrict and assure the correct channeling of African countries’ assets toward productive use are inadequate and still developing. Institutional frameworks and behavioral standards are the lifeblood of markets since policies and reforms are not “self-creating, self-regulating, self-stabilizing, or self-legitimizing” (Rodrik, 2008). The lack of weakness of these institutions causes the diversion of otherwise investable capital as well as a variety of dishonest practices. For example, in Kenya, the Energy and Petroleum Regulatory Authority (EPRA) has been unable to develop regulations to regulate the use of renewable energy sources due to limited resources (Oyewale, 2020). As a result, the lack of clarity in the regulatory framework for renewable energy hinders private-sector investment in the sector. Due to limited resources, the technical expertise of African energy regulators is also lacking. For example, in Ghana, the Public Utilities Regulatory Commission (PURC) faced challenges in recruiting and retaining technical staff due to low salaries and limited training opportunities (Appiah, 2018). The resulting lack of technical expertise hinders the ability of regulators to effectively regulate the energy sector. Note that these practical examples demonstrate the challenges facing energy regulators in Africa due to limited resources. The lack of financial and human resources has prevented energy regulators from effectively enforcing regulations, developing regulatory frameworks and building technical expertise. This has significant implications for Africa’s energy transition, including lower private sector investment, lower quality services and slow progress toward the Sustainable Development Goals.

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It should be established that many African countries lack the financial and human resources to effectively regulate their energy sector. This can lead to poor regulatory enforcement, eroding investor confidence and hindering growth in the energy sector (Adelekan, 2020). II.

Regulatory Capture

Regulatory capture is a major challenge for energy regulators in the energy transition in Africa. This occurs when a regulator is influenced or controlled by the body it regulates, creating a conflict of interest that undermines its independence and effectiveness. Political interference is an important form of regulatory capture in the African energy sector. Regulators should be independent entities by law, free to make decisions within their regulatory power without seeking prior approval from any other governmental body, including the line ministry. When a regulator acts within the law, has an arms-length relationship with private interests and other political branches of government and has organizational and economic independence, it is termed independent. If regulators are not protected from political interference, the regulatory process may become politicized, choices may be questioned and policies may be inconsistent. Independence may not always entail complete and total discretion. In regulatory regimes modeled after the United Kingdom, the regulator’s discretion is limited by legislation, case law and developing regulatory practice. In the United States on the other hand, authorities are required by law to set tariffs that are “just and reasonable” and “not unduly discriminatory.” For example, in Uganda, the Uganda Electricity Regulatory Authority (ERA) has been accused of hijacking regulations due to government political interference in setting electricity prices (Global Risk Insights, 2019a, 2019b). The government has been accused of pressuring the ERA to approve higher electricity tariffs, causing complaints from consumers and businesses. Industry influence is another form of regulatory acquisition that has influenced energy regulators in Africa. For example, in South Africa, the South African National Energy Regulatory Authority (NERSA) has been accused of being co-opted into the electricity industry for not properly regulating the national electricity company, Eskom (Global Risk Insights, 2019a, 2019b). This has resulted in lower quality services, higher tariffs and undermining the competitiveness of the country’s economy. Limited capacity is also a contributing factor to regulatory capture in the African energy sector. For example, in Nigeria, the Nigerian Electricity Regulatory Commission (NERC) faces challenges in building technical capacity and expertise due to limited resources (International Energy Agency, 2021). This makes it difficult for the NERC to effectively regulate the power sector, leading to regulatory capture by industry players. It should be noted that political interests and the influence of industry players have led to a lack of regulatory independence and effectiveness, lower quality of service and higher fees. Furthermore, limited capacity makes it difficult for regulators to effectively regulate the energy sector, resisting regulatory capture (Kernaghan et al., 2020). III.

Inadequate Institutional Frameworks

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An inadequate institutional framework is a major challenge for energy regulators in the African energy transition. The lack of a strong and effective institutional framework creates a difficult environment for regulators to function effectively. The lack of a clear legal framework is a major challenge for African energy regulators. For example, in Kenya, the Energy Regulatory Commission (ERC) is having trouble regulating the country’s energy sector due to the lack of a clear legal framework (East African Business Week, 2018). This has led to inconsistent regulatory enforcement, weak governance and sector inefficiency. Weak enforcement mechanisms also contribute to the inadequate institutional framework in the African energy sector. For example, in Ghana, the Public Utilities Regulatory Commission (PURC) has been criticized for its inability to effectively enforce regulations (African Development Bank, 2019). This results in poor service quality, high tariffs and a lack of accountability for industry players. Limited autonomy is another challenge facing energy regulators in Africa. For example, in Tanzania, the government controls the pricing of energy products, limiting the autonomy of the Energy and Water Utilities Regulatory Authority (EWURA) (Global Risk Insights, 2019a, 2019b). This made it difficult for EWURA to effectively regulate the energy sector and ensure a level playing field for all industry players. The lack of a clear legal framework, weak enforcement mechanisms and limited autonomy hamper the effectiveness of regulators and lead to inefficiencies in the energy sector. Moreover, these challenges can lead to a lack of investor confidence and hinder growth in the energy sector (Mandava & Pueyo, 2021).

5 Conclusion In summary, energy regulators play a key role in Africa’s energy transition, ensuring the efficient and effective operation of the energy sector while balancing the interests of consumers, industry stakeholders and the environment. However, African energy regulators face several challenges, including limited resources, regulatory coverage and inadequate institutional frameworks. Addressing these challenges requires creating a transparent and accountable regulatory framework, building regulatory capacity, encouraging stakeholder participation and ensuring sufficient funding and resources for regulators. I have. By addressing these challenges, energy regulators can effectively facilitate Africa’s sustainable energy transition. This is essential to achieving sustainable development and addressing the continent’s pressing energy access problem.

6 Recommendations Recommendations for energy regulators in Africa’s energy transition based on the role and challenges they face include:

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i. Collaboration with stakeholders According to Oladokun (2021), African energy regulators should adopt a collaborative approach that involves working closely with stakeholders such as industry stakeholders, government agencies and civil society groups to build regulatory capacity. Such cooperation helps build consensus on regulatory decisions, improve enforcement and improve the overall effectiveness of regulatory oversight. Research shows that stakeholder engagement and cooperation are critical to the success of regulatory efforts in various sectors, including the energy sector. For example, a study by Kundu and colleagues (2021) found that stakeholder engagement played an important role in improving the regulation of the Indian power sector, promoting transparency, accountability and trust among stakeholders. I have found it to be an improvement. Similarly, a study by Fischedick et al. (2018) highlights the importance of stakeholder involvement in the formulation of Germany’s energy transition policy. This study argues that stakeholder engagement can help manage the complexity and uncertainty associated with the energy transition and ensure policy decisions reflect the interests and needs of all stakeholders. In summary, a collaborative approach involving stakeholder engagement and consensus building is critical to improving regulatory oversight in the African energy sector. Energy regulators will work closely with industry stakeholders, government agencies and civil society groups to strengthen regulatory capacity, address institutional capacity and limited resources and create more effective and efficient energy to achieve regulatory outcomes. ii. Capacity building The issue of insufficient regulatory capacity in the African energy sector is an ongoing challenge, leading to poor regulatory outcomes and inefficient energy systems. According to Karekezi (2020), capacity building through education and training is essential to meet this challenge and improve regulatory effectiveness. Research shows that building capacity for effective regulatory oversight is critical in various sectors, including the energy sector. For example, a study by Van Beers and his colleagues (2018) found that capacity building played an important role in improving regulatory capacity in Africa’s water sector. The study argues that capacity building helps address the lack of technical expertise, inadequate regulatory frameworks and inadequate institutional support that undermine regulatory effectiveness. Similarly, a study by Khalil and Colleagues (2019) highlights the importance of capacity building to improve regulatory performance in the Egyptian telecommunications sector. The study suggests that capacity building can help regulators keep pace with rapid technological progress, better understand regulatory best practices and improve decision-making capabilities. In addition, capacity building will also help regulators better understand the complexities of the energy sector and the challenges faced by stakeholders, leading to more effective and efficient regulatory outcomes. For example, a study by Vagliasindi and his colleagues (2015) highlights the importance of capacity building to improve

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regulatory oversight of the African power sector. The research will help capacity building help regulators better understand the technical, financial and institutional challenges facing the power sector, leading to more informed decision-making and better regulation. In summary, capacity building through education and training is essential to improve regulatory effectiveness in the African energy sector. By addressing a lack of technical expertise, an inadequate regulatory framework and inadequate institutional support, capacity building will help regulators achieve more effective and efficient regulatory outcomes and sustain them; help contribute to the development of a feasible and inclusive energy system. iii. Leveraging New Technologies The introduction of new technologies has the potential to transform Africa’s energy sector, and energy regulators can use these technologies to improve their oversight and enforcement capabilities. Smart grids and blockchain are his two particularly promising technologies for improving energy governance in Africa. A smart grid is an advanced power distribution system that uses digital technology to monitor, control and optimize the flow of electricity from sources to consumers. By integrating sensors, meters and communication networks, smart grids can provide real-time data on energy consumption, generation and distribution. This data will help regulators identify and respond to violations, reducing energy losses that pose a significant challenge to the African energy sector. In addition, smart grids can improve energy access by enabling the integration of renewable energy sources such as solar and wind, and increase the reliability and efficiency of power grids (Nguyen, 2019). Blockchain is a distributed digital ledger that enables secure, transparent and tamper-proof transactions without an intermediary. In the energy sector, blockchain can be used to facilitate peer-to-peer energy transactions, track the origin and ownership of renewable energy certificates and streamline payment systems. By providing a secure and transparent platform for energy transactions, blockchain can help regulators ensure regulatory compliance, reduce transaction costs and improve access to energy, especially in remote areas. (Deetman et al., 2021). Additionally, the use of new technologies in energy regulation also helps regulators keep up with the rapid technological advances in the energy sector. As Oladokun (2021) noted, the lack of technical expertise is a significant challenge for African energy regulators. Adopting new technologies will enable regulators to better understand the energy sector and enhance their decision-making capabilities.

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In summary, new technologies such as smart grids and blockchain can significantly improve energy regulation in Africa. These technologies help regulators detect and respond to violations, reduce energy losses and improve energy access, especially in remote areas. In addition, the introduction of new technologies will also help regulators keep up with the rapid technological progress in the energy sector and improve their decision-making capabilities.

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Benjamin Ashitey Amarh Benjamin is a logistics and supply chain professional. He is an astute entrepreneur and is the Managing Partner of Super Cargo Logistics. He holds Msc Energy Economics from GIMPA.

Regulating Public Utilities Within a Crisis Situation in Africa Etutu Mawondo Shalman

1 Introduction In this paper, we shall be looking at the challenges faced by utility regulators in ensuring an efficient regulation of the electricity sector, even when faced with an upsurge in political, economic, social, and health crises. Between 1990 and 2000, several African countries witnessed the implementation of structural adjustment programs. A cornerstone of these programs involved comprehensive public enterprise reforms that catalyzed the widespread privatization of previously state-owned entities (Nondo & Kumah-Abiwu, 2022). This monumental shift in economic strategy prompted the establishment of regulatory bodies, tasked with the vital responsibility of overseeing and governing the activities within the newly privatized sectors. The inception of regulatory bodies introduced a crucial dimension to the evolving economic landscape, particularly in sectors of strategic importance such as energy. The fundamental objective behind regulating infrastructure sectors, commonly referred to as public service sectors, was to foster effective private participation, instigate healthy competition, and forestall the emergence of monopolistic dominance or a single utility servicing these critical functions. According to Nondo and Kumah-Abiwu (2022), the underlying rationale for this regulatory endeavor was rooted in the desire to maintain affordability for consumers. The multifaceted nature of infrastructure sectors, notably in energy, necessitated a delicate equilibrium between encouraging private investment, fostering competition, and safeguarding against monopolistic practices that could compromise affordability. Regulatory bodies emerged as linchpins in this balance, wielding their authority to create an environment conducive to fair competition, innovation, and, critically, the prevention of pricing mechanisms that might unduly burden consumers. E. M. Shalman (B) Electricity Sector Regulatory Agency, Yaoundés, Cameroon e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_11

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Thus, the introduction of regulatory bodies in the wake of privatization initiatives represented a strategic response to the changing dynamics of African economies. The overarching goal was not merely to shift ownership structures but to cultivate an environment where private enterprises could thrive, consumers could benefit from competitive pricing, and the growth of monopolistic entities would be curtailed. This paradigm shift in economic governance reflects a broader narrative of African nations adapting to global economic trends while strategically employing regulatory mechanisms to safeguard public interests and ensure the sustained development of key sectors like energy. With the introduction of regulatory economics in the management of infrastructure sectors in Africa, the quest for knowledge in the exercise of regulatory activities and the need to have independent regulatory bodies stood as the major challenges of those called to manage these regulatory bodies. Through the years, regulators have seen other major challenges upset their efforts at ensuring an efficient regulation of public utility in Africa, especially that of the electricity sector (Usman & Amegroud, 2019). One of these is the increase in political, economic, social, and health crises. The experience of the Electricity Sector Regulatory Agency in Cameroon (ARSEL) shall be used to elucidate the challenges faced by the regulator in functioning within a crisis. The challenges presented here are circumscribed within the context of the global health crisis (COVID-19) and the Russian invasion of Ukraine crisis which had a great impact on the stability of every country in the world and African countries in particular. To these shall be added the socio-political crisis particular to Cameroon and its impact on the electricity sector of the country. Amidst the formidable challenges outlined, it is crucial to underscore the pivotal role of technological advancements in reshaping the regulatory landscape of the electricity sector (Dhali et al., 2023). The integration of digital solutions and smart technologies has introduced both opportunities and complexities for utility regulators (Pereira et al, 2018). Notably, technological innovations such as smart grids and advanced metering systems have demonstrated the potential to enhance the efficiency of electricity distribution, optimize resource utilization, and provide consumers with more transparent and personalized services regulators (Pereira et al, 2018). However, this digital transformation also brings forth new regulatory considerations, ranging from cybersecurity concerns to the need for regulatory frameworks that can adapt to the rapidly evolving technological landscape. As utility regulators navigate the multifaceted challenges arising from political, economic, social, and health crises, they are simultaneously confronted with the imperative to manage the intricate intersection of traditional regulatory principles and cutting-edge technologies (Pereira et al, 2018). The emergence of these technological challenges adds a layer of complexity to an already dynamic regulatory environment.

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2 The Crisis 2.1 The COVID-19 Health Crisis The advent of the COVID-19 pandemic presented an unprecedented global challenge, catching most nations off-guard and exposing the inadequacies of preparedness for a rapidly spreading virus that profoundly impacted both health and the economy (Mishra, 2020). The response to this unforeseen crisis was swift and sweeping, as several countries around the world resorted to imposing full or partial lockdowns on the movements and activities of their populations in an attempt to curb the virus’s transmission. This global health crisis struck at a moment when the prospects for many African countries appeared promising. In the early months of 2020, Africa was poised to sustain its economic expansion, with growth projections indicating an upward trajectory from 2.9% in 2019 to 3.2% in 2020 and further to 3.5% in 2021 (Kinyondo & Pelizzo, 2021). The region has been witnessing significant gains in poverty reduction and improvements in health indicators. Furthermore, progress has been made in fostering political unity and economic integration, reflecting positive momentum in the socioeconomic and political spheres across the continent (Kinyondo & Pelizzo, 2021). However, the unforeseen onslaught of the pandemic abruptly disrupted these optimistic projections and cast a shadow over the promising advancements. The pandemic’s indiscriminate impact exposed vulnerabilities in healthcare systems disrupted economic activities and challenged the momentum gained in poverty reduction and health improvements (Mishra, 2020). The abrupt change in circumstances underscored the interconnectedness of global events and their ability to swiftly alter the trajectory of even the most promising economic landscapes. As African nations grappled with the dual challenges of managing the health crisis and mitigating economic fallout, the resilience of these nations came to the forefront. The initial projections for economic growth gave way to a complex reality shaped by the intricacies of navigating a pandemic (Kinyondo & Pelizzo, 2021). This experience highlighted the importance of adaptive policies, robust healthcare systems, and international cooperation in responding to unforeseen global crises. In essence, the juxtaposition of the promising pre-pandemic trajectory and the unexpected challenges posed by COVID-19 paint a nuanced picture of resilience, adaptation, and the need for comprehensive global strategies to address crises that transcend borders. The tale of Africa’s trajectory amid the pandemic serves as a poignant reminder of the interconnectedness of global events and the imperative for coordinated responses to safeguard both public health and economic well-being. It is against this backdrop that African countries had to deal with the COVID19 pandemic. While the pandemic’s full impact was yet to be felt, the prolonged lack of investment in critical health systems and decades of economic growth that also exacerbated grievances and inequality, increase Africa’s vulnerability. Fears were that, if not controlled early enough, the pandemic could quickly morph into

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a humanitarian, socioeconomic, development, and political crisis, with profoundly destabilizing effects. As of May 27, 2020, Cameroon grappled with the profound impacts of the COVID19 pandemic, registering 5,436 confirmed cases, 1,996 recoveries, and 175 deaths (Dzinamarira et al. 2020). Beyond the immediate health ramifications, the virus exacted a heavy toll on the Cameroonian economy, recording staggering losses amounting to approximately 800 billion FCFA, equivalent to around USD 1.3 billion (Dzinamarira et al. 2020). This economic downturn reverberated across various sectors, with tourism, transport, and services bearing the brunt of the repercussions. A comprehensive study conducted by the Employers Association of Cameroon (GICAM) shed light on the severity of the economic downturn in these key sectors. According to the study, these sectors experienced a staggering decline in activity, with a notable contraction of about 92% (Djeudja & Salamon, 2023). The pandemicinduced disruptions in tourism, a vital component of Cameroon’s economy, resulted in the closure of hotels, cancellation of bookings, and a decline in tourist arrivals, causing a cascading effect on related industries. The transport sector faced unprecedented challenges, with restrictions on movement and lockdown measures severely impacting air, land, and sea transportation. The decline in travel and transport demand further strained the sector, leading to reduced revenue and operational challenges for transportation-related businesses (Djeudja & Salamon, 2023). Similarly, the services sector, encompassing a wide range of activities, experienced a significant downturn. Social distancing measures and restrictions on gatherings led to the closure of entertainment venues, a decline in demand for hospitality services, and disruptions in other service-oriented industries (Djeudja & Salamon, 2023). In response to the economic downturn, the Cameroonian government, which initially implemented a partial lockdown to curb the spread of the virus, faced the delicate task of balancing public health imperatives with the need to stimulate economic activity (Leininger et al., 2021). Acknowledging the critical role of these affected sectors in the overall economic landscape, the government opted to lift some restrictions to facilitate the resumption of economic activities (Leininger et al., 2021). This decision aimed to strike a precarious equilibrium between safeguarding public health and mitigating the adverse economic impact, reflecting the nuanced and evolving nature of crisis management in the face of a global pandemic. Hence the impact of the COVID-19 pandemic on Cameroon extends beyond health statistics, delving into the intricate dynamics of economic sectors (Leininger et al., 2021). The stark decline in key sectors, as highlighted by empirical studies, underscores the multifaceted challenges faced by the nation in navigating the unprecedented circumstances. The decision to uplift restrictions reflects the adaptive nature of crisis management, emphasizing the need for a holistic approach that considers both public health and economic resilience (Becker et al., 2015). As Cameroon strives to recover from the aftermath of the pandemic, these experiences offer valuable insights for future crisis preparedness and response strategies.

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2.2 The Russia–Ukraine War In today’s interconnected world, shots fired in one corner of the globe create ripple effects in other, seemingly far, places. In today’s interconnected world, geopolitical events send reverberations across the globe, transcending geographical boundaries. The Russian invasion of Ukraine on February 24, 2023, though physically distant from African countries, has unfurled aftershocks that have reached the continent (Gatdula, 2023). This invasion not only disrupted global energy markets but also triggered a series of events with far-reaching consequences for economies worldwide. The subsequent sanctions imposed on Moscow by the United States and the European Union have particularly resonated in Africa, introducing complexities to the ongoing global economic recovery from the COVID-19 pandemic and exacerbating inflationary pressures on a global scale (Finley & Krane, 2022). At the epicenter of these geopolitical dynamics is Russia’s pivotal role in the global energy supply chain. As a major producer and exporter of oil and natural gas, Russia’s influence extends beyond its borders, notably impacting European energy markets and the broader European Union’s energy security (Henderson & Mitrova, 2020). The amplification of oil prices in the aftermath of the war in Ukraine has led to a cascading effect on the global prices of oil-related products, including petroleum. Within the African context, where most countries are net importers of oil, the surge in global oil prices is felt acutely. According to a report by the African Development Bank and the African Union titled “Oil and Gas in Africa,” the continent’s nations are grappling with the economic ramifications of this geopolitical turmoil (Anyanwu & Salami, 2021). The inflationary pressures emanating from the spike in global oil prices have become a significant concern for African countries, with projections indicating an average inflation rate of 22.1% in 2022 (Anyanwu & Salami, 2021). The interplay of geopolitical events and their impact on global energy markets underscores the vulnerability of seemingly distant regions to events unfolding in other corners of the world. In the face of these challenges, African nations find themselves navigating the delicate balance between economic stability and the implications of global geopolitical tensions. As they grapple with the multifaceted consequences of the Russian invasion of Ukraine, the experiences of these nations contribute to the evolving narrative of the interconnectedness of the global economy and the need for nuanced strategies in navigating the complexities of a rapidly changing world (Roberts & Lamp, 2022). The invasion of Ukraine has reverberated across the European Union, causing profound disruption to the mobility of people and goods across all modes of transport. This ripple effect has transcended continental boundaries, impacting African countries that heavily rely on the EU for the supply of crucial goods and foodstuffs (Roberts & Lamp, 2022). The repercussions of this geopolitical event have manifested in scarcity and escalated costs, underscoring the intricate interdependence between global regions and the far-reaching consequences of disruptions to major trade partners (Kornher & Braun, 2020).

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The European Union, as a pivotal economic player on the global stage, serves as a key source for a myriad of goods and essential commodities that sustain various African nations. The invasion of Ukraine has disturbed the intricate network of supply chains that connect these regions, leading to shortages in vital goods. Compounding this challenge is the significant surge in the cost of these goods when they do become available, reflecting the broader economic repercussions of geopolitical events on the affordability and accessibility of essential commodities. The intercontinental impact highlights the vulnerability of African countries to disruptions in the economic activities of major trading partners. As supply chains face unprecedented strains, nations reliant on these connections experience not only logistical challenges but also economic shocks that echo through various sectors. The scarcity and increased cost of goods underscore the need for diversified trade strategies and the cultivation of resilient supply chains that can weather geopolitical upheavals. The echoes of the Russian invasion of Ukraine have resonated within the confines of the electricity sector in Cameroon, leaving an indelible mark on its dynamics. The surge in oil and gas prices, a direct consequence of the geopolitical upheaval, has rippled through the sector, impacting the exploitation costs of thermal plants. This, in turn, has translated into an automatic transfer of these elevated costs to end-users, compounding the economic challenges faced by consumers (Bhattacharya, 2022). The interconnectedness of global markets further magnified the impact, as the lockdown measures imposed in Europe reverberated across the supply chain of materials essential for the construction and maintenance of electricity plants in Cameroon. The disruptions to this vital supply chain necessitated a critical review of the timelines allocated for the realization of specific projects within the electricity sector (Bhattacharya, 2022). The consequences of this review extend beyond temporal adjustments, reflecting the intricate challenges posed by external geopolitical events on the operational cadence of critical infrastructure projects. As the energy sector grapples with these challenges, the brunt is borne not only by the immediate stakeholders but also by the end-users who feel the pinch of increased costs. The nuanced interplay of economic repercussions underscores the vulnerability of domestic sectors to external geopolitical events and the imperative of strategic planning to buffer against the uncertainties unleashed by such global upheavals.

3 Crisis Particular to Cameroon 3.1 Anglophone Crisis Cameroon finds itself entangled in a complex web of enduring crisis situations, with profound ramifications for the political, economic, and social fabric of the nation. The roots of these challenges can be traced back to longstanding grievances within the Anglophone community in the Northwest and Southwest regions. Over

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decades, the minority English-speaking regions experienced marginalization under the governance of the francophone-dominated government. The culmination of this historical disparity manifested in widespread protests and strikes that erupted in late 2016 (Beseng et al., 2023). The grievances, having festered for years, reached a tipping point, giving rise to the emergence of various separatist groups advocating for the establishment of a self-proclaimed Ambazonian Republic in the Northwest and Southwest regions (Beseng et al., 2023). The multifaceted nature of these separatist movements reflects not only the deep-seated discontent within the Anglophone community but also the intricate interplay of historical, cultural, and political factors shaping the trajectory of these crisis situations. The consequences of these protracted crises extend far beyond the regions directly affected, permeating the national landscape and leaving an indelible mark on Cameroon’s socio-political dynamics (Beseng et al., 2023). The unrest has posed considerable challenges to governance, testing the resilience of political structures and eliciting responses from the government to address the root causes and consequences of the crisis. Moreover, the economic impact is palpable, with disruptions in affected regions rippling through the national economy, further underscoring the interconnectedness of political stability and economic vitality. As Cameroon grapples with these persistent crisis situations, there is a pressing need for comprehensive and nuanced strategies that go beyond short-term responses. The complexities inherent in the grievances and aspirations of the Anglophone community demand a holistic approach that addresses historical inequities, cultural sensitivities, and the broader quest for political inclusivity (Samah & Tata, 2021). The resolution of these crises stands as a pivotal challenge for the nation, requiring concerted efforts to foster dialogue, promote understanding, and pave the way for a more harmonious and unified Cameroon. Clashes between the military and separatist forces have intensified insecurity in the regions, leaving over 626,000 people internally displaced and about 87,000 seeking refuge in neighboring Nigeria as of February 2023 (Samah & Tata, 2021). The movement of goods and people has also been hindered due to ghost towns and lockdowns imposed by the separatist groups (Samah & Tata, 2021).

3.2 The Boko Haram Crisis The ripple effects of Boko Haram’s insurgency in Nigeria’s northeast extend across borders into Cameroon’s Far North region, primarily due to the proximity and porosity of the shared borders. Cameroon ranks as the second most affected country by the violence and insecurity associated with Boko Haram in the Lake Chad Basin, following closely behind Nigeria (Idika-Kalu, 2020). The impact is starkly evident in the Extreme North region of Cameroon, where over 124,000 Nigerian refugees sought refuge, and internal displacement surpassed 357,000 people due to the violence perpetrated by Boko Haram and the Islamic State in West Africa Province (Yaya

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et al. 2021). The intricate interplay of geopolitical factors and regional security challenges underscores the shared vulnerabilities of neighboring countries in the face of insurgency and the urgent need for collaborative strategies to address this complex crisis.

4 The Regulatory Challenges 4.1 Maintaining Foreign Investments The prevailing security conditions in Cameroon, marked by the Ambazonian crises and the Boko Haram insurgency, have significantly impacted investor confidence, particularly in conflict-affected regions. Investors, especially foreign ones, are naturally drawn to stable and secure environments conducive to business operations. However, the presence of armed conflicts has prompted a reevaluation of investment levels in the country (Eta et al., 2020). The ramifications are palpable in specific projects, such as the ERD RUMPI initiative, particularly the PCH FALLS 210 projects, a small hydro production plant in Mbonge, South West Region, funded by the European Union (Kenfack et al., 2020). Unfortunately, this project, at about 95% completion, had to be abandoned due to secessionist attacks in the construction area (Kenfack et al., 2020). Regrettably, similar outcomes have been witnessed in numerous electricity projects, with investors withdrawing due to heightened insecurities, illustrating the tangible economic consequences of conflict on investment and development initiatives (Kenfack et al., 2020).

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Faced with this challenge, the regulator has carried out activities to encourage local investments within the sector. These efforts are being accompanied by the favorable provisions of the electricity decentralization system put in place by the government of Cameroon, which makes it possible for local investors to realize electricity production plants for their personal use and the sale of the excess to the system operator.

4.2 Mastering the Schedule in the Execution of Projects Electricity development projects have confronted formidable challenges stemming from the dual impacts of the COVID-19 pandemic and the Russian invasion of Ukraine, echoing the interconnectedness of global events in shaping regional endeavors (Finley & Krane, 2022). The pandemic, characterized by widespread enterprise shutdowns in Europe, disrupted the production timelines for materials crucial to the realization of these projects, necessitating inevitable extensions in project completion plans. This unforeseen consequence has introduced a cascading effect, leading to setbacks in various facets of electricity infrastructure development. In response to the tumultuous circumstances, the Electricity Sector Regulatory Agency has found itself at the epicenter of project management complexities. The agency received requests from multiple projects within the sector, each seeking a readjustment in their execution plans due to the “force majeure” induced by the concurrent crises (Swanson & Sakhrani, 2023). Among these projects is the Nachtigal hydropower plant, a collaborative effort involving the Republic of Cameroon, EDF International, and the IFC, with a planned capacity of 420 MW. Acknowledging the unprecedented challenges posed by the external crises, the Nachtigal hydropower project successfully secured approval for a revised realization plan (Swanson & Sakhrani, 2023). The experiences of these electricity development projects underscore the intricate dance between global events and local initiatives. The repercussions of disruptions caused by the pandemic and geopolitical conflicts extend beyond immediate health and economic impacts, seeping into the timelines and trajectories of critical infrastructure projects. As regulatory bodies navigate the complexities of these challenges, the resilience and adaptability of the electricity sector become paramount in ensuring sustained progress and development in the face of unprecedented global upheavals.

4.3 Controlling the Cost of Acquisition of Inputs The prevailing crises, particularly the Russian–Ukraine conflict, have induced a surge in the costs associated with the realization and maintenance of projects within the electricity sector (Brunovská, 2023). This increase in costs reverberates across various facets of the sector, introducing challenges to project budgets and the overall

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cost-effectiveness of electricity-related endeavors. A significant contributing factor to these cost escalations lies in the reliance on imported materials and equipment, predominantly sourced from Europe, for the production, transportation, and distribution of electricity in Cameroon (Mhlanga & Ndhlovu, 2023). The disruptions caused by the Russian–Ukraine crisis have significantly impacted the supply chain, leading to elevated costs in acquiring these essential materials. Furthermore, the repercussions extend to the oil and gas sector, where the increase in global prices is intricately linked to the geopolitical tensions arising from the Russian–Ukraine war. Given the interconnected nature of energy markets, the surge in oil and gas prices amplifies the economic strain on electricity projects, introducing additional complexities to the cost dynamics. The automatic and inevitable consequence of these cost increases is the necessitated recalibration of project budgets and the overall cost structure for the operation and maintenance of electricity facilities. In essence, the intertwined impacts of the Russian–Ukraine conflict on material costs and the broader energy market have prompted a reevaluation of the financial landscape within the electricity sector. As project stakeholders grapple with these cost escalations, they are compelled to adapt and strategize in the face of an evolving economic landscape shaped by global geopolitical dynamics. The cost implications underscore the far-reaching consequences of external crises on the economic viability and sustainability of electricity projects, emphasizing the imperative for resilience and adaptive strategies within the sector. Mindful of these changes in cost caused by the war, the regulator proceeded to tariff readjustments to enable the electricity operator to break even. More so, the new tariff structure reached by the regulator encouraged consumers to subscribe for the quantity of electricity they were sure they needed, so as not to overload the production plants to produce more than what was needed in the electricity market.

4.4 Availability of Workers at Their Post of Duty The nature of various crises has compelled economic operators to navigate a terrain of adaptive strategies, particularly in reshaping the work plans of their workforce. The pervasive and contagious impact of the COVID-19 pandemic catalyzed widespread shutdowns in enterprises, prompting a significant reduction in the physical presence of workers across diverse sectors (Mhlanga & Ndhlovu, 2023). Within this overarching context, operators in the electricity sector in Cameroon found themselves grappling with the imperative of organizational reconfiguration, a process that resulted in constrained interventions when issues arose on the network (Ikeanyibe, 2021). The COVID-19 pandemic, with its inherent risks of transmission and the imperative for social distancing, prompted a seismic shift in the traditional modes of operation for enterprises. The necessity for shutdowns and reduced physical presence aimed at safeguarding the health of the workforce inadvertently triggered a cascade effect on operational capacities. This ripple effect reached the electricity

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sector in Cameroon, where the organizational response translated into a recalibration of workforce dynamics. In the context of the electricity sector, where timely interventions are paramount for network stability, the constraints imposed by reduced physical presence posed distinct challenges. The limited interventions resulting from organizational reorganization impacted the sector’s responsiveness to issues on the network, potentially leading to delays in addressing challenges and ensuring the reliability of electricity services (Ikeanyibe, 2021). As Cameroon’s economic landscape grapples with the aftermath of these crises, the adaptive measures undertaken by operators reflect the intricate balancing act required to maintain both operational viability and the well-being of the workforce. The experience of the electricity sector in the face of these workforce reconfigurations underscores the need for resilience in organizational structures, as well as the exploration of innovative strategies to ensure the continuity of critical services amid the challenges posed by unprecedented crises. In response to the formidable challenge posed by the intricate interplay of crises affecting the electricity sector, the regulatory authority proactively advocated for a dynamic solution. Recognizing the imperative of uninterrupted service delivery to consumers, the electricity sector regulator, as highlighted in a study by Enow (2023), urged operators within the sector to institute a sustainable rotating work system. This innovative approach aimed at maintaining continuity in service provision despite the challenges posed by external crises. Complementing this rotational system were various telework strategies implemented within the sector. These telework techniques were strategically introduced to facilitate immediate incident reporting and ensure the prompt and effective consideration of any emergent issues. By embracing a combination of a rotating work system and telework methodologies, operators endeavored to enhance their responsiveness and resilience, navigating the complexities of crises while prioritizing the seamless delivery of electricity services to consumers.

4.5 Proper Execution of Maintenance Work The cascading effects of these crises have given rise to an upsurge in inefficient maintenance work within the electricity sector. The restrictive measures imposed during the COVID-19 pandemic, coupled with the security constraints imposed by terrorist activities, have impeded the mobility of workers (Nworie, 2017). The resultant inability of workers to move freely between regions has posed significant challenges for operators in the sector and their subcontractors in promptly addressing maintenance requirements across the network. The confluence of pandemic-related shutdowns and the restrictions imposed by terrorist fighters has created operational hurdles, hindering the swift and effective response to essential maintenance needs. Acknowledging these challenges, the electricity regulator has taken proactive measures to mitigate the impact on maintenance operations. To navigate the logistical complexities posed by restricted movement, the regulator has advocated for the

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increased engagement of local contractors. By encouraging the utilization of local contractors, the regulator aims to minimize or eliminate the need for inter-regional movements, ensuring a more agile and responsive approach to maintenance demands (Nworie, 2017). This strategic shift not only aligns with the imperative of adapting to the challenges posed by crises but also underscores the importance of leveraging local resources and capacities to bolster the resilience of the electricity sector.

4.6 Mastering the Evolution of Electricity Demand The onset of the COVID-19 pandemic ushered in a paradigm shift in societal norms, compelling the population to embrace a new way of life marked by unprecedented changes. The extensive shutdown of industries, offices, and schools (Rasul et al., 2021), triggered a transformative ripple effect on the daily lives of individuals. This transformative impact reverberated within the electricity sector, inducing a notable alteration in the demand dynamics for electrical energy. The change in the living patterns of the population, catalyzed by the pandemicinduced disruptions, instigated an automatic and noteworthy adjustment in the electricity demand. This adjustment manifested as a complete reversal of the conventional demand curve for domestic consumers. Contrary to the historical peak in electricity demand occurring during the evenings, a new trend emerged with heightened electric energy demands observed throughout the day (Rasul et al., 2021). The altered demand patterns underscore the intricate interplay between societal shifts and the dynamics of electricity consumption, reflecting the adaptability and resilience required within the electricity sector to respond to unforeseen challenges such as global pandemics. The electricity sector regulator held several meetings with operators in the sector, to review their demand and supply strategy, to align it with the realities imposed by the pandemic.

4.7 Accurate Meter Reading and Billing System The advent of the COVID-19 pandemic ushered in a myriad of challenges, particularly in the operational landscape of the electricity sector. The very nature of the virus, coupled with stringent movement restrictions imposed to curb its spread, posed significant hurdles for meter readers tasked with accessing consumers’ residences for meter readings and bill distribution (Onyishi et al., 2021). This challenge, already formidable on its own, exacerbated existing difficulties in the Anglophone regions of Cameroon. In these regions, the constraints on movement took on a dual dimension. Not only were residents contending with the pandemic-related restrictions, but they also found themselves navigating the repercussions of the socio-political tensions that had given rise to the imposition of ghost towns by secessionist fighters (Onyishi et al., 2021). The convergence of these constraints created a unique and complex set

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of challenges, making it increasingly challenging for meter readers to fulfill their responsibilities effectively. The predicament was not new to the electricity sector, particularly in the Anglophone regions. Even prior to the global health crisis, concerns had been raised about the billing rate in these areas. In the early part of 2019, the management of Eneo, the main electricity distribution company, drew attention to a billing rate that languished below 20% in the Anglophone regions of North West and South West (Levodo, 2019). This issue, while significant on its own, took on added weight in the context of the broader challenges imposed by the pandemic and the regional socio-political unrest. The financial stability of Eneo was directly impacted by the low billing rate in the Anglophone regions. The less-than-20% billing rate not only signaled a revenue shortfall but also underscored the intricate relationship between the operational challenges on the ground and the overall economic health of the electricity distribution company (Levodo, 2019). The dual constraints of restricted movement due to the pandemic and the enforced ghost towns in the Anglophone regions further impeded the company’s ability to address this financial strain effectively. As the electricity sector grappled with these challenges, the role of regulatory bodies became increasingly pivotal. The complex interplay of health crises, sociopolitical tensions, and financial strains underscored the need for adaptive regulatory frameworks that could address multifaceted challenges. Meter reading and billing, central components of revenue collection for electricity companies, demanded innovative solutions in the face of unprecedented circumstances. In navigating these challenges, the electricity regulator became a key player in devising strategies to ensure the sector’s resilience. The management of Eneo’s billing concerns in the Anglophone regions required a nuanced approach that factored in both the immediate constraints imposed by the pandemic and the regional complexities linked to socio-political unrest. The regulator had to balance the imperative of revenue collection with the recognition of the exceptional circumstances faced by consumers in these regions. The regulator had rejected proposals from the distribution company which consisted of approximating consumer consumption. A test phase of this proposal had given rise to several complaints from consumers. As such, the regulator encouraged the distribution company to introduce smart meters to limit the need for meter readers and bill distributors, and to enable consumers to better master their consumption. Regulating public service utilities during a crisis poses a pervasive challenge globally, transcending borders and regulatory frameworks. The complexity of these crises often lies beyond the purview of regulatory institutions. The multifaceted nature of the causes and potential solutions underscores the intricate dance regulators must perform to strike a delicate balance in ensuring the continuous provision of services, meeting government objectives, and facilitating a conducive environment for operators’ profitability (Kuhlmann & Franzke, 2022). Amidst the turbulence of a crisis, be it a global health emergency, socio-political upheaval, or economic downturn, regulatory bodies bear the onerous responsibility of orchestrating an environment that sustains service delivery. While the causes and

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resolutions of crises may lie beyond their immediate control, regulators are dutybound to navigate these challenges, fostering a landscape that aligns with government objectives and ensures the viability of service providers. The expectations placed on regulatory bodies are manifold. Electricity consumers, in particular, anticipate not only the resilience of the service in the face of crises but also affordability, reliability, transparency in billing, and the prospect of accessing value-added services (Villena & Gioia, 2020). Striking a delicate equilibrium between the imperative of low prices, the financial viability of service providers, and the diverse expectations of consumers presents an intricate challenge for regulators. In essence, the role of regulatory bodies extends beyond traditional oversight. They become orchestrators of an intricate symphony, navigating crises, aligning with government objectives, and harmonizing the diverse needs of consumers and service providers. The complexities inherent in these responsibilities underscore the need for adaptive regulatory frameworks that can respond effectively to the dynamic and unpredictable nature of crises. As regulatory bodies grapple with these challenges, their actions become pivotal in shaping the resilience and sustainability of public service utilities in times of crisis.

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E. M. Shalman works with the Electricity Sector Regulatory Agency (ARSEL) in Cameroon, as the Director of Communication and Cooperation. He holds a Master’s degree in English Private Law, another Master’s Degree in Human Resource Management and another Master’s in Corporate Communication and Marketing. Shalman grew up in Limbe and now lives in Yaoundé, the capital of Cameroon.

The Electricity Tariff and Utility Performance: Evidence from Ghana, Uganda, and Namibia Electricity Market Jeffrey Kenneth Baiden

List of Abbreviations SDGs ECB LRMC UEB ERA UEGCL USH USD IRAF EMAF FPAF FERAF

Sustainable Development Goals Electricity Control Boards of Namibia Long Run Marginal Cost Uganda Electricity Board Electricity Regulatory Authority Uganda Electricity Generation Company Uganda Shilling United States Dollar Inflationary Adjustment Factor Energy Mix and other costs approved by Authority Adjustment Factor Fuel Prices at the International Market leading to Fuel Price Adjustment Factor Exchange Rate leading to Exchange Rate Adjustment Factor

1 Introduction Electricity has become an essential service used to measure the living standard of a population. While it is estimated that up to 592 million people still live without electricity in Africa (IEA, 2020). Therefore, there are numerous challenges that tariff reform aims to address. The low electrification rates, particularly among rural households is one of the challenges. Low connection rates limit the potential for revenue J. K. Baiden (B) Markets, Volta River Authority, Accra, Ghana e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_12

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generation and grid expansion, inhibiting cost recovery for utilities. Affordability poses a significant challenge for individuals connected to the grid. The implementation of regressive pricing structures hampers the capacity of low-income consumers to settle their electricity bills and encourages theft and unauthorized connections. Additionally, ineffective targeting of tariff subsidies may result in the undercharging of consumers who possess a higher ability to pay, thereby diminishing the potential for efficient energy usage and suppressing revenue generation. Furthermore, a consistent pattern of inadequate performance by the electricity supply companies has become apparent over time, collectively contributing to the failure of the electricity market. This paper delves into an exploration of the intricate relationship between electricity tariffs and utility performance, drawing comparisons among three African nations: Ghana, Namibia, and Uganda. It’s worth noting that due to limitations in data availability, this report primarily relies on the examination of various reports from these countries. Unfortunately, the insufficient data on utility and performance metrics prevented the application of statistical tests for comparative analysis.

2 Literature Review Thomas Edison’s invention of the incandescent light bulb in 1879 revolutionized our way of life. Electricity is a necessary source of energy; it has assisted customers in satisfying human desires by powering numerous machinery that aids in the production of consumer products, either directly or indirectly. Electricity is an essential commodity because its generation and consumption must be concurrent, and it cannot be economically stored. Another characteristic of electricity is that its demand differs in terms of hourly, daily, weekly, monthly, and yearly basis. Thus, as it is a non-durable good, ways to improve its quality of services become necessary. Recognition that energy plays a key role in facilitating socio-economic development and that its insufficient provision impedes it has brought energy to the forefront of national, regional, and global agenda. National sector development strategies in most of Africa reflect the need to expand energy access rapidly, facilitated through the implementation of Sustainable Development Goals (SDGs), particularly SDG7. African states have pursued the energy access agenda, devoted public finance for energy infrastructure and capacity expansion, and instituted measures to strengthen the energy sector. Financing energy development remains a key challenge. The cost of achieving the SDGs at large in the continent is estimated at USD 1.3 trillion per year. Africa would require USD 32 billion per year through 2030 on universal electricity accessrelated investments (African Development Bank, 2019), with additional investment requirements on energy infrastructure. According to the Infrastructure Consortium for Africa, 37% of infrastructure investments in the continent were undertaken by African governments in 2018, with the private sector accounting for 11% (Infrastructure Consortium for Africa, 2018). Given the major infrastructure investment gap and

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the limited investment role of the private sector so far, addressing the crowding-in of private sector investment in the electricity market is crucial. An estimated 592 million people lack electricity access in Africa (IEA, 2020). Electrification rates on the continent are the lowest globally, with a mere 39% of the total population and 28% of the rural population electrified (IEA, 2020). Among those connected to the grid, chronic unreliability and intermittency of supply limit economic growth and reinforce reliance on heavier polluting fuels (Klug et al. 2022; Mensah, 2018). Meanwhile, the average cost of supplying 1 kWh in Sub-Saharan Africa is higher than in other low- and middle-income countries (LMICs), and residential tariffs in the region can be as high or higher as prices in Organisation for Economic Co-operation and Development countries (Eberhard & Shkaratan, 2012; Global Petrol Prices, 2021). The financial unviability of power sectors requires many African governments to subsidize the costs of supply, yet households still face high prices and low reliability as governments shoulder growing quasi-fiscal deficits (Kojima & Trimble, 2016; Batinge et al., 2019). The Regulatory Indicators for Sustainable Energy (ESMAP, 2020) indicates that more than half of the global population lacking access to electricity remained in countries with weak regulatory frameworks by 2019. These regulatory challenges remain to be addressed. The linkage between performance and electricity utility has been proved through, different empirical studies, a study in the USA, have developed and tested the theory of the performance determinants of a firm’s nonmarket strategy in shaping public policy outcomes. Building from the concept of political market attractiveness, it argues that nonmarket performance is influenced by both the characteristics of a firm’s regulatory and political environment, especially rivalry among interest groups or politicians, and by internal capabilities that enable a firm to mitigate political transaction costs. Using data on regulatory filings for rate increases made by U.S. Electric utilities over 13 years, find empirical support for the approach (Jean-Philippe Bonardi, 2017). In 2019, a similar study has been conducted in the USA again for the case of solar energy, assessing the utility and much is the cost for firms. The main result of the paper shows that the amount of utility-scale solar capacity in the development pipeline suggests continued momentum and a significant expansion of the industry in future years. At the end of 2018, there were at least 284 GW of utilityscale solar power capacity within the interconnection queues across the nation, 133 GW of which first entered the queues in 2018 (with 36 GW of this 133 GW including batteries) (Mark Bolinger, 2019). The case of Victoria, a study conducted on “the performance of an electricity utility: the case of the state electricity commission of Victoria,” in Australia. It was observed that the growth in demand for electricity in Victoria, the productivity growth of the State Electricity Commission of Victoria, as well as electricity prices, profits, and debt levels are presented over the longer term (Malcolm Abbott, 2006). Compared to other African countries, Ghana has already made significant progress in providing access to electricity over the past ten years in which the electrification rate increased from 65% in 2010 to over 82% in 2018, according to the World Bank.

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A big report has been conducted in Africa, summarizing the findings and recommendations of a study program exploring the financial viability, affordability, and political economy of the electricity sector in Sub-Saharan Africa. Africa lags behind all other regions of the world in electricity generation capacity, per capita electricity consumption, and household access to electricity. Only one out of every three Africans has access to electricity. A study, using recent data from African countries, examines the relationship between costs and revenues of utilities in 39 countries, estimates the scope for reducing utility deficits by lessening operational inefficiencies, collects tariff data in another overlapping set of 39 countries to assess affordability, and analyzes electricity spending data from national household expenditure surveys in 22 countries (Masami Kojima, 2016). The study is confined largely to grid electricity; it does not consider off-grid rural electrification, the cost of system expansion, and possible cost savings from system optimization based on a least-cost development plan and expansion in cross-border electricity trade. Furthermore, (Erdogdu, 2013) finds that regulation, capacity utilization, and competition have boosted service delivery, generation capacity expansion, capacity utilization, and reserve margins in a subset of developing countries. Anderson (2006) noted the lack of a strong regulatory mechanism to govern power tariffs as one of the problems with setting realistic tariffs (Andersson, 2006). Setting realistic power pricing has numerous issues; there must be a balance between reasonable tariffs and acceptable return on investment (Kojima, 2017). Globally, electricity tariffs are cross-subsidized. For example, the electricity consumer category charges below the economic cost of providing electricity, while other categories pay tariffs above the cost price. This creates a problem for the sector and undermines the promotion of reform in the electricity market (Li, 2020). The cross-subsidies of tariffs arise as the tariff rate does not reflect the actual power generation or supply cost. There are four tariff cross-subsidies, namely between different consumers, different voltage grids, users of different loads, and consumption in different areas. The tariff cross-subsidies are advantageous to some consumers who pay low tariffs, while affecting others who must pay high electricity tariffs, negatively (Li et al., 2020). The measures of full cost recovery and financial sustainability influence the setting and structure of tariffs significantly. This leads to cross-subsidies and tariff structures (Kojima, 2014). Developing countries with high- and middle-income consumers can afford the cost-reflective tariffs; however, in Sub-Saharan Africa, the level of affordability is low; hence, consumers cannot afford the cost-reflective tariffs even though these are relatively low (Kojima, 2014) The pattern of electricity consumption by different consumer categories poses challenges to regulators and utilities when setting affordable and cost-reflective electricity tariffs (SARDC, 2010). The setting of costreflective tariffs that value the chain from generation, transmission, distribution, and supply is another challenge to electricity regulators. Efficient operation also referred to as benchmark performance is defined here as follows:

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• Transmission and distribution losses (both technical and commercial) of 10% of dispatched electricity or lower. • 100% bill collection. • The same staffing level as in well-performing, comparable utilities in Latin America. Conversely, inefficient utilities are said to suffer from transmission and distribution losses, bill collection losses, and overstaffing. The deficit at benchmark performance is identical to the magnitude of underpricing in the absence of generation mix optimization and other cost-reduction measures such as greater imports of cheaper electricity showing how much quasi-fiscal deficits can be reduced by achieving benchmark performance (Masami Kojima, 2016). Even though different empirical analyses have been conducted in different areas on the tariff performance and the electricity utilities, a lack of data is observed for most of the African countries especially the case of Ghana, Namibia, and Uganda.

3 Comparative Analysis Between Ghana, Namibia, and Uganda 3.1 Regulatory Reform Outlook in Ghana, Namibia, and Uganda Different regulations and reforms have been conducted across the world and Africa, all affecting the electricity tariff. For this paper we are focusing on three countries (Ghana, Namibia, and Uganda) concerning the case of Namibia, the level of electricity imported by Namibia is a challenge for the country’s power sector. The decline in power supply from the Southern African Power Pool has exposed Namibia to a significant level of uncertainty in terms of future supply, as the country has been unable to enter long-term contracts with its largest supplier, Eskom, and cannot be self-sufficient. Ghana has been working toward reforming its electricity sector to address issues related to reliability, affordability, and sustainability. The main objectives of the reform have been to attract private investments, improve infrastructure, and increase the efficiency of the electricity market. The key aspects of Ghana’s electricity reform include deregulation and privatization, the creation of regulatory bodies, renewable energy integration, and rural electrification. Similarly, Uganda has been undertaking reforms to improve its electricity sector to meet the increasing demand for electricity and support economic growth. Both countries have faced challenges during their electricity reforms, including financial constraints, infrastructure development, and ensuring a stable and reliable energy supply. However, they continue to work toward creating a more robust and efficient electricity sector to meet the needs of their growing economies and populations.

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3.2 The Impact of Electricity Tariffs on the Performance of Electricity Supply and Distribution Companies 3.2.1

Namibia

As the measurement of firms’ performance, financial performance is defined as how well a company utilizes its assets to generate revenue to maximize its profit and shareholders when conducting business (Nassar, 2016) read from (Shihepo, 2022). Financial performance aims to provide information to the users (management, lenders, potential and existing investors, as well as other stakeholders) to make informed decisions. Financial performance is defined by Wilks (2003) as a company’s competence and capability to use its available resources effectively and efficiently to fulfill its objectives while recognizing its relevance to its consumers (Peterson, 2003). Therefore, a company’s financial performance position reports on some of its performance measurement indicators. There are various methods of measuring the financial performance of a company, such as the DuPont analysis, balanced scorecard, performance pyramid, and Malcolm Baldrige model, as well as the performance prism. The electricity tariffs in Namibia are regulated by the Electricity Control Boards of Namibia (Electrcity Control Board (ECB), 2019). Many factors are considered in the process of regulating the tariffs. These make all the five performance methods above suitable and relevant to this study’s objective because they constitute different performance testing. Cost-reflective tariffs will close the gaps of negative impact on companies’ performance. The high electricity tariffs will affect the cost of sales and profitability; therefore, cost-reflective tariffs will solve this effect on a company’s performance (Fig. 1). NAMPOWER (Namibia Power) will continue importing electricity from outside the country due to the decline of locally generated power. As the neighboring countries increase their electricity tariffs, they pass these on to Namibia as a customer, which leads to increases in electricity tariffs in the country. A study conducted in Finland on load models for electricity distribution price regulation concludes that regulators need to study and understand the load models for their customers to enforce the law on tariff increases and capping (Fig. 2).

Fig. 1 Trend of electricity tariff, in Namibia

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Fig. 2 Results of correlation analysis. Source Analysis conducted in an empirical analysis in Namibia revealed those results (Shihepo, 2022)

The analysis conducted in Namibia in assessing the determinant of electricity tariffs, it is concluded that: Business leaders felt strongly that the high electricity tariffs had negative effects on their company’s day-to-day operations. The high electricity tariffs created pressure among business leaders, and it required proper pricing planning. The lack of government investment in the electricity sector, including investing in green energy, contributed to high electricity tariffs. A lack of planning, inadequate resources, mismanagement of resources, lack of accountability, and corruption were also factors that contributed to high electricity tariffs. Political instability and economic stagnation had negative effects on electricity tariffs. Government grant comprises N$12.2 million (2021: N$8.9 million) accrued in respect of generation assets and N$32.4 million (2021: N$50.0 million) LRMC (Long Run Marginal Cost) accrued in respect of fuel cost of Van Eck and Anixas Power

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Table 1 Performance obligation for the supply of electricity lies with the Group Other income comprises of

Government grant Grant funding other

Consolidated

Company

2022 N$,000

2021 N$,000

2022 N$,000

2021 N$,000

44,619

58,864

44,619

58,864

491

779

491

779

Fiber optic lease revenue

15,259

7350

15,259

7350

Sundry income

25,015

41,787

25,015

41,787

85,385

108,780

85,385

108,780

Source Annual financial statements 2022

Stations that was included in the 2022 approved tariffs. The LRMC was allowed as part of NamPower’s generation revenue to mitigate the impact of Covid-19 and provide relief to customers. Fiber optic lease revenue comprises revenue received from fiber optic leasing arrangements concerning the service level agreements with the counterparties in respect of managed services and dark fiber leases. Sundry income includes rent received, scrap sales, and license renewal of electrical contractors. Table 1 shows the sources of different income for the electricity companies in Namibia and is very important to highlight that, this is a monopoly market in Namibia the government takes charge and supplies the electricity in the country. Table 2 is comparing the level of electricity tariff, and the payment in 2022 and 2023 among the large power users and small power users. The figures are quite similar, according to the electricity tariff among the two groups and the two years, similarly the rate of prepayment. While the business has supported much tariff than the domestic customers. According to the postpaid export, the figure is the same for 2022 and 2023. From Fig. 3, it can be observed how the level of electricity sales at a point in time, is higher than, the financial income getting back. Up to 2018, a nonutility performance can be concluded in Namibia based on the outcome and profitability realized by the NamPower compared to the level of KW spent a year. The electricity sales keep increasing exponentially while the financial income followed a constant trend.

3.2.2

Uganda

According to the Utility Data on Coverage, for many years, the performance of the national integrated utility of the Uganda Electricity Board, or UEB, was poor and the utility became financially unsustainable. In 1999, the sector was fundamentally reformed, which led to the dissolution of the UEB, and the Electricity Act was adopted to provide a more favorable regulatory environment for private sector participation in the power sector. The Electricity Regulatory Authority (ERA) was created as an independent regulatory agency in 2000.

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Table 2 Approved distribution tariff for the financial year 2022 in Namibia

Source NamPower Foundation Ten Years of Powering Sustainability in 2021

In 2001, the Uganda Electricity Board was unbundled into three separate entities for generation, transmission, and distribution. The management of the assets of the generation company, the Uganda Electricity Generation Company or UEGCL, granted a 20-year concession to Eskom Uganda, a subsidiary of Eskom of South Africa in 2003. Similarly, the management of the assets of the distribution company, the Uganda Electricity Generation Company or UEGCL, was granted to UMEME1 Ltd. under a 20 concession in 2005, a first for a distribution network in Africa (for useful information on the operations of the utility, see UMEME, 2014). The transmission company, the Uganda Electricity Transmission Company or UETCL, has remained publicly operated. It provides bulk power to UMEME. Until recently, UETCL sold bulk electricity to UMEME at tariffs well below cost recovery, thereby requiring large government subsidies, but (most) of these subsidies were removed in 2012, leading to a substantial tariff increase whose impact is analyzed later in this study. To promote rural electrification, a Rural Electrification Agency was established in 2003. A result of the increase in the electricity demand in 2013 has kept 1

Umeme: meaning electricity in Swahili language.

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J. K. Baiden

Fig. 3 Namibia annual report 2018 NamPower

increasing in Uganda, and the industry is the one leading, based on the trend observed in the Fig. 4. From the recent report, 2022 on the electricity market in Uganda, the Authority at its 362nd Meeting considered and approved the Tariff Parameters for the year 2022 in line with the Tariff Methodologies in the respective licenses, the Tariff Review Adjustment Methodology, and the Electricity (Application for Permit, License, and Tariff Review) Regulations, 2007. The Authority undertook the Tariff Review for the Fourth Quarter of 2022 considering the Umeme Limited Distribution and Supply of Electricity Licenses, Eskom Uganda Limited License for Generation and Sale of Electricity, the Bulk Power Supply License issued to Uganda Electricity Transmission Company Limited, and the Quarterly Tariff Adjustment Methodology, 2014. The review considered changes in; the Consumer Price Index, the Exchange Rate of the Uganda Shilling (Ush) against the United States Dollar (USD), International Fuel Prices, and the Energy Generation Mix leading to adjustments for Inflation Rate leading to Inflationary Adjustment Factor (IRAF); Exchange Rate leading to Exchange Rate Adjustment Factor (FERAF); Fuel Prices at the International Market leading to Fuel Price Adjustment Factor (FPAF); and Energy Mix and other costs approved by Authority Adjustment Factor (EMAF).

Tariff Review Some assumptions are considered for the Fourth Quarter of 2022 for the case of Uganda.

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Fig. 4 Growth in UMEME clientele, data by quarter

• The Quarterly Tariff Review Methodology was approved and implemented by the Authority in 2014 and has been applied in the subsequent Tariff Years to adjust the Annual Base Tariff for changes in Inflation, Exchange Rate, International Fuel Prices, and Energy Generation Mix. The same methodology was applied in the Fourth Quarter of 2022. • Electricity demand is expected to grow at an annual rate of 11.6% in 2022 with total energy purchased by UETCL expected to be 5,595 GWh in 2022. In the Third Quarter of 2022, UETCL is projected to purchase annualized energy of 1,371.98 GWh compared to annualized energy of 1,271 GWh purchased in the Third Quarter of 2021 representing an annualized growth of 7.94%. The Q3 2022

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J. K. Baiden

Table 3 2022 annual base electricity end-user tariffs (Ush/kWh) Customer Domestic Commercial Medium Large Extra Street category Lifeline 16–80 industries industries large lighting 81–150 industries (0–15 kWh kWh kWh) and above 150kWh Average tariff

250.0

745.7

412

597.2

472.9

355.0

300.2

370.0

Source Electricity Regulatory Authority Uganda (2022)

electricity demand growth is lower than the projection of 2022 leading to the adverse impact of tariffs and revenue recovery. • The average water release at Nalubaale/Kiira is projected at 1,000 Cubic meters per second (cumecs) for 2022 translating into an average generation capacity of 150 MW from Nalubaale/Kiira and 163.8 MW from Bujagali Energy Limited. In accordance with the Authority’s Quarterly Tariff Review Adjustment Methodology 2014, the Authority at its 362nd Meeting approved the 2022 Annual Base Tariffs as shown in Table 2. The quarterly adjustment factors are applied to the approved Annual Base Tariffs, to determine the applicable End-User (Retail) tariffs for each of the subsequent quarters of the year 2022 (Table 3).

Energy Purchases by UETCL During the Tariff Year 2021, UETCL’s average quarterly purchases were 1,256.08 GWh. During the Tariff year 2022, the average quarterly purchases by UETCL for Q1 2022, Q2 2022, and Q3 2022 is 1,357.76 GWh. During Q3 2022, UETCL recorded a 7.94% growth in electricity demand. During the Third Quarter of 2022, there was a decrease in dispatch from the small hydropower plants in Western Uganda (on account of the unfavorable dry season leading to low hydrology on most rivers). There was a decrease in the dispatch of the Isimba Power plant following the breakdown of the power plant in Q3 2022. However, there was an increased dispatch from Kiira Naluubale Power Plant and Namanve Thermal Power Plant during the Third Quarter of 2022.

Annualized Energy Sales by UETCL The energy purchased by UETCL is sold to the respective distribution companies and exported. The share of UETCL sales is indicated in the Table 4. In July 2022, the energy interchange between Uganda and Kenya was a net export of 15,714,150 kWh from UETCL to Kenya Power, as compared to a net export of 21,712,100 kWh in June 2022. The decrease in net export during July 2022,

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Table 4 Annualized energy sales by UETCL in base 2022 and Q4 2022 Distribution licensee/export

Q1 2022: annualized energy sales by UETCL (GWh)

Umeme limited

4,858.06

89.32

4,885.65

90.80

111.76

2.05

117.19

2.18

KIL

7.90

0.15

10.49

0.20

PACMECS

3.17

0.06

4.40

0.08

KRECS

9.22

0.17

10.62

0.20

WENRECO

4.34

0.08

12.75

0.24

UEDCL

Export Total

Percentage age of sales—Q1 2022

444.73 5,439.17

8.18 100.0

Q4: annualized energy sales by UETCL (GWh)

Percentage age of sales Q4 2022

339.29

6.31

5,380.39

100.00

Table 5 Approved tariff performance parameters for 2020–2022 Parameters

2021

2022

Effective target

Overall distribution loss factor

14.00%

13.47%

13.56%

DOMC (USD $ 000)

57,419

60,598

60,075

Distribution efficiency DEF (%)

0%

0%

0%

Days lag (DY)

0

0

0

Target uncollected debt factors TUCF

0.21%

0.16%

0.17%

Minimum new connection target

291,085

317,282

317,282

TBD

TBD

Reliability

compared to June 2022, was attributed to a generation constraint on Uganda’s network due to the emergency shutdown of a unit at the Isimba hydropower plant. I. Umeme Limited Performance Parameters for 2022 The Overall Distribution Loss Factor, Distribution Operating and Maintenance Costs (DOMC), Distribution Efficiency, Days Lag, and Uncollected Debt Factor as set and approved by the Authority for the period 2019–2025 for Umeme utilized in the Fourth Quarter tariff determination (Table 5). Umeme Limited reported that the energy loss outturn for the period January to October 2021 is 18.03% and the Total Un-collection Factor of 0.8%. Compared to the year 2020 where Umeme Limited reported energy losses of 17.5% and a Revenue collection Factor of 100.37% for the period January 2020 to December 2020. II. Schedule of end-user Tariffs Applicable for the Supply of Electricity by Umeme Limited for the Second Quarter of the Year 2023. Compared to the Namibia schedule of end-user tariffs applicable, for Uganda, the Table 6 shows that there is a big variability among the categories of customers. Hereby

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Table 6 Schedule of electricity end-user (retail) tariffs Domestic consumers Low voltage single phase supplied at 240 V Lifeline-first 15 units (Ush/Kwh)

250

Energy units between 16 and 80 (Ush/kwh)

805

Energy units between 81 and 150 (Ush/kwh)

412

Energy units between 150 (Ush/kwh)

805

Commercial consumer: three phase low voltage load not Average Peak exceeding 100 A Energy charge (Ush/Kwh)

611.8

Medium industrial consumer: low voltage 415 V, with maximum demand up to 500 KVA

Average Peak

Energy charge (Ush/Kwh)

461.8

Shoulder Off-Peak

807.5 615.5

636.4 466.3

Large industrial consumer: high voltage 11,000 voltage Average Peak or 33,000, with a maximum demand exceeding 500 KVA but up to 1500 KVA

367.4

Shoulder Off-Peak 244.9

Shoulder Off-Peak

Block1: Energy charge (Ush/Kwh)

384.4

519.4 385.3

243.6

Block2: Energy charge (Ush/Kwh)

367.8

497

233.1

Extra large industrial consumer: high voltage 11,000 voltage or 33,000, with a maximum demand of at least 1500 KVA

Average Peak

Block1: Energy charge (Ush/Kwh)

325

429.5 326.6

233.3

Block2: Energy charge (Ush/Kwh)

296.2

391.6 297.7

212.6

368.6

Shoulder Off-Peak

Street lighting Energy charge (Ush/Kwh)

370

Source ERA, 2023

given that according to sections 10 and 75 of the Electricity Act, 1999, Chapter 145 of the Laws of Uganda, the Electricity Regulatory Authority (“the Authority”) has approved the Schedule of Electricity End-User (Retail) Tariffs to be charged by Umeme Limited for the Supply of Electrical Energy in the Billing Period April to June 2023, as detailed in Table 6.

3.2.3

Ghana

The Public Utilities Regulatory Commission has established Guidelines as a governance framework for Quarterly Review of Foregoing Tariffs as part of its strategy to ensure the real value of natural gas, electricity, and water tariffs approved by the Commission and payable by consumers at any given point in time. The report on the electricity section presents the electricity tariff for 2022.

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A. Summary of Electricity Tariff Results Taking into consideration the various assumptions and projections, tariff results from analyses of data are summarized in Table 7. Based on the result in the Table 7, the Commission has taken the following decisions: • The Commission approved a 29.96% across-board increase in electricity tariffs payable by consumers. • To address the financial challenges facing Natural Gas, Electricity, and Water Utility Service Providers, the Commission encourages doubling efforts in revenue collection by Utility Service Providers. The Commission has assured all Stakeholders that, it will continue to strictly implement its Quarterly Tariff Review per its Rate Setting Guidelines for Quarterly Review of Natural Gas, Electricity, and Water Tariffs to address changes in operational conditions while holding the Utility Service Providers to strict adherence to its regulatory standards and benchmarks by continually monitoring operations of the Utility Service Providers to ensure value for money and quality of service delivery. The lecture of the Fig. 5, clearly how much is approved as a tariff for each customer category in Ghana. While it observed, the SLT-LV are outstanding than residential and non-residential customers. Table 7 Summary of electricity tariff results No.

Item description

A

Generation tariffs

A1

Measure

2022–2025 tariff result effective September 2022

Q1 2023 tariff result, effective February 2023

VRA bulk generation charge GHp/ kwh

37.9560

44.4570

A2

Composite bulk generation charge

GHp/ kwh

63.1997

85.84447

B

Transmission tariffs

B1

Transmission service charge Attributable to network business

GHp/ kwh

7.9090

8.4442

B2

Transmission service charge attributable losses

GHp/ kwh

2.7020

3.6701

C

Distribution tariffs

C1

Distribution service charge attributable to network business

GHp/ kwh

17.0429

18.3337

C2

Distribution service charge Attributable to losses (DSC-2)

GHp/ kwh

18.227

24.9450

Source PURC Data and Tariff Analysis, 2023

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Fig. 5 Approved electricity tariffs, February 2023

In line with its mandate, the Commission undertook monitoring exercises of regulated utility companies in the energy and water sectors to ensure improvements in quality of service and to enhance the general performance of these utilities. Key regulatory and monitoring activities undertaken on the various utilities and infrastructure in the year 2020 are presented in Table 8.

Performance of the Generators Table 9 highlights the performance of power generators in 2020. The generators include power generating systems that run on fossil fuels (including diesel, gas, and light crude oil) and renewable power generators. The renewable power generators include Safisana and BXC. In its monitoring of the generating plants, Karpowership Plant was the only one that met the Commission’s KPI benchmarks.

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Table 8 Performance of regulated utilities in Ghana

Table 9 Performance of generators

Source Public utilities regulatory commission, rapport 2020 in Ghana

Compared to other countries, Ghana has made a higher effort in terms of performance and the collection of some data on the electricity KPI.

Analysis of Electricity Generation by Power Plant Electricity generation data by power plants were compiled and analyzed, with results presented in the following sections. Accounting for the Electricity Generation Mix, the results of an investigation of both the predicted and actual electricity generation mix for the Operational Year 2021, the actual Hydro-Thermal Generation Mix was 30.4% for Hydro and 69.6% for Thermal, compared to a projected generation mix of 24.2% for Hydro and 75.8% for Thermal (Fig. 6).

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Fig. 6 Summary of projected versus actual energy generation mix for regulated market operational year 2021. Source Public utilities regulatory commission, rapport 2021 in Ghana

4 Conclusion As a general comment for the three countries, it observed that Ghana and Uganda have more liberalized the electricity sectors compared to Namibia, and this has led to the countries doing well in terms of performance and the revenue collected since the competition in the sector is pushing utilities to improve the quality of the supply side.

References Andersson, L. (2006). Electricity sector reforms in Namibia and Mozambique. Bank, African Development. (2019). Estimating investment needs for the power sector in Africa: 2016–2025. https://www.afdb.org/en/documents/estimating-investment-needs-powersector-africa-2016-2025. Batinge, B., Kaviti Musango, J., & Brent, A. C. (2019). Perpetuating energy poverty: Assessing roadmaps for universal energy access in unmet African electricity markets. Energy Research & Social Science, 55, 1–13. https://doi.org/10.1016/j.erss.2019.05.004. Eberhard, A., & Shkaratan, M. (2012). Powering Africa: Meeting the financing and reform challenges. Energy Policy, 42, 9–18. https://doi.org/10.1016/j.enpol.2011.10.033. Erdogdu. (2013). A cross-country analysis of electricity market reforms: potential contribution of new institutional economics. Energy Economics, 239–251. Electricity Control Board (ECB). (2019). Electricity Control Board (ECB) 2019 annual report. https://www.ecb.org.na/wp-content/uploads/2022/07/ECB-Annual-Report-2019.pdf. Electricity Regulatory Authority Uganda. (2022). Media statement on the changes to the electricity tariff structure and the announcement of the applicable end user electricity tariffs for 2022. www.mediacentre.go.ug/. Electricity Regulatory Authority Uganda. https://www.mediacentre. go.ug/sites/default/files/media/REMARKS%20BY%20THE%20CHAIRPERSON%20OF% 20THE%20AUTHORITY%20AT%20THE%20LAUNCH%20OF%20THE%20REVIEWE% 20TARIFF%20STRUCTURE.pdf.

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ESMAP. (2020). Regulatory indicators for sustainable energy (RISE): Sustaining the momentum. World Bank. IEA. (2020). World energy outlook 2020. Paris. www.iea.org/reports/world-energy-outlook. Infrastructure Consortium for Africa. (2018). Energy financing trends. https://www.icafrica.org/en/ topics-programmes/energy/energy-financingtrend. Jean-Philippe Bonardi, G. L. (2017). Nonmarket strategy performance: Evidence from U.S. electric utilities. https://doi.org/10.5465/amj.2006.23478676. Klug, T., Beyene, A. D., Meles, T. H., Toman, M., Hassen, S., Hou, M., Klooss, B., Mekonnen, A., & Jeuland, M. (2022). A review of impacts of electricity tariff reform in Africa. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4105354. Kojima, M. (2017). Electricity tariffs for non-residential customers in Sub-Saharan Africa. Kojima, M. B. (2014). Political economy of power sector subsidies:a review with reference to Sub-Saharan Africa. Li, P. L. (2020). Discussions on some problems of electricity tariff cross-subsidies. In: Paper Presented at the IOP Conference Series: Materials Science and Engineering. Malcolm Abbott. (2006). The performance of an electricity utility: the case of the state electricity commission of Victoria. Australian Economic History Review, 46(1). Mark Bolinger, J. S. (2019). Utility scale solar empirical trends in project technology, cost, performance, and PPA pricing in the United States. Powered by the California Digital Library. Masami Kojima, C. T. (2016). Making power affordable for Africa and viable for its utilities. The World Bank, Washington. Mensah, J. T. (2018). Jobs! electricity shortages and unemployment in Africa (pp. 1–54). Department of Economics, Swedish University of Agricultural Sciences, Uppsala-Sweden. https://thedocs. worldbank.org/en/doc/677481527998963759-0010022018/original/D3Mensah2018.pdf Nassar, S. (2016). The impact of capital structure on financial performance of the firms: Evidence from Borsa Istanbul. Journal of Business & Financial Affairs, 5(2). https://doi.org/10.4172/ 2167-0234.1000173. Peterson, W. G. (2003). An organizational performance assessment system for agricultural research organizations: Concepts, methods, and procedures. SARDC. (2010). Regulatory Tariffs Review in Southern Africa: Challenges and opportunities for regional utilities. Shihepo, W. (2022). Impact of higher electricity tariffs on the profitability of electricity supply and distribution companies in Namibia.

J. K. Baiden is a result-driven Energy Economist with over 15 years of experience in investment banking, energy finance, and transactions advisory leveraging on his expertise to contribute to the development of the power sector in Africa. He holds a Ph.D. in Development Studies (Development Finance Specialization), M.Phil in Development Studies, MSc in Development Finance, B.A. in Economics and Mathematics, and a Diploma in Statistics. Jeffrey is also an International Visitors Leadership Program (IVLP) Alumni.

Regional Electricity Markets Development

Major Challenges in Africa in the Development of Competitive Electricity Markets. An Analysis of the ECOWAS Regional Electricity Market Charly Gatete, Nutifafa Fiasorgbor, Mina Antwi-Yeboah, and Adeoti Adedoyin

List of Abbreviations REM NAWEC NDP MCC EPSRA NEM PSRP NERC RTOs ISOs FERC CAISO FPM-W Forward Physical Market DAM FPM-M Forward Physical Market CAs SMO ERERA WAPP

Regional Electricity Market National Water and Electricity Company National Development Plan Millennium Challenge Corporation Electric Power Sector Reform Act Nigerian Electricity Market Power Sector Recovery Programme North American Reliability Corporation Regional Transmission Organizations Independent System Operators Federal Energy Regulatory Commission California ISO Weekly Day-Ahead Market Monthly Control Areas System Market Operator ECOWAS Regional Electricity Regulatory Authority West African Power Pool

C. Gatete (B) · N. Fiasorgbor · M. Antwi-Yeboah · A. Adedoyin ECOWAS Regional Electricity Regulatory Authority (ERERA), Accra, Ghana e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_13

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ECREEE RAB MAR GTG LMP DPM EPRI

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ECOWAS Centre for Renewable Energy and Energy Efficiency Regulatory Asset Base Maximum allowed revenues Government-to-Government Locational Marginal Price Data Provenance Manager Electric Power Research Institute

1 Introduction Globally, electricity markets can be grouped into fully developed markets and emerging markets. The developed markets, especially, in the northern hemisphere are characterized by the existence of advanced power exchanges with several types of markets and products including capacity, energy, ancillary services, balancing, and financial contracts. Emerging markets, on the other hand, can be found in the southern hemisphere. Emerging markets face many challenges related to infrastructure inadequacy, market reforms and regulatory bottlenecks, abuse of market power or existence of de facto monopolies, and high system losses among others, which do not augur well for building competitive electricity markets (Arowolo and Perez, 2020). Indeed, energy sectors in southern countries, particularly African countries, started liberalization reforms in the ‘90 s (Erdogdu, 2010). Electricity has been historically provided by vertically integrated geographic monopolies, where all four segments of electricity supply—generation, transmission, distribution, and retailing—were provided by the same company. In most developing countries like the ECOWAS countries, these monopoly electricity suppliers are owned and operated by the state, subject to government oversight, through the relevant ministries. In this arrangement, costs are recovered through a regulated rate of return. In recent times however, many developing economies are shifting from this traditional model to a deregulated model, which involves the unbundling of the vertically integrated monopoly into the functional segments of the industry, the introduction of competition in the generation and supply segments, and the introduction of open third party access to the networks, to better meet the rapidly growing power demand, improve supply reliability, achieve better economic efficiency, and reduce total system losses and costs. These reforms have been progressively implemented in three main stages: (i) the first period in the 1990s marked by structural adjustment programs and the beginning of liberalization of the sector, (ii) the second period marked by liberalization policies in the early 2000 and the third period after 2001 marked by the renewal of reforms toward policies and regulations for total liberalization of the sector.

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(iii) Within the third period, countries initiated electricity exchanges and built the electricity market by creating power pools. The establishment of the West African Power Pool (WAPP) in 1999 was a key stage in building a competitive ECOWAS regional electricity market (REM). The process of building a competitive REM faces many challenges in developing regulations, which affect the reliability, sustainability, and competitiveness of the market. The objective of this paper is to describe and analyze the significant challenges in the development of competitive electricity markets in Africa. The chapter focuses on analyses of the ECOWAS regional electricity market. It is organized into three parts. The first part is composed of a literature review and proposes a benchmark for developing electricity markets in Africa. The second part presents the methodology, while the third part presents the result and discussion before the conclusion in the fifth part of the chapter.

2 Literature Review on Competitive Electricity Market Development 2.1 Design and Development of Competition in the Electricity Market Competition in the electrical market is regarded as a critical component of energy policy and regulation. Many countries have implemented reforms to increase competition, focusing on the generation and retail sectors while keeping transmission and distribution as regulated monopolies. These reforms are motivated by a desire to increase efficiency, transparency, foster innovation, and provide consumers with the information they need to make informed decisions on energy use. Sioshansi (2008) posits that the following activities are necessary to create a competitive electricity market; i. Privatizing the energy supply industry is critical to boosting competition and encouraging private sector participation. ii. Vertical separation and unbundling of the electricity supply industry, including the separation of generation, transmission, and distribution operations, are also required to promote fair competition and provide equal access to the market. iii. Ensuring open access to the transmission network in order to support fair competition. With this, market actors can compete on equal footing and promote efficient resource use. iv. Implementing trading arrangements, such as organized energy markets or power exchanges, enables market participants to buy and sell electricity in an open and competitive environment.

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v. Unbundling tariffs and invoices are critical for increasing transparency and empowering consumers to make informed choices. Customers can better comprehend the various cost components of their electricity bills by separating the prices for generation, transmission, and distribution. vi. Establishing market oversight and monitoring procedures in order to promote fair competition, avoid market manipulation, and protect consumers’ interests.

2.2 Requirements for Competition in Electricity Markets In a competitive electricity market, multiple suppliers compete to offer electricity services, leading to potential price reductions and service quality enhancements. To encourage competition, certain supply-side conditions must be met, including the presence of both wholesale and retail power markets, segregating the functions of generation and transmission, and ensuring open access to transmission and distribution networks. The emergence of distributed generation, such as rooftop solar panels and small wind turbines, has taken on an increasingly significant role in the electricity market. Establishing equitable compensation policies is crucial for fostering growth and competition, while precise rules and regulations defining the connection between distribution-connected generators and the wholesale market are essential for maintaining system dependability and stability. Demand-side competition allows end-users to select their electricity provider and negotiate contracts based on their specific requirements and preferences. This empowers consumers by allowing them to match their electricity consumption to their values and preferences, stimulating innovation and efficiency in the market. Establishing a supportive regulatory framework is crucial for fostering competition on the demand side of the electricity market, providing accurate and transparent information, and actively promoting fair competition. A reliable transmission and distribution network is essential for encouraging competition, as it ensures electricity is safely and efficiently transmitted from generators to consumers. Effective market coordination is required, with a system operator managing the functioning of these networks and ensuring equitable access to transmission and distribution networks. Transmission infrastructure investment is also critical for sustaining competitiveness in the electricity market, but locational price disparities often influence investment decisions. Building a market-based system is crucial for encouraging transmission investment and ensuring appropriate resource allocation (Fig. 1).

2.3 Overview of Regional Electricity Markets and Power Pools in Africa The regional electricity markets and power pools in Africa, including the East African Power Pool (EAPP), West African Power Pool (WAPP), Central African Power Pool

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Fig. 1 Competitive wholesale electricity market structure. Source (Hogan, 1998)

(CAPP), and Southern African Power Pool (SAPP), collectively represent a concerted effort to foster collaboration and integration in the continent’s power sector. These organizations are dedicated to enhancing energy security, promoting economic development, and creating interconnected power infrastructures within their respective regions to enhance the efficient pooling of energy resources through initiatives such as cross-border transmission projects, development of regional power markets, and sustainable energy solutions, among others (Fig. 2).

2.3.1

West African Power Pool (WAPP) and ECOWAS Regional Electricity Market (REM)

The West African Power Pool (WAPP) was created by Decision A/DEC.5/12/99 of the Twenty-Second Summit of the ECOWAS Authority of Heads of State and Government with the vision to integrate the national power systems into an interconnected regional electricity market with the ultimate goal of providing in the medium and long term, a regular and reliable energy at a competitive cost to the citizenry of the ECOWAS region. The creation of WAPP further led to the creation of other energyrelated institutions of ECOWAS such as the ECOWAS Regional Electricity Regulatory Authority (ERERA) and the ECOWAS Center for Renewable Energy and Energy Efficiency (ECREEE) with the ultimate aim of developing a regional electricity market. The ECOWAS Regional Electricity Market (REM) aims to enhance energy

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Fig. 2 Map of Sub-Saharan power pools. Source Africa Energy Portal

integration and collaboration among West African member countries by addressing insufficient electricity supply, high costs, and limited access, attracting investments, and supporting long-term development. The Regional Electricity Market (REM) aims to create a competitive, efficient regional electricity market, promoting crossborder trade, energy investment, private sector participation, operational efficiency, and lower consumer energy costs (Ikeonu, 2018). ERERA regulates cross-border electricity connections and trading between ECOWAS member countries, promoting transparent tariff setting and regional market expansion. The Regional Electricity Market (REM) implementation is divided into phases. The first phase, focusing on policy and regulatory frameworks, began in 2018. The second phase, operationalization, aims to integrate national power grids, establish regional transmission infrastructure, and implement market mechanisms for electricity trading, promoting competition and improving regional energy security (Africa Energy Portal, 2018). The regional power system in ECOWAS consists of nine interconnected member states operating as five synchronous control zones. Control Areas (CAs) are independent sectors of national electricity systems, coordinating operations with National Transmission System Operators to maintain timely interconnector flows (Gatete,

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Fig. 3 Map of WAPP synchronous network (Ibid). Source WAPP

2022). In line with the provisions of the WAPP Operation Manual, the five Control Areas are: • • • • •

Côte d’Ivoire-Burkina-Faso, with Cote d’Ivoire as operator Ghana-Togo-Benin, with Ghana as the operator Nigeria-Niger, with Nigeria as the operator Guinea–Liberia–Sierra Leone, with Guinea as the operator Senegal–Mali–Gambia–Guinea Bissau, with Senegal as the operator

Notice that 5 member states are electrically isolated from the other members: Liberia, Sierra Leone, Guinea, The Gambia, and Guinea-Bissau (Fig. 3). Despite ongoing regional interconnection and related projects by WAPP, ERERA, and ECREEE to assure a robust REM, the REM continues to face challenges such as inadequate interconnection and transmission capacity among member countries, and the need for harmonization of regulatory frameworks and policies among member states. Investments in transmission infrastructure and coordination are necessary to sustain its development (GIZ, 2022).

2.3.2

Southern African Power Pool (SAPP)

The SAPP was created in August 1995 at the SADC summit held in Kempton Park, South Africa, when member governments of SADC (excluding Mauritius) signed an Inter-Governmental Memorandum of Understanding for the formation of an electricity power pool in the region under the name of the Southern African Power Pool. The SAPP has twelve member countries represented by their respective electric power utilities organized through SADC. The SAPP coordinates the planning and

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operation of the electric power system among member utilities. The SAPP established the Short-Term Energy Market in April 2001. From January 2004, the SAPP started the development of a competitive electricity market for the SADC region. This market now has four trading portfolios, namely Forward Physical Market— —Monthly (FPM-M), Forward Physical Market—Weekly (FPM-W), Day-Ahead Market (DAM), and Intra-Day Market (IDM). SAPP, with the assistance of the World Bank, set up a Project Advisory Unit in 2015 initially located in South Africa to coordinate the preparation and development of power projects (SAPP, 2021).

Source SAPP

2.3.3

Eastern African Power Pool (EAPP)

The Eastern Africa Power Pool (EAPP) was created in 2005 to coordinate crossborder grid interconnection electricity exchange among nations of the Eastern Africa region. The EAPP has been instrumental in fostering regional cooperation among East African countries in the power sector. Its initiatives focus on optimizing

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power generation and transmission resources, promoting energy trade, and enhancing overall energy security. Over the years, EAPP has made strides in creating a more interconnected and resilient power infrastructure in the East African region.

2.3.4

Central African Power Pool (CAPP)

The Central Africa Power Pool (CAPP) is a specialized agency of the Economic Community of Central African States (ECCAS). It is responsible for the implementation of energy policy, monitoring studies and construction of community infrastructure, and the organization of exchanges of electric energy and related services in the ECCAS area. CAPP focuses on improving power infrastructure and collaboration among Central African countries. It seeks to create a common platform for the development and utilization of the region’s energy resources, including hydropower. CAPP’s initiatives aim to address energy deficits, promote sustainable development, and enhance economic integration in Central Africa.

3 Methodology Investigating the hurdles confronting ECOWAS REM calls for a diverse method that includes legal, economic, and technical angles. The paper evaluated the legal framework of ECOWAS member states regarding the electricity sector and identified variances, contradictions, and obstructions to international electricity commerce resulting from legal disparities. This analysis scrutinized the respective energy policies of select member states, with intended goals and preferences being prominent among them. It also assessed policy discrepancies between national objectives and regional electricity market development. Further, it examined the legal framework governing cross-border electricity exchange, particularly regarding jurisdictional and sovereign aspects. Also, it analyzed how jurisdictional laws affect market individuals’ rights and duties, particularly in disputes and inconsistencies. More so, it examined existing agreements within ECOWAS regarding the electricity market. It reviewed their performance, addressing legal obstacles and cultivating a more intense rivalry. From an economic and technical angle, the paper also assessed the current state of the regional electricity market. It evaluated the interplay among market structure, pricing methodologies, competitive dynamics, and the potential for monopolies. It considered the financial viability of the regional electricity market, pricing, cost recovery, and long-term financial stability. Analyzing the impression that crossborder commerce has on electricity costs and consumer affordability was part of it. The article also detected any hindrances or constraints in the flow of electricity across borders. Technical evaluation of grid management covered aspects like grid dependability, frequency regulation, and harmonizing energy production and consumption.

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4 Key Regulatory Challenges and Achievements 4.1 Legal, Policy, and Institutional Achievements and Challenges. To facilitate the advancement of the Renewable Energy Market (REM), the Electricity Regulatory Authority (ERERA) has implemented strategic measures aimed at alleviating legal uncertainties. This initiative involves developing market design and rules, and institutional and regulatory frameworks.

4.1.1

Achievements

a. Market Design and Rules The development of the REM is guided by a comprehensive policy and regulatory framework that seeks to harmonize electricity market rules, promote competition, and ensure reliable and affordable power supply across the region. The Directive on the Organization of the Regional Electricity Market was approved by the ECOWAS Council of Ministers in 2013. The primary objective of this Directive was to clearly define the general principles that would govern the regional electricity market, all within the framework of the ECOWAS Energy Protocol. This significant step forward aimed to promote greater efficiency, reliability, and accessibility in the production, distribution, and consumption of electricity across the ECOWAS region. By establishing a comprehensive set of guidelines and regulations, this Directive sought to foster a more integrated and harmonized approach to managing and operating the regional electricity market, benefiting all member countries and their respective populations. The market design aims to promote efficiency, encourage investment in generation capacity, and facilitate cross-border electricity trade. Significant investments are being made to support the operation of the market in developing regional transmission infrastructure, including interconnections and transmission lines. b. Institutional Framework Two key institutions are responsible for overseeing and managing the REM. They are the ECOWAS Regional Electricity Regulatory Authority (ERERA) and the System Market Operator (SMO). ERERA plays a crucial role in setting and enforcing regulations and policies that promote fair competition and ensure the efficient operation of the electricity market. On the other hand, the System Market Operator is responsible for the day-to-day management and coordination of the market, including the scheduling of electricity generation and the allocation of transmission capacity. Together, these institutions work hand in hand to facilitate the integration of national electricity markets within the ECOWAS region and promote the development of a reliable and sustainable cross-border electricity trade.

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i. ECOWAS Regional Electricity Regulatory Authority (ERERA) ERERA was established to effectively regulate and manage the regional electricity market. ERERA plays a crucial role in setting the transmission tariffs, ensuring that they are fair and equitable for all stakeholders involved. In addition, ERERA is entrusted with the task of resolving any disputes that may arise within the regional electricity market, providing a fair and impartial platform for resolution. Furthermore, ERERA takes the responsibility of safeguarding important information and conducting regular audits to ensure transparency and accountability in the functioning of the regional electricity market. The effectiveness of ERERA is contingent upon its ability to effectively enforce rules and regulations. Recognizing the importance of widespread compliance, ERERA is actively taking steps to assist other member states in meeting the requirements outlined in the Directive. By providing guidance, support, and resources, ERERA aims to promote uniformity and ensure that all member states are in alignment with the directives set forth. ii. The System Market Operator The System Market Operator (SMO) is an operational and independent Regional System Market Operator (SMO), representing a transformation of the existing WAPP ICC (West African Power Pool Information and Coordination Center). It plays a pivotal role in the regional electricity market. As a regional institution overseeing market operations, the SMO assumes various functions, including certain aspects of system operation. Its broad objectives encompass the day-to-day management of diverse market segments, ranging from the bilateral market to the day-ahead market. Additionally, the SMO coordinates with control areas to facilitate the efficient utilization of interconnectors, optimizing their usage for the entire region’s benefit. Furthermore, the SMO is tasked with settling market fees, which includes handling other charges like fees for services and transmission payments. Lastly, the SMO is responsible actively for monitoring and assisting in the surveillance of the REM, ensuring its smooth operation and compliance with established rules and regulations, thereby contributing to the stability and reliability of the regional electricity market. Institutions in Charge of the REM

WAPP

SMO

ERERA

REGIONAL ELECTRICITY MARKET

Source Authors

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iii. The Role of National Regulators in the REM In addition to ERERA as the regional regulator, national regulators also play a vital and indispensable role in ensuring the efficient and effective functioning of the Renewable Energy Market (REM). These regulators are responsible for enforcing and implementing the necessary policies, regulations, and standards at a domestic level, safeguarding the integrity and stability of the market while fostering growth and innovation in the renewable energy sector. Their involvement and expertise are instrumental in promoting transparency, fairness, and accountability, ultimately contributing to the overall success and sustainability of the REM. ERERA has been instrumental in offering valuable technical assistance to several National Regulatory Authorities. These authorities have sought ERERA’s expertise and guidance in implementing various aspects of the Directives. One area in particular where ERERA has played a crucial role is in assisting with the definition and establishment of accounting separation principles. By providing this technical assistance, ERERA has helped these regulatory authorities navigate the complexities of accounting separation and ensure its effective implementation within their respective jurisdictions. a. Regulatory Framework Despite the institutional challenges, significant progress has also been made in developing the regional electricity market, particularly in the regulatory framework. Crucial legal texts for the development and implementation of the REM have been carefully constructed and implemented to ensure the smooth operation and efficient operation of the REM. ERERA has collaborated with policymakers and industry experts to develop a robust regulatory framework that governs the operations and transactions within the REM. This framework ensures that all participants adhere to rules and guidelines, promoting fair and transparent practices. Some of the notable regulations and protocols that have been adopted to date include the ECOWAS Energy Protocol (ECOWAS, 2003), which laid the groundwork for regional energy cooperation, and the ECOWAS Directive on the Regional Electricity Market Organization (2013), which further defined the market’s structure. The Regional Market Rules, approved by ERERA in August 2015, and the WAPP Operational Manual, approved in September 2015, play crucial roles in guiding market participants. Additionally, the WAPP Transmission Tariffs Methodology, approved in August 2015, and Models of Bilateral Contracts, approved in August 2017, help streamline pricing and contractual aspects. Rules of Practice and Procedures of ERERA, Regional Electricity Market Procedures, and various other protocols govern the day-to-day operations of the market. Furthermore, there is an ongoing effort to develop and adopt additional rules related to open access, accounting separation, licensing procedures, market surveillance, and dispute resolution. These initiatives underscore the commitment to refining and strengthening the regional electricity market, ensuring its continued growth and effectiveness. These include updates to the ECOWAS directive on the organization of

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the regional electricity market, focusing on open access, accounting separation principles, and harmonizing licensing procedures. Detailed rules for market surveillance, procedures for applying market rules, criteria for granting licenses, the Regional Grid Code, and regulations on Market Participation Fees are also in the pipeline. These ongoing developments signify a dynamic and responsive approach to the market’s evolving needs, ultimately aiming to create a more efficient, transparent, and competitive regional electricity market that benefits all participating countries and stakeholders.

4.1.2

Challenges

One of the challenges in cross-border electricity transactions is the differences in legal frameworks and jurisdictional issues among member states. In the ECOWAS regional electricity market, each member state has its own legal systems, laws, rules, and regulations governing its electricity sector. This disparity gives rise to legal ambiguity and jurisdictional disputes due to the diversity of legal frameworks across member states. For instance, the anglophone member states follow the common law legal system, whereas the francophone member states also use the civil law legal system. The disparities in the domestic legal framework create obstacles to the development of a fully interconnected and efficient regional electricity market with compliance. In the absence of harmonized rules and regulations, industry players face the challenge of discharging their duties and responsibilities, and investors may be hesitant to invest in the REM. More so, uncertainty may limit competition, constraining the growth of interconnected electricity markets. To ensure undisrupted energy transmission, a regional regulator must draft laws that complement one another rather than creating roadblocks. The very heart of ECOWAS’ purpose lies in shaping these legally enforced accords. The effectiveness of ERERA is contingent upon its ability to effectively enforce rules and regulations. However, it encounters challenges in ensuring compliance, particularly in instances where member states exhibit reluctance to adhere to regional standards. For instance, since its inception in 2013, the Directive has required member states to comply with certain provisions. However, currently, only two member states have successfully implemented these provisions. Another challenge faced is that the majority of member states lack independent regulators, resulting in the ministry of energy having complete control over the electricity sector. Moreover, the electricity systems in these states are vertically integrated, which means that the generation, transmission, and distribution of electricity are all carried out by a single entity, leading to the need for unbundling to promote competition and efficiency. Finally, when considering the regulatory framework is how to ensure the commitment of member states to undertake the necessary reforms in order to adopt and implement these rules within their respective territories. This commitment is crucial for the establishment and functioning of an effective integrated ECOWAS regional electricity market.

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4.2 Technical Achievements and Challenges 4.2.1

Achievements

ERERA, WAPP, and ECREEE are critical to the creation of an ECOWAS regional electricity market that is both sustainable and efficient. Despite hurdles such as limited grid infrastructure, technical standard harmonization, renewable energy integration, and capacity creation, these institutions have undertaken initiatives that collectively contribute to the overarching goal of fostering regional cooperation, sustainability, and efficiency in the West African energy sector. • Harmonization of Codes and Standards ERERA is actively engaged in the process of harmonizing codes and standards within the ECOWAS region. This initiative aims to create a unified and standardized regulatory environment for the electricity sector. By harmonizing codes and standards, ERERA seeks to streamline regulatory practices, promote consistency in energy infrastructure development, and facilitate cross-border electricity exchanges. This harmonization process enhances the efficiency and reliability of the regional power system. • Tariff Methodology Development ERERA has played a pivotal role in developing tariff methodologies for the electricity market in the ECOWAS region. This involves the formulation of transparent and fair pricing structures that consider various factors such as production costs, distribution expenses, and regulatory requirements (ERERA, 2015). The development of a tariff methodology is crucial for creating a stable and attractive investment environment, encouraging private sector participation, and ensuring the sustainability of the regional electricity market. • WAPP Interconnection of National Grids The West African Power Pool (WAPP) has successfully executed projects for the interconnection of national grids within the ECOWAS region. This interconnection effort involves linking the electricity grids of different countries, enabling the seamless exchange of power across borders. By establishing interconnections, WAPP enhances the reliability and resilience of the regional power infrastructure, facilitates the sharing of electricity resources, and promotes energy security (WAPP, 2019). The interconnection of national grids is a significant step toward the creation of an integrated and interconnected West African power network. • Capacity Building and Twinning Programs ERERA has implemented twinning programs as part of its efforts to strengthen regulatory capacities within the ECOWAS region. These programs involve partnerships between more matured electricity regulators and newly established regulators. The aim is to facilitate knowledge exchange, capacity building, and the transfer of best

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practices. By fostering collaboration between experienced regulatory bodies and those in the early stages of development, ERERA contributes to the establishment of effective regulatory frameworks across the ECOWAS member states.

4.2.2

Challenges

Despite the achievements, ERERA still confronts several technological problems that must be addressed for the electricity market to be successfully integrated. These difficulties include, but are not limited to: Insufficient Grid Infrastructure. One of the primary issues that ERERA has is a lack of grid infrastructure in the ECOWAS region. Many ECOWAS countries lack appropriate transmission and distribution networks, resulting in poor connectivity and unstable power supply. This impedes cross-border electricity trading and limits the potential benefits of regional integration. To address this issue, ERERA has been collaborating with the West African Power Pool (WAPP) to create plans for expanding and modernizing grid infrastructure. Among other donor agencies, the World Bank Group, GIZ, USAID, EU, and AfDB have provided financial assistance to build institutional capacity and infrastructure and increase connections throughout West Africa (Fiasorgbor et al., 2022). Harmonization of Technical Standards. Harmonization of technical standards across the ECOWAS region is another critical problem for ERERA. Each country has its own set of technical norms and standards, which can make regional electricity trade difficult. Inconsistent technical regulations might cause compatibility concerns and impede the seamless flow of power between countries. To promote interoperability and enable cross-border electricity commerce, ERERA has been striving to harmonize these standards. ERERA aims to create a level playing field for all market participants and promote efficient and reliable electricity exchange by creating common technical regulations and standards (WAPP, 2019). Capacity Building and Knowledge Sharing. Building capacity and sharing information are critical for addressing technical difficulties in the regional electricity market. ERERA has actively participated in capacity-building activities to improve the technical skills of its employees and regulatory professionals in member nations. This includes training programs, workshops, and knowledge-sharing platforms where regulators can discuss best practices and experiences. ERERA can efficiently address growing technological difficulties and ensure the execution of solid regulatory frameworks by enhancing the technical capacity of its employees (ERERA 2016).

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4.3 Economic Issues Economic regulations are one of the critical elements of regulation of the power pool/energy market. It allows to build an attractive and competitive market. The biggest challenge in terms of economic regulation is the determination of tariffs. It means the group/all the measures and activities to allow the free formation of the price, which is competitive for stakeholders and attractive enough for investors. Tariff setting regulation is different in the context of a retail market, an OTC market, or a spot market like the Day-Ahead Market (DAM). The tariff is defined through a tariff methodology for retailing and OTC markets. The literature describes two main tariff setting approaches: Cost plus or Rate of Return regulation, Performance/cap Regulation or a Hybrid Approach, which can be a mix of the two previous methodologies. The table below describes each methodology and its cons and pros. Approach

Cost plus or rate of return

Methodology Cost plus

Rate of return

Performance-based or cap regulation Price cap

Revenue cap

Description

A process of balancing costs incurred by An extension of cost plus approach the utilities and future estimated revenues that provides incentives for improving efficiency and reducing costs either by the price (tariff) or utility revenue

Principle

The Regulator reviews utility expenses or costs and sets revenues to equal actual costs

The Regulator reviews utility assets to determine their usefulness and determines the rate of return the utility should be allowed to earn on the capital invested

The Regulator adjusts the operator’s prices according to the price cap index that reflects the overall inflation rate in the economy The regulators explicitly compare the operator to the average firm in the economy

The Regulator sets a Maximum Allowed Revenues (MAR) that a company is allowed to collect over a “regulatory period.” Revenue cap regulation is preferred for utilities that face high fixed costs (continued)

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(continued) Approach

Cost plus or rate of return

Performance-based or cap regulation

Methodology Cost plus

Rate of return

Price cap

Needed tools Revenue requirement or Utilities costs (expenses, actual and future investments) Regulatory asset base (RAB)

Regulatory asset base (RAB) Revenue requirement

Revenue requirement Revenue rate of inflation in the requirement economy

Revenue cap

Cons

No incentive to reduce costs

Requires more monitoring for quality of supply/service

Pros

Clear policy and revenue predictability for the company Ensured cost coverage

Higher incentives for efficiency gains Reduces asymmetry of

A hybrid approach can be used as a mix of the two approaches. It is a performancebased cost-of-service approach considering actual cost and normative parameters specified in the regulations. Regulators use main steps which can be summarized into two steps in tariff setting: Step 1: Calculate the allowed revenues. Regulators should determine the maximum allowed revenues (MAR) or the revenue requirement for the utility. This can be done by adding the Opex, the Depreciation, and the Allowed return. M A R = O P E X + Depr eciaiton + Allowed r etur n In this equation, OPEX is calculated by adding the costs of operating and maintaining the system, which includes Salaries, Rent, and Operational and maintenance costs. The losses can be added as part of operating. Then, the costs related to the assets used to provide regulated service are added to the OPEX. They include depreciation/return of the investment (calculated by asset value/asset life) and the allowed return/return on the investment (calculated by Asset value × WACC). Step 2: Calculate the resulting tariffs. The principle to calculate the tariffs is to determine the part of the MAR covert by each level or type of consumer (220, 110, 35, 10/20 kV, etc.) and calculate the corresponding tariff. The setting of tariff in the case of the retailer market, as described below, is different in the case of cross-border exchange. According to Hurlbut and Koebrich

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(2019), there are four types of cross-border exchange transactions with different regulatory complexity: Tenant Generation: This type of project is built in one country to serve demand in another country. Dedicated long-distance transmission lines connect the generator to the grid of the importing country with minimal connection to the grid of the host country. Bilateral Contracts: Bilateral CBET transactions involve scheduled electricity and wheeled across an interconnection between two countries’ power systems. The generator is connected to the grid of the exporting country, while the entity purchasing the power is connected to the grid of the importing country. Integrated Market Exchanges: There is an integrated market that optimizes unit dispatch and pricing across the region. Government-to-Government (GtG): The exchanges are driven by diplomatic goals. They differ from tenant generation, bilateral commercial agreements, and integrated markets in that the governments are counterparties. One significant characteristic of GtG agreements is that they are outside the market (Table 1). The ECOWAS REM comprises bilateral contracts and Integrated Market Exchanges based on the Day Ahed Market (DAM). The Tariff methodology ERERA defines for the bilateral contracts or OTC market is based on cost plus. It is based on the following characteristics: • Point to point: From the Point of Receipt (from the Seller) to the Point of Delivery (for the Buyer). • MW-Km: The magnitude of MW flow on every line is multiplied by its length (in kilometers) and the cost per MW per unit length of the line (in $/MW-km) and summed over all the lines. • Load flow: Proportional usage of each asset involved in the transaction. • Transmission Tariffs and Losses are calculated annually for each regional bilateral trade within ECOWAS.

Table 1 Summarizes some of the critical characteristics of integrated markets in comparison to tenant generation and bilateral contracts

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The Regional Transmission Pricing Model is performed in 5 steps as described by following: Step 1: Determination of regional assets and value

In this step, all the regional assets used for bilateral are identified with all characteristics and values. The interconnected assets in each TSO are all transmission elements with service voltage greater than 132 kV

Step 2: Calculate the revenue requirement for The principle of this step is to identify the two each asset used cost components to be recovered such as: capital costs of network elements and operation and maintenance costs Step 3: Calculate the use of the transmission system and losses for each regional bilateral trade

Step 3 determines the transmission assets utilized and associated transmission losses for each regional bilateral trade

Step 4: Calculate each TSO revenue requirements for all its bilateral trades

Calculate the revenue requirements for each TSO and ensure they receive Their entire revenue requirement is to apportion the costs to each system user

Step 5: Calculate purchaser charges to each TSO

The regional bilateral trade purchaser pays the sum of the individual asset costs for each bilateral charge

Step 5 allows the calculation of the revenues to be collected for each TSO for all cross-border transactions and the revenue to be collected by the SMO and ERERA under a levy applicable to transactions (Graph 1).

Graph 1 Graph of the methodology. Source ERERA

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Graph 2 Supply and demand in DAM and price determination

For the second market running in the REM, the DAM, a supply offer or a demand bid will generally clear the day-ahead market if its associated price is less than or equal to the hourly locational marginal price (LMP) at its location, as the system conditions allow. The price determination in DAM is the intersection of supply and demand, as described in graph 2. The equilibrium price called the market clearing price thus obtained is variable according to supply and demand per hour. During the trial phase of the REM, the price was around 82.3 USD from August 1 to 29, 2023. According to Bonbright (1961), there are three main principles to be met through tariffs: • The Cost-recovery principle means tariffs must be set at a level that, when applied, leads to the forecast costs/revenues; • The Cost-reflective principle means tariffs must reflect the cost of providing service at each service level; • Tariff efficiency means Tariffs must be efficient and provide adequate signals to reduce consumption. In the face of the development of new technologies in line with renewable energy, there are potentially emerging technological challenges for economic regulation. The challenges can be resumed to missing market and missing money. The “missing money problem” refers to the idea that prices for energy in competitive wholesale electricity markets may not adequately reflect the value of investment in the resources needed for reliable electric service (Joskow, 2013). The various outof-market “capacity remuneration mechanisms” often adopted to address missing money are creating a different problem: misallocated money. By overcompensating some resources and under-compensating others, misallocation creates structural incentives to invest in a mix of resources ill-suited to the underlying needs of the system.

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When there is no missing money and the money is adequate, but if generation companies or their financiers do not perceive it, there is a “missing market” problem (Newbery, 1989).

4.4 Data Management Issues The energy industry where the electricity sector belongs is one of the most dynamic and rapidly evolving fields in the world. New technologies have revolutionized how it operates. Data management and analytics is a technology that has had a significant impact on how organizations collect, analyze, manage, and use data to guide their decisions. Data management gives an invaluable insight into energy markets and operations but there are challenges faced by data management in the electricity sector (Prospero, 2023).

Availability of national electricity data for African countries. Source (Cunliffe & Tunbridge, 2022) Ember’s report provides country-by-country profiles, references, and evaluations of national electricity (generation) data sources, where such sources were available and could be found publicly. The research showed that, while electricity data from local national sources is available in many countries, the consistency of availability and level of detail are generally low, for example:

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Long lag times; Inconsistent publishing frequency; Inconsistent or limited fuel disaggregation; and Limited additional data categories (e.g., net imports, transmission losses, consumption, etc.).

South Africa was the only country found to have near-real-time electricity supply and demand data publicly available, accessible through national utility Eskom’s online data portal. In most countries in which data was not found, data was published in annual or sub-annual reports, with varying publication lag and varying levels of detail, clarity, and reliability. Where data sources were available, these were typically provided by national statistics bureaus. There should be a focus on improving data transparency for national and regional transmission capacity with support given to regional power pools to drive and implement these developments—as well as to facilitate greater data availability across the distributed renewable energy value chain, the scale-up of which will be critical for achieving SDG 7 by 2030.

Electricity composite Index in ECOWAS Countries

Effort Made by ECOWAS Through the Directorate of Energy Ecowas Directorate of Energy is developing the Energy Information System (EIS) https://eis.ecowas.int/ where up-to-date information about each ECOWAS Country’s Energy can be accessed. This is still under development.

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Through the EIS all ECOWAS member states energy commissions are to promptly update the required data for the country. Through WAPP WAPP (West African Power Pool) launched WAPP Information Coordination Centre (ICC) on Monday, November 27, 2023, at the Republic of Benin in order to make electrical energy readily available and cost-effective for the West African populace. Through WAPP accurate data on trans-border electrical energy transactions will be readily available. Data Challenges Several challenges make data provenance tracking difficult in the sector. One, data is collected by disparate systems that don’t talk to each other. Two, energy datasets are large and complex, making manual tracing of provenance impractical. Finally, many energy institutions are reluctant to share detailed information about their operations for competitive reasons. The Electric Power Research Institute (EPRI) developed a tool called Data Provenance Manager (DPM) that helps utilities track the origins of their data. Data Sharing and Distribution The sector is undergoing a digital can help electricity industries optimize their operations and make better decisions by operators and regulators. A challenge is that data sharing and distribution can be difficult in the electricity sector. Energy companies often have to share data with other companies in order to comply with regulations/ policies to participate in joint ventures. Sharing data can be challenging because of security and confidentiality concerns. Data management requires skilled staff in order to manage/analyze data effectively. The Rise of the Digital Utility The electric power sector is in the midst of digital transformation. A new breed of companies is using data analytics and various digital applications to improve the efficiency of the electric power grid and provide new services to consumers. Digital utilities are using data analytics to optimize the operation of electric power grid. Data has also been used to develop new services for consumers, e.g., energy efficiency programs and demand-response programs that enable consumers to reduce their electricity usage during peak periods. With careful planning and execution, several challenges can be overcome in implementing data management and analytics solutions, including data quality issues, siloed data systems, and lack of skilled personnel.

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5 Conclusion The development of competitive electricity markets, specifically at regional level, needs to fix some challenges. These articles aimed to describe the main challenges facing the development of ECOWAS regional electricity market. These challenges summary is related to the definition of legal, policy, and institutional framework which are the major determinants in which stakeholders and chiefly regulator can assume their duties effectively. The second challenge is related to the determining of technical concerns and building of appropriate infrastructures adapted to the context which will support and facilitate the trade between stakeholders. One of the key challenges is related to the definition of tariff structure and methodology in one hand and in second hand the determination of cost-reflective tariff for each transaction which encourages transactions and trade. The last concern for regulators in the building of the regional electricity market is the data management system including the data collection and data quality in the context of Africa. The chapter described what regional electricity market actors have done and specifically what the ECOWAS regional regulators do.

Bibliography Africa Energy Portal. (2018). Phase II of ECOWAS Regional Electricity Market Starts in 2022/ 2023. Africa Energy Portal. https://africa-energy-portal.org/news/phase-ii-ecowasregional-ele ctricity-market-starts20222023. Arowolo, W., & Perez, Y. (2020). Market reform in the Nigeria power sector: A review of the issues and potential solutions. Energy Policy 144, 111580. https://doi.org/10.1016/j.enpol.2020. 111580. Babatunde, O., Buraimoh, E., Tinuoye, O., Ayegbusi, C., Davidson, I., & Ighravwe, D. E. (2023). Electricity sector assessment in Nigeria. The Post-Liberation Era. Cogent Engineering 10(1), 2157536. https://doi.org/10.1080/23311916.2022.2157536. Biggar D. R., & Hesamzadeh, M.R. (2014). Electricity industry market structure and competition. In The economics of electricity markets, pp. 73–90. John Wiley & Sons, Ltd. https://doi.org/10. 1002/9781118775745.ch03. Customers and the Environment. Accessed 26 Aug 2023. https://www.nera.com/content/dam/nera/ publications/archive1/PUB_CompetitiveElectricityMarkets_Feb2008.pdf. Gatete. (20220. Competitiveness and sustainability of electricity markets in the ECOWAS region: evolution of reforms, regulations challenge and markets integration, Presentation at the WFER 2023, Lima, Peru. ECOWAS. (2007). Regulation C/Reg.27/12/07 on the composition, organisation, functions and operation of the ECOWAS Regional Electricity Regulatory Authority (ERERA), Ouagadougou, Burkina Faso. ECOWAS. (2003). ECOWAS Energy Protocol A/P4/1/03, ECOWAS Commission, 79 p. ECOWAS. (2013). Directive C/Dir.1/06/13 on the Organisation of the Regional Electricity market, Abidjan, Côte d’Ivoire. Emodi, N. V., & Diemuodeke, O. E. (2022a). Why Nigeria’s electricity grid collapses and how to shore it up. The Conversation, 28 March 2022. http://theconversation.com/why-nigerias-electr icity-grid-collapses-and-how-to-shore-it-up-179705.

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Charly Gatete is a seasoned energy economist, holds a PhD in Energy Economics from the University of Paris Sarclay (France) and another in Energy from 2iE (Burkina Faso). He is an economist expert at ECOWAS Regional Electricity Regulatory Authority (ERERA), contributing to economic regulation ECOWAS’s Regional Electricity Market. Previously, he managed some renewable energy projects in Africa, was an energy expert for UNDP, UNITAR and assistant professor and researcher at Thomas Sankara University, 2iE and CIRAD. Nutifafa K. Fiasorgbor is a dedicated and seasoned professional with over 15 years of expertise in electrical power engineering, energy economics and regulation. He holds dual MSc. degrees from prestigious institutions, and expert certifications in energy risk assessments and project management. He also has expertise in national and regional electricity market development Mina Antwi-Yeboah is a legal professional and energy regulation expert. She is currently a Legal Expert at the ECOWAS Regional Electricity Regulatory Authority. She was formerly a Legal Officer at the National Petroleum Authority and a Hearing Examiner at the Public Utilities Regulatory Commission in Ghana. Mina holds an LLM in International Energy Law from City University of London, LLB from KNUST, and has completed the Qualifying Law Course from the Ghana School of Law. Adeoti Adedoyin is a Certified Energy Regulator by ERRA, and holds a Data Science and Machine Learning degree from the Massachusetts Institute of Technology. He has over 14 years’ experience providing skilled managed services to various institutions. He has served as Lead IT Consultant, Head of Engineering, on different IT Solution and Services. He is certified as an Expert by different IT OEM Solution provider such as Microsoft, CompTIA, HPE, HPI, IBM, Cisco, Huawei, Lenovo.

Regional Power Trade in Africa: The Different Institutional and Regulatory Models of African Power Pools Mohamed A. Eltahir Elabbas

List of Abbreviations AFSEM SINELAC CEPGL CAPP WAPP SAPP EAPP NAPP RECs AMU COMESA CEN-SAD ECCAS EAC SADC MOUs COM CORREAC RERA EREA RAERESA

The Africa Single Electricity Market International Electricity Company of the Great Lakes Countries Economic Community of the Great Lakes Countries Central African Power Pool Central African Power Pool Southern African Power Pool Eastern African Power Pool North African Power Pool Regional Economic Communities Arab Maghreb Union Common Market for Eastern and Southern Africa The Community of Sahel–Saharan States The Economic Community of Central African States The East African Community The Southern African Development Community Memoranda of Understanding Council of Ministers Central Africa Regional Electricity Regulation Commission Regional Electricity Regulators Association Energy Regulators Association of East Africa The Regional Association of Energy Regulators for Eastern and Southern Africa

M. A. E. Elabbas (B) Institute for Research in Technology (IIT), ICAI School of Engineering, Comillas Pontifical, C. de Sta. Cruz de Marcenado, 26, 28015 Madrid, Spain e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_14

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SMO SADCC STEM OTC WAGP NELSAP GERD ADAM

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System and Market Operator Southern African Development Coordination Conference Short-Term Energy Market Over-The-Counter West Africa Gas Pipeline Nile Equatorial Lakes Subsidiary Action Programme Grand Ethiopian Renaissance Dam Africa Day-Ahead Market

1 Introduction Regional power trade is the exchange of electricity between neighbouring countries or regions. It involves buying and selling electricity across national borders to meet the demand for power and take advantage of differences in supply and demand. Power trade allows utilities and market participants to take advantage of economies of scale, enabling investments in large-scale projects that would not be viable for a single country and to access efficient, low-cost supply (Olmos & Perez-Arriaga, 2013). Connecting power systems between countries is also critical to the energy transition, as it increases the security of supply, allows the sharing of reserves, and provides flexibility to allow for higher penetration of renewable energy through a larger balancing area (IEA, 2019a). Regional power trading is particularly relevant in the context of Africa, both because the size of the national power system in at least ten countries is presently below the efficient output level of a single power plant and because some countries have sufficient renewable resources (e.g., hydro, geothermal, or solar) to not only meet domestic demand but also to export excess power (IEA, 2022). An outlook on power trade in West Africa alone predicts savings of around $32 billion or 15% of total production costs as a result of reduced supply costs (The Tony Blair Institute for Global Change, 2019). Superficially, reaping these benefits of regional power trading appears to be a low-hanging fruit, as it does not require significant costs to set up an advanced power trading platform with sound rules and institutions. However, it does require the alignment of the governments and institutions involved to cede some sovereignty to the regional institutions and the common acceptance of sound trading rules and the sharing of transmission use and costs. There are numerous challenges to establishing regional power trade related to institutions and governance (Barker et al., 1997; Economic Consulting Associates, 2010; Oseni & Pollitt, 2014), regional infrastructure (Byer et al., 2009; Olmos & Perez-Arriaga, 2013), and trade operations (Rose, 2017). First, successful power trading requires effective regional institutions and regulations to oversee the physical operations. Secondly, regional regulators must incentivise investment in infrastructure projects, such as cross-border transmission, to facilitate power trade. Finally,

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trading rules must align with national concerns to ensure a secure and reliable power supply. Currently, five African power pools are under development to organise power trade between countries and create regional electricity markets. They are at different stages of development; some have reached an advanced stage and are operating in regional competitive markets, while others are still ambivalent about the nature of their operations and whether they are regional markets or just cross-border interconnections (Medinilla et al., 2019). In 2021, the African Union launched an initiative to establish the world’s largest regional electricity market, The Africa Single Electricity Market (AfSEM), which will link the five African power pools and connect all 55 member states. For such a mammoth initiative, the first indispensable step is to examine the current development of African power pools. This chapter critically examines the historical development of the five African power pools, focusing on the first critical issue of institutions and governance and answering the research questions: “What are the institutional, policy and regulatory models of African power pools?” and “How has trade developed in each region?” It starts by providing a general model for organising regional power trade in Sect. 2. Then, Sect. 3 gives a historical background of regional trade in Africa and introduces the five African power pools. Section 4 presents the organisation of power trade in the different African regions and the involved regional institutions. Section 5 analyses the current situation of the African power pools from the perspective of regional integration and political economy. Section 6 discusses the role of regional and national regulators in advancing power trade. Finally, Sect. 7 concludes the findings of the chapter.

1.1 The Organisation of Regional Power Trade Power trading between countries is a sensitive issue that requires intricate arrangements from the technical aspects of the power system to the overarching political objectives to be achieved. Countries need to agree on various issues related to the following two questions: • What are the frameworks for arranging regional power trade? • Who is responsible for doing what to achieve efficient regional power trade? To answer these questions, it is important to look at the nature of the activity. The transmission of power from exporting countries to importing countries through transmission interconnections requires essential technical coordination of system operations between the two power systems. This technical coordination is a sin quo non for ensuring secure and reliable power exchanges. Countries must develop transmission interconnections and power generation facilities to enable cross-border power exchanges. Since this activity involves the movement of a basic commodity outside the country, it requires regulation and political consensus to make it legal. Therefore, four components of regional trade can be identified: legal and political

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Fig. 1 The four components of regional power trade

agreements, regulations, infrastructure planning, and coordinated system operations. These components of regional power trade can be put together as shown in Fig. 1. The degree of inter-utility coordination in power trading ranges from simple, nonspecific agreements on energy transactions to detailed arrangements for coordinated operations and planning. Therefore, different arrangements can be implemented to govern the activities of regional power trading. The literature describes several trading arrangements that can be put in place to achieve efficient power trading (Olmos & Perez-Arriaga, 2013; Pastor, 2008). These arrangements can be summarised and grouped into the following frameworks: • Operational Framework: The transmission system operators of the participating countries must define the minimum technical requirements for secure and reliable power trade. When two or more power systems are interconnected, the system operators must synchronise and maintain the two systems within the operable frequency range. • Commercial Framework: A commercial framework defines the commodity to be traded, how to trade, and the financial settlement of trade transactions. Regional power trading allows not only for the import of power but also for the provision of ancillary services necessary for the system operations. Thus, different platforms can be designated for different trading activities. • Infrastructure Planning Framework: Interconnections between countries and corridors for the transmission of power through transit countries are the backbone of regional trade and constitute the regional grid. Therefore, the regional grid needs to be optimally developed for trade to be efficient. The planning framework should identify new generation, transmission, and reinforcement projects whose benefits exceed their investment costs. Additionally, it should establish criteria for prioritising and approving these projects. • Regulatory Framework: A regulatory framework for cross-border power trade must be established to ensure that the parties involved comply with the necessary

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Fig. 2 Mapping regional trade components, on the left, to trade frameworks, on the right

commercial, technical, and operational requirements, review the proposed infrastructure plan, establish the rules for regulating the market and the use of regional infrastructure, and deal with any legal or financial issues that may arise. • Policy Framework: An overarching policy framework provides a clear direction and objectives for regional power trade. It consists of energy, trade, and environmental policies that support regional power trade and incentivise participating parties to make informed decisions to achieve the overall policy goals. By providing clear guidelines and incentives, the policy framework can facilitate the expansion of cross-border power trade and contribute to the development of a more sustainable and reliable energy supply. These five frameworks aim to establish a set of rules, guidelines, and principles to be followed in accordance with the aforementioned components, as can be seen in Fig. 2. The motive behind establishing frameworks for regional power trade is to establish agreements and a minimum level of harmonisation between countries. At the very least, any regional arrangements should be compatible with the existing organisation of national electricity systems. For instance, all provisions of national system regulations that may interfere with efficient regional trade should be harmonised or removed to allow agents to trade efficiently. Hence, regional arrangements may be primitive or more sophisticated, depending on the organisation of the participating countries’ power systems and the nature of the trading activity, i.e., whether it is simple long-term bilateral trading or real-time operational trading. Thus, no two regional power trade organisations are the same (IEA, 2019a). Once the frameworks for regional power trade have been established, institutions can be designated to implement them effectively. In general, there are five different types of institutions or organisations, each corresponding to one of these frameworks. Beginning with the core component, a regional system operator is required to ensure the seamless operation of interconnected power systems. This organisation plays a crucial role in coordinating power transmission among national system operators.

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Another essential institution is a regional market operator, which ensures compliance with the commercial framework. The regional market operator can be a separate entity or be integrated into the regional system operator. It plays a vital role in monitoring and supervising power trading activities to ensure that they comply with established policies, rules, and regulations. A regional planning entity is also required to develop a coordinated and integrated plan for the regional infrastructure. This entity would be responsible for identifying potential investment opportunities, ensuring optimal resource utilisation, and developing strategies to meet future electricity demand. This planning activity is essential for transmission, and it may be accompanied by an indicative generation expansion plan from a regional perspective. Additionally, a regional regulatory institution needs to be established to oversee the activities of all parties involved and ensure compliance with the relevant regulatory requirements. This institution would oversee the implementation of technical/operational and commercial frameworks, approve market entrants, promote investment in infrastructure, and ensure dispute resolution. Lastly, a regional political body could be established to issue policies and guidelines to support regional power trade, align national interests, and promote regional cooperation. This body would provide a platform for regional cooperation and negotiations. The establishment of these institutions would help to ensure the efficient and effective implementation of the necessary frameworks and support the growth and development of regional power trade. Figure 3 shows the five frameworks and the corresponding institutions. This institutional architecture requires a clear delegation of authority and executive powers for power trade to develop efficiently. Regulations and trading rules need to be enforced either by vesting their respective institutions with regional enforcement powers or by the regional political body acting as a regional government. Additionally, regional infrastructure plans need to be implemented by directly mandating the planning entity or by incentivising countries and national utilities to implement them. Finally, regional institutions can take different forms and may not be distinctly separated as in Fig. 3. For instance, power trade can be efficiently organised through central dispatching without establishing a regional competitive market and, hence, a regional market operator. Similarly, the five frameworks do not necessarily need to be defined in their entirety or separately. The hierarchy presented here is only meant as an overarching and general structure.

2 Regional Power Trade and African Power Pools Regional trade in Africa can be traced to the early development of interconnections between countries in all regions. In (UN Economic Commission for Africa, 2003), the author reviews the historical development of power trading in Africa. The first interconnection built on the continent was the 150 kV between Tunisia and Algeria in 1953. It was not built for commercial trade but for solidarity between the two

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Fig. 3 Mapping regional trade frameworks, on the left, to regional institutions, on the right

countries and to provide technical support in case of emergencies. Five years later, the first interconnection in sub-Saharan Africa was built between Uganda’s Owen Falls hydropower station and Kenya’s capital city, Nairobi. The line had a voltage level of 132 kV and was for commercial purposes. It was constructed under the bilateral agreement signed in 1955 between the Uganda Electricity Board and the Kenya Power Company for the supply of 30 MW for 50 years. Similarly, in the 1970s, several bilateral agreements were signed in the other regions for the construction of interconnections and the supply of surplus hydropower. In West Africa, a 161-kV double circuit line was constructed in 1972 to export between 80 and 100 MW from Ghana’s Akosombo hydroelectric dam to Togo and Benin. The original agreement was signed in 1969 for a 10-year duration. In Central Africa, The Inga hydropower station in DRC has supplied power to the Republic of Congo since 1972 through a 220-kV line linking Inga to Brazzaville. In South Africa, the first HVDC interconnection was built in 1979 to transmit power from the Cahora Bassa dam in Mozambique to the Apollo substation in South Africa. The 1980s saw another development related to hydro resources. Countries sharing hydro resources sought to develop these resources in an equitable and efficient manner. The result was the creation of joint utilities between these countries to manage both the generation and transmission of shared hydropower. The first joint utility was the International Electricity Company of the Great Lakes Countries (SINELAC1 ) that was created in 1983 by the Economic Community of the Great Lakes Countries (CEPGL) to manage hydro resources between Burundi, Rwanda, and DRC. In West Africa, the Senegal River Basin Development Organization (OMVS2 ) was created in 1972 by the governments of Guinea, Mali, Mauritania, and Senegal to manage the watershed of the Senegal River following several years of extreme drought in the region. In 2002, the OMVS Council established the Manantali

1 2

Under the French initials, La Société Internationale d’Electricité des Pays des Grands Lacs. Under the French initials, L’Organisation pour la Mise en Valeur du fleuve Sénégal.

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Energy Management Company (SOGEM3 ) as a joint utility to operate hydropower plants as well as the Manantali Interconnected Network (RIMA4 ). In the 1990s, there was a global trend to integrate different national power systems into regional or supranational electricity entities, called “pools”, “interconnections”, or “regional markets”, to organise power trade more efficiently (Olmos & PerezArriaga, 2013). A similar development of establishing regional power pools has taken place in Africa. Five power pools are being developed in all regions of Africa. These are, according to when they were established, the Maghreb Electricity Committee (COMELEC5 ) in the north, the Southern African Power Pool (SAPP) in the south, the Western African Power Pool (WAPP) in the west, the Central African Power Pool (CAPP6 ) in the centre, and the Eastern African Power Pool (EAPP) in the east. The SAPP, WAPP, CAPP, and EAPP all follow the same naming convention and have similar structures as is discussed in Sect. 4. While COMELEC is sometimes referred to as the North African Power Pool (NAPP), the formal name is used here because it alludes to some differences from the other power pools that will be uncovered in the rest of this chapter. These power pools are established to organise power trade and to foster cooperation between countries in power sectors. They are founded by the Regional Economic Communities (RECs) of the African Union. The RECs are institutions of African states that aim to facilitate regional economic integration between members of each region under the auspices of the African Economic Community. The African Union recognises eight RECs: The Arab Maghreb Union (AMU); the Common Market for Eastern and Southern Africa (COMESA); the Community of Sahel–Saharan States (CEN-SAD); the East African Community (EAC); the Economic Community of Central African States (ECCAS); the Economic Community of West African States (ECOWAS); the Inter-Governmental Authority on Development (IGAD); and the Southern African Development Community (SADC). Figures 4 and 5 show the geographical location of the eight RECs and the five power pools. The power pools in Africa have different institutional set-ups and are at different stages of development. SAPP is the most advanced power pool and the only one operating regional competitive markets. COMELEC is the oldest power pool with the highest average access rate of 88% (IEA, 2021). EAPP is the youngest power pool and the largest in terms of geographical size and population, while WAPP has the largest number of member countries. The least developed power pool in terms of interconnection, energy access rate, and amount of trade is CAPP. Nevertheless, CAPP has the greatest potential for hydropower generation from the Inga project (WEC, 2016). Table 1 shows the membership of the five power pools, their year of foundation, and market participants.

3

Under the French initials, La Societe de Gestion de l’Energie de Manantali. La Réseau Interconnecté de Manantali, which includes the networks of member utilities. 5 Under the French initials, Le Comité Maghrébin de l’Electricité. 6 Also known by PEAC for its French name, Le Pool Energétique de l’Afrique Centrale. 4

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Fig. 4 African regional economic community memberships. Source Kyriakarakos (2022)

The volume of power trade between African countries is still minimal. Figure 6 shows the energy exported and imported by countries in 2018 and 2021. Most countries recorded a slight change in volume between 2018 and 2021. Figure 7 shows the generation profile of the largest net exporting countries that exported more than 1 TWh in 2021. These countries either have significant hydropower generation; such as Mozambique, Ethiopia, and Zambia; or have rich resources; such as South Africa, Nigeria, Côte d’Ivoire, and Ghana. Figure 8 shows the total energy traded, exports plus imports, in each power pool. In 2021, the energy traded in SAPP was twice as much as the energy traded in the other power pools combined.7 80% of the energy trade in SAPP is only between Mozambique and South Africa. This is owing to the fact that the two countries enjoy the largest interconnection capacity on the continent, 3.3 GW (SAPP, 2019). Bilateral trade remains the predominant mode of trade in Africa. Even in SAPP, power traded in the competitive markets accounted for only 18.3% of the total power traded in 2020. Also, hydropower continues to play an important role in trade dynamics and regional integration. In fact, the huge potential of hydropower in 7

For a comparative analysis of the power pools, please refer to (Elabbas et al., 2023).

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Fig. 5 African power pool memberships

DRC is considered as one of the main drivers for embarking on the AfSEM initiative to integrate the five power pools (Maupin, 2016). Nonetheless, much remains to be done to unlock the potential of power trading in Africa. The following section discusses power trade organisations in the different African regions in light of the general model presented in Sect. 2.

3 Power Trade Organisation in Africa Regional power trade in Africa is part of the regional integration. The way in which regional integration is pursued in each region affects the way in which trade is organised. The African RECs have varying institutional characteristics in terms of rules and authority. As a result, power trade organisations have different regulations, governance, and institutions (IEA, 2019b). The following subsections discuss each

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Table 1 The foundation year and membership of the five power pools Power pool

Year

The REC

Member countries

Market participants

COMELEC

1989

Established by AMU

Algeria, Libya, Mauritania, Morocco, Tunisia

5 national utilities

SAPP

1995

Established by SADC

Angola, Botswana, DRC, Lesotho, Malawi, Mozambique, Namibia, South Africa, Eswatini, Tanzania, Zambia, Zimbabwe

19 electricity enterprises

WAPP

1999

Established Benin, Burkina Faso, Côte d’Ivoire, by ECOWAS Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Gambia, Togo

39 electricity enterprises

CAPP

2003

Established by ECCAS

11 national utilities

EAPP

2005

Adopted by Burundi, DRC, Djibouti, Egypt, COMESA in Ethiopia, Kenya, Libya, Rwanda, 2006 Somalia, South Sudan, Sudan, Tanzania, Uganda

Angola, Burundi, Cameroon, CAR, Chad, Congo, DRC, Equatorial Guinea, Gabon, Rwanda, Sao Tomé & Principe

15 national utilities

Source CAPP (2023), EAPP (2020), Lakhdar (2015), SAPP (2021), WAPP (2021) DRC = Democratic Republic of the Congo, CAR = Central African Republic

Fig. 6 Export and import by countries in 2018 and 2021. Source EIA (2021), corrected for Nigerian export in WAPP (2021)

of the four components of power trade and their respective institutions in the five regions of Africa.

3.1 Regional Trade Agreements Basic trade agreements include the signing of Memoranda of Understanding (MOUs) between trading parties at the political and technical levels, usually referred to as

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Fig. 7 Generation profile of major exporting countries in 2021. Source EIA (2021)

Fig. 8 Power traded in the five African power pools in 2018 and 2021. Source EIA (2021)

Inter-Governmental and Inter-Utility MOUs, respectively. These are the common enabling agreements for power pooling and upon which different entities can be created to organise trade. All of SAPP, EAPP, and CAPP were created based on the two MOUs signed by member states and utilities (CAPP, 2023; EAPP, 2020; SAPP, 2021). However, COMELEC and WAPP were based on different agreements. WAPP

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was established by Decision A/DEC.5/12/99 of the 22nd ECOWAS Summit held in Lome, Togo in 1999, and was based on the Articles of Agreement for WAPP that was signed by ECOWAS member states under Decision A/DEC.18/01/06 (ECOWAS, 1999; WAPP, 2018). On the other hand, COMELEC was created in 1974, prior to the creation of AMU, on the basis of a preliminary agreement between the general directorates of public utilities of Tunisia, Algeria, and Morocco. In 1989, under the Marrakesh Treaty, COMELEC was enshrined as a designated committee of AMU and extended to include Libya and Mauritania by the decision of energy ministers of all the countries (Africa EU Energy Partnership, 2021).

3.1.1

Regional Political Bodies

The regional political body is the founding body that includes all member states and is in charge of developing the policy framework for power trade. In all five African regions, this body corresponds to the Council of Ministers of the corresponding REC except for EAPP. The political body that founded EAPP is the Council of Ministers (COM) which includes all countries. EAPP covers a large geographical area and its member countries belong to different RECs (IGAD, EAC, and COMESA). The adoption of EAPP by COMESA gives it additional political cover as COMESA includes all member states except Tanzania and South Sudan. However, it is the COM that decides on the mandate and policies of EAPP. In the other four regions, the founding RECs are at different stages of regional integration and have different institutional characteristics. These RECs can be broadly categorised as having intergovernmental or transnational agreements. In the former, countries retain their sovereignty and are the main actors in the integration process. This type of regional integration is also known as “low politics” integration (Hoffmann, 1966), and it takes the form of a regional executive secretariat, e.g., AMU and SADC Executive Secretariats. In the latter, member states transfer their power to a transnational body to steer the regional integration process and agenda. This type of integration is called “high politics” integration (Hoffmann, 1966), and it takes the form of a regional commission, such as the ECOWAS and ECCAS commissions. The primary distinction between intergovernmental and transnational RECs is that in the latter, the REC Commission could have supranational powers to issue regional decisions, directives, and regulations to enable trade. In addition, once there is a functioning regional parliament, these decisions, directives, and regulations could be adopted and become legally binding upon their signatures. In intergovernmental RECs, regional agreements are by their nature non-binding and would need to be signed by all national parliaments to become legally binding and enforceable. This process of deposit and ratification by national parliaments is lengthy and would normally be preceded by negotiations between member states. Of the four RECs, ECOWAS is considered the most advanced community (AU, 2021). The ECOWAS Executive Secretariat was transformed into a commission in 2006. The REC has various regional institutions, such as the ECOWAS Parliament, the Court of Justice, and the Bank for Investment and Development, demonstrating a

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high degree of centralisation and harmonisation. ECOWAS also has the most comprehensive policy framework for regional trade. It consists of broad documents, such as the ECOWAS Regional Competition Policy Framework (2007) and the Procurement Code (2019), and more specific energy-related documents, such as the ECOWAS Energy Protocol (2003), the Energy Policy and the Regional Electricity Code (2023). These documents address a wide range of issues, including, inter alia, protecting foreign investment, establishing non-discriminatory conditions for energy imports and exports, resolving disputes between member states, establishing legal entities and institutions, and promoting fair and transparent competition (ECOWAS, 2003). The other transnational REC, ECCAS, acquired commission status in December 2019 and has yet to establish a well-functioning regional parliament and court of justice. The ECCAS policy framework includes only the Regional Energy Policy Strategic Paper (2015), which envisages universal access to modern energy in the region by 2030 (CAPP, 2015). On the other hand, SADC is more advanced in regional integration than AMU. The SADC Executive Secretariat operates through regional protocols and agreements between member states and has made progress in various sectoral cooperation. SADC has been keen to develop regional policies and strategies. Over the years, SADC has adopted several regional development plans to promote development in the energy sector. These include the SADC Protocol on Energy (1996), the Energy Cooperation Policy and Strategy (1996), the SADC Energy Action Plan (1997), the SADC Energy Activity Plan (2000), and the Energy Sector Plan (2012). These strategic plans are periodically revised at the SADC Summit of Heads of State. The most important plan is the Regional Indicative Strategic Development Plan (RISDP) which is a 15-year regional integration development framework that sets out the priorities, policies, and strategies for achieving SADC’s long-term goals (SADC, 2020). In contrast, AMU remained inactive for a long period, demonstrating only the most basic levels of cooperation. AMU has been described as “the perfect example of a region whose countries have been unable to find their way to deeper integration” (AU, 2021). Thus far, AMU has not published any policy framework relevant to power trade.

3.1.2

The Governance of Decision-Making

As a result of the various institutional differences between the regional political bodies, the decision-making authority of their power pools and the degree of their involvement are divergent. The highest decision-making level of SAPP, the executive board, is a simple single-class board with national utilities as its board members. SAPP allows IPPs and non-asset owners to become members but excludes them from the executive board and the management committee. Additionally, this group of members has limited voting rights on certain issues. Hence, the national utilities have a dominant position in deciding SAPP’s internal market and operation rules. SAPP remains financially independent of SADC, and it can decide internally on operational and market rules,

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but any changes to its policies or involving external institutions must go through SADC ministers. CAPP and EAPP have a more political governance structure. Their highest decision-making body is the Council of Ministers, which comprises the countries’ energy ministers. The membership of both power pools consists only of national utilities with no other entities. EAPP is loosely linked to COMESA, which does not interfere with its operations. CAPP, on the other hand, is institutionally anchored in ECCAS and is part of its organisational structure. For example, CAPP depends financially on ECCAS and is held accountable by the Energy Department of the ECCAS Commission. As far as COMELEC is concerned, the power pool remains an independent technical organisation comprising only national utilities. At the pinnacle of the governance structure is the steering committee, which defines the strategic development of COMELEC and ensures its implementation. COMELEC decisions are taken unanimously, and the pool is financially independent from AMU. Finally, ECOWAS regulates and manages WAPP through its regional institutions. ECOWAS also adopts the master plans of WAPP and supports market creation by adopting policies and regulations at the national level. Nevertheless, it gives WAPP autonomy to decide on its internal affairs and relations with other institutions. The governance model of WAPP does not involve political stakeholders and formally mandates its executive officers to be independent of market participants. WAPP includes IPPs and consumer representatives as official members. The general assembly is the highest decision-making authority and includes all members with equal voting rights. WAPP’s governance model is, therefore, more democratic and inclusive than all the other power pools. This incentivises agents to join the power pool, which is why WAPP has the largest number of market participants.

3.2 Regional Regulation Several regulatory institutions have been established across Africa to develop regulation and regulatory capacity. Regionally, these institutions can be divided into two types: regulatory institutions with rule-making authority, i.e., regulatory authorities, and regulatory associations without rule-making authority, i.e., voluntary regulatory associations. The latter are institutions for cooperation and building regulatory capacity, while the former are institutions vested with the power to make binding regulations. Regulatory authorities can be further divided into representative regional authorities, which are composed of national regulatory authorities, and independent regional authorities, which have their own staff. Both WAPP and EAPP have regional regulatory authorities. ECOWAS has established the ECOWAS Regional Electricity Regulatory Authority (ERERA), an independent regulatory authority designated to develop the regulatory framework to regulate regional trade and WAPP’s activities. The COM of EAPP established the Independent Regulatory Board (IRB), a representative regulatory authority composed of

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the heads of the national regulatory authorities of each member country (EAPP, 2020). The two institutions’ responsibilities include, inter alia, establishing a transparent tariff-setting methodology for regional power pooling, adopting technical regulation, monitoring regional market operations (including the approval of all cross-border exchange contracts), and resolving disputes between regional market participants. While the IRB is yet to be fully staffed and operational, the ERERA institutions give it both statutory and quasi-judiciary power for issuing regulations and decisions that are binding and directly applicable in the ECOWAS territory (ECOWAS, 2007). To this end, ERERA has approved the WAPP Regional Market Rules, the Operation Manual, and the Regional Electricity Market Procedures. It has developed models for bilateral agreements and regulations for transmission tariff methodology and open network access. Another potential regional regulatory authority is the Central Africa Regional Electricity Regulation Commission (CORREAC8 ). In July 2022, the energy ministers of ECCAS member states validated the draft texts for the establishment and operation of CORREAC (ECCAS, 2022). The regulatory commission would most likely be composed of representatives of national regulators and would have rule-making authority. The oldest regulatory association is the Regional Electricity Regulators Association of Southern Africa (RERA) which was established by SADC in 2002 (Sithole & Sichone, 2012). Besides RERA, there is the Energy Regulators Association of East Africa (EREA), established by EAC in 2008 and the Regional Association of Energy Regulators for Eastern and Southern Africa (RAERESA), established by COMESA in 2009 (COMESA, 2021; EREA, 2023). These institutions support national regulators and facilitate the harmonisation of regulatory policies, legislation, standards, and practices in their respective RECs. However, they do not have any delegated authority to establish or enforce regional regulations that are binding on the power pools. The Arab Maghreb region of COMELEC is the only region in Africa that does not have a regional regulatory institution.

3.3 Regional Infrastructure Planning Regional infrastructure planning is a common feature of all African power pools. All power pools conduct or participate in interconnection studies between countries. Nonetheless, their contributions vary considerably. CAPP has the least share of contribution in this area. The power pool is not yet fully staffed and is currently participating in its first feasibility study on the Cameroon–Chad interconnection.9 Early in 8

Under the French initials, La Commission Régionale de Régulation de l’Électricité de l’Afrique Centrale. 9 For more background information, refer to the World Bank project appraisal document on the Cameroon–Chad power interconnection project, 2020.

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2005, the power pool identified a list of priority projects in the region that ECCAS endorsed. However, there has been no technical analysis of whether these projects represent the optimal least-cost integration. As a result, there is no regional master plan in the CAPP region (CAPP, 2015). Similarly, COMELEC has not published a regional master plan but has conducted several specific studies on interconnection projects, ranging from feasibility to real-time stability studies. Nevertheless, the studies of COMELEC remain accessible to member utilities only. In EAPP, the power pool harmonises national master plans into a regional plan. This has only been carried out only twice, in 2011 and 2014 (EAPP et al., 2011, 2014). These two regional master plans do not give technical details of the priority projects and mainly serve as recommendations to coordinate national plans. They also do not provide details about the financing aspects or propose an action plan for the implementation. Additionally, the criteria for selecting and defining priority projects are not clear. Because of this, it is entirely up to the national authorities to take account of the regional master plan and make investment decisions. SAPP contributes more to regional planning than EAPP. The power pool has updated the regional master plan several times (in 2001, 2005, 2007, and 2017) and adopted seven criteria for selecting the list of priority projects. Additionally, SADC adopts SAPP’s regional master plan but only as a guide for member countries. The implementation of priority projects is left to the countries and private investors. The costs of these projects can be recovered through SAPP regional charges and privately negotiated contracts between generators and large consumers. SAPP has a Project Advisory Unit (PAU) that provides financial bankability services to new IPPs and oversees their execution. It also coordinates multi-party transmission line projects by prioritising the off-takers and allocating the risk among them. It thus acts as an interface to provide finance from different liquidity pools, for instance, government support, financial institutions, private sector equity, export credit agencies, development finance institutions, and other capital markets (Vajeth, 2016). SAPP is currently establishing the Regional Transmission Infrastructure Financing Facility (RTIFF) as an approach to develop and finance priority regional transmission projects (both interconnections and national transmission lines) (SAPP, 2021). Unlike the other power pools, WAPP plays a more active role in infrastructure planning and implementation. The ECOWAS Commission mandates WAPP not only to develop a regional master plan but also to implement regional projects adopted by the commission (WAPP, 2020). In 2018, WAPP developed a comprehensive master plan consisting of five volumes covering all aspects, from project selection to investment and implementation strategy, and was followed by a business plan in 2020. The WAPP master plan is validated by ECOWAS and endorsed by all member states. It, therefore, facilitates project implementation and approval by national authorities. WAPP is in charge of all regional projects in the WAPP master plan either directly or indirectly by closely following up with national utilities. Depending on the project structure, projects that are classified as a “special purpose vehicle” will have a specially created company to implement the project and operate the infrastructure after commissioning. Some projects are implemented by countries through concessional loans (sometimes coupled with grants) from partners of the WAPP

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Project Implementation Unit. Other projects may follow a power purchase agreement framework through auctions, such as the WAPP solar parks in Burkina Faso and Mali.

3.4 Regional Coordination of System Operations Coordination of system operations is at the heart of regional power trading. The apex of coordinated system operation is the synchronisation of all national power systems. Only WAPP has recently reached this stage. Both CAPP and EAPP are still far from this goal and lack sufficient infrastructure to develop market and system operators. The two power pools envisage a coordination centre in their organisational structure, but no effort has been made to establish it and its functionality has yet to be defined. In contrast, the networks of Algeria, Morocco, and Tunisia are already synchronised with the European network through the Morocco–Spain interconnection. Nevertheless, COMELEC does not operate a regional market and leaves the coordination of system operations to the national utilities. Additionally, the networks of Libya and Mauritania are yet to be synchronised. The operational framework of SAPP consists of the SAPP Agreement Between Operating Members and the Operating Guidelines, which together establish the specific rules and standards of operation and pricing (SAPP, 2023a). Additionally, in collaboration with RERA, SAPP has developed a draft of the regional grid code that consists of several codes for operations, connections, metering, and information exchange. On the other hand, the commercial framework of SAPP consists of the Market Book of Rules and the Participation Agreement. The two documents set the rules governing SAPP market operations and participating conditions (SAPP, 2023b). In terms of institutional functionality, SAPP distinguishes between market operations and system operations. On the one hand, the SAPP Coordination Centre, located in Harare, Zimbabwe, is the regional market operator, which is responsible for operating competitive markets and collecting all trading information from bilateral contracts to schedule power exchanges. On the other hand, SAPP leaves system operation to control area system operators, which are the national system operators with the largest generation capacity. These operators are responsible for balancing activities in the different parts of the regional network. The regional grid is divided into three control areas: Botswana, Lesotho, Southern Mozambique, Namibia, South Africa, and Swaziland, operated by Eskom of South Africa; Zimbabwe and Northern Mozambique, operated by the Zimbabwe Electricity Supply Authority; and Zambia and DRC, operated by the Zambia Electricity Supply Corporation (Economic Consulting Associates, 2009). The WAPP operational framework consists of its Operation Manual, which establishes the procedures for power exchange and technical standards (ERERA, 2015b). Similar to SAPP, WAPP has also developed a regional grid code that is yet to be approved by ERERA. The commercial framework of WAPP encompasses a set of market documents, including the Regional Electricity Market Procedures, the

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Regional Market Rules, and the Market Participant Agreements. Institutionally, WAPP has opted for joint market and system operations. The WAPP Information and Coordination Centre (ICC) is set to be both the System and Market Operator (SMO), responsible for balancing activities, operational planning of the interconnectors, allocation of transmission capacity, metering, and coordination of the pooling schedule with the domestic TSOs and control area operators. The operator of a control area ensures that the inter-area flows are maintained, while the domestic TSOs in each area ensure that the flows agreed upon at the regional level are maintained in the interconnectors under their responsibility (ERERA, 2015a). As of August 2023, the WAPP regional network has been synchronised, connecting all fourteen countries. Table 2 summarises the different elements of the organisation of power trade in the five African power pool regions. It shows that both COMELEC and EAPP lack a cohesive regional policy framework, while both SAPP and CAPP, in addition to COMELEC, lack a harmonised regulatory framework. Of the five cases, the WAPP region is the most institutionally coherent, with all the institutions having clear executive power and regional authority. Figure 9 illustrates the different institutional set-ups and regulatory models of the five power pools.

4 Political Economy and Trade Agenda Member states’ trade agendas have driven the evolution of power trade in each of the five African regions. In many ways, these agendas are influenced by the political economy of the region. The regional dynamics of the African RECs, in terms of members’ interests and ability to push regional agendas, have determined how far the regional institutions and the power pool have progressed. The following subsections discuss thematic cooperation, its dynamics, and the progress within each region.

4.1 Southern Africa: The Continental Front-Runner The year 1992 marked a turning point in regional cooperation in Southern Africa. Several key events occurred that led to a new era of regional cooperation. These were the severe drought that affected the countries, the establishment of SADC as the successor to the Southern African Development Coordination Conference (SADCC), and the end of the apartheid regime in South Africa. Power generation in the region was mainly based on hydroelectricity in the northern countries and coal from South Africa. During droughts, the countries imported electricity from Eskom, the South African monopoly utility. During apartheid in South Africa, the countries cooperated politically and economically to reduce dependence on their powerful neighbour. The SADCC was deliberately set up to minimise energy dependence on South Africa (Vanheukelom & Bertelsmann-Scott, 2016). However, the end of apartheid in South Africa changed the country’s foreign and regional policy. The

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Table 2 The regional institutions and trade organisations in the five African power pools WAPP

CAPP

EAPP

Regional political body

COMELEC

AMU COM SADC COM

SAPP

ECOWAS COM

ECCAS COM

The Council of Ministers

Regional policy

None

ECOWAS policy

ECCAS policy None

SADC policy

Internal National decision-making utilities in the steering committee

National All members utilities in the of the general executive assembly committee

The Council of The Council Ministers of Ministers

Regional regulator

None

RERA without rule-making authority

CORREAC to be established

Regional infrastructure planning

Planning Planning and studies committee & commission PAU

Regional market None operator

SAPP coordination centre

Trade nature

Bilateral agreements

Regional system None operator

ERERA with rule-making authority

IRB with rule-making authority

Strategic Planning Planning planning and sub-committee committee environmental committee WAPP information and coordination centre

None

None

Bilateral Bilateral agreements, agreements Forward, day-ahead, intra-day, and balancing markets

None

Bilateral agreements

Control area system operators

None

None

WAPP information and coordination centre

newly emerging democratic state was eager to signal its support for the region that had supported its liberation struggle. Under the presidencies of Mandela and Mbeki, the country sought regional solidarity and cooperation under the broader ideology of the African Renaissance (Barber, 2005). Thus, after joining SADC in 1994, South Africa proactively promoted the regional agenda on energy cooperation. At the time, the country was well positioned to take the lead with its significant surplus generation and multiple interconnections. This, combined with the fact that other countries were experiencing generation shortages, created a strong alignment of interests among member states and a strong economic logic to push for regional cooperation. The result was the creation of SAPP to promote energy cooperation and develop a regional market for power trade. When SAPP was created, very few member states

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Fig. 9 The institutional context of power trade organisation in the five African power pools, showing the different institutional and regulatory models

developed regulatory capacity at the national level. Thus, RERA was created chiefly to strengthen the regulatory environment in the region, not as a regional regulator for SAPP but rather as a complementary institution. When SAPP was established, the aim was to move from bilateral contracts to a competitive market. In 2001, SAPP introduced the Short-Term Energy Market (STEM) as a transitional competitive market towards a regional spot market. It dealt with short-term energy contracts of up to one month and provided for daily and hourly contracts to operate mainly in off-peak hours. In 2002, the STEM was supplemented by an Over-The-Counter (OTC) trading for short-term bids during emergency and planned outages (ad hoc basis). In January 2004, SAPP started the development of a Day-Ahead Market, which was then delivered by the Nord Pool ASA in 2009. In 2013, SAPP introduced the Post-Day-Ahead Market to increase the number of matched trades and in 2015, SAPP developed its own Market Trading Platform (SAPP-MTP) and introduced three new markets: the Forward Weekly and Monthly markets and the Intra-Day Market. As of 2021, SAPP has developed and launched a balancing market in a trial phase (SAPP, 2021). Figure 10 shows the development timeline.

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Fig. 10 Power trade development timeline in SAPP region. Source Elabbas (2021)

4.2 Western Africa: Regional and Cooperation Centrality West Africa has the longest history of regional cooperation between states. ECOWAS is the oldest African REC, established in 1975, and has evolved into a complex set of institutions. The organisational development of ECOWAS has been characterised by a high degree of institutional capacity and integration through the rule of law (Sohn & Yeboah, 2014). Its institutions are vested with legislative powers, enabling the Community to take decisions on behalf of its member states. The authority of the Heads of State in the Community acts by decisions, while the Council adopts regulations, both of which are binding on the Member States and enforceable sixty days after their publication.10 In addition, ECOWAS facilitates the adoption of policies and regulations through regional directives. A clear example is DIRECTIVE C/DIR/ 1/06/13 on the Organisation of the Regional Electricity Market. The Directive deals with the opening of national electricity markets and ensuring open network access. The regional agenda on power trade stems from Article 28 of the ECOWAS Revised Treaty, which deals with the energy sector and seeks to establish a common energy policy to address energy development collectively. Some institutional outcomes of ECOWAS energy policy have been the establishment of WAPP and ERERA for power sector integration and regulation, respectively, and the creation of the West Africa Gas Pipeline (WAGP) and its company WAPGCo for gas transportation. These institutions are vested with regional powers under ECOWAS regional legislation. Thus, at the regional level, ECOWAS has been able to broker significant upstream progress through institutional reforms and mechanisms. At the national level, countries have different interests in engaging in power trade and regional projects. Energy resources are not evenly distributed across the region; resource-rich countries such as Nigeria, Ghana, and Côte d’Ivoire are interested in exporting power to other small countries, such as Benin and Togo, and landlocked

10

ECOWAS Revised Treaty, supra note 9, art. 9 and 12.

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Fig. 11 Power trade development timeline in WAPP region

countries, such as Burkina Faso, Niger, and Mali. Those countries benefit by offsetting their generation deficits. However, as most of the importing countries are in poor economic conditions, there are often unpaid debts from imports, creating an atmosphere of mistrust between countries. In addition, because the WAPP ICC is positioned as the regional system operator, which entails a degree of control over national utilities, some utilities are not fully committed to cooperating with WAPP and prioritise their national agenda (Elabbas, 2021). Progress-wise, WAPP has developed a roadmap for market development that is divided into three phases: Phase 1 is dedicated to regional generation and transmission infrastructure development, which would last until around 2015 and end with the appointment of a system and market operator and approval of market rules; Phase 2 is dedicated to market formalisation and end with the establishment of a day-ahead market; and Phase 3 is dedicated to the long-term vision of improving liquidity and competition (ERERA, 2015a). Phase 1 was launched in 2018 and is yet to be completed in 2024. Before this, WAPP will finalise the grid code, the transmission pricing methodology, and the market rules. Figure 11 shows the development of the trade organisation in the region, including the approval of critical regulations.

4.3 Eastern Africa: Regional and Cooperation Diaspora EAPP’s member countries are located in a broad geographic area and have the least homogeneity among the other power pool regions. EAPP encompasses countries from IGAD, EAC, and COMESA. On the one hand, cooperation in the three RECS takes different institutional forms, with different levels of policy commitments, priorities, and authority (AU, 2021). The result is the presence of different initiatives, including bi- and trilateral arrangements related to the EAC and Great Lakes countries of the Nile Equatorial Lakes Subsidiary Action Programme (NELSAP) of the Nile Basin Initiative, for promoting regional integration in the energy sector outside EAPP. On the other hand, while countries cooperate in the southern part of the

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Nile River to exploit shared hydropower resources, countries in the northern part have a protracted conflict in exploiting the Nile resources. Namely, the geopolitical tension between Ethiopia, Sudan, and Egypt over the Grand Ethiopian Renaissance Dam (GERD) since 2012 has affected the regional infrastructure planning in EAPP. Central to this geopolitical tension are the conflicting interests of the countries. On the one side, Ethiopia’s national trade agenda pursues expansion to its hydropower generation to become a leading power exporter. On the other side, the Nile flow is crucial for Egypt’s agricultural development. The country’s interest is to maintain its hegemony over controlling the Nile flow (Wheeler et al., 2016). In the past, whenever the GERD was included in the master plans of EAPP, the Egyptian and Sudanese ministers objected to its adoption, leading to a delay in the decision. The first EAPP master plan in 2011 did not include the GERD despite being under construction at that time (EAPP et al., 2011; Yihdego et al., 2017). EAPP’s original plan included four stages of institutional and interconnections development. The first stage is preparatory to combine national efforts into regional actions. The second and third stages are transitional for establishing trading activities between neighbouring countries by 2013 and then a spot market by 2017. The final stage is transformational for a full trading environment and liquid market by 2021 (EAPP, 2014). However, implementation has not followed the proposed timeline and the pool updated the timeline to be completed by 2025. So far, EAPP has developed two master plans through consultancy in 2011 and 2014. The latter was accompanied by drafts for market guidelines, rules, procedures, and an Excel-based mini-application called the Africa Day-Ahead Market (ADAM). ADAM was used in a pilot project for shadow trading in two locations, Sudan–Ethiopia and Uganda– Kenya. The project ran for six months in 2014–15. However, after the project, trading reverted to bilateral contracts and no competitive market emerged. Figure 12 shows the development timeline of EAPP.

Fig. 12 Power trade development timeline in EAPP Region. Source Elabbas (2021)

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4.4 Central Africa: Hostile Region and Cooperation Central Africa is one of the continent’s most fragile and vulnerable regions, having undergone numerous coups d’état crises and conflicts since the 1990s (Ayangafac, 2008; Meyer, 2011). The violation of territorial integrity is a frequent event between member states, either directly or by supporting rebel groups. In particular, the Great War in the Central African region11 witnessed the violation of the territory of DRC by Rwanda, Burundi, and Angola, all claiming to have legitimate security reasons against their respective rebel groups traced back to DRC. Mutual violations also occurred in Chad and the Central African Republic by their respective rebel groups, fuelling semi-civil and semi-transnational wars in the two neighbouring states (Ayangafac, 2008). This complex web of conflicts, and in particular the involvement in opposing sides of the war in DRC, created significant challenges for economic cooperation within the Community. The war in DRC completely paralysed ECCAS during the 1990s; it was not until the end of 1999 that ECCAS was revived and signed the protocol to join the African Union’s Regional Economic Communities. However, political tensions between member states persisted throughout the following decade, with Rwanda leaving the community in 2007 and later rejoining in 2016 (Byiers, 2017). The fragility of the Central African political context is reflected in high scores in various rankings of corruption and poor governance. According to the Fragile State Index 2023, three of the ECCAS member states are among the top ten fragile states (CAR, DRC, and Chad). Similarly, Burundi, Equatorial Guinea, Comoros, Chad, and the DRC are in the top 20 of the Corruption Perceptions Index 2022. In addition to the political factor, regional cooperation through ECCAS has suffered from a weak financial commitment by member states to support the common cause of the community, weak commitment to regional policy, partly due to overlapping membership in other regional groupings, and the fact that the region has a degree of heterogeneity in terms of language and culture (UN Economic Commission for Africa, 2010). Moreover, the region has a low population density combined with a lack of cross-border infrastructure, which undermines greater integration. In difficult regional circumstances, CAPP development has been limited to capacity building and interconnection studies. Very few steps have been taken to organise regional power trade, as shown in Fig. 13. Despite this, Central Africa has the most attractive clean energy resources on the continent, and CAPP is the only pool on the continent that borders all the others. Consequently, it remains a pivotal region in the process of continental integration.

11

Also known as the Great Lakes War.

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Fig. 13 Power trade development timeline in CAPP region

4.5 Northern Africa: Developed Region, Underdeveloped Cooperation North Africa is the only region where countries have achieved universal access to electricity (IEA, 2021). With the exception of Mauritania, all countries in the Maghreb region have a well-developed power system and sufficient interconnection capacity (World Bank, 2013). Generation in COMELEC has consistently been 20% higher than consumption (EIA, 2021). The region plays a key role in continental integration, connecting Africa to Europe. The power systems of Morocco, Algeria, and Tunisia have been synchronised with the European grid since 1997 via a 400 kV AC interconnection across the Strait of Gibraltar (Yu & Son, 2023). Despite the region’s technical sophistication, the organisation of power trade has not developed much, and the institutions of COMELEC have not expanded beyond being a technical committee specialising in interconnections, i.e., have no mandate to create a regional market like the other power pools. The establishment of the AMU carried with it an ambitious project of regional, economic, and political integration in the Maghreb, aimed at strengthening intraMaghreb relations and policy coordination in international, defence, economic, and cultural affairs. Solidarity was the banner of the Arabs in the 1980s. COMELEC was originally created as part of the policy of mutual aid and energy security between neighbouring countries. Net flows were tallied annually and deficits and surpluses were settled the following year, typically with reciprocal MWhs rather than money, i.e., in kind. However, the AMU project did not flourish as hoped, primarily due to the political rivalry between Morocco and Algeria (Allouche, 2019; Parshotam, 2020). Despite sharing a common culture, history, and religion, the two countries have not had a crossable border since 1994. This was the result of a terrorist attack in Morocco that Algeria was accused of supporting. The Moroccans saw the attack as retaliation for Morocco’s invasion of Algerian territory in 1963 in an attempt to change the borders (Rawhani, 2018). Additionally, the Western Sahara has been an ongoing point of tension between the two countries since 1984 (Rawhani, 2018).

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Fig. 14 Power trade development timeline in COMELEC region

Because of this ongoing political deadlock and the political instability in Libya since 2011, the last AMU summit attended by all member states was in 1994, and since then the REC has been inactive with no means of resolving regional conflicts (Allouche, 2019). Consequently, there has been reduced economic cooperation, low levels of cross-border trade, and higher tariffs between Maghreb countries (Parshotam, 2020). Rather than cooperating internally, the countries have turned to external cooperation with Europe. Figure 14 shows the cooperation in the region so far.

5 Advancing Regional Power Trade: The Role of Regional and National Regulators As discussed in the other chapters, regulation plays a critical role in bridging the gap between Africa’s energy potential and increasing investment in infrastructure. This applies also to unlocking the potential of power trade. Namely, regional regulation should ensure efficient power trade and promote investment in interconnections. The guiding principle from international best practice in designing regional power trade is the “single system paradigm”—i.e., the principle that regional power trade should be organised as closely as possible to a single country of the corresponding regional dimension. In practice, concerns about loss of sovereignty and implementation issues severely limit the application of this principle. Additionally, regional regulation should be least intrusive and follow the principle of subsidiarity to national regulations, i.e., the regional regulator should only perform tasks that national regulators cannot conduct. In order to craft effective regional regulation, the regional regulator should consider the maturity of regulation implemented at the national level while acknowledging the historical causes of the status quo and gradually moving towards best practice. In the African context, the reality is that regulation is new to the continent (UN

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Economic Commission for Africa, 2017), and trade is predominantly bilateral. This has implications for trade efficiency and investment in transmission. First, as demonstrated in (Rose et al., 2016), integrating physical bilateral and market trade leads to inefficiencies in the use of generation and transmission infrastructure, reducing total trade and increasing system costs. Regulation can tackle this outcome through careful market design, as suggested by the author (Rose et al., 2016). Second, investment in transmission is hampered when it is recovered through charges based on bilateral transactions. Such charges create investment risks and reduce trade volume (Pérez Arriaga, 2021). Therefore, in the future, as trade becomes more short-term, transmission regulation should be adapted to best regulatory practices (Pérez Arriaga, 2021). National tariffs and regulations have often evolved differently from one country to another and a minimum level of regulatory harmonisation is necessary to achieve efficient power trading. Harmonisation measures should ensure a level playing field and avoid unfair discrimination between agents from different systems. For example, the network charges to be paid by agents in different systems should avoid creating market distortions. Other rules in need of harmonisation relate to the operational details of cross-border transactions. The list of these rules may be short or long, depending on the national regulatory frameworks—for example, if licencing regulation is prominent in the region—the nature of the trading activities, and regional policy development; for example, harmonisation would be needed for the different national renewable generation incentives or the introduction of national capacity mechanisms. Finally, the regional regulator should seek the buy-in of the national regulators and governments. National regulators should be involved to some extent in developing regional regulations and have a means of ratifying and enforcing them at the national level, as well as ensuring that their benefits are synthesised for their national governments.

6 Conclusions This chapter reviews the current and historical development of power trading in the five African power pool regions. It presents a general model for regional power trade organisation to answer the research question of “What are the institutional, policy and regulatory models of African power pools?” It shows that bilateral agreements have historically played a role in developing interconnections and building trust among countries, ultimately leading to the creation of regional power pools. However, a contemporary trade organisation in Africa remains largely based on bilateral trade, which hampers the potential of these power pools. Additionally, the five power pools show diverse institutional and regulatory arrangements for organising regional trade. Some of the power pools still have institutional gaps; both COMELEC and EAPP lack a cohesive regional policy framework, while SAPP, CAPP, and COMELEC lack a harmonised regulatory framework. It is recommended to address these and other

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institutional gaps (delegation of authority) as a priori for integrating the power pools into the AfSEM. Additionally, the chapter answers the question of “How has trade developed in each region?” by examining the thematic cooperation and its dynamics in each region, showing how trade agendas and countries’ interests have played a role in advancing trade in all of SAPP and WAPP, while this was not necessarily the case in EAPP, CAPP, and COMELEC. The chapter concludes with the key role of the regional regulator in advancing power trade through regional regulations that promote transmission investment and efficient trade, and harmonisation with national regulators.

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M. A. E. Elabbas is a researcher at the Institute for Research in Technology (IIT) of Comillas Pontifical University in Madrid, pursuing a PhD in regional power trade and electricity market design in Africa. He has an electrical engineering background and a master’s degree from Delft University of Technology.

An Outlook on a Future-Proof Regulated Cross-Border Electricity Market in Africa Oghosa Erhahon, Musiliu Oseni, and Ivie Ehanmo

List of Abbreviations USAID UKNIAF NERC EPRG SSA UNOPS CEPMLP ENTSO-E APPGI AFSEM CfDS PPA SAARC HVDC GGI OSOWOG

The U.S Agency for International Development United Kingdom Nigeria Infrastructure Advisory Facility Nigerian Electricity Regulatory Commission Energy Policy Research Group Sub-Saharan Africa United Nations Office for Project Services Centre for Energy, Petroleum and Mineral Law & Policy European Network of Transmission Systems Operators for Electricity Asia-Pacific Power Grid Interconnection Initiative Africa Single Electricity Market Contracts for Difference Power Purchase Agreements The South Asian Association for Regional Cooperation High Voltage Direct Current The Green Grids Initiative One Sun One World One Grid

O. Erhahon (B) Sustainability and Energy Consultant, Abuja, Nigeria e-mail: [email protected] M. Oseni Market Competition and Rates , Nigerian Electricity Regulatory Commission (NERC), Abuja, Nigeria I. Ehanmo Electricity Lawyer and, Centre for Energy, Petroleum and Mineral Law & Policy, University of Dundee, Scotland, United Kingdom © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_15

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USA UK SAPP SADC DAM WAPP ERERA NARUC EAPP PPA CAPP REMIT AFCFTA AUDA-NEPAD

O. Erhahon et al.

United States of America United Kingdom Southern African Power Pool Southern African Development Community Day Ahead Market West African Power Pool ECOWAS Regional Electricity Regulatory Authority National Association of Regulatory Utility Commissioners East African Power Pool Power Purchase Agreements Central African Power Pool Wholesale Energy Market Integrity and Transparency (REMIT) African Continental Free Trade Area African Union Development Agency—New Partnership for Africa’s Development

1 Introduction Sub-Saharan Africa in 2022 was estimated to have over 600 million people, 43% of whom were without access to electricity. As of 2021, the continent had the highest number of people without access to energy and clean cooking fuels/technology. To curb this deficient electricity access, grid extension and electricity trade present a plausible option for Africa. The concept of electricity trade presents a viable solution to increasing electricity access across regions and borders. As such, today, a myriad of socioeconomic issues reflects how countries respond to transforming their electricity/power sector. The rise in new technologies through low carbon energy sources; playing a role in electricity supply is currently more evident. Globally, the electricity sector is transitioning, and to meet the demand for electricity to citizens—cross-border interconnected grids contribute a plausible option—but at the same time, must be future-proof; as the world facilitates energy transition pursuing decarbonisation, meeting the Sustainable Development Goals, Climate commitments, among others. Ahead of the energy transition, one which is expected to account for an increase of renewables and clean fuels in the global energy mix, countries expect to experience the inclusion of solar, upscaling of hydropower, and/or low emissions fuels within their electricity generation pools. This thereby allows electricity grids to transmit power that provides flexibility to the curtailable energy supply. On the backbone for interconnectivity is energy security, and providing energy access, which creates an avenue whereby national governments and regulatory bodies must ensure that the national electricity infrastructure is effectively operating. Regulators are necessary counterparts to develop and operate the electricity trade. While the “business” is extremely viable and under certain contractual agreements

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provides favourable measures for all parties—individual countries must demonstrate commitment towards encouraging regional energy security wherever applicable. Since the Second World War, interconnection has made its way into modern power systems as business models for countries. These are evident through developed industries for high-voltage transmission lines and have informed countries how to manage value-added resources like electricity; which flows through interconnections among neighbouring cities or countries. Furthermore, seen through the creation of regional cluster/bloc initiatives like the European Network of Transmission Systems Operators for Electricity (ENTSO-E), the Asia–Pacific Power Grid Interconnection Initiative (APPGI), and the Africa Single Electricity Market (AfSEM), as electricity demand continues to grow, the world is likely to witness more countries disseminate their resources to reach sustainable energy access for all of mankind.

2 History of Cross-Country Electricity Markets and Trade Cross-border electricity trade and power pools have an extended history dating back to the Second World War and the early twentieth century. Despite this, the concept of trade of energy resources was not new. Before the discovery of oil, energy trade had been prominent in economic advancement, as witnessed in the coal era. More recently, energy trading has largely involved buying and selling various forms of energy commodities and even more recently hydrogen.1 The introduction of electricity trading largely involved distributing generated electricity from one region to another region. This encourages economic development and strengthens diplomatic ties between countries. This form of trade involves maintaining high-voltage power lines or interconnectors between countries, as infrastructure for adequate delivery. These electricity blocs have far existed across the continents from Asia to Europe and across Africa. In Asia, throughout the twentieth century, countries began engaging in bilateral agreements for electricity trade. Asia’s early developments were predominantly hydropower electricity, and the gradual existence of power pools was formed through level trade agreements, treaties, or memoranda of understanding between participating nations. Similarly, which will be detailed further, closer to the Atlantic, the West African Power Pool was established in 1999 through a treaty between 14 countries, and 12 countries signed an agreement in 1995 for the creation of the Southern Africa Power Pool. These agreements had the purpose to promote cooperation and ensure energy security between participating countries. As treaties have always played a crucial role in fostering regional cooperation, energy integration, and trade—how countries adopt agreements that are reflective of 1

“Hydrogen trade exhibits significant price dispersion and two-way trade as vintages of contracts overlap in a market defined by endogenous innovation and policy interventions.” W. Antweiler, D. Schlund ‘The Emerging International Trade in Hydrogen and the Role of Environmental, Innovation and Trade Policies.’ SSRN 2023 .

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future energy demands and trends, especially with global environment commitments, determines the stability and success of the electricity networks (Table 1). Table 1 An overview of selected electricity market pool operators Region

Electricity market pool

Member countries

Asia & Oceania

Gulf Cooperation Council Interconnection Authority (GCCIA)

Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates

South Asian Association for Regional (Afghanistan, Bangladesh, Bhutan, India, Cooperation (SAARC) Maldives, Nepal, Pakistan, and Sri Lanka)

Africa

North America

Central Asia-South Asia (CASA-1000)

Kyrgyzstan, Tajikistan, Afghanistan, and Pakistan

Australian Energy Market Operator (AEMO)

Australia—National Electricity Market (NEM)

Southern African Power Pool (SAPP)

Angola, Botswana, the Democratic Republic of the Congo, Eswatini, Lesotho, Mozambique, Malawi, Namibia, South Africa, Tanzania, Zambia, and Zimbabwe

Western African Power Pool (WAPP)

Benin, Burkina Faso, Ghana, Guinea, Guinea Bissau, Ivory Coast, Mali, Niger, Nigeria, The Gambia, Togo, Senegal, and Sierra Leone

Eastern Africa Power Pool

Burundi, Democratic Republic of Congo, Djibouti, Egypt, Ethiopia, Kenya, Libya, Rwanda, Sudan, Tanzania, Uganda

Western Electricity Coordinating Council (WECC)

Western United States, Canada, Mexico

New England Power Pool (NEPOOL) Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island Vermont

Europe

Electric Reliability Council of Texas (ERCOT), New York Independent Systems Operator, and the California Independent System Operator (CAISO)

Texas, New York, California

Nord Pool

Norway, Sweden, Denmark, Finland, Estonia, Latvia Lithuania

European Power Exchange (EPEX SPOT)

Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Luxembourg, the Netherlands, Norway, Poland, Sweden, and Switzerland

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3 Case Study: Cross-Border Electricity Trade Markets: Preparing for the Future of Electricity Demand In modern day, electricity is considered as the fuel of the future. This is largely due to the multi-faceted role that electricity is increasingly playing in the energy landscape, largely because of the energy transition. New technologies pioneering new ways of using electricity are being developed and the demand for electricity is expected to grow. Consequently, several organisations and institutions have termed the 2020s as “The Electric Decade”.2 This implies that by 2030, clean power capacity must increase by three times what it is today for the world to align with climate goals of “maintaining the global average temperature to well below 2 °C above preindustrial levels, and pursuing efforts to limit the temperature increase to 1.5 °C above pre-industrial levels”.3 Energy consumption must become increasingly based on electricity, from the current 20% share to 50% or more by 2050.4 In response to the millions of Africans without access to electricity amounting to an electricity access rate of just over 40%5 —The United Nations Sustainable Development Goal 7 (SDG7) aims to achieve affordable, reliable, sustainable, and modern energy for all by 2030. Dr. Akinwumi Adesina, the President of the African Development Bank (AfDB) at the time of writing this chapter, also emphasised at the Berlin Energy Transition Dialogue, the need for the African continent to connect 90 million people annually to electricity by 2030 and shift 130 million people from dirty cooking fuels each year.6 For the actualisation of increased access to electricity, integration of the electricity grid through cross-border electricity markets presents a possibility. CrossBorder Electricity (Trade) Markets refers to the buying and selling of electricity across borders through wholesale markets within a country or across borders. This involves the linking of transmission systems or grid(s) of one or more countries. Grid interconnection is an established operation in certain regions of the world such as the European Union, America (Canada and the United States), and South Asia as shown in Table 1. Some concrete examples are witnessed through (1) the planning to interconnect Europe with Egypt via Greece using an undersea cable that

2

The Electric Decade. World Economic Forum . 3 Paris Agreement, 2015. 4 ‘Power Summit 2021: Electric Decade’ . 5 AfDB, ‘Light Up and Power Africa – A New Deal on Energy for Africa’ . 6 AfDB, ‘Africa’s 2030 Universal Electricity Access Goal: “Clock running out”, says Adesina in Berlin’ (AfDB, 30 March 2023) < https://www.afdb.org/en/news-and-events/press-releases/africas2030-universal-electricity-access-goal-clock-running-out-says-adesina-berlin-60074>.

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is expected to transmit 3,000 MW was publicised7 ; (2) in April 2022, the United Kingdom (UK) struck a deal with Morocco for the development of a 3,800 km long undersea electricity cable connecting the UK to Morocco8 and most recently; and (3) the final length of the 475-mile (765 km) Viking Link interconnector has been laid and joined—forming a continuous link between the UK and Denmark for the first time.9 Furthermore, understanding the parameters of existing cross-border electricity trade markets; positions this chapter to access the ingenuity and lessons that can be explored within Africa.

4 Europe: European Union Wholesale Electricity Market Design The European Union (EU) operates a single or integrated electricity market design. With integrated or common energy market rules and cross-border infrastructure, energy can be produced in one EU country and delivered to consumers in another.10 In the wake of the Energy Crisis witnessed in 2022—following high and volatile prices and concerns of energy security—European governments called on the Commission to work swiftly on the structural reform of the electricity market, with the dual objective of securing European energy sovereignty and achieving climate neutrality.11 Following a public consultation in early 2023, the Commission presented a proposal on 14 March to revise the rules for electricity market design and to improve the EU protection against market manipulation in the wholesale energy market. It aims at making the EU energy market more resilient and making the energy bills of European consumers and companies independent from the short-term market price of electricity; achievable via the usage of more long-term contracts, such as Power Purchase Agreements (PPA), and investment support structured as two-way Contracts for Difference (CfDs).

7

Africanews, ‘Undersea power cable to connect Egypt to Europe via Greece’ (Africanews,) . 8 Anthony Ashkenaz, ‘UK in huge energy boost: Deal struck with Morocco for ‘game-changing’ underwater cables’ (Express, 26 April 2022) . 9 Laying of world record power cable between the UK and Denmark now complete (National Grid, 18 July 2023) . 10 European Commission, ‘Electricity market design’ (European Commission) . 11 Ibid.

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The proposal has now passed to the Council and the European Parliament for debate and negotiation under the normal legislative procedure, waiting for further alterations as of the time of writing this chapter. South Asia: Pilot Interconnection Corridors The South Asian region has diverse natural resources ranging from large coal reserves in India, gas reserves in Pakistan and Bangladesh, hydropower potential in Nepal and Bhutan, and non-conventional resources (solar and wind) across the region. The power system varies between countries, with peak average demand ranging from 388 MW to 177GW.12 Resource and demand complementarity through an active energy mix provides for additional electricity at low cost and political coordination has led to the development of various Cross-Border Electricity Trading arrangements between South Asia countries.13 The South Asian Association for Regional Cooperation (SAARC) has been the regional intergovernmental platform for deepening electricity grid integration since the signing of the SAARC Framework Agreement on Energy Cooperation (Electricity) in 2014.14 Currently, a 10.6 GW of interconnection capacity is under construction and planning stages across four major corridors connecting five countries, including the proposed High Voltage Direct Current (HVDC) interconnector between India and Sri Lanka is underway, as of the time of writing this chapter.15 Green Grids Initiative (GGI)—One Sun One World One Grid (OSOWOG) The Green Grids Initiative (GGI) aims to accelerate the infrastructure needed for a world powered solely by renewable energy. The infrastructure includes a massive expansion of renewable energy generation capacity in energy-rich locations, connected by continental grids.16 The vision for GGI is building weather-resilient smart grids connecting millions of solar panels, with charging points for electric vehicles, and micro-grids for rural communities.17 The GGI is underpinned by a global ecosystem of working groups and partners across the world. In 2021, the GGI—One Sun One World One Grid (OSOWOG) was launched by the prime ministers of India and the United Kingdom (UK) during the COP26 World Leaders’ Summit.18 It brings together the UK’s Green Grids Initiative and India’s One Sun One World One Grid vision to form the GGI-OSOWOG partnership, to tackle arguably the greatest global challenge to a clean-powered future: how to build 12

Priyantha Wijayatunga, D. Chattopadhyay and P. N. Fernando, ‘Cross-Border Power Trading in South Asia: A Techno Economic Rationale’ (August 2015). 13 Ibid. 14 Ibid. 15 Ibid. 16 Green Grids Initiative, . 17 Ibid. 18 Ibid.

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and operate electricity grids capable of absorbing ever greater shares of variable renewable, while meeting growing power demands sustainably, securely, reliably, and affordably.19 The GGI-OSOWOG is co-chaired by the governments of India and the UK and overseen by a Ministerial Steering Group made up of Australia, France, India, Oman, the UK, and the United States of America (USA).20 Working groups and partner organisations in the GGI Ecosystem operate independently with support from the joint Secretariat.21 The GGI-OSOWOG engages actors across political, financial, and technical spheres, and accelerates the delivery of transformational projects to flow clean energy across borders, enhance energy access, and increase the security of supply.22 The partnership’s founding document, the One Sun Declaration, has been endorsed by over 90 countries worldwide.23 The declaration highlights three types of resilient infrastructure which, if completed, could transform humanity’s prospects for mitigating the climate crisis. These are: clean energy superhighways, renewable energy mini-grids to operate in unserved and underserved communities, and smart charging infrastructure for Electric Vehicles.24

5 What African Regulators Can Learn from Existing Cross-Border Electricity Trade Markets? While the success of Cross-Border Electricity Trade heavily depends on policy reform integration, capacity for infrastructure development, and the strengthening of institutions, further lessons can be gleaned from the case studies from South Asia, the EU, and GGI-OSOWOG including: 1. In the case of the South Asia Pilot interconnection corridors, the prioritisation of electricity sector expansion (within participating countries and across the network) brings electricity access rates recording close to 100% connectivity. To enable success, African governments and regulators must prioritise the expansion of their respective electricity sectors. 2. The GGI is underpinned by a global ecosystem of working groups and partners with support from the joint Secretariat. Engagement with all stakeholders encourages platforms for value sharing when building for regulated structural

19

Green Grids Initiative, < https://www.greengridsinitiative.net/>. Ibid. 21 Ibid. 22 Ibid. 23 Ibid. 24 https://climatecompatiblegrowth.com/green-grids-initiative/. 20

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reforms in electricity markets—African countries are faced with competitiveness on possible language barriers, vastly different levels of development, and ease of knowledge sharing. 3. More so, the EU Electricity Wholesale Market buttresses the need for public consultations. The Commission’s proposal to revise the rules for electricity market design and to improve the EU protection against market manipulation in its interconnected wholesale energy market was based on public consultation. This is particularly important within Africa, as different countries operate within very diverse economic structures and varying electricity tariff edifices, among other factors. Furthermore, effective legal frameworks have been crucial for the enforcement of interconnection. The availability of adequate regulatory frameworks provides a prerequisite for a distinct process of negotiation and enforcement of contractual obligations. Independent Regulators for each country have a role to set a neutral ground for enforcement and a supervisory approach, especially through legal capacity. This is expanded as the strategies for building regulated structural reforms are explored. One of the political issues that can have a significant impact on the feasibility of international grid interconnections is the stability of national governments. Also, partners in potential interconnection projects must have confidence that agreements signed between nations will be honoured by succeeding governments. Above all, the precedence of honouring contracts agreed upon by previous officeholders will contribute to making international grid interconnections a success.25 There is also the need for an efficient financial sector with the capacity to service those contracts. This includes ensuring that national and regional banking support systems are available and reliable for handling funding pipelines to cover the cost of operations; constructions, overheads, servicing operation contracts as needed, etc., to ensure the timely, smooth, and efficient flow of payment between participating countries. Insurance and performance guarantee instruments, among other financial services, will be required in interconnection projects.

6 Development and Overview of Power Pools in Africa Southern African Power Pool Southern African Power Pool (“SAPP”), established in 1995, facilitates cross-border electricity trading in the Southern Africa region. It remains the most advanced Power Pool on the continent.26 Its membership consists of countries in the southern region

25

Ibid. Oseni, M.O. & Pollitt, M.G. (2014). Institutional Arrangements for the Promotion of Regional Integration of Electricity Markets: International Experience. World Bank Policy Research Working Paper 6947.

26

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of the continent including Angola, Botswana, Democratic Republic of Congo, Eswatini, Lesotho, Mozambique, Malawi, Namibia, South Africa, Tanzania, Zambia, and Zimbabwe. SAPP is a product of the efforts at promoting energy development undertaken by the Southern African Development Community (“SADC”) as part of the political goal to achieve regional integration. One of the economic forces behind the establishment of SAPP is the South African desire to meet future energy demand through the import of low-cost hydropower from its northern neighbours. SAPP operations are governed by agreements drawn from the existing SADC bilateral and multilateral agreements. The agreements guarantee inter-utility operating agreements and deal with issues of ownership and rights among participants, and interaction between the utilities concerning operating responsibilities.27 The operating guidelines provide for cost-sharing arrangements and functional responsibility for plant operations, maintenance, and safety rules. SAPP comprises all 12 SADC member countries. Nine of the member states are operating members whose interconnected grid carries about 97% of the power produced by SAPP countries. The dominant energy source in the region is coal— predominantly abundant in northern South Africa, Western Botswana, and Eastern Zimbabwe. Hydropower dominates the generation of electricity in the rest of the SADC countries, with power stations being in the Zambezi Basin involving Zambia, Zimbabwe, Mozambique, and Malawi, at Inga in the Democratic Republic of Congo, in central Angola, Northern Namibia, and in Tanzania. The introduction of SAPP has resulted in several positive outcomes that spurred trading activities among member states. For instance, a total of 22,907 MW of new generation capacity was commissioned from 2010 to 202028 and the region was expected to have had sufficient capacity by 2017. However, the recent experience of acute power outages in South Africa is an indication that the sufficiency target has not been achieved despite the significant generation capacity addition in the last decade. Bilateral contracts dominate the trading arrangements in SAPP, and they accounted for 79% of the energy traded in the 2019/2020 trading period. Bilateral agreements usually cover a period of 1–5 years or more. Although these agreements guarantee the security of supply, they are not flexible enough to accommodate varying demand profiles and prices. Optimising the allocation of cross-border electricity between regions presents the principle of Market Coupling. Market Coupling creates efficient trading at the Day Ahead Market stage (DAM) introduced in 2009 as a competitive electricity trading platform. The trading volume on the platform is often impacted by infrastructure constraints. Between 2012 and 2013, for instance, only about 6% of energy demand in the Day Ahead Market was traded. Transmission constraints remain a major challenge within SAPP, as is the case in other power pools across the continent. It was recorded an estimated US$316,312 was lost through

27

http://www.intechopen.com/download/get/type/pdfs/id/16031. SAPP (Southern African Power Pool) (2013): Annual Review Reports for Various Years. www. sapp.co.zw. 28

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Table 2 Energy Traded in SAPP between 2015/16 and 2019/202031

wheeling revenues that could have been generated in 2013.29 More recently, on 25 June 2023, 32% of matched traded volumes in DAM could not be traded due to transmission constraints.30 Despite the slow start in competitive trading, there has been improvement in the trading activities on the SAPP platform. Power traded in the SAPP competitive market in the month of May 2023 constituted 21% of the total power traded in the SAPP region compared to 18% recorded in the preceding month. Total power traded on the competitive market in May 2023 was 110.6 GWh compared to 404.3 GWh traded through bilateral contracts. The notable improvement in competitive trading in SAPP is partly attributable to the improved availability of transmission networks when compared to the year 2012, when only 6% of the energy demanded in DAM was traded. Table 2 presents a summary of energy traded in SAPP from 2015/2016 to the 2019/2020 financial year. Table 2 indicates the dominance of bilateral transactions, albeit the improvement in the competitive trading market. More so, the volume of energy traded in the competitive market in 2019/2020 was approximately 55 GWh (2.5%) lower than the energy traded in the previous year. The decline in the volume of energy traded was attributable to the drought faced in the SAPP region during 2019/2020, as members expressed a preference for bilateral contracts to ensure the reliability of supply. The most recent disruption “State of Disaster” to the state-owned power company Eskom poses South Africa (a net exporter of electricity) in a position to import from 29

Ibid. SAPP Monthly Market Report < https://www.sapp.co.zw/sites/default/files/SAPP%20Market% 20Performance%20Report%20-%20June%202023.pdf>. 31 Data Source: SAPP Annual Report, 2020 . 30

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its neighbours. The energy availability factor in South Africa decreased from 66 to 58% in 2022, significantly dropping since then.32 This development led to significant Load-Shedding. Ideally, this is where having an interconnected network plays a strong advantage. Eskom is central to the shift from coal power towards a green energy mix as supported through the blueprint—Just Energy Transition Partnership, a $497 million project.33 The JETP is in line with South Africa’s Integrated Resource Plan which meant gradually non-renewable power plants have been ramped down since 2017. While Eskom bounces back from the year-long plus disruptions—interconnectivity on the electricity grid with neighbouring countries might provide some cushion in the meantime. West African Power Pool (“WAPP”) West African Power Pool (“WAPP”) began operating in October 2000 and aims to promote energy trade between member countries through the integration of the national power systems to provide stable, reliable, and affordable electricity supply within the member states. The Pool comprises 14 of the 15 member countries of the regional economic community—Economic Community for West African States (“ECOWAS”).34 WAPP member countries include Benin, Côte d’Ivoire, Burkina Faso, Ghana, Gambia, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo. WAPP, with 39 member utility companies as of December 2021, consists of public and private generation, transmission, and distribution companies involved in the operation of electricity in West Africa. The objectives of WAPP and its operating procedures among the member states were set out in the Article of Agreements endorsed by the Meeting of Energy Ministers of the member states. Despite its existence for over two decades, regional trading activities in WAPP have been very limited, due to several factors including no specified trading platforms or framework. The few long-term bilateral trading exchanges between member countries predated the regional electric trading system, mostly based on diplomatic relations and separate and pre-existing agreements between the parties. Further to the effort towards the establishment of an effective regional electricity market by 2015, a consultant was engaged to design and develop the market models and rules for power exchange between WAPP member utilities (WAPP, 2012).35 The report indicates the WAPP’s main trading platform would be in the form of long-term contracts and allocation of excess production among member states. This is to be followed by a spot market energy trading system, such as a Day Ahead Market, utilising the 32

The Eskom crisis update: Where we are now. (March 2023) . 33 World Bank Factsheet: Eskom Just Energy Transition Project in South Africa. June 2023 . 34 West African Power Pool . 35 Mercados Energy Markets International, ‘Development of WAPP Market Design and Market Rules’ December 2011 .

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Table 3 Energy (GWh) exchange in WAPP in 2018–202137 2018

2019

Import Export

Import Export Import Export

2020

Nigeria

0

3,000.6

0

2327.2 0

2,127.20 0

2,308.20

Côte d’Ivoire

77.6

1,138.60 76.6

1234.8 149.4

1308.9

197.1

888.6

Ghana

143.8

636.4

127

1235.4 56.1

1759.9

43.7

1734

Senegal

338.2

2.1

468.4

0

0

413.2

0

Burkina Faso

783.4

0.3

1024.7 0.2

1419.6 0

1222.1 0.1

Niger

984.2

0

1048.8 0

1099.9 0

1121.9 0

Mali

1186

358

2021 Import Export

0

1302.2 0

1368.8 0

939

Benin/Togo (CEB*) 2307.4 0

1995.9 0

1692

0

1681.4 0

Sogem**

0

0

1201.3

0

EEEOA

5820.6 5906.9

1128.9

1057.2 0

0 1129.2

6043.6 5854.8 6143.8 6,397.30 5618.4 6,060.10

*CEB is a utility owned by Benin and Togo **Sogem is not a country but a member utility (that belongs to the 3 countries of OMVS)

remaining transmission capacity in the regional transmission system after meeting all the bilateral contract obligations. As a step towards the actualisation of an effective regional power market, ECOWAS in 2020 directed that the existing diplomatic trading arrangement should be novated and structured as contracts between utilities in the member countries. However, energy exchange in WAPP is still limited to this date. The total exported energy in 2021 stood at 6,060 GWh with 38% of the total export coming from Nigeria (Table 3). The low energy exchange and the slow progress in the commencement of competitive trading in WAPP are due to inadequate existing installed generation capacity and poor infrastructures within the member countries. Unlike the Southern African Power Pool (SAPP), whose installed capacity at inception in 1995 was 48,461 MW (with about 38,000 MW in South Africa alone), WAPP had only 9,705 MW capacity as of the time it was formally created in 2000.36 The combined installed capacity in West African countries is currently just about 41% of that of South Africa. The energy exchange in the Western regional market has been moderately low due to inadequate domestic generation capacity and infrastructure constraints within and across member countries. This low generation capacity and lack of adequate transmission networks has made regional energy exchange difficult, as member nations are unable to meet their domestic energy needs, and because most of the countries are yet to be interconnected. The total cross-border traded energy volume in WAPP in 2021 was just 7% of the total energy generated in the region. The slow progress in the regional trading in WAPP relative to SAPP underscores how critical the existing infrastructural capacity is to the development and progress of market integration. 36 37

http://www.eia.gov/. WAPP Annual Report, 2021. https://www.ecowapp.org.

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In June 2023, the ECOWAS Regional Electricity Regulatory Authority (ERERA) which regulates WAPP, with support from the United States Agency for International Development (USAID), Power Africa, and the National Association of Regulatory Utility Commissioners (NARUC)38 developed a regulatory framework. This framework “Functional Model on System Reliability and Electricity Market Design” and the accompanying Gap Analysis Report, collectively approached, provide a guide to developing reliability and market operations standards applicable to the power systems and electricity markets within the ECOWAS region. The pathway to synchronisation of the WAPP power grid has been realised with an announcement in July 2023, which detects that the power grids of the participating countries will operate as a single synchronised network.39 East African Power Pool The East African Power Pool (“EAPP”) was established in 2005 to promote the development of a regional power market in East Africa. Its key objective is the facilitation of the exchange and trading of electricity among member countries to enhance energy security, improve electricity access, and promotion of economic development in the region. The EAPP currently consists of 13 member countries including Burundi, the Democratic Republic of Congo, Djibouti, Egypt, Ethiopia, Kenya, Libya, Rwanda, Sudan, Tanzania, and Uganda. The main objectives of the EAPP include (1) promotion of regional power interconnectivity among member countries to enable the exchange of electricity, (2) facilitation of energy exchange where member countries can buy and sell electricity to meet their energy needs, and (3) enhancement of energy security. At present, energy exchange in EAPP is solely based on long-term bilateral contracts executed through long-term Power Purchase Agreements (“PPA”). Ethiopia is the largest electricity trader within the EAPP and plays a significant role in the regional power market. It exports electricity to neighbouring countries such as Sudan, Djibouti, and Kenya. Ethiopia’s position as a major electricity trader in the EAPP is primarily due to its robust interconnected transmission infrastructure and availability of cheap hydropower (Table 4). Central African Power Pool The Central African Power Pool (“CAPP”), established in 2003, aims at promoting regional cooperation in the energy sector among Central African countries. It comprises 11 member countries including Angola, Burundi, Cameroon, Central African Republic, Chad, Congo, Democratic Republic of Congo, Equatorial Guinea, Gabon, Rwanda, and Sao Tome and Principe. CAPP confers a similar objective as the 38

West African Regulator Advances Toward Goal of Developing Regional Power Market . 39 Successful synchronization of the WAPP power grid – A decisive step towards regional electricity integration, Cotonou, Benin .

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Table 4 Energy exchange (GWh) in EAPP40 Interconnection

Direction of exchange

2020

2021

2022

Libya–Egypt

Eg Lib

684

512

531

Egypt–Sudan

Eg Su

374

492

506

Sudan–Ethiopia

Eth Su

955

1104

882

Djibouti–Ethiopia

Eth Dj

456

563

643

Kenya–Uganda

Bi-directional

148

292

324

Kenya–Ethiopia

Eth Ken 2617

2964

Total

7 2895

other African Pools to develop a regional electricity market, improve access to electricity, and ensure a reliable and sustainable supply of energy in member nations. It seeks to achieve this through the development of cross-border power interconnections, the harmonisation of energy policies and regulations, and the promotion of renewable energy sources. CAPP facilitates the coordination of energy planning, sharing of technical expertise, and mobilisation of financial resources for energy infrastructure projects in member countries. It also promotes the integration of national power systems, allowing for the regional exchange and trading of electricity. By fostering regional cooperation, it seeks to enhance energy security, promote economic development, and improve the living standards of the population in the region.

7 Limitations to the Operational Efficiency of African Power Pools Infrastructure Constraints A mere commitment to free trade is not sufficient for the development of an effective cross-country power pool. Establishing a fully functional cross-border electricity market requires investment in sufficient generation and cross-border transmission capacity. Sufficient generation capacity, the existence of transmission and distribution capacity, and robust trading platforms are key to effective cross-border trading. One of the reasons trading activities in WAPP have been slow compared to SAPP is due to inadequate installed generation capacity and poor infrastructure among the member nations. The combined total installed capacity of WAPP nations as of the time of the creation of the pool in 2000 was 9,705 MW compared to the total installed capacity of 48,461 MW (with 38,000 MW in South Africa alone) in SAPP countries, as of its creation in 1995.41 Low adequate capacity and poor reliability of supply have remained a major impediment to improvement in regional trading. The total 40

EAPP Quarterly Bulletin – June 2023: June 13, 2023, Issue # 5 | The EAPP Practitioner’s Quarterly Bulletin January 2023 . 41 http://www.eia.gov/.

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installed generation capacity in the WAPP countries currently is just about 41% of that of South Africa, while unreliability of supply has contributed to public criticism of Nigeria’s export of electricity to the Niger Republic.42 Similarly, the lack of transmission capacity has severely limited the operation of spot markets and prolonged the dominance of bilateral trading. This low capacity and lack of adequate transmission networks have made regional trading difficult, as member nations cannot meet their domestic energy needs, and because a majority of them are yet to be interconnected as earlier indicated. Effective Regulations Many of the Power Pools do not have proper regulatory bodies responsible for oversight of the operation of the pools. Where regulator(s) exist (e.g., WAPP), there seems to be poor collaboration between the national regulators in member countries and the regional regulator. This has accounted for regulatory lapses, which if resolved, could further improve energy exchange and promote regional integration. Regional electricity trading requires the strong support of the national regulators in the member states. Certain regulations and clear frameworks on the interlink between the regional and regulatory bodies, in addition to a clear delineation of regulatory oversights, are antidotes to improve regional trade. For instance, regulations on crossborder electricity trading that set out the rules for utilities that seek to participate in regional trading are yet to be developed. Besides, a session for a forum of regulators, including the chairmen or key leadership of national regulators in member nations will be required for deliberation on issues necessary for the advancement of the regional markets. Conflicts Political unrest and perceived adverse impacts of certain projects on the economic and social activities in some countries have led to slow progress in the implementation of some projects that are aimed at further fostering the regional pool. For instance, the progress in the construction of the 6,450 MW capacity Renaissance Dam in Ethiopia has been affected by the concerns of some countries within the Eastern Africa Power Pool. The dam is being constructed on the Blue Nile River in Ethiopia and is expected to significantly increase the country’s electricity generation capacity. However, Egypt and Sudan have expressed concerns about the impacts on water security. The Dam is being built on the Blue Nile River which is a major tributary of the Nile River that serves as a crucial water source for Egypt and Sudan both for drinking, agriculture, and hydropower. The dispute over the dam has strained the diplomatic relations between Egypt, Ethiopia, and Sudan. Although the three countries have engaged in intense diplomatic negotiations and put in efforts to resolve the conflict, disagreements over water allocation, dam filling, and potential economic and environmental impacts have led to a breakdown in trust and increased tensions between the countries. Quick resolution of this conflict will be key to improved energy exchange among the member nations. 42

https://dailytrust.com/presidency-why-nigeria-exports-electricity-to-benin-togo-niger/.

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8 Building for Regulated Structural Reforms in Electricity Markets Across Africa The European Union has signalled leverage on advancements in the electricity power pool markets through the introduction to the European Commission, for “Electricity market design” earlier discussed, alongside a wider reform introduced in June 2023 on Wholesale Energy Market Integrity and Transparency (REMIT). The proposal sets out to support fair and open wholesale energy markets deterring market manipulation (and speculations). To oversee REMIT and possible breaches—the Agency for the Cooperation of Energy Regulators’ role depicts inspections and investigations against REMIT’s targeted goals. The priority remains, as with the energy transition, to create systems that are regulated with the future energy ecosystem development in mind. Therein encompasses the crucial role of policymakers, national leaders, market operators, and consumers to ensure sustainability. Above this, market and grid resilience must be accorded to support the energy transition (and future energy demand). Therefore, various strategies can accommodate the evolving market anticipated demand. Some key considerations include: 1. Integration of Renewable Energy: Foremost, the integration of Renewable Energy is reflective of the several global policies to defossilise and increase the percentage of renewable sources in grid transmission. As identified across the development of African Power Pools, transmission constraints remain a major challenge. Likewise, bilateral contracts dominate the trading arrangements in SAPP with up to 70% of the energy traded in the 2019/2020 trading period. This case is not replicated across the other pools due to infrastructure constraints and thus requires initial financing through multilateral agreements between participating countries. 2. Flexibility and Adaptability: Besides contract agreements with terms and conditions for operating an interconnected grid, a regulatory framework (annex or otherwise) is necessary. Participating countries must design market frameworks to be flexible (for renewable energy development) and adaptable to accommodate changing market conditions, emerging technologies, etc. This may include incorporating flexibility to adopt mechanisms for promoting demand response programmes, energy storage, consumer demand, pricing mechanisms, etc. 3. Market Transparency, Monitoring, and Efficiency: As witnessed with the EU—setting benchmarks for market transparency allows for better pricing mechanisms across countries, promoting competition. Furthermore, transparency enhances market liquidity and supports efficient resource sharing through Market Performance Reports. Monitoring and evaluation of market performance promote an ariel-view of components of the interconnections. As demonstrated within the existing pools in Africa, this efficiency is lacking due to inadequate existing installed generation capacity and poor infrastructures within the member countries. For maximised efficiency, during seasonal peak periods, countries with

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hydropower can optimise that generation while in drier seasons, increased solar radiation poses a benefit. 4. Capacity Development and Multilingual Operations: For most power pool markets—bilingual challenges among regulators pose a concern. Within the West African Power Pool alone, there is a consideration for 4 languages (Spanish, French, English, and Portuguese). More so, when we go border under the African Single Electricity Market (AfSEM). Besides navigating the region with the language complexities—building capacity and network operators to meet future demand for electricity markets can be set, through capacity building and other programmes across electricity markets. 5. Market Design for Ancillary Services: Incorporation of ancillary services such as frequency regulation, voltage control, and system reliability support in maintaining grid stability. Again, with complex interconnectivity—available real-time energy data allows regulators and system operators to identify shortages and increases transparency and optimisation. As established in the AfSEM roadmap—it is key that utilities are at the forefront of participation in the electricity market. African electricity utilities must understand the substantial structural and business operations for accountability, reduction of technical losses, and efficiency in payment systems, alongside other measures. 6. Long-Term Electricity Planning: Supply interruptions are not uncommon, especially across Africa; incorporating cross-electricity trading should avoid supply interruptions. These interruptions can exist from local distribution systems not being optimised to ensure African countries benefit from a level of reliability within the interconnectivity. To signal investments towards infrastructure development is possible through a detailed long-term electricity market plan. However, clear trustworthy policies supported by regulatory frameworks and enabling economic environments are essential for long-term planning and investment exploration.

9 Bridging the Gap in Africa’s Electricity Connectivity Through the Africa Single Electricity Market (AfSEM) The African Union which comprises 55 member states introduced the Continental Power System Masterplan (“The Continental Masterplan”) as a flagship to ramp up energy access for sustainable energy across the continent. Within this Continental Masterplan is the blueprint for The African Single Electricity Market (AfSEM). AfSEM launched in 2021 is an avenue to interconnect all 55 African Union Member States under the remit of the African Continental Free Trade Area (AfCFTA).43 The AfCFTA has been described as the beginning point and soul of comprehensive African integration through the free movement of people, goods, and services. Leveraging AfCFTA allows for a collective demonstration of ownership towards 43

https://www.nepad.org/agenda-2063/flagship-project/african-continental-free-trade-area-afcfta.

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Table 5 Distribution of capacities per energy source by African power pool in 202046

the development of electricity across the continent. The AfSEM although still in its infancy sets out to be the world’s largest continent-wide energy trading initiative44 covering a population of more than 1.3 billion people. The implementation of AfSEM is to be supported by The Continental Masterplan currently being developed by the African Union Development Agency—New Partnership for Africa’s Development (AUDA-NEPAD). The Masterplan establishes to carry out modelling and planning process within the five African Power Pools through data-sharing, knowledge transfer, and smart technology utilisation. A Techno-Economic Data and Assumptions report predicts that through commitment, the reduction in the overall capacity of non-renewable resources could drop from 78% in 2020 to 52% by 2040, and renewable increasing from 22% in 2020 to 48% by 2040.45 Important low-hanging project realisation like the Grand Inga Hydropower Project within the Democratic Republic of Congo can be developed for regional and continent-wide benefits (Tables 5 and 6). Since its inception, AUDA-NEPAD concerning AfSEM has developed contingent plans, through the 2021 AfSEM Policy Paper and Roadmap47 which depicts reflections from over 100 stakeholders across the continent. A regulated and structured integrated operation of Power Pools lowers the need for capacity reserve and enhances system reliability. As raised, each region already has its relevant power pool which completes the first step for integration. For deeper integration to a “One 44

African Union Launches World’s Largest Single Electricity Market (AfSEM) https://au.int/en/ pressreleases/20210604/african-union-launches-worlds-largest-single-electricity-market-afsem. 45 Resource Assessment and Techno-economic Data and Assumptions: EU Global Technical Assistance Facility for the Sustainable Energy https://cmpmwanga.nepad.org/files/Comms/News/Del3_ Resource_Assessment_and_Techno_economic_Data_and_Assumptions_FactSheet.pdf. 46 Ibdn. 47 Supported by the EU Technical Assistance Facility (TAF) for Sustainable Energy under the project Support to the ‘African Union for the Harmonisation of the Electricity Market in Africa’.

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Table 6 Comparison of Proportion of the population with access to electricity (2017)48

Grid for Africa”49 there must be better generation and interconnection plans at the regional level towards (1) Access to electricity, (2) Resilience grid systems especially following harsh weather scenarios, (3) an Accelerator for green energy, and (4) encouraging competitive electricity prices. Besides regulatory frameworks, a successful AfSEM by 2040 demands Harmonisation between the AU Member States (signalling alignment of electricity policies, legislation, and regulation at the national level; the establishment and development of Power Pools and Regional Regulators at the regional level; interconnection and operation of the regional electricity markets at the continental level). The success is also layered on adequate supply chain optimisation for Generation and Transmission networks and the Liberalisation of markets that promote competition. In July 2023 (Cotonou, Benin),50 stakeholders convened to chart the path for The Continental Master Plan and the AfSEM. The chart addresses deliverables for (1) Baseline and Reference Case Planning Scenario Results, (2) Additional Planning Scenario and Sensitivity Analysis Results Report, (3) Economic Cost Benefit Analysis of Power Generation, and (4) Transmission Investments, and the Transmission Network Studies Report. The AfSEM recommends the introduction of 10-year Transmission Network Development Plans for the power pool to be reviewed every two years, as introduced in the Preparations, Institutional Strengthening, and Governance preconditions with the roadmap. 48

African Union, Agenda 2063 https://www.nepad.org/agenda-2030. Programme for Infrastructure Development in Africa (2020), Projects Dashboard, https://www. au-pida.org/pida-projects/. 50 Africa’s Energy Experts Forge a Common Strategy to Transform the Continent’s Power Infrastructure https://www.nepad.org/news/africas-energy-experts-forge-common-strategy-transf orm-continents-power-infrastructure. 49

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As established, to ensure progress, there must be checks and balances, which would ultimately be managed through defined principles implemented by Regulators. To this, the AfSEM roadmap provides a concise identification of an Institutional Setup. This Setup involves a Ministerial Council, an Oversight Committee, a Strategic Planning Coordination Unit, and an Electricity Forum. The main take-out from the description of each Institutional limitation is they actively feed responsibility down the Institutional setup hierarchy with regulations and the regulators as active stakeholders.

10 Conclusion Energy security is national security—and electricity interconnections provide the infrastructure that enables solidarity between regional operating markets. As the world continues to industrialise but faces several security threats (environmental, social, political, or pandemic), it is important to provide feed-in regulated electricity market supply. As extensively raised, a future-proof wholesale electricity market is determined with a holistic approach. An approach that considers technological advancement, market design, and most importantly regulated policies and frameworks. Unlike in European countries and Asian markets where cross-border electricity trade is considered operational, African markets must plug up the priority for a region that functions through connections. Cross-Border Electricity Trade can particularly be instrumental for Africa where the need for energy access is dire, coupled with international pressure(s) to increase renewables in the energy mix and defossilise towards meeting SDG7 and overall energy access for all. Africa can draw lessons and not imitate existing connection markets for the development of her Cross-Border Electricity Market.

References African Development Bank Group. (2023). Africa’s 2030 Universal electricity access goal: “Clock running out”, says Adesina in Berlin’ (AfDB, 30 March 2023). https://www.afdb.org/en/newsand-events/press-releases/africas-2030-universal-electricity-access-goal-clock-running-outsays-adesina-berlin-60074. African Union. Towards an African single electricity market —AfSEM: Policy paper and Roadmap 2040. https://cmpmwanga.nepad.org/files/Comms/Publications/AfSEM_Policy_ Paper_and_Roadmap_2040_03122021.pdf. Africanews. Undersea power cable to connect Egypt to Europe via Greece’ (Africanews). https:// www.africanews.com/2022/09/15/undersea-power-cable-to-connect-egypt-to-europe-via-gre ece//. Ashkenaz, A. (2022). UK in huge energy boost: Deal struck with Morocco for ‘game-changing’ underwater cables’ (Express, 26 April 2022). https://www.express.co.uk/news/science/1600972/ energy-crisis-uk-morocco-underwater-cables-solar-wind-xlinks. Castagneto Gissey, G., Guo, B., Newbery, D., Lipman, G., L. Montoya, Dodds, P., Grubb, M., & Ekins, P. (2019). The value of international electricity trading. A report commissioned by Ofgem. University College London.

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East African Power Pool. (2023). EAPP quarterly bulletin—June 2023. Issue # 5. The EAPP Practitioner’s Quarterly Bulletin. Economic Consulting Associates (ECA). (2009). The potential of regional power sector integration: South African Power Pool (SAPP) transmission & trading case study. a report submitted to ESMAP. http://www.esmap.org. Musaba, L. (2009). Energy trading in the SAPP. SAPP Coordination Centre, Zimbabwe. http:// www.sapp.co.zw/. Oseni, M. O., & Pollitt, M. G. (2014). Institutional arrangements for the promotion of regional integration of electricity markets: International Experience. World Bank Policy Research Working Paper 6947. Power Summit 2021. Electric Decade. https://powersummit2021.eurelectric.org/electric-decade/. SAPP (Southern African Power Pool). (2013). SAPP market monthly performance report, November 2013. http://www.sapp.co.zw/mreports.html. SAPP (Southern African Power Pool). (2020). SAPP annual report, 2019/2020. http://www.sapp. co.zw. SAPP (Southern African Power Pool). (2021). SAPP annual report, 2020/2021. http://www.sapp. co.zw. SAPP (Southern African Power Pool). (2023). SAPP monthly market report. http://www.sapp. co.zw. United Nations Framework Convention on Climate Change (UNFCCC). (2015). Paris agreement. WAPP (West African Power Pool). (2021). Annual Report. http://www.ecowapp.org. WAPP (West African Power Pool). (2012). Annual activity report of the WAPP secretary general., (pp. 1–48). http://www.ecowapp.org/?page_id=10.

Oghosa Erhahon is a qualified lawyer and holds a Masters in Energy and Environmental Law from Nottingham Law School, UK. She has experience working as a policy professional on intersectionality topics across electricity markets, energy transition and sustainability and most recently carbon markets. She previously worked with the Global Hydrogen Diplomacy Programme and is a co-author of the acclaimed ‘Touching Hydrogen Future’ book. She has published several works including Power in Nigeria: The Decade of Gas (2020), Natural Gas and the Energy Transition – Implications for the Nigeria Energy Industry (2022), Lighting Africa’s Path to Sustainable Energy Transition: The Role of Green Bonds (2023) and others. Oghosa has also given sector-wide presentations, workshops, interviews and a TEDx Talk on Carbon Neutrality in 2021. She is a notable contributor to Social Impact and Climate Change work streams and provides support as a Discourse, Reporting and Communications Advisor. Musiliu O. Oseni is an Energy Economist and currently serves as the Vice Chairman and Commissioner for Market Competition and Rates at the Nigerian Electricity Regulatory Commission (NERC). He holds a PhD in Business/Energy Economics from the University of Cambridge, an MSc in Energy Economics and Policy from the University of Surrey, UK, and a BSc in Economics from the University of Ibadan, Nigeria. Musiliu is an honorary research associate at the University of Cambridge Energy Policy Research Group and a fellow at the Energy for Growth Hub. Ivie Ehanmo is a renowned multi-jurisdictional expert in the energy sector with over 15 years’ experience. She is the Founder of Electricity Lawyer (EL), which seeks to promote energy access through knowledge access. Ivie has consulted for global institutions such as the World Bank, U.S Agency for International Development (USAID), United Kingdom Nigeria Infrastructure Advisory Facility (UKNiAF), etc. Ivie holds a PhD in Electricity Law and Regulation, and is a Doctoral Researcher at the Centre for Energy, Petroleum and Mineral Law & Policy, University of Dundee.

Cross-Border Power Trading Model for SSA; Challenges and Opportunities of Operationalizing Power Pools in Africa Ishmael Ackah, Eric Kyem, Crispin Bobio, and Albert Okanto Ohene

Abbreviations GDP IEA SDG LPG KWh SSA AfDB GJ LMICs CAGR IRENA UNSD OEC IMF WHO CAGR GW IRE IFC

Gross Domestic Product International Energy Agency Sustainable Development Goal Liquefied Petroleum Gas Kilowatts per hour Sub-Saharan Africa African Development Bank Gigajoules Low-and Middle-income Countries Compound Annual Growth Rate International Renewable Energy Agency United Nations Statistics Division Observatory of Economic Complexity International Monetary Fund World Health Organisation Compound Annual Growth Rate Gigawatts International Journal on Engineering Applications International Finance Corporation

I. Ackah (B) Public Utilities Regulatory Commission, Accra, Ghana e-mail: [email protected] E. Kyem PURC, Accra, Ghana C. Bobio · A. O. Ohene Accra, Ghana © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_16

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TWh MG AEEP CSP IAEA PWh OMVS SAPP SADC DAM ECOWAS ICC WAPP CAPP ECCAS EAPP IUMoU IGMoU COMESA COM IRB AFUR NEPAD AFREC AEIS APUA AFSEC AFRAC ARSO PAQI ERERA EREA EWURA

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Terawatt hours Megawatts Africa-EU-Energy Partnership’s Concentrated Solar Power International Atomic Energy Agency Petawatt-hours Organisation pour la Mise en Valeur du Senegal Southern African Power Pool Southern African Development Community Day Ahead Market Economic Community for West African States Information and Coordination Centre West African Power Pool Central African Power Pool Economic Community of Central African States Eastern African Power Pool Inter-Utility Memorandum of Understanding Inter-Governmental Memorandum of Understanding Common Market for Eastern and Southern Africa Council of Ministers Independent Regulatory Board African Forum of Utility Regulators New Partnership for Africa’s Development African Energy Commission Africa Energy Information System Association of Power Utilities in Africa African Electrotechnical Standardization Commission African Accreditation Cooperation African Organization for Standardization Pan-African Quality Infrastructure ECOWAS Regional Regulatory Authority Energy Regulators Association of East Africa Energy and Water Utilities Regulatory Authority

1 Introduction 1.1 Energy Access One of the most crucial factors in a country’s development is the availability of modern energy to the critical sectors of its economy. It is, undoubtedly, an engine of growth for the economies of the world and energy consumption tends to grow alongside gross domestic product (GDP) (Beteryeb, 2017). It manifests itself through key

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segments of the economy such as manufacturing, transport, education, and mining which rely heavily on power supply to aid their proper functioning (Ackah et al., 2014). In their article (Stern & Cleveland, 2004) portend that the quantity of energy consumed by a country, region, or economy can be used as an index to measure its level or direction of growth. In developing nations, having access to electricity is vital for reducing poverty. Electricity, which is both accessible and available, would allow developing nations the opportunity to engage in income-generating enterprises that would greatly lessen their suffering. Therefore, having access to electricity is necessary for millions of people to achieve minimal levels of living. Oseni (2012) notes that the critical sectors of the economy, particularly the heavily energy-dependent sectors, suffer the most where the supply of electricity is not sufficient enough to support production. Under the circumstances of insufficient or nonavailability of electricity supply, industries and corporations with the financial muscle to afford the use of power plants to enhance their electricity supply operate at higher production costs than their peers (Bhattacharyya, 2014). Eventually, such entities are out-matched in the market by their competitors in other global jurisdictions that operate at substantially lower costs as a result of a consistent power supply, which translates to favourable prices for their manufacturing products. Furthermore, having access to dependable electricity can guarantee that labour can be used in place of the capital, ultimately leading to an increase in production. Compared to labourintensive methods, capital-intensive methods of production may boost production quickly (Koranteng Nkansah, et al., 2022). It thus, beckons the question; “what constitutes energy access”? Is it a subject of the type of energy supply, quality of energy supply, amount of power available for use, or the capacity of the power to be used for certain activities? Globally, there is no generally accepted standard or single definition adopted by energy sector practitioners to represent what energy access stands for. In order to set a benchmark for the tracking of the progress of Sustainable Development Goal (SDG) 7(1), the International Energy Agency (IEA) captured energy access as “a household having reliable and affordable access to both clean cooking facilities and to electricity, which is enough to supply a basic bundle of energy services initially, and then an increasing level of electricity over time to reach the regional average”. Essentially, any definition of energy access encompasses the basic common elements (affordability, adequacy, reliability, convenience availability, etc.) critical to economic and social development which, in most times, are referred collectively as “quality of supply”.1 According to Bilgic (2017), some experts in the literature have argued that the threshold for energy access in the case of cooking, should be defined as the transition from biomass (firewood, charcoal) to Liquefied petroleum gas (LPG), gas, or electricity, while the connection to the national grid should suffice as the threshold in the case of other energy requirements. However, it is clear that in reality, many lowincome houses that obtain electricity from the grid simply power a few light bulbs for a few sporadic hours each night, rendering the majority of the development gains attributed to increased access to energy inaccessible. Thus, (Volpon & Xavier Junior, 1

https://www.iea.org/articles/defining-energy-access-2020-methodology.

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2020) argues that access to electricity should entail a household having initial access to sufficient power to a basic bundle of energy services, at least a minimum of several lightbulbs, phone charging, and possibly a fan or television with the capacity of the service growing over time. According to IEA, the basic electricity requirement of a household with access to electricity if they can get 1250 kWh per year per household with standard appliance and 420 kWh of efficient appliance (Pérez-Fargallo et al., 2020). This criterion is however not met by the majority of African countries, with several of them performing poorly in terms of energy access. According to the World Bank, over a billion of the world’s population gained access to electricity since 2010.2 Despite this, there hasn’t been much progress in expanding access to power annually. The average yearly increase in access to electricity from 1990 to 2010 was 0.61%; from 2010 to 2012, it rose to 0.75% before falling back to 0.33% in 2013. It was 0.83% from 2014 to 2016, and the target rate is 0.9% from 2016 to 2030 (World Bank, 2018). In Sub-Saharan Africa (excluding South Africa), the average annual use of power is 175-kilowatt hours (kWh), compared to 2100 kWh in developing Asian economies, 2855 kWh globally, 5100 kWh in Europe, and more than 10,000 kWh in the United States (Pistelli, 2018).

1.2 Electricity Gap in SSA The African Continent is the least electrified continent with nearly over 600 million people without electricity supply and the World Bank projects that, unless deliberate and drastic measures are emphatically pursued, over a half billion people in SubSaharan Africa (SSA) will still be without electricity in 2030 at the current pace of electrification.3 The gaps in the electricity sector in the continent are in diverse forms. In this article, we approach the electricity gaps in Africa from the challenges that are fraught with the sector. These gaps include a gap between revenues and expenses of the power utilities, the gap in overall investment in the sector, and the gap between the electricity supply and demand.

1.2.1

Demand and Supply of Electricity in Africa

Despite the fact that the continent’s much anticipated economic growth largely hangs on its energy industry, its people and businesses still lack the stable domestic energy supply that they need. In recent decades, a number of sub-Saharan African (SSA) nations have been among the top ten fastest-growing nations in the world, making Africa one of the continents with the fastest-growing economies in the world (African 2

https://www.worldbank.org/en/news/press-release/2021/06/07/report-universal-access-to-sustai nable-energy-will-remain-elusive-without-addressing-inequalities. 3 https://www.worldbank.org/en/news/press-release/2022/11/09/world-bank-group-announcesmajor-initiative-to-electrify-sub-saharan-africa-with-distributed-renewable-energy.

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Development Bank [AfDB], 2018). Between 1990 and 2010, the average annual economic growth rate for Africa was 3.6% (3.4% in SSA), compared to 2.8% for the rest of the globe. Following the sluggish growth of the 1980 and 1990s, a time linked with recommendations for economic liberalization made by the Washington Consensus, Africa’s economic performance has dramatically improved since 2000. Africa’s average annual GDP growth rate during the past 20 years has been 4.6%, albeit it is not comparable to that of Asia (Arkebe, 2022). Thus, since 1980, Africa’s energy needs have grown in line with the successes made in economic growth (Adom et al., 2018). According to the IEA’s, 2023–2025 electricity demand outlook, Africa’s electricity demand after falling by 3.3% in 2020 as a result of the economic effects of the COVID-19 outbreak, was expected to rise by 5.7% in 2021. It further estimates that electricity demand in the region grew by 1.5% in 2022 down from the previous forecast of 4% (IEA, 2023). Subsequent to some improvement in the production capacity of some countries in the continent like South Africa, and somewhat improved macroeconomic conditions, the continent’s electricity demand growth is anticipated to recover in 2023 to over 3%, with an average of 4.5% regional increases for 2024 and 2025. Majority of these energy demand needs and projections may not be satisfied due to the low energy supply, which has subsequently widened Africa’s energy deficit. A report by the Mo Ibrahim Foundation4 underscored that the need for Africa to “expand its energy supply is pressing and an inescapable” need. The potential priority areas opened to Africa to address the current energy demand needs, particularly in the field of energy demand management, including investing in more generation capacity, new energy sources (such as renewable energies), and energy demand management. The regional differences in per capita energy demand is very obvious on the continent. In sub-Saharan Africa as a whole, primary energy consumption per person is falling, but modern energy consumption per person is rising at an average of 2.5% annually to about 10 gigajoules (GJ) in 2030. Although the usage of modern fuels per person in North Africa has increased by 0.7% annually to 44 GJ, it still remains well below the current global average of 70 GJ, 100 GJ in China, and 120 GJ in the European Union. The demand for energy across the continent varies from countryto-country while at the same time varying on the rural-city dynamics. Despite the fact that energy poverty is pronounced in both rural and urban areas in the continent, there are significant differences. These reflect variations in earnings, modes of living, and access to the energy infrastructure. In cities, households use more than three times as much oil and electricity than households in rural Africa (IEA, 2019). In all, households account for more than half of the rise, driven by both new household connections and increased ownership of electrical equipment and other appliances among those who already have access to it. The majority of the remainder comes from industry (IEA, Africa Energy Outlook, 2022). The effect of climate change is already manifesting in various forms across the African continent. African leaders have initiated steps, including signing the Paris Agreement to cut down on carbon emissions. Thus, the use of renewable energy 4

https://mo.ibrahim.foundation/sites/default/files/2022-09/energy-transition.pdf.

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resources to spur up the supply of electricity is imminent. Africa has invariably enormous potential for renewable energy, and its governments have already realized how important they can be in bridging the continent’s energy gap. Subsequently, African governments increased public investment in renewable energy by more than three times between 2010 and 2019, from $13.4 billion to $47.0 billion. Africa’s total energy production increased by 153% between 1970 and 2020, from 12.53 exajoules to 31.72 exajoules, mostly as a result of rising demand from the continent’s expanding population and growing export market. Africa’s generation of renewable energy increased by more than 1,600% from 0.19 exajoules in 1970 to 3.17 exajoules in 2020. In 2020, 10% of the primary energy produced on the continent came from hydro, solar, wind, biofuels, and biomass (IEA, Africa Energy Outlook, 2022). Due to the large resources of sun, wind, hydro, geothermal, and biomass, Africa has a great potential for producing renewable energy. However, there are still a number of obstacles to overcome before these resources can be fully utilized, including creating the necessary infrastructure, expanding financial access, and setting sensible rules and goals to diversify the continent’s energy mix.

1.2.2

Revenues and Expenditure of Utility Companies

The effort and desire to accelerate private acceptance and investments in the generation and distribution of electricity within the sub-region is subject to addressing issues relating to cost-reflective tariffs. According to (Blimpo & Cosgrove-Davies, 2019), the cost of connecting an extra household in Africa is unprofitable and serves as a disincentive for utilities to simplify the connection procedure and remove obstacles. Eberhard and Shkaratan (2012) and Global Petrol Prices (2021) state that residential tariffs in the region can be as high as or even higher than prices in Observatory of Economic Complexity (OEC) countries, with the average cost of supplying 1 kWh in Sub-Saharan Africa being higher than in other low-and middle-income countries (LMICs). According to evidence cited by (Blimpo & Cosgrove-Davies, 2019), distribution utilities in many African nations are unable to make a profit with connection costs under US$200 without increasing their tariffs. For instance, if connection fees or other expenses are excluded, adding one more consumer at the lifeline pricing would result in losses for distribution utilities in the majority of African nations. Consequent to the unprofitability of power distribution among the utility companies, many African governments have resorted to subsidies to cushion the burden of the real cost of distributing electricity to the end-user. However, these subsidies have only led to unbridled fiscal debts thwarting the growth of the sector (Batinge et al., 2019). African governments have, over the years, used these subsidies as social interventions but failed to ensure constant flow of revenues to the various utility companies as required to make them financially viable for their operations. According to a recent International Monetary Fund (IMF) analysis on energy subsidies, Sub-Sahara African electricity tariffs often only cover 70% of the cost recovery price. It is further noted that in sub-Saharan Africa, where electricity accounts for 70% of all energy

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subsidies, this level of power subsidy equates to close to 2% of GDP, or close to 4% of total government revenue (Briceño-Garmendia & Shkaratan, 2011). If African governments allowed electricity prices to grow to the cost-of-service level, about half of the required expenditures for the power sector could be covered by domestic resources, allowing the remaining funds to be provided by multilateral donors or the private sector (Thomas Klug et al., 2022). For some low-income countries, bridging the investment gap using domestic resources certainly seems impossible, but most other nations could be able to cover a sizable percentage of their investment demands by eliminating energy subsidies, reducing some losses starting with the expenses of restoring plants and equipment as well as those associated with operations and maintenance. In other words, African nations could increase access to electricity through energy infrastructure investments by simply bridging the gap between the tariff utilities charge and their actual cost-of-service.

2 Energy Resource Potential in SSA The African continent is richly endowed with diverse, unevenly distributed, and an enormous quantity of energy resources from hydrocarbons to renewable energy. Africa, which has around 1.3 billion inhabitants and is home to a fifth of the world’s population, only accounts for 6% of the world’s energy demand and 3% of its power demand (IEA, IRENA, UNSD, World-Bank, & WHO, 2021). Less than 27% of the population has access to modern electricity, and there are still large gaps in access to it, especially in rural regions. Industrialization and agricultural production also lag, with the exception of the export of raw materials. On the heels of rising oil and natural gas production, as well as bioenergy, primary energy supply in Africa has grown at a compound annual growth rate (CAGR) of about 2% per year over the past decade (2008–2018) (UNSD, 2018). Natural gas, by far, is the fastest-growing source of energy in Africa’s power sector, increasing at a CAGR of 4.2% per year from 2011 to 2019 and has long been used for power generation in natural gas-rich countries such as Algeria, Libya, and Nigeria, along with several North, West, and Central African countries possessing domestic gas resources sufficient to feed their own power sector. The Southern African countries on the other hand which are rich in coal reserves have heavily relied on coal for their power generation and, together with Morocco and Mauritius, have accounted for the substantial consumption of coal on the continent. (IRENA & AfDB, 2022) opines that coal, natural gas, and oil, together account for about 77% of Africa’s total electricity generation during 2019. The renewable energy potential in African nations is enormous and mostly untapped. According to estimates from (AfDB, 2017), the continent has a stunning 1000 GW of solar energy, 110 GW of wind energy, 15 GW of geothermal energy, and 350 GW of hydroelectric energy. With an estimated 520 GWh/year of wood supply from excess forests, bioenergy potential is also considerable (IREA, 2015).

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With different potentials, solar energy is particularly promising in terms of regional dispersion because it might be used almost anywhere in Africa. The continent benefits strategically from this abundant supply of renewable resources, and the prospect of producing significant amounts of renewable energy might be a game-changer for a number of nations. While hydropower has long been a possibility, other renewable energy sources have lately achieved commercial viability. In terms of economic competition with fossil fuel alternatives, wind and solar energy in particular are currently dominating the production of huge amounts of renewable electricity across the continent.

2.1 Wind Energy Potential An International Finance Corporation (IFC) study in 2020 revealed that Africa has an astounding technical wind potential of approximately 180,000 terawatt hours (TWh) per year, which is sufficient to meet the continent’s electricity needs 250 times over (Munyengeterwa & Whittaker, 2021); however, only 0.01% of this potential has been utilized by capacity from projects that are now under construction and deployed.5 As of 2020, 6,500 MW of wind energy capacity had already been deployed, while 1,321 MW was being built. Onshore wind is the second-lowest installed cost of all the renewable energy sources, after solar, at $1,473/kW. The country with the most wind power is South Africa, followed by Egypt, Senegal, and Morocco. The study by (Munyengeterwa & Whittaker, 2021) further indicated that a great wind energy potential was found in places that previously had not been spoken about in literature including Namibia, Botswana, Cameroon, Mauritania, Madagascar, Tunisia, Cote d’Ivoire, and Cameroon. The best wind resources are frequently found close to demand centres, including towns and cities. In addition, early evening and early morning hours are when electricity consumption is at its maximum in many of these places. Due to the fact that solar generates the majority of its energy during the day, wind is the ideal complement to solar. Further investigation by the Africa-EU-Energy Partnership’s (AEEP) Policy Brief Wind Energy: “Joining Forces for an African Lift-Off ”, reveals that many of the crucial elements needed to properly exploit Africa’s wind resources are already in place. However, a gap analysis reveals that five areas need serious attention: 1. 2. 3. 4. 5.

5

A vision of manageable, dynamic grid balancing; Enabling regulators and bankable Power Purchase Agreements; Bold action to fund and build a greatly expanded grid; Localization roadmaps at regional African level; Capacity building.

https://africa-eu-energy-partnership.org/wp-content/uploads/2022/02/AEEP_Wind_Energy_Pol icy_Brief_2022-3.pdf.

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2.2 Hydropower Potential Hydropower potential in Africa is enormous. According to a report by the AfDB in 2021, the continents hydropower potential is projected to be over 340 GW, of which only 11% is utilized in comparison to 53% in Europe, 39% in North America, 26% in South America, and 20% in Asia.6 The potential is present throughout the entire continent, but it is significantly higher in the East, Central, and Southern Regions of Africa than in West and North Africa. The continent has enormous opportunity for new project development because just 11% of its hydropower capacity is currently being used. One of the cheapest sources of electricity, hydropower generates 17% of the electricity produced in Africa. At $1,704 per kW, the hydropower installed cost is competitive. A projected 37,251 MW of installed hydroelectric capacity already exists, while another 20,403 MW is being built. In nations like Malawi, the Democratic Republic of the Congo, Ethiopia, Mozambique, Uganda, and Zambia, hydropower generates more than 80% of the nation’s electricity.

2.3 Solar Energy Potential The enormous potential of solar energy in Africa is undeniable, given its location between latitudes 37 °N and 32 °S, spanning a vast area that crosses the equator and both tropics. The average solar irradiation is generally evenly spread throughout much of Africa, with the exception of the Sahara, Sahel, the South-West tip of the continent, and the Horn of Africa, which experience very high sunshine levels. African countries enjoy a high number of sunshine hours per year. Therefore, governmental limitations and financial constraints notwithstanding, solar technology might provide heat and power to almost everyone, even in the most distant areas. Solar photovoltaic (PV) installation costs are the lowest of all renewable energy sources at $995 per kW, enabling solar energy to provide electricity to remote places without the need for costly grid infrastructure. Installing concentrated solar power (CSP) is still the most expensive type of renewable energy. As of 2021, 9,604 MW of solar capacity has been installed in Africa, while 7,158 MW is still being built. The largest solar capacity is currently shared by South Africa, Egypt, and Algeria. By the year 2050, according to BP, solar energy will account for about 30% of energy output in Africa.7

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https://www.afdb.org/en/documents/multinational-africa-hydropower-modernization-programproject-appraisal-report. 7 “Energy Outlook” BP. Accessed on July 11, 2023. https://www.bp.com/en/global/corporate/ene rgy-economics/energy-outlook.html.

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2.4 Bioenergy Africa has a wide range of bioenergy feedstocks to suit its growing need for contemporary energy services, hence the majority of African nations are gradually implementing bioenergy technology. According to (IRENA, 2017), there is significant resource potential to enhance liquid biofuel supplies in Sub-Saharan Africa in a sustainable manner. In addition to planting sugarcane, other grasses, and trees on land made available by more intensive crop cultivation and decreased waste and losses in the food chain, larger volumes of agricultural residues can also be collected more systematically for use as biofuel feedstock. Agriculture-related waste is produced more frequently as food production rises to suit the dietary needs of expanding populations. Significant amounts would be left over if sustainable shares of these residues were fully collected while considering residues that are fed to animals for the production of meat and dairy (ibid). In 2050, some type of bioenergy is anticipated to make up more than 10% of the renewable energy supply. 1,709 MW of installed bioenergy capacity now exists, while another 151 MW is being built. Estimated installation cost for bioenergy is $2,141 per kilowatt.

2.5 Nuclear Power Currently, South Africa is the only country in Africa with a commercial nuclear power plant. 1,940 MW are produced by South Africa’s lone nuclear power plant, while 100 MW are being built in South Sudan. Ghana, Kenya, Egypt, Morocco, Niger, Nigeria, and other countries are considering using nuclear energy and have contacted the International Atomic Energy Agency (IAEA) to determine how prepared they are to start a nuclear programme. A number of nations, including Algeria, Tunisia, Uganda, and Zambia, are examining the viability of nuclear power.

3 Overview of Power Situation in SSA 3.1 Demand for Electricity in SSA According to the International Energy Agency (IEA), energy demand in the subregion increased by nearly 35% between 2000 and 2012, reaching 352 TWh. The region is largely considered to have the lowest per capita electricity consumption rate of any major world area, at 488 kWh per year. In North Africa, where access to power is over 90%, electricity demand surged by more than 80% between 2000 and 2012, reaching 1,500 kWh per capita. Nigeria and South Africa have the highest demand in Sub-Saharan Africa, accounting for almost 40% of total demand (IEA,

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2014). According to the IEA, the population of Sub-Sahara Africa is forecast to grow from 1 billion in 2018 to over 2 billion by 2050, with power demand expected to climb at a 3% annual rate. The McKinsey’s power sector analysis for Sub-Saharan Africa estimated that energy demand stood at 423 TWh in 2010 and is expected to grow at a 4% annual pace through 2040 (Castellano et al., 2015). The IEA, on the other hand, estimated that total demand for electricity in Africa would rise at a 4% annual pace through 2040, reaching 1,570 TWh, including captive power estimates. The discrepancies in previous energy demand estimates, particularly due to untrustworthy data on captive power and self-generation, increase the uncertainty of demand projections, which are critical in determining the future architecture of the region’s power system. This is why the open-source modelling tool in Sect. 8 was created to estimate power system capacity development pathways in the face of limited data availability and access.

3.2 Electricity Generation Mix in Africa The energy needs of Africa are also met by a combination of fossil fuels and renewable energy sources, which primarily come from solid biomass (wood), animal dung, crop waste, hydro, geothermal, wind, and solar energy. Between 1970 and 2020, the proportion of fossil fuels in the continent’s energy mix decreased marginally, while the makeup of the various fossil fuels that make up the energy mix has changed dramatically. Oil made up 48.1% of the continent’s total energy consumption in 1970, followed by coal at 41.3% and natural gas at 1.8%. However, in 2020, these fuels made up 38.7, 22.1, and 29.6% of the total energy mix, respectively. Renewable energy use in Africa rose from 8.8%, at a fairly modest rate, to 9.6% of total energy consumption over this time (Fig. 1).

Fig. 1 Africa’s energy mix

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The energy mix among African countries are sharply varied even within the various regional blocs. Among the Southern African bloc, fossil fuel is heavily used among countries such as South Africa, Swaziland and Mauritius whereas countries like Namibia and Mozambique generate their energy largely from renewable sources (Baye et al., 2021). In Central Africa, (Parthan, et al., 2010) notes that, with the abundance of water bodies in the Democratic Republic of Congo and Central African Republic, the share of fossil fuels will decline as more electricity is being generated from hydro sources. The West African story is no different from the Central African bloc. Majority of countries in West Africa heavily rely on fossil fuels for electricity generation. However, there has been a general increase in the share of renewable energy sources in countries such as Ghana, Mali, and Guinea. Cote d’Ivoire and Nigeria have continued to increase their fossil fuel share, despite attempts to abide by the Kyoto protocols of reducing emissions. East Africa offers some of the highest solar PV potential on the African continent. According to IRENA research, East Africa has the highest solar PV potential on the continent, with a capacity of 220 petawatt-hours (PWh) per year. The potential in Southern Africa is estimated to be around 160 PWh. Despite this potential, solar still accounts for less than 2% of East Africa’s electricity mix. Hydro dominates at approximately 54%, and its share is continually increasing rapidly, followed by natural gas at approximately 14%, and geothermal at approximately 12%. For instance, with the gradual implementation of the Grand Ethiopian Renaissance Dam, which will provide over 5,000 MW, once finished, Ethiopia will soon have even more hydropower. With the construction of the new Julius Nyerere Hydropower Station, Tanzania will also gain roughly 2,000 MW.

4 Power Pools in Africa: WAPP, CAPP, EAPP, and SAPP. Africa has a long history of cross-border energy cooperation. African countries have been signing bilateral power purchase agreements since the 1950 and 1960s. This includes bilateral power agreements in the late 1950s between Zaire (now the Democratic Republic of the Congo, DRC) and Zambia; in the 1960s between Zambia and Zimbabwe; and about the same time between Nigeria and Niger, with Nigeria being Niamey’s primary source of energy supply (Medinilla, 2019). Other bilateral power purchase agreements have been signed subsequently including: the agreement for Ghana to export electricity from the Akosombo hydroelectric dam to Togo and Benin, Zimbabwe and South Africa purchased electricity from Mozambique’s Cahora Bassa project in 1975. Senegal, Mali, and Mauritania collaborated on the production of hydropower from the Senegal river basin as part of the Organisation pour la Mise en Valeur du Senegal (OMVS) (Medinilla, 2019). Over time, a lot more African countries entered into bilateral contracts with their neighbouring countries for the exchange of electricity to foster development. One major challenge that the bilateral contracts could not address was the intermittent change in electricity demand. In the early 1990s, some African countries

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commenced a reform of their energy sectors and the liberalization of transmission and distribution networks (Woolfrey, 2016). During the same period, power pooling was seen by technical experts as a means of balancing the unequal distribution of energy production potential across regions with expanding consumption demands (Medinilla, 2019). Power pools have the potential to improve electricity transmission infrastructure, generation capacity, ultimately, to find a practical means of transferring surplus capacity across nations to balance peak demand.

4.1 Southern African Power Pool (SAPP) The SAPP, which was established in 1995 and, is today, the most sophisticated regional power pool in Africa, was the continent’s first power pool. The establishment of SAPP was influenced by a severe drought that struck Southern Africa in 1992, hydropower producers in the Southern African Development Community (SADC) like Zambia, Malawi, and Zimbabwe suffered greatly (Benson & Clay, 1998). This affected the generation of electricity in these countries. In order to reduce the effect of drought and overreliance on hydroelectricity generation, these countries collaborated with South Africa, a country with a great amount of coal deposits to export its excess power to the neighbouring countries. Therefore, the push to establish a regional pool was motivated by a convergence of interests between South Africa, which sought to increase its income from its energy surplus, and importing nations, who sought to ensure a supply of dependable and reasonably priced electricity for their citizens and industries in the event that hydropower capacity was limited. At the SADC summit in Kempton Park, South Africa, in August 1995, the member governments of SADC (with the exception of Mauritius) signed an intergovernmental memorandum of understanding for the establishment of an electricity power pool in the region with the name “Southern African Power Pool (SAPP)”. The agreements governing the SAPP are the Inter-Governmental Memorandum of Understanding, the Inter-Utility Memorandum of Understanding, the Agreement Between Operating Members, and the Operating Guidelines. The SAPP has twelve member countries represented by their respective electric power utilities organized through SADC. The SADC has established committees and boards that operate under the Directorate of Infrastructure, the highest decision body. There are five main sub-committees (the Environmental Sub-Committee, the Markets Sub-Committee, Coordinating Centre Board, the Operating Sub-Committee, and the Planning Sub-Committee) are strategically positioned to achieve the mandate of the SADC. These sub-committees operate under the Management Committee which also reports to the Executive Committee (Fig. 2). The market structure for SAPP in its early days was purely bilateral. This was to meet long-term demand and supply challenges in neighbouring countries. Additionally, these contracts were to foster developments in the southern part of Africa through the provision of reliable electricity. With increasing levels of electricity demand, the SAPP introduced a short-term energy market and later added on a Day

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Fig. 2 Regional market structure

Ahead Market (DAM) and Forward Physical Market (FPM). To protect the interest of market participants, the SAPP has developed two main documents to govern the market and these are the DAM Book of Rules and DAM Participation Agreement.

4.2 West African Power Pool (WAPP) The Economic Community for West African States (ECOWAS) created the West African Power Pool at its 22nd Summit of the Authority of ECOWAS Heads of State and Government to enhance electricity trading between member countries. In furtherance, the twenty-ninth Summit of the ECOWAS Authority of Heads of State and Government held in Niamey in 2006 adopted the Articles of Agreement for WAPP organization and functions, which also gave the WAPP Secretariat ECOWAS membership as a specialized organization. In July 2006, ECOWAS and the Government of Benin signed a Headquarters Agreement, granting it the diplomatic immunity necessary for it to efficiently function throughout all of the ECOWAS Member States. Upon the adoption of the Article of Agreement, all member countries of ECOWAS automatically became members of WAPP with the exception of Cabo Verde due to its geographical location.

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The WAPP has four governing bodies and these are the General Assembly which is the highest decision-making body and its constituents are all member utilities. The next in command is the Executive Board, the body responsible for the implementation of all the decisions of the General Assembly. The Organizational Committees are the committees that work under the Executive Board by providing support and expertise to it. The last body is the General Secretariat which is responsible for the administration of WAPP (Fig. 3). The ECOWAS Heads of State and Government’s ultimate objective for WAPP is the creation of a vibrant regional electricity market. The Information and Coordination Centre (ICC) of WAPP General Secretariat is responsible for overseeing operations pertaining to the Regional Electricity Market. The ICC launched a number of initiatives in an effort to develop the regional power market, with a primary focus on the following key projects:

Fig. 3 WAPP regional market structure

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– Construction of an operating station, supply and installation SCADA/EMS/MMS/ WAMS; – provision of a technological, organizational, legal, and economic framework that would permit the sale and procurement of electricity in the sub-region in a transparent way and at competitive prices; – implementation of the Project for Synchronization of WAPP Interconnected Power Systems; – distribution utilities performance improvement (distribution loss reduction project)

4.3 Central African Power Pool (CAPP) The Central African Power Pool (CAPP) is an established institution of the Economic Community of Central African States (ECCAS) in 2003 with the intent of creating and managing a regional cross-border electricity exchange based on the development of the sub-region’s tremendous hydropower potential. It was designed to implement energy policies, monitoring studies, construction of community infrastructure, and managing electricity exchange within its member countries. Burundi, Angola, Cameroon, Equatorial Guinea, Chad, Gabon, Sao Tomé and Principe, the Democratic Republic of the Congo, and the Republic of the Congo are all members. The institution was to leverage the enormous availability of hydropower potential in the region for its power supply. However, the actualization of this drive is hindered by a lack of visibility on facts linked to the potential and state-of-the-art of hydropower development in the member nations (Kenfack et al., 2021).

4.4 Eastern African Power Pool (EAPP) The Eastern African Power Pool is an establishment that consists of 11 member countries in its current state. It was initially formed in 2003 with an Inter-Utility Memorandum of Understanding (IUMoU) and an Inter-Governmental Memorandum of Understanding (IGMoU). In 2005, the GMoU was modified to include more countries in the region after the realization of the potential of the power pool. The countries that signed up were the Democratic Republic of Congo (DRC), Ethiopia, Burundi, Egypt, Rwanda, Kenya, and Sudan. The key objective was to enhance electricity trade in the region to achieve sustainable growth and development. The Common Market for Eastern and Southern Africa (COMESA) Summit in 2006 officially recognized EAPP as a specialist agency or institution of electrical power in the area, starting with the 2005 MOU agreement. The EAPP has eleven utilities companies and one electricity provider (SINELAC) as members.

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Fig. 4 Electricity infrastructure in SSA

As part of the mandate of EAPP is to secure power supply for the region through the optimization of power resources in the region, improving infrastructure in generation, transmission, and distribution. The IGMoU and IUMoU are the current enabling legal mechanisms of EAPP. These agreements provide EAPP with a purpose and an administrative framework. The EAPP’s governance structure is made up of The Council of Ministers (CoM) to help with the achievement of its objectives. The highest governing body of the EAPP is the Council of Ministers (COM), which provides supervision and strategic direction. The executive body in charge of developing policies and overseeing their implementation is the Steering Committee (SC), which is made up of the leaders of the member utilities. A General Secretariat (GS) in Addis Abeba, Ethiopia, is responsible for managing day-to-day operations. The Independent Regulatory Board (IRB), which answers directly to the COM, is the body responsible for regional regulation under the EAPP. The leaders of each member nation’s national regulatory commissions make up the IRB. In nations without a regulatory agency, ministries of energy serve as the IRB’s representative (Fig. 4).

5 Electricity Generation Capacity The electricity system in Sub-Saharan Africa has an installed generation capacity of approximately 90 GW, roughly 0.1 kW per capita, in sharp contrast to wealthier economies, which have installed capacities ranging from 1 to 3 kW per capita (IEA,

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2014). South Africa accounts for about half of the region’s capacity, with Nigeria accounting for 13 GW. Due to poor maintenance and fuel shortages in Nigeria, only about 6 GW (about 40%) of the capacity is operating. Many Sub-Saharan African countries have installed capacity of less than 1 GW (IEA, 2014). Except for South Africa, Sub-Saharan Africa’s total installed generation capacity is just 28 GW, which is similar to Argentina’s (Castellano et al., 2015). The lack of generation capacity in the region is partially a result of the region’s low level of power system investment, which now makes up around 0.5% of its GDP (Panel, 2015). A recent study found that, excluding solar energy, sub-Saharan Africa has the capacity to instal around 1 terawatt (TW) of generation capacity using a variety of various technology alternatives. More than 70% of the region’s present generation comes from fossil fuels, with only about 20% coming from hydropower (Cartwright, 2015). Estimates of resource potential that reflect the region’s richness of renewable resources conflict with this dependency on fossil fuels. The grid generation capacity in West Africa is estimated to be 20 GW, whereas oil distillate accounts for about 30%, 20% is accounted for by hydropower, and more than 50% is from gas (mostly in Nigeria). Most of the electricity used in some nations, including Benin, Burkina Faso, and Niger, is imported. Due to the reliance on gas and oil for power generation in 2012, the average cost of power generation was around $140 per MWh (IEA, 2014). The lowest grid generation capacity in Sub-Saharan Africa is found in Central Africa, where it stands at 4 GW. The region’s main energy sources are hydropower at 65%, gas at 15%, and oil distillate at 20%. Due to the low cost of hydropower generation, the average cost of generating in 2012 was about $95 per MWh (IEA, 2014). The installed grid generation capacity in Southern Africa is higher than that in the rest of Sub-Saharan Africa. South Africa alone accounts for 80% of Southern Africa’s total 58 GW. There is just 12 GW available in the rest of Southern Africa, with some coal, oil, and gas as well. Coal accounts for 85% of South Africa’s energy production, with the remaining percentages coming from oil distillate (6%), hydropower (5%), and nuclear (4%). It is the only country in Africa to have nuclear power reactors, each with a 2-GW capacity. Due to the extensive usage of cheap coal and hydropower, the average cost of grid generation in Southern Africa in 2012 was roughly $55 per MWh (IEA, 2014). East Africa has a grid generation capacity of around 8 GW, with hydropower accounting for 50%, oil distillate accounting for 45%, and geothermal and gas accounting for the remainder. Kenya has around 250 MW of geothermal resources. Despite the region’s affordable hydropower generation, the average cost of generation in 2012 was $110 per MWh due to the high utilization of expensive oil generation plants (IEA, 2014).

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6 Regulation and Regulatory Institutions of the Electricity Market The electricity regulatory climate in the sub-region is not fully established and operational as is with the individual countries. A few regional blocs have established regulatory institutions however, not much has been done to fully operationalize them. Alternatively, the association of regulatory institutions in the region has been working in some of the regions to cater for the needs of substantive regulatory institutions.

6.1 African Forum of Utility Regulators (AFUR) In November 2001, AFUR was formed as a formal association of national regulators. Its goals are derived from the New Partnership for Africa’s Development (NEPAD) Framework Document Clause 110, which recognizes the establishment of AFUR and regional regulatory groups. The goals include active help in achieving effective regulation by encouraging harmonization and sharing lessons among regulators, as well as capacity building.

6.2 African Energy Commission (AFREC) The African Energy Commission (AFREC) is a specialized energy agency of the AU with the mission to coordinate the creation of energy policies and programmes, develop and maintain the African Energy Statistics, mobilize financial and technical support for member states, and carry out capacity building initiatives. The six (6) primary broad programmes/thematic areas that make up AFREC’s new strategy are used to carry out its mandate: The Africa Energy Information System (AEIS); Energy Efficiency; Bioenergy; Oil and Gas; Energy Transition.

6.3 Association of Power Utilities in Africa (APUA) APUA is a club of chief executives and managing directors of African power companies responsible for the generation, transmission, and distribution of electrical power. It was founded in 2012. APUA was first founded in 1970 as the Union of Producers, Transporters, and Distributors of energy in Africa (UPDEA) to promote the rapid provision of energy services to their people through cooperation and collaborative efforts. The group, headquartered in Abidjan, is made up of 53 utilities from 43

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nations across the continent. The re-launch in 2012 was intended to assist the organization to refocus on its mission while also improving governance. The APUA also organizes the power pool forum.

6.4 African Electrotechnical Standardization Commission (AFSEC) In order to advance electro-technical standardization and aid in the industrialization of Africa’s electro-technical sector, AFSEC was founded in 2008 as a subsidiary organization of AFREC. Along with the African Accreditation Cooperation (AFRAC), the Intra-Africa Metrology System (AFRIMETS), and the African Organization for Standardization (ARSO), AFSEC is a member of the Pan-African Quality Infrastructure (PAQI) programme under the auspices of the AUC Department of Trade and Industry.

6.5 Independent Regulatory Board (IRB) of East Africa Power Pool (EAPP) The Independent Regulatory Board was created on March 20, 2012, in Addis Ababa, Ethiopia, by the Council of Ministers of the pool as a regional regulatory body for the EAPP. The IRB has not yet been officially established and is currently in the early stages of development. The EAPP is now hosting the organization’s secretariat.

6.6 ECOWAS Regional Regulatory Authority (ERERA) This regional regulatory organization was established as a specialized body of the Regional Economic Community (REC) under an ECOWAS Supplemental Act to oversee the growth of the cross-border trade in electricity, establish technical standards, and support the harmonization of legal and regulatory norms, among other things. It has the legal authority to exist and the means to carry out its judgments.

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6.7 Energy Regulators Association of East Africa (EREA) A Memorandum of Understanding among East African regulatory organizations founded EREA in 2008. It adopted a constitution in 2014 and was properly incorporated in Tanzania, where it is hosted by the Energy and Water Utilities Regulatory Authority (EWURA), the water and energy regulator. Its primary mission is to integrate energy policies, regulations, and regulators’ technical standards and codes of practice, as well as to increase regulatory capacity in the region. EREA’s goals are to “strengthen economic, commercial, social, cultural, political, technological, and other ties for rapid, balanced, and sustainable development in the East African Region”.

7 Challenges to Creating and Sustaining Power Pools. Efforts to create and uphold a power pool is not without repercussions. Creation of a (future) regional market requires considerable changes not just between but also inside nations. It also calls for a change of perspective away from short-term goals and towards long-term rewards through occasionally pricey investments. It might be challenging to put these changes into practice. Sector changes are not carried out in a vacuum and are impacted by a variety of different national and regional factors. As a result, the performance of power pools varies greatly between nations and areas and is dependent on a variety of factors beyond only surplus capacity and infrastructure. The biggest hindrance to the development of regional markets is insufficient electricity generation capacity. The current situation has it that electricity generation capacity is not evenly distributed, with a few countries having a surplus in capacity while others have inadequate supply. This means that imports will be in an unstable and reliant state. In WAPP, countries with bilateral contracts to export power are Ghana, Nigeria, and Cote D’Ivoire. The same could be said of SAPP, since a significant portion of its electricity generation capacity is in South Africa. Additionally, a major disincentive for member states to go regionally is the fact that electrification is still far from complete in majority of the countries. Beside the limitation on the electricity generation capacity, there is a major concern for transmission and distribution network infrastructure in the power pools. This is even a huge hindrance to the exportation of power to areas with demand. While investments are being made everywhere at once, the member states’ energy prospects are often quite unequal. It is impossible to forecast where the African regional energy maps in West, Southern, and Eastern Africa will ultimately settle because of this, the very volatile costs of fossil fuels in recent years, and the rapid technical improvement in different parts of the renewable energy industry. Additional to the aforementioned challenges with the establishment of regional markets is the pressing issue of liquidity flow. WAPP, in its 2021 report on the “Compliance with the Directives on Securitization of Cross Border Trade”, indicated

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that there are some counties that are defaulting payments to their suppliers. This situation, thus, undermined the development and confidence in protecting investors.

8 Conclusion and Recommendation While the African continent is blessed with enormous energy resources, particularly renewable resources that could facilitate the goal of universal access to electricity, the average access rate remains lower than the global access rate. The analysis of the energy potentials of the continent suggests there is a greater opportunity for regional power pools to thrive. The establishing objectives of the various power pools present a greater opportunity for countries with less resource base as a result of the unequal distribution of energy resources. In other words, where countries have the financial strength but do not have the resource base, a regional market system can serve as an avenue for countries to make a trade-off that benefits all parties. However, given the numerous challenges as enumerated in the study, African countries will require a spirited dedication and commitment to infrastructural investment to ensure the effective implementation of regional markets. There is therefore the need for countries and interested parties to collaborate and develop the various regulatory and infrastructural differences to ensure the smooth implementation of regional markets.

References Ackah, I., Adu, F., & Opoku-Takyi. R. (2014). On the demand dynamics of electricity in Ghana: do exogenous non-economic variables count? International Journal of Energy Economics and Policy., 4(2), 149–153. Available on www.econsjournal.c. Adom, P. K., Amakye, K., Abrokwa, K. K., & Quaidoo, C. (2018). Estimate of transient and persistent energy efficiency in Africa: A stochastic frontier approach. Energy Conversions and Management, 166, 556–568. AfDB. (2017). The new deal on energy for Africa. A transformative partnership to light up and power Africa by 2025. Update of Implementation. AfDB. African Development Bank [AfDB]. (2018). African Economic Outlook 2018. Arkebe, O. (2022). Retrieved from ODI: https://odi.org/en/insights/will-the-2020s-be-the-decadeof-africas-economic-transformation/ Batinge, B., Musango, J., & Brent, A. (2019). Perpetuating energy poverty: assessing roadmaps for universal energy access in unmet African electricity markets. Energy Research and Social Science, 55, 1–13. Baye, R. S., Ahenkan, A., & Darkwah, S. (2021). Renewable energy output in sub Saharan Africa. Renewable Energy, 705–714. Benson, C., & Clay, E. J. (1998). The impact of drought on sub-Saharan African economies: A preliminary examination (Vol. 401). World Bank Publications. Beteryeb, C. (2017). The effect of population growth and energy intensity on electricity consumption in Ghana. Master’s Thesis, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana.

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Bhattacharyya, S. (2014). Viability of off-grid electricity supply using rice husk: A case study from South Asia. Biomass and Bioenergy, 68, 44–54. Bilgic, G. (2017). The measure and definition of access to energy systems by households and social effects of lack of modern energy access. Energy and Environmental Engineering, 5(1), 1–7. Blimpo, M., & Cosgrove-Davies, M. (2019). Electricity Access in Sub-Saharan Africa: Uptake, Reliability, and Complementary Factors for Economic Impact. Africa Development Forum series. World Bank. https://doi.org/10.1596/978-1-4648-1361-0. License: Creative Commons Attribution. Briceño-Garmendia, C., & Shkaratan, M. (2011). Power tariffs: caught between cost recovery and affordability. World Bank Policy Research Working Paper No. 5904, pp. 62. Cartwright, A. (2015). Better growth, better cities: Rethinking and redirecting urbanisation in Africa. The New Climate Economy Working Paper. Castellanos, J. G., Walker, M., Poggio, D., & Pourkashanian, M. (2015). Modelling an off-grid integrated renewable energy system for rural electrification in India using photovoltaics and anaerobic digestion. Renewable Energy, 74, 390–398. Eberhard, A., & Shkaratan, M. (2012). Powering Africa: Meeting the financing and reform challenges. Energy Policy, 42, 9–18. IEA. (2014). Africa Energy Outlook: A focus on energy prospects in Sub-Saharan Africa. World Energy Outlook Special Report. IEA. (2019). Africa Energy Outlook: A focus on energy prospects in Sub-Saharan Africa. World Energy Outlook. IEA. (2022). Africa energy outlook. International Energy Agency (IEA). IEA. (2023). Electricity market report 2023. International Energy Agency. IEA, Irena, UNSD, World-Bank, & WHO. (2021). Tracking SDG 7: The Energy Progress Report. World Bank. IREA. (2015). Africa 2030: roadmap for a renewable energy future. IRENA. (2017). Biofuel Potential in Sub-Saharan Africa: Raising food yields, reducing food waste and utilising residues. International Renewable Energy Agency, Abu Dhabi. IRENA, & AfDB. (2022). Renewable energy market analysis: Africa and Its Regions. International Renewable Energy Agency and African Development Bank. Kenfack, J., Nzotcha, U., Voufo, J., Ngohe-Ekam, P. S., Nsangou, J. C., & Bignom, B. (2021). Cameroon’s hydropower potential and development under the vision of Central Africa power pool (CAPP): A review. Renewable and Sustainable Energy Reviews, 151, 111596. Klug, T.W., Hou, M., Jeuland. M., Beyene, A.D., Toman, M.A., Hassen, S., Mekonnen, A.,… Klooss, B. (2022). A review of impacts of electricity tariff reform in Africa. Energy and Economic Growth. Koranteng Nkansah, H., Suleman, S., Ackah, I., Amarh, B., Eduah, D., & Jinapor, J. (2022). Determinants of electricity demand in Cote D’Ivoire, Ghana, Nigeria and Senegal. Energies, 15, 4998. https://doi.org/10.3390/en15144998. Medinilla, A., Byiers, B., & Karaki, K. (2019). African power pools. The European Center for Development Policy Management. Munyengeterwa, L., & Whittaker, S. (2021). Powering Africa’s sustainable development through wind. Development and a Changing Climate. Oseni, M. (2012). Power outages and the costs of unsupplied electricity: evidence from backup generation among firms in Africa. Ph.D. Thesis, Cambridge University, Cambridge, UK. Panel, A. P. (2015). Power people planet: Seizing Africa’s energy and climate opportunities: Africa progress report 2015. Parthan, B., Osterkorn, M., Kennedy, M., Bazilian, M., Monga, P., & et al. (2010). Lessons for low-carbon energy transition: Experience from the renewable energy and energy efficiency partnership (reeep). Energy for Sustainable Development, 14(2), 83–93. Pérez-Fargallo, A., Bienvenido-Huertas, D., & Rubio-Bellido, C. (2020). Energy poverty risk mapping methodology considering the user’s thermal adaptability: The case of Chile. Energy for Sustainable Development, 58, 63–77.

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Ishmael Ackah is the Executive Secretary of Ghana’s Public Utilities Regulatory Commission (PURC). He chairs the Legal and Regulatory Committee of the Electricity Market Oversight Panel. He worked with the United States Agency for International Development (USAID) West Africa Energy Program, Deloitte, the Energy Commission, Ghana and the Africa Centre for Energy Policy. He’s an Adjunct Lecturer at University of Ghana Law School, GIMPA and University of Cape Coast. As a researcher, he has consulted for the AfDB, NRGI, SNV, UN, DFID/ GOGIG, Energy for Growth Hub among others. He holds a PhD in Energy Economics from the University of Portsmouth-UK, an MSc. From University of Surrey, UK, and a Bachelors from University of Professional Studies, Ghana. Eric Zunouh Banye is an international development management professional with experience in programmes and project designs and management across different sectors and countries. He is PMP certified and he is currently a PhD Candidate in Project Management at the Ghana Institute of Management and Public Administration (GIMPA). His research interest includes sustainable development, strategic management, project governance, resource access, and efficiency. Crispin Bobio is an Energy Economist with a knack for research and data analysis, spanning over 6 years with a number of peer reviewed journals. He holds MSc in Energy Economics and his research works basically seeks to investigate the many ways of deploying affordable, clean and secure energy to the very poor in society. He has a strong background in quantitative and qualitative data analysis and very conversant with STATA, ATLAS-ti, EVIEWS, NVIVO, Power-Bi and OXMETRICS data management tools in my research. Albert Ohene Okanto is currently the Senior Energy Trading Analyst at the Electricity Company of Ghana Limited. He is also a member of the power purchase agreement review committee of the Electricity Company of Ghana. He formerly worked with the Energy Commission of Ghana as an Assistant Statistician. At the Energy Commission, Albert was assigned to the Electricity Market Oversight Panel Secretariat (EMOPS) where he coordinated research and reviewed data for publication. At the Energy Commission, he was a member of the Market Rules Review Committee and Ancillary Service Pricing Review Committee.

Competitiveness and Sustainability of Electricity Markets in the ECOWAS Region: Evolution of Reforms, Regulations Challenges, and Markets Integration Charly Gatete

1 Introduction The evolution of electricity markets around the world shows two major trends: the liberalisation of initially centralised national markets that allows more competition in production and distribution and at the same time the formation of electricity interconnections or electricity pools leading to the creation of regional electricity markets. The competition that accompanies this dual development promotes electricity exchanges between stakeholders and thus makes cross-border trade between countries increasingly attractive. Therefore, this suggests, on one hand, the implementation of national regulations favourable to more competition in national markets and, on the other hand, as interconnection capacities increase, a shift from national regulation to regional regulation of the electricity market. The major challenges facing this transformation of electricity systems and markets are competitiveness and sustainability. The objective of this paper is to analyse the process of deregulation of national markets and the construction of competitive markets within the ECOWAS region. It identifies the progress and challenges and the conditions for coupling national markets to the regional market. The article proposes some policy recommendations to increase/ensure high competitiveness and sustainability of electricity markets in the ECOWAS region. The approach used is based on both theoretical analysis and analysis of policy documents, implemented regulations, and secondary data to analyse completions and make the most comprehensive assessment possible of the state and evolution of electricity markets in the region. C. Gatete (B) ECOWAS Regional Electricity Regulatory Authority (ERERA), Energy Commission Building, Airport Residential Area, Ghana Airways Avenue, Accra, Ghana e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_17

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The article is organised into three parts. The first part of the article describes the theoretical framework and presents a literature review on the issue of the competitiveness of electricity markets. It also presents methodologies that can be used to study the competitiveness of markets in general and electricity markets in particular. The second part presents an evolution of national markets and the construction of the ECOWAS regional electricity market. It presents the various reforms undertaken in the Member States to liberalise the sector. The construction of a regional electricity market in coexistence with national markets requires the coupling of the latter. Thus, the third part discusses the coupling of national markets to a regional competitive market. This part begins by presenting the challenges and gaps in terms of developing competitive and sustainable markets in the region, then presents the conditions for coupling and proposes a strategic model adapted to the region and recommendations.

2 Liberalisation and Electricity Market Competitiveness This first section proposes a theoretical view of the issue of liberalisation and reforms in the electricity sector and the competitiveness of electricity markets.

2.1 Competitiveness in Liberalised Electricity Markets Liberalisation is the process of removing government control and regulations to create markets for competitive entities. In the electric power industry, liberalisation refers primarily to creating new regulatory structures to ensure independence; and introducing competition in: – ‘Generation’ sector (as opposed to the transmission and distribution wires business), and – ‘Supply’ sector (aggregators) to offer supply directly to retail customers, varying from large commercial and industrial through to residential end-use customers – Recent trends introduce P2P with distribution-level embedded generation transacting through trading platforms (blockchain) Competition in these sectors of the industry is thought to allow lower cost investment and operation compared to regulated integrated utility services. In liberalised markets, four kinds of products can be traded: transmission service by some owners of transmission lines; energy which is the main product sold to consumers; capacity in MW by Transmision and System Operator (TSO) and ancillary services generally proposed by TSO or System and Market Operator (SMO) (Table 1). This section on the competitiveness of electricity markets views market liberalisation reforms through the lenses of market rules and institutions, market structures, and price formation. It analyses the characteristic of competitive markets with

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Table 1 Electricity products in liberalised markets Products

Description

Transmission

–Service that allows integrations of loads and generating resources using high-voltage transmission facilities –Monopoly service sold at regulated rates

Energy

–Output of generating resources to serve load –Sometimes sold forward in bilateral contracts, day-ahead markets, or intraday markets

Capacity

–MW capability of a unit standing ready to meet planning obligations

Ancillary Services

–Services necessary in support of the transmission of electric power between generation and load, maintaining a satisfactory level of operational security and with satisfactory quality of supply. They include: (1) Active power reserves for balancing (2) Other: e.g., Reactive power for voltage support/Black start/Islanding capability

the concepts of market attractiveness and market accessibility as the main axes of analysis (Table 2). The concept of ‘attractiveness’ describes the relative potential for profitable operation in the national electricity markets, which would determine the companies’ and the traders’ selection of foreign markets for entries. More specifically, the attractiveness of markets is analysed as their business potential in static terms (market size) and dynamic terms (market growth and price differentials). The concept of market accessibility focuses on barriers to entry, including technical barriers (interconnection capacity, number of entry points), regulatory barriers (deterring rules of access), and commercial and industrial barriers (in particular the positions of incumbents, the potential opportunities to acquire firms). On this point, market accessibility is shaped by the performances of regulatory frameworks. The assumption is that, on the one hand, the market developments will depend on business potential in each national market, resulting from market size and market growth. On the other hand, market developments depend on the opportunities for entry defined by the new regulatory regime. The accessibility of each market is viewed either for contractual sales or company acquisition and conversely, the possibilities offered to incumbents for preserving their dominant position and deterring entries. Besides the regulatory framework, the accessibility of the markets is partly conditioned by the incumbents’ position—a high level of market power among existing generation and supply companies is generally associated with the absence of a marketplace, which impedes new entrants.

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Table 2 Characteristics of competitive markets Attractiveness

Accessibility

Size

Overall, segment

Technical accessibility Interconnections, internal congestion

Growth

By segments • Industrial • Commercial • Power generation, etc

Regulatory accessibility

Degree of openness: • Type of TPA • System operation unbundling • Transmission pricing • Regulatory institutions

Profitability

Price level

Commercial accessibility

Wholesale price index exchanges: • Bourses • Hubs • Pools

Industrial and capital market accessibility

• Balancing market • Horizontal integration • Vertical integration (production/ import-supply) • Regime of ownership

2.2 Electricity Market Analysis Through Standard Market Theory and the Contestable Market Theory Before discussing the evolution and integration of national electricity markets, this part proposes a literature review on the competitiveness of electricity markets. This analysis is based on market theories. We supposed the following two basic conditions or hypotheses: technical infrastructures for the trade, regulation, and market rules are implemented, and industrial structures determine the effectiveness of the competition and the market efficiency, via the possibility of balancing dominant firms’ market power in the oligopolistic game. Two concurrent theories of market theory are used to characterise the competition profile of the different national markets: the standard market theory and the contestable market theory. Concerning standard market theory, the competition must imply several producers and suppliers in competition on the different levels of the value chain, under the hypothesis that the structure determines the players’ conduct and the efficiency of the markets (Armstrong et al., 1994; Newbery, 2001). In this case, in the electricity industry, conditions of competition are the following: • The competitive activities—power generation, import on the upstream side; wholesale and retail supply on the downstream side—must be horizontally deintegrated among a significant number of market players. This means that in part

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of each value chain, there are several players. For example, several IPP, many wholesale or retail suppliers, etc. • The organisation of the interface between the regulated and competitive parts of the chain of activities must limit the exercise of market power by incumbents. Given the technical peculiarities of the energy networks and the consecutive necessity of technical coordination by the system operator, the risk of market power exercised by the operator suggests separating the competitive activities from the transmission system operation, it is not the case in telecommunications where such a technical source of market power does not exist. • Vertical integration between generation and supply under a hierarchical structure (or long-term contract) must be limited to reduce entry barriers. For these authors, horizontal concentration and vertical integration between upstream and downstream activities could be preserved if nondiscriminatory access to the respective grids is guaranteed to the incumbents’ potential competitors with a complete unbundling of the networks which could be justified in this sense. From this point of view, in the electricity and gas industries, it would be sufficient to have credible threats exerted under these conditions by the foreign competitors which are themselves incumbents in the adjacent national markets that avoid divestitures of the incumbents’ production assets. The theory of contestable markets (Baumol et al., 1982), insists upon the technical and jurisdictional conditions of credible competitive threat and virtual competition rather than the structural conditions. It opposes its conclusion to the competitive model by considering that the main objective of competition could be simply reached by suppressing the legal and technical barriers to entries. In essence, a contestable market is one with firms facing zero entry and exit costs. This means there are no barriers to entry and no barriers to exit, such as sunk costs and contractual agreements. So, the existence, or absence, of sunk costs and economies of scale are two significant determinants of contestability. Based on these two criteria, natural monopolies as the electricity market before the liberalisation are the least contestable markets. With no barriers to entry into a market, it can be argued that the threat of entry is enough to keep incumbents ‘on their toes. This means that even if there are a few firms, or a single firm, as with oligopolistic and monopolistic markets, a market with no barriers will resemble a highly competitive one. In this case, the competitiveness of a monopolistic or oligopolist electricity market depends on the openness of the market. We can agree that an electricity market where private producers can enter and exit without barriers/sunk costs to produce and sell power, or a market with several distributors can be appreciated as a competitive electricity market to a certain degree. In practice few markets are perfectly contestable, however, there are degrees of contestability. With lower barriers to entry and exit, the market will be more contestable. Contestable markets are likely to have competitive prices (Wilkens and Wimschulte, 2007) and profitability and respond to the public interest. Indeed, a contestable market can bring the benefits of competitive markets such as: (i) Lower prices (allocative efficiency) (ii) Increased incentives for firms to cut costs (x-efficiency)

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(iii) Increased incentives for firms to respond to consumer preferences (allocative efficiency). However, there could also be significant economies of scale because the theory of contestable markets doesn’t require there to be 1000 s of firms as is the case in the electricity market. Therefore, policymakers and regulators should not just look at the degree of concentration, but also the degree of contestability and how easy it is to enter the market. Regulators in the privatised industries have often focused on removing barriers to entry, rather than breaking up big firms to avoid big firms to have market power which is counterproductive for competition in the market. So, the contestable market theory has influenced the views and methods of regulators. Opening a market to potential entrants both producers and distributors may be sufficient to encourage efficiency and deter anti-competitive behaviours. For example, regulators may force incumbents to open up their infrastructure to potential entrants or to share technology—as in the case of telecommunication and broadband operators being allowed to use the incumbent’s existing infrastructure. It was the case in France in 1997 when the regulator forced the national TSO: RTE (electricity transmission network) to allow new entrants to use its infrastructure and grid. These examples show also that competitiveness and contestability of the electricity market increase through the regulator’s actions to limit barriers to exit or entry into a market. We can identify four factors which determine the contestability of a market. There are: 1. Sunk Costs: If sunk costs are high in a market this makes it difficult for new firms to enter and leave. Therefore, the market will be less contestable. For example, if a new firm builds a generator plant (power plant), that it wouldn’t be able to resell on leaving the market, then this may act as a deterrent. Sunk cost in the electricity market is usually high because of the high costs of the assets (power plant, transformer, transport lines, etc.). This is the main factor that makes the electricity market less contestable. 2. Levels of Advertising and Brand Loyalty. In some markets, if an established firm has significant brand loyalty such as Coca-Cola, Nike, or Facebook, then it will be difficult for a new firm to enter the market. This is because they would have to spend a lot of money on advertising which is a sunk cost. Even if they spend money on advertising it may not be sufficient to change customer loyalty to very strong brands. It depends on the industry; customer loyalty would be low for a product like petrol because it is quite homogenous. But, for soft drinks, people have a greater attachment to their ‘brand’. These factors don’t affect the electricity market because of the homogenously of the product: electricity. However, the process of green certificates or labels awarded to a unit producing electricity from renewable energies can be perceived in a certain way as a form of product differentiation. 3. Vertical Integration If a firm does not have access to the supply of a good then the market will be less contestable. For example, Oil firms could restrict the supply

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of petrol-to-petrol stations, making it difficult for new firms to enter. Regarding electricity market, if you wish to sell electricity to domestic customers, a big issue is whether you can gain access to the electricity grid. Indeed, generally, the national electric grid is a natural monopoly, but government regulation can make sure firms have fair access to the grid. Giving access to different stages of production can make the market more contestable. This is what happened thanks to the reforms in the European electricity markets which made it possible to increase market competitiveness (Wilkens and Wimschulte., 2007) by opening the distribution segment to competition (Glachant, 2018). 4. Access to Technology and Skilled Labour. In some markets or industries like electric car production, it is difficult for new firms to have the right technology. In other markets aircraft producers, they require skilled labour that is difficult to get. This makes these markets less contestable. This factor affects the electricity market less, except for nuclear industries which also require a more qualified workforce than in other power plants. The energy sector reform took a special place in the state support system of the producers. The development of the energy market, based on the openness of the market (entry and exit), the implementation of competitive pricing mechanisms, and the formation of the institutions of open energy trading, is one of the necessary conditions for the competitiveness and efficiency of energy markets in standard and contestable market theories. A competitive market environment formation was identified as one of the main priorities for energy sector development and electricity market liberalisation was seen as an essential condition necessary to guarantee competitive tariffs for energy products for consumers. The following part proposes a discussion on the liberalisation of electricity markets and their impact on competitiveness.

3 Evolution of National and Regional Electricity Markets in the ECOWAS Region Electricity has been historically provided by vertically integrated geographic monopolies, where all four segments of electricity supply—generation, transmission, distribution, and retailing—are provided by the same company. In most developing countries like the ECOWAS countries, these monopoly electricity suppliers are owned and operated by the state, subject to government oversight, through the relevant ministries. In this arrangement, costs are recovered through a regulated rate of return. In many developing economies, there has been a shift from this traditional model to a deregulated model, which involves the unbundling of the vertically integrated monopoly into the functional segments of the industry, the introduction of competition in the generation and supply segments and the introduction of open third-party access to the networks, to better meet the rapidly growing power demand, improve supply reliability, achieve better economic efficiency and reduce total system losses and costs.

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The progressive implementation of these reforms has led the national electricity market of ECOWAS Member States on the path of liberalisation and competitiveness. This section presents in the first part, a comparative analysis of the various reforms in the ECOWAS countries and the evolution of the construction of competitive markets. The second part presents the construction of the ECOWAS Regional Electricity Market (REM).

3.1 National Electricity Markets Reforms in ECOWAS Countries Based on Eberhard, Anton, and Catrina Godinho (2017) analysis, we can identify three periods in the evolution of electricity sector reforms in ECOWAS countries. Period 1990: Structural Adjustment Programmes and Liberalisation of the Sector In the early 90 s, development finance institutions (DFIs), including the World Bank (WB) and the International Monetary Fund (IMF), offered countries conditional loans linked to structural adjustment requirements, which encouraged economy-wide liberalisation, commercialisation, and restructuring. In particular, they have offered some government financing linked to reforms in the electricity sector to adopt the ‘standard model’ to deal with corporate failures (Eberhard and Gratwick, 2008). The reform elements of the ‘standard model’ promoted by DFIs recommended the following: • the marketing of electricity companies and the privatisation of their management; • the restructuring of national monopoly companies to unbundle generation, transmission, and distribution services; • the creation of an independent regulatory system and the adoption of costreflective electricity tariffs; • opening up the sector to private sector participation (PSP); and • the introduction of competition into the market through large-scale acquisitions, to eventually ensure full competition for wholesale and retail customers. The ‘standard model’ reforms have targeted all segments of the electricity value chain in Africa in very different ways. Power companies have undergone restructuring efforts in many countries to streamline incentives and improve operational efficiency by decoupling generation, transmission, and distribution. Most countries have established regulatory entities to oversee the licensing of operators in the sector and to regulate tariffs and pricing. Private capital has been introduced, to a large extent, on the generation side, which can easily accommodate independent power producers (IPPs) to build new power plants and connect to the national grid. Many countries have also experimented with other forms of private sector participation, including concession contracts for the benefit

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of a private entity to manage the electricity company. Competition for the purchase of additional power generation capacity has been mainly through the auction of IPPs. However, the implementation of the structural adjustments proposed under the Standard Model could not always take into account local concerns, visions, and needs or could not be understood by national stakeholders in the sector, so the logic and results resulted in low levels of ownership and support for measures at the local level. The result of this first period of reform remains mixed with state electricity companies which remain for the majority vertically integrated with financial difficulties for several of them due to partial privatisation. The unfinished process of liberalisation of the sector has also been accompanied by the preparation of numerous ambitious policy documents and strategies by the Member States. At this level too, two families of national policies and/or strategies can be identified. For the majority of Member States, this involved the preparation of Political Letters which defined the political will of the States in terms of the development of the sector and its interaction with other economic sectors. Period 2: Liberalisation Policies in Early 2000 Following the process of liberalisation of economies on a global scale through the GATT negotiations and the creation of the WTO, African countries and those of the ECOWAS region in particular continued reforms undertaken in the 90 s for the liberalisation of the sector. After the Structural adjustment programs (SAP) and the incomplete reforms of liberalisation of the sector, the new wind of development through the formalisation of development strategy and economic liberalisation of States has resulted in the electricity sector by an acceleration of reforms for the complete liberalisation of the sector. One of the flagship reforms of this period is the creation of regulatory structures in the Member States. The establishment of an independent regulatory authority aims to create rules-based fair competition for producers, consumers, and private operators in the electricity sector through clear rules and mechanisms for supervising the sector and tariffs reflecting costs for companies. Independence from the state and other interests remains an issue for many electricity regulators in Africa, limiting their ability to effectively carry out their regulatory functions. In addition to the creation of regulatory authorities, opening up Africa’s electricity sector to capital investment flows is often a backstop to reform objectives. IPPs are the fastest-growing private sources of investment in this sector, alongside projects funded by traditional international donors. However, it must be recognised that the transportation segment has not benefited from the same influx of private investment as the production segment, which has proven to be the most open or competitive part of the sector. Only a few countries benefit from some form of private sector involvement in transport (Ghana and Nigeria). Private management has been introduced in the form of concessions, leasing, and comprehensive privatisation programmes for parts of the electricity sector in several countries. African countries have largely retained the traditional structure of integrated monopoly companies in their electricity sector, although most have integrated IPPs.

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Other countries are considering the possibility of restructuring and establishing an independent system operator to assume responsibility for planning generation, purchasing electricity, operating and transporting electricity, and planning for the transmission and distribution of electricity at a lower cost. Thus, countries such as Nigeria, Ghana, and Senegal, which have undertaken important reforms, rank higher than others. The reforms conducted during this period were generally designed to achieve the following goals: – Enhance the performance of the state-owned utilities concerning inadequate expansion, access to electricity, and poor quality of service delivery. – Permit private sector participation in the sector. – Allow charging of cost-recovery prices. – Ensure adequate capital outlay to prevent deterioration of infrastructure. – Promote energy conservation and efficiency. – Encourage interconnection to neighbouring countries, as a way of reducing the high cost of supply. Reforms have brought about energy market liberalisation and the establishment of national legislative and regulatory frameworks to facilitate private sector participation. One of the major achievements of such reforms was the introduction, albeit on a limited scale thus far, of independent power producers (IPPs) and independent power distributors (IPDs). Reforms involved changes in structure, ownership, and management. Structural changes concerned the process of unbundling vertically integrated utilities into separate generation, transmission and distribution entities (vertical unbundling), or unbundling large national utilities into smaller utilities (horizontal unbundling). Period 3: The Renewal of Reforms Towards Total Liberalisation of the Sector With the establishment of the West Africa Power Pool in 2000 with a mission to develop a sustainable interconnected regional electricity supply system to promote the economic growth of the ECOWAS region, several reforms were initiated by the ECOWAS Member States to accelerate the liberalisation of the sector. ECOWAS Regional Electricity Regulatory Authority (ERERA) created in 2008 with the mission to regulate cross-border electricity exchanges between ECOWAS Member States, is a key in the elaboration and implementation of regulation for the development of the regional market, encourages and assists the Member States in the harmonisation and acceleration in the implementation of reforms for market liberalisation. There was then a review of reforms that were accessed on: Allow access to the third party to the national network Unbundling from production activities to distribution Accounting separation for vertically integrated operators Opening up all segments of the value chain to competition Fostering the integration of renewable energy into national and regional markets Fostering private investment in the sector’s value chains

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Regulatory objectives

Phase 3 : Monopoly + liberalization

Phase 2 : Monopoly + opening

Phase 1 : Monopoly Time

Fig. 1 Different periods in reforms and regulatory objectives. Source Author

From the above analysis, we can map the evolution of reforms and regulatory objectives according to the following Fig. 1. Since the first period of the monopoly of public services of the State on the whole value chain of the sector, the policies and regulations have been aimed at protecting the strategic electricity sector, preparing operators for liberalisation, and building the opening of the market to competition. Phase 2 is the period of coexistence between the persistent monopoly of public operators and the entry of new players into the sector, particularly in the generation segment, thanks to reforms. Competition within the sector is gradually increasing. Phase 3 is the period of acceleration of liberalisation reforms to ensure fair trade practices and actions.

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3.2 Regional Electricity Market and Role/Actions of the Regulator ECOWAS Regional Electricity Market Background

ECOWAS Master Plan for the Development of Regional Means of Electricity Generation and Transmission 2019–2033

Source West African Power Pool (WAPP) The ECOWAS Regional Electricity Market (REM) consists of the regional power system and the arrangements that enable the sale and purchase of power among Sellers and Buyers in the region. The regional power system is a combination of power plants producing electricity (i.e., generators), high-voltage substations and power lines transforming and transporting bulk electricity around and through the ECOWAS Member countries (i.e., the transmission system) and medium-/low-voltage substations and lines transforming and delivering electricity services to individual homes and businesses (i.e., the distribution system). Currently, generation, transmission, and distribution services in most ECOWAS countries are provided by regulated, vertically integrated utilities. In addition, some of the national networks are physically connected with neighbouring country systems to allow electric power to be imported and exported across national borders, as appropriate. The regional transmission system is operated by the West African Power Pool (WAPP), which is a group of utilities and power companies established in 2000. The regional power system is composed of 9 Member States that are electrically interconnected but operating as five synchronous or control areas due to system stability issues. The Control Areas (CAs) are groups of the segments of the national power systems of the ECOWAS Member States, established to be part of the Regional Market Institutions for operational purposes. The Control Areas do not take part in the commercial aspects of trading in the region. They are independent of the buyers

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and sellers in the market and must not discriminate in the dispatch operations. The key responsibility of the Control Area operator is to coordinate operations with the Domestic Transmission System Operators (DTSOs) in their Areas in such a way that the flows in the interconnectors with other Control Areas are maintained according to schedule. In line with the provisions of the WAPP Operation Manual, the five such Control Areas are: • • • • •

Côte d’Ivoire-Burkina-Faso, with Cote d’Ivoire as operator Ghana-Togo-Benin, with Ghana as the operator Nigeria-Niger, with Nigeria as the operator Guinea–Liberia–Sierra Leone, with Guinea as the operator Senegal–Mali–Gambia–Guinea–Bissau, with Senegal as the operator.

Since the end of 2023, All the ECOWAS Member States are electrically connected and syncrhonize except Cabo-verde.

Map of WAPP Synchronous Network

But according to WAPP Master plan, two interconnections lines are in the pipeline. • CLSG Project interconnection lines: which is an interconnection line of 1,357-kmlong double circuit high-voltage (225 kV) line to connect the national networks between Cote d’Ivoire, Liberia, Sierra Leone, and Guinea. The interconnection line is commissioned in 2023. • OMVG Project interconnection lines: this is an interconnection line between 1,357-km-long double circuit high-voltage (225 kV) line to connect the national networks of the four countries: The Gambia, Guinea, la Guinea-Bissau, and Senegal. The commissioning was planned for 2022. • North core: it is a green-field regional project designed to build 880 km of 330 kV transmission lines in sections separately owned by three members country

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Over the past few years, the electricity sectors of some of the ECOWAS countries have started the process of restructuring. Also, the regional electricity market has been set up to develop in phases according to the market design plan. With the restructuring of the utilities and the development of the ECOWAS regional electricity market, it is expected that electricity will be purchased through a competitive wholesale market operated by a regional system market operator (SMO) for the region, and a market operator (MO) for each participating country. The SMO/MO functions under market participation agreements with system participants, including distribution service providers and transmission owners. These agreements are approved by, and will continue to be overseen by, the national regulatory authorities (NRAs) for the national markets and the regional regulator, ERERA, for the regional market. Currently, power transactions are based on bilateral contracts between utilities in the Member States. According to Resolution EEEOA/292/RES.21/10/20—the list of market participants is composed of TSO (14) and PPAs holders namely eight sellers and five buyers. There are fifteen PPAs between market participants for a total of 6,0 TWh annually. This represented 2019, 8.3% of energy generation. The slow evolution of regional trading is mainly due to a lack of transmission lines and a shortage of generation capacity. Adequate transmission capacity to interconnect between countries and within the power systems of each country is needed to encourage effective regional trading. • Generation The installed generation capacity of the ECOWAS power system is approximately 24,073.1 megawatts (MW), contributed by the Member States. There is no provision for a reserve margin in this generation capacity, as there is still a capacity shortfall in the region. The Reserve margin is the amount of electric generating capacity that exceeds the projected peak demand for electricity. In some countries, the actual power consumption is less than the installed generation capacity because of network constraints, e.g., Nigeria. • Transmission System The transmission system in the region consists of the interconnection of substations and high-voltage lines. The transmission voltages in the region range between 66 and 330 kV but the regional transactions concern range below 125 kV. The national and regional power systems consist of many load centres and electricity supply sources connected by transmission facilities. At times, load demand, generation supply, and transmission facilities interact to impede the free flow of power, a condition referred to as congestion. Congestion is a feature more common in national networks than in regional interconnections. • Distribution System The distribution systems throughout the region are designed either as radial or loop networks. A radial distribution network consists of several primary circuits extending radially from interface substations connected to the power transmission system. Each circuit serves customers within a particular area, and the failure of a circuit would

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normally mean a loss of supply to the customers on the circuit. A loop system is most frequently found in high-load density metropolitan areas of the region. With multiple feeds on the loop, most customers would not be affected by failures of a circuit. The entities in charge of power distribution services own the wires and circuits to most customers, respond to customers’ requests for service and maintenance, and they also provide the bulk of the metering and billing services. After the presentation of this background of the regional electricity sector, the following parts present the regional market structure, architecture, and governance, and then it presents regulations implemented for market competitiveness. Regional Electricity Market (REM) Structure Market structure refers to the properties of the market closely tied to technology and ownership. It has to do with the numbers, sizes, and relationships of the firms in the market. It also refers to the physical system of the market (generation, transmission, distribution) and the arrangement for service provision. Market structure has a decisive impact on market power and investments. The more participants, the fewer incentives for market power and the more competition and investment inflow. The electricity utilities of most ECOWAS member states are vertically integrated. This will likely continue to be the situation for quite some time, because of the small sizes of these utilities and the prospects of economies of scale. The only aspect of unbundling expected in the short term is the unbundling of the utility’s costs along the functional lines to allow for transparency and effective cost attribution necessary for efficient Cost of Service Studies and tariff determination in the electricity market. This cost unbundling is also mandated by the ECOWAS Directive C/DIR.1/06/13 on the Organization of the Regional Electricity Market. The Regional Electricity Market Structure deals with issues around Phases of market development and market participants, generation technology and ownership, and financing structure. Regarding market development phases, the ECOWAS REM was designed to develop in three phases. During the transitions from phase 1 up to phase 3, the market is designed to evolve in all the design characteristics—the Market Structure, the Market Architecture and Trading Arrangement, and the Market Rules. These stages in Market Development are included in the regional Market Design and reference is made to the different levels of competition in generation and wholesale trading, as well as to the expansion in the regional infrastructure development. The following figure summarises the characteristic of each phase (Table 3). Key considerations for electricity Market structure are the technology used and ownership of the elements for power generation, transmission, and distribution. From the market design, electricity generation in the region will be contributed by thermal generators (i.e. gas, oil, diesel, coal, and nuclear), hydro generators, and renewable energy sources. Regulation should make sure that none of the generators is big enough to constitute a threat to the health of the electricity market. Even with this regulation-guaranteed

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Table 3 Phases of the ECOWAS regional electricity market and characteristics Phase 1: Bilateral agreements

Phase 2: Bilateral Phase 3: Liquid agreements and DAM competitive market

Products and types of markets

Bilateral (cross-border) Bilateral contracts (cross-border) and contracts which cross the Third country Spot market (day-ahead market—DAM) Capacity market

Bilateral contracts (cross-border) and contracts which cross the Third country Spot market (Px) Capacity market Ancillary service

Market participants

entities approved by countries, one entity per country, representing the country’s power sector

Utilities and IPP

Any public or private entities that have a license

Special regulations to be adopted

Third-party access to the grid Regional transmission Tariff

DAM pricing Market monitoring and surveillance Market opening and third-party access

Ancillary service market regulations

Degree of competitiveness

Low competitive market

Competitive market on the spot market

Fully competitive market

Source Author

condition, the participants must be monitored regularly to ensure that there are no deviations from the norms. In terms of the financing structure, apart from Nigeria, most of the power supply assets are owned by the governments, which are responsible for the provision of the investment capital. For the generation and distribution companies in Nigeria and a few IPPs in some other countries, the investment finance is provided by debt from commercial banks and by the equity contributions of the shareholders. The Debt/ Equity (Gearing) Ratio is a regulatory decision to ensure a rate of return that is fair to both the operators and consumers. The market design envisages an increasing private sector investment and participation in the regional electricity market. The structure of the regional electricity market can be represented by the Fig. 2. Key

Nig = Nigeria, Nr = Niger, Bn = Benin Republic, Tog = Togo, Gh = Ghana, BF = Burkina Faso, Li = Liberia, CI = Cote d’Ivoire, Gn = Guinea, GB = Guinea-Bissau, Ma = Mali, SL = Sierra Leone, Sn = Senegal, Ga = Gambia.

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G C S SM O

M

S G C

Gn B L

C

Nr

CI Gh C

T

B

Ni

C

Fig. 2 Structure of the ECOWAS Regional Electricity. Source Author adapted from Wilson (2002),

Inter-Control Area Interconnection Intra-Control Area Interconnection Communication link between CAC and the SMO

Figure 2 above shows the fourteen national markets and systems in the ECOWAS region with their inter and intra—Control Area Interconnections, and the 2-way communication links between the Control Area Centres (CACs) and the SMO. Cabo Verde which is the 15th ECOWAS country is excluded as it is an Island and not interconnected. Regional Electricity Market (REM) Architecture According to Wilson, (2002), the market architecture consists of the map of component sub-markets in the electricity market, as well as the types of transactions and contracts driving the market. According to the design, the list of such sub-markets for the ECOWAS Regional Electricity Market, when the market is fully developed, includes: a. Bilateral Market (Over the Counter Market): This is the type of contract that will mainly drive the REM and is responsible for about 85% of the total transactions in the wholesale electricity market. In this market, trade is carried out

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through Bilateral Contracts, which can be long-term, medium, or short-term. The templates to be used for trading, have been approved by ERERA by resolution N°09/ERERA/17. b. Spot or Balancing market (the market for immediate delivery), consisting of the Day-ahead, Intra-day, and Real-time Market. The Spot Market will constitute about 15% of the total transactions in the REM. c. Capacity Market: This market is to ensure that enough capacity is built and maintained to meet the future adequacy needs of the region. These markets are required to ensure that the resources needed for long-term reliability can recover the total cost of building and operating large generating facilities. d. Ancillary services market: This consists of the market for reactive power services for voltage control, the market for reserve power services for frequency control, and the market for Black Start services for restarting the grid in case of total or partial grid failure. Regulations for the Competitiveness of the REM The ECOWAS Electricity Market is currently being developed to enable the sustainable operation of an efficient, harmonised, and coupled regional electricity market. The introduction of the Regional Electricity Market will result in enhanced crossborder trading, with the increasing challenge of detecting possible market misconduct. It is therefore expected that Electricity Regulators, both national and regional, should strengthen their surveillance, supervision, and cooperative efforts to ensure market competitiveness and that they stay ahead of the game. The development process of the Regional Market was initiated with a market design, which is characterised by a Market Structure (looking at the players in the market, in terms of numbers, sizes and the participants’ financing structure), Market Architecture (which has to do with the sub-markets and trading arrangements), and Market Rules and Procedures (defining the relationships, as well as the rights and obligations of stakeholders in the market). Several Regulations, Rules and Market documents have also been developed for the operation of the regional electricity market. These rules and documents highlight operational functions consistent with power system reliability and efficient electricity market operation. Some of these market documents include: • • • • • •

The Regional Electricity Market Rules, 2015 Regional Transmission Pricing Methodology, 2015 The WAPP Operation Manual, 2015 The Regional Electricity Market Procedures, 2017 Rules of Practice and Procedure of ERERA, December 2017 Procedures for Application for Admission in the Regional Electricity Market, 2018 • Model Market Participation Agreement, 2018 • WAPP Transmission Service Access and Use Procedures (WTSAUP), 2019 • ECOWAS Regional Electricity Monitoring & Reporting Protocol, 2020

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4 Coupling National Markets to Competitive Regional Electricity Market: Opportunities and Proposed Plan of Action Electricity markets differ in their designs in different countries and regions. There are two broad types of markets designed for West Africa. These are: (a) the integrated market in which the System Operator centrally optimises the scheduling and dispatch of resources and b) an exchange-based market in which energy companies trade dayahead and real-time at prices that clear the market. The integrated market is common in the ECOWAS Region and other developing regions. This part deals with the characterisation of the different national electricity in terms of the competition after the different waves of the reforms, and the chances of integration of these markets in the ECOWAS regional electricity market. First, we characterise the two-level ECOWAS electricity market marked by the key roles of long-term contracts between the producer and the bulk supplier, The unbundling and opening level, the legacy of which determines the constraints on competition development more strongly than in the former industrial structures in the electricity industries. Second, to characterise the potential for the development of competition, the main traits of each national electricity market are identified in terms of market attractiveness and market accessibility for the incumbents’ competitors. Third, dynamics of market development towards market integration are inferred at the ECOWAS level from these characteristics and the possibility for the development of new forms of power trade among foreign producers, suppliers, and users.

4.1 Two Levels of the ECOWAS Electricity Market The ECOWAS electricity market is represented on two separate levels: – The national level, with the development of national or regional transport and wholesale monopolies. These monopolies developed the existing transport networks in coordination with the development of national production and later contributed to the setting up of the major power importation infrastructures with the producers. Industrial organisation in distribution reflected the preexisting structure developed for city power distribution. – The regional level, which is characterised by a two-sided oligopoly, is balanced between the major producers and the major national companies (Buyers). The Unbundling and Opening Level of National Markets The analysis of the national electricity market in the ECOWAS region shows the following common characteristics:

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First, the Generation segment is open to independent producers. This is an achievement for all Member States. Except for Guinea-Bissau, regulations in countries allow IPP to build and operate a power plant. However, issue of third-party access to the network and single buyers in most of the countries. In Ghana and Nigeria, the transmission is also open to competition and any IPP can sell to any transmission/ distribution company. Second, there is an abolition of the monopoly on the distribution and introduction of private operators in this segment in some countries. The following figure shows that except for Ghana and Nigeria which are fully open and all segments from generation to distribution are competitive, all national electricity sectors are partially open for competition. Even if the distribution segment is open, the opening of the transmission segment is most critical in most countries (Fig. 3). Regional Market Map The regional market is characterised by a two-sided oligopoly, balanced between the major producers and the major national companies (Buyers). The relations between national producers and purchasers take the form of longterm contracts (some are more than 25 years old) that define a series of rights and obligations. Some of these contracts date back to 1972. On this institutional basis, the integrated ECOWAS market existed only in the bulk supply and is organised as an oligopolistic ‘club’. The ECOWAS market can be described as a series of juxtaposed and entrenched national markets, supplied from outside by unidirectional stable flows coming from the same three sources of supply (Cote d’Ivoire, Ghana, Nigeria) directly to buyers without transit countries. Market integration on this basis

Fig. 3 Current structure and unbundling state of West African national electricity markets. Source ERERA

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381

Niger Nigeria

RCI

Ghana

Togo

Benin

Fig. 4 The REM exchanges are based on actual bilateral contracts. Source Author

of cross-border exchanges initiated by countries with a resource surplus relates only to sales from the three seller countries inside ECOWAS for now. The regional electricity exchange is based on the different contracts already signed. The design of the REM provides that its contracts will always be valid and considered in the development phases of the market, particularly phase 2 with the launch of the DAM market. The regional market can be represented in the current state according to the following figure. Exchanges take place bilaterally between suppliers and applicants and the role played by the OSM is limited to managing the capacities of transmission lines (Fig. 4).

4.2 National Market’s Attractivity and Accessibility This section characterises the national electricity market in terms of market attractiveness and market accessibility for the incumbents’ competitors. On one side, the market developments will depend on business potential in each national market, resulting at once from market size, market growth (especially in non-mature markets and in some active market segments such as power generation), and price differences which reflect existing profits on several national markets. On the other side, the market developments interplay with the opportunities opened to applicants for entry by the accessibility of each market, or conversely by the possibilities offered to incumbents for preserving their dominant position and deterring entries. To describe and map the situation of each member country in terms of attractiveness and accessibility of the market, the competitive profile of the national market in each member country is analysed according to the grid described above. In terms of attractiveness, three key elements are considered: size, growth, and profitability. For each of the elements, the regulations make it possible to assess the situation of the country. The question that has arisen is whether the regulations put in place by the country are intended to increase attractiveness whether in terms of market size or market segments, whether on growth paths by segments or whether at the level of profitability assessed by regulation through competitive and attractive prices. In terms of accessibility, four key elements are taken into account, namely accessibility at the technical, regulatory, commercial, industrial, and capital market levels.

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Fig. 5 Map of attractivity and accessibility of Member States. Source Author from calculations

As with attractiveness, the question that arose was whether the regulations put in place by each country are intended to increase market accessibility (Fig. 5). Member States are mostly concentratd on a centre and the higher level of accessibility on the quadrant. The most challenge for them is the attractivity of the market, especially for profitability and potential growth of the market. Nigeria, Ghana, Senegal, and Cote Ivoire are at higher levels of attractiveness and accessibility. This level of attractiveness and appreciable accessibility of national markets is a prerequisite for competitiveness and an important step in coupling national markets towards a competitive regional market.

4.3 Integration of National Markets to the Regional Electricity Market Since the launch of the ECOWAS regional electricity market in June 2018, there exists a dynamic interplay among regulatory, initiatives, business strategies, and market structure. An ECOWAS convergence process seems to move towards creating the conditions for real contestability in electricity markets with ex-ante regulation of the access to networks and to promote the ex-post control by competition authorities at the national and regional levels.

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Successive ERERA Directives promoting strict unbundling (legally and functionally) between the competitive activities—power generation, power supply— and natural monopoly activities—the transmission and distribution networks are significant steps in this direction. This legislation suppresses different ways for the incumbents to exert market power (Helman, 2006). Existing Institutional Framework The existing framework for energy is fragmented and consists of the following: – Each national electricity market operates in isolation from national regulations aimed at increasing competitiveness at the national level. – The regional market is currently limited to a few bilateral exchanges based on bilateral contracts signed several years ago and on sub-regional regulations of ERERA aimed at opening the market more to competition. The configuration of current national markets is generally organised around many actors specifically involved at all levels of the sector’s value chain. The various reforms and regulations to set up competitive markets have allowed the entry of new players and the construction of institutional arrangements that have made it possible to: • The integration of renewable energy sources through IPPs using renewable sources such as solar PV or wind • The development of customers/prosumers, commercial and industrial customers/ prosumers • The development of new energy services and aggregators. The figure below summarises the configuration in national markets except that it must be recognised that not all countries are at the same level of the competitive market and therefore of institutional arrangements (Figs. 6 and 7). At the regional level, the configuration and institutional arrangements are as follows:

Export or import to/from the regional market Fig. 6 Configuration of ECOWAS national electricity markets. Source Author

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Fig. 7 Actual configuration of the regional electricity market. Source WAPP

• The WAPP Information and Coordination Center (ICC) and ERERA play key roles in the development and construction of a competitive regional market respectively in the management of system and market operations and the definition of regulations and market construction. • In addition to its two players, the other market players are essentially the TSOs responsible for control areas and the TSOs operating in the market in the import/ export of electricity exclusively through bilateral contacts. Proposed New Institutional Framework The most important persisting shortcoming is the lack of integration between national markets. Key indicators in this respect are the absence of price convergence across the ECOWAS region and the low level of cross-border trade. This is generally due to the existence of barriers to entry, inadequate use of existing infrastructure, and—in the case of electricity—insufficient interconnection between many member states, leading to congestion. Moreover, many national markets display a high degree of concentration in the industry, impeding the development of effective competition. For more effective implementation and coordination of energy activities, especially involving private sector participation, it is necessary to have a streamlined,

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centralised, and very coherent approach to policy implementation. These prerequisites would facilitate well-focused policy implementation, as well as represent incentives to investors wishing to invest in sub-sectors such as electricity generation. The way the networks are regulated will fundamentally affect the network owners’ investment policies and therefore impact the adequacy with which demand growth and shifts in the pattern of supply and demand are met. Depending on the choice of a model, the issue of the position of the transmission and distribution networks’ monopoly becomes important. According to Nepal, and Jamasb (2012), the regulation of network tariffs, the provision of regulated or negotiated third-party access, and the degree of unbundling of the networks from competitive generation, trading, and retail activities strongly influence the overall effectiveness of competition in the market: • The quality of access regulation and the level and structure of tariffs affect the competitiveness of the supply of power and the development of trade (Erdogdu, 2011) • The degree of unbundling also plays an important role in this respect, as it keeps incumbent owners of networks from obstructing access for new entrants and avoids cross-subsidisation of competitive activities by non-competitive activities • Incentive regulation of transmission and distribution networks directly impacts the level of transport costs as a component of overall supply cost. In addition to access to transport, certain essential system operation functions need to be provided. The main functions are scheduling and dispatch of transmission and distribution, balancing (in the case of decentralised markets), congestion management, and ancillary services (such as black-start capacity and voltage control). These functions can be designed in multiple ways, but because of their relation with network management they are often provided by the transmission network operator. Also, the regional market will have to behave as an integrator of national markets. National markets remain the preferred markets in the region. They represent the retail market and the main markets for the provision of affordable and sustainable electricity to all ECOWAS citizens. The regional market complements as a major source of supply for countries with a deficit or resale of electricity for countries in surplus. The regional market will therefore have to consist of the various competitive national markets interconnected and integrated and in which any actor (generator as a distributor) can come to source or sell electricity. It is not a question of juxtaposing the different national markets but of creating a real regional market that is perfectly integrated with national markets and that competes with them through cooperation between national actors to meet the needs of citizens. In this context, the regional market is proving to be a tool for regional integration within ECOWAS. The integrated structure of the ECOWAS regional electricity market can therefore be represented as follows (Fig. 8). This integrated configuration of the regional market is therefore marked by: • National markets are divided into balancing markets and wholesale markets.

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Fig. 8 Proposed integrated structure of the ECOWAS regional electricity market (REM). Source Author

• Wholesale markets are subdivided into bilateral markets and electricity exchanges (PX). • Electricity Exchange: Day-ahead and real-time markets • The regional market is composed of the national markets and the Interconnection Capacity market. • There must be reasonable harmony between national markets for the Interconnector Capacity Market to function effectively. • In the electricity market designed for the ECOWAS region, electricity can be exchanged either bilaterally or through the exchange. • In most cases, the exchange market complements the bilateral market. • Bilateral contracts are negotiated between two parties, one buyer and the other seller, as is the case for the old cross-border contracts that are still ongoing and have been concluded for several years. • On the PX, traders can quote their bids and bid one day before physical delivery. • The exchange operator aggregates supply and demand separately and frees the market based on the balance between supply and demand. • It is envisaged for the REM that the PX (spot) markets represent about 15% of the size of the wholesale market, the bilateral contract market will always be large (about 85%) since market participants will still need transactions with prices and quantities covered • Electricity regulators, both in national and regional markets, need to strengthen their supervision, control, and cooperative efforts to avoid power market situations. • It is therefore necessary that, from the outset of the market, market surveillance rules and procedures are put in place to limit bad behaviour.

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• All market activities require rules, codes, and procedures (i.e. procurement documents) to ensure market transparency, integrity, and efficiency. • Procurement documents shall specify market functions and indicators to facilitate market monitoring, evaluation, and control.

4.4 Regulatory and Policy Recommendations Strengthening the competitiveness and sustainability of national and regional electricity markets is a step-by-step process in which Member State governments, national regulators as well as the regional regulator, the SMO and TSOs/DSOs each play a role. Based on our analysis, we make the following recommendations to enhance market competitiveness and regional integration: On Policies and Energy Sector Governance The development and management of the energy sector have long suffered from a lack of appropriate policy, institutional, legal, and regulatory framework. Therefore, there is a need to institute a new governance structure for the energy sector that would meet the challenge of developing a coherent and clear framework of energy governance, which addresses in an integrated manner, the key issues that will guide the effective implementation of the energy policy and implementation of a competitive market. To this end, the Government shall: – Review existing institutional arrangements to improve coordination of actions of the various institutions and ensure the efficient management of the energy sector. – Institute mechanisms to facilitate the effective implementation of the energy policy and in so doing achieve the economic, social, and political goals – Create incentives to attract private sector investment including, wherever relevant and appropriate, access to loans on concessionary terms; financial instruments, government guarantees, and ‘smart subsidies’ (or grants) for infrastructure investment. – In some countries, establishing a regulatory agency provides even-handed and predictable energy sector regulation. On Market Operation and Strategies Utilities (TSO and DSO) shall: 1. Implement the power sector reform strategy defined by the competent authorities 2. Develop a competitive power supply sector with the participation of local communities and the private sector. 3. Improve the efficiency of the existing distribution system and expand the system at a minimum cost 4. Rationalise electricity tariffs to reflect the marginal cost of supply to achieve economic efficiency.

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5. Institute measures aimed at improving the efficiency of the supply side including the reduction of technical and commercial losses 6. Develop a national grid that will extend the transmission line throughout the country. 7. Actively participate in regional and sub-regional programmes that are aimed at the supply of electricity. 8. Implement functional unbundling and/or accounting separation of functional activities. On Regulation and Policy Statements The regulator is the key actor who is responsible for the development of a competitive and sustainable market which can attract investors and allow the sector’s financial viability (sustainability). For that, regulators shall: 1. Establish and Guarantee the Independence and Power of the Regulatory Body The following actions can be done: a. remove the provisions that allow the executive to overturn the regulatory decisions of the regulator. b. make provision for a longer and fixed non-renewable term of office for commissioners/Board.1 2. Strengthen the Accountability of the Regulator with the following actions: a. submission of an annual report for review, preferably to the legislature b. The primary legislation of regulators should be amended, or appropriate secondary legislation enacted or c. Establish dedicated energy tribunals or specialist appeal institutions to speed up the appeal process 3. Enhance Financial Independence through these actions: a. Regulator Funding should be done preferably from fees and levies at levels approved by the legislature. b. Budgets of regulatory authorities should not require annual approvals or validation from the government. c. Post-expenditure audits should be carried out at the end of the financial year to ensure good management of funds by the regulatory authority. d. Salaries of commissioners should be competitive and regulatory authority staff salaries set by the board of the regulatory authority at the same level or higher than those of operators.

1

This will also do away with the existing situation in most countries, where commissioners’ terms of office run in tandem with the government that appointed them. This minimizes the influence of the government over the entire composition of the board at any point in time.

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4. Improve Open Access to Information (Amount and Consistency) and Transparency Tools. This can be by: a. Periodic utility performance update as measured against regulatory benchmarks b. Set up information and transparency platforms to increase transparency in the market. This issue of transparency is deeply connected with efficiency and competitiveness c. Develop and implement tools and systems for transparency and market surveillance 5. Establish and Guarantee an Attractive and Competitive Tariff . Actions can be: a. Initiate if not exist, a Cost of Service (CoS) tariff study which should at a minimum recommend cost-recovery tariffs for the generation, transmission, and distribution segments. 6. Improve the Quality of Service Regulations through the following actions: a. Develop comprehensive QoS regulations, covering all aspects of reliability indices, including SAIFI, SAIDI, and CAIDI. This should also include implementable incentives and penalties. b. Develop a performance monitoring framework of utility performance identification of Key Performance Indicators (KPI) c. Compel utilities to publish their performance and produce a regular report (annually, semiannually, etc.). 7. Promote Entry of Multiple Players in the Power Generation Including Private and Public Investors as Independent Power Producers. Actions can be: a. Supervise the development of model power purchase agreements for different types2 of generation technologies. b. Develop and publish procedures for approving or giving no objection to PPAs signed between utilities and power generators (IPP) with price adjustment mechanism c. Ensuring nondiscriminatory access to networks or third-party access to the network. To increase the competitiveness of national and regional electricity markets, it is important to increase the contestability of markets. To do this, the following actions can be implemented: a. Remove legal barriers to entry. At the national level, all barriers to entry should be removed. However, with regard to the specificity of the sector, the delivery of a national license to stakeholders to enter the market should not be removed but simplified and limited to an asset if the stakeholder has all technical and financier 2

The type of power purchase agreements signed between distribution utilities and generation companies with price adjustment clauses are key factors for the sustainability of the utilities and the sector.

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prerequisites to trade in the market. At the regional level, the regulator should make sure that any actor can trade in the REM without being a member of WAPP but should have at least a national license. 4. Force firms to allow competitors to use their network. Any actor who wants to trade in the national or regional market must be forced to use the national transmission grid and national-specific lines dedicated to regional transmission service. 5. Legislation against predatory pricing. If a firm can engage in predatory pricing it can force new firms out of business and make it less contestable. 6. Regulators can legislate against the abuse of Monopoly power. If a firm abuses its monopoly power by restricting supply to certain firms, the national or regional regulator, can intervene to overcome this restriction on contestability. It is important to remember that contestability is not a clear-cut issue, there are degrees of contestability, and some markets have more capacity for new firms to enter. In practice, few industries are perfectly contestable. The proposal framework market aims the coupling the different national markets to the regional electricity market, ensuring optimal use of cross-border transmission capacity while utilising a set of proposals and network codes to achieve its goals. However, successful integration requires that electricity markets across the ECOWAS region share a set of common features and are linked by the efficient organisation of interconnection capacities. To this end, several issues still need to be addressed to effectively improve the electricity market” design and functioning. The implementation of this proposal in the ECOWAS regional electricity sector will: • Increase competition and reduce the potential for market concentration and market power issues, decreasing prices • Create an equal level playing field between Market Participants providing crossborder trade opportunities and the possibility to reduce barriers to entry into markets through a clearer and more stable framework • Optimally use existing transmission capacity and signal the investments to build new capacity • Enhance the integration of renewable energy by providing liquid Intra-Day Markets in which positions can be adjusted • Limit risk for all market players by providing opportunities to hedge risk in different timeframes.

5 Conclusion This paper aims to analyse the process of deregulation of national markets and the construction of competitive markets within the ECOWAS region.

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In a perfectly transparent wholesale electricity market, the most intuitive way of analysing its competitiveness would be to look at the changes in market participants’ bidding curves over time. A systematic deviation of bids from marginal costs, especially in peak-demand hours when prices are high, would be an indicator of abuse of market power and a lack of competitiveness. However, due to the lack of such in-depth data for the national and regional electricity market in the ECOWAS region, this paper uses a method which does not necessarily rely on firm-level data. We described and analysed the evolution of reforms and market configurations, then we identified the progress and challenges, the key factors, and the conditions for coupling national markets to the regional market. The construction of the regional electricity market is currently in phase 1 of the 3 phases planned and concerns exclusively exchanges between neighbouring countries based on bilateral contacts often concluded for decades. WAPP and ERERA each work to define and implement regulatory, legal, policy, and operational frameworks for the construction of a competitive regional market. If the current situation appears to be the juxtaposition of national markets and the very poorly integrated and interconnected regional market, the current challenge is the coupling of national markets to the regional market. The proposal framework market aims at coupling the different national markets to the regional electricity market, ensuring optimal use of cross-border transmission capacity while utilising a set of proposals and network codes to achieve its goals. However, successful integration requires that electricity markets across ECOWAS Region share a set of common features and are linked by an efficient organisation of interconnection capacities. To this end, several issues still need to be addressed to effectively improve the electricity market design and functioning. The recommendations to increase competitiveness in the markets are formulated for governments who must put in place the policy framework and institutional arrangements that can lead to more competition in the sector and attract investment; national regulators as well as the regional regulator who must put in place regulations facilitating third-party access to the grid, competition within each market segment, limiting market power and ensuring a remunerative tariff; and finally, recommendations concerning the strategy of the actors and in particular the TSO and DSO who will have to implement the functional unbundling and guarantee the competitive power supply and the efficiency of the distribution system.

References AfdB. (2021). Electricity regulatory index for Africa 2020. Abidjan, p. 108 Armstrong, M., Cowan, S., Vickers, J. (1994). Regulatory reform: Economic analysis and British experience. The MIT Press, Cambridge (Mas.) Baumol, W., Panzar, J., & Willig, R. (1982). Contestable market and the theory of industry structure. Harcourt.

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Bergman, L., Neven, D.J., Gual, J., et al. (1998). Monitoring European Deregulation, vol. 1. Europe’s Network Industries: Conflicting Priorities (Telecommunications). Centre for Economic Policy Research. Borenstein, S., Bushnell, J., & Stoff, S. (2000). The competitive effects of transmission capacity in a deregulated electricity industry. Journal of Economics, 31(2), 294–325. Borenstein, S., Bushnell, J. B., & Wolak, F. A. (2002). Measuring market inefficiencies in california’s restructured wholesale electricity market. The American Economic Review, 92(5), 1376–1405. Bushnell, J. B., Mansur, E. T., & Saravia, C. (2008). Vertical arrangements, market structure, and competition: an analysis of restructured US Electricity Markets. The American Economic Review, 98(1), 237–266. Crampes and Laffont. (2001). Transport pricing in the electricity industry. Oxford Review of Economic Policy, 17(3), 313–328. Eberhard, A., & Catrina Godinho, C. (2017). A review and exploration of the status, context and political economy of power sector reforms in Sub-Saharan Africa, South Asia and Latin America, Management of Infrastructure Investment and Reforms in Africa (MIRA). Program Working Paper, University of Cape Town Graduate School of Business Eberhard, A., & Gratwick, K. (2008). Demise of the standard model of power sector reform and the emergence of hybrid power markets. Energy Policy, 36(10), 3948–3960. Erdogdu, E. (2011). The impact of power market reforms on electricity price-cost margins and cross subsidy levels: A cross country panel data analysis. Energy Policy (39), 1080–1092. European Commission EC-DG TREN. (2003). Second benchmarking report on the implementation of the internal electricity and gas market. European Commission. Fabra, N., von der Fehr, N., & Harbord, D. (2004). Designing electricity auctions. Center for the Study of Energy Markets, University of California, Berkeley, CSEM WP-122. Glachant, J., & Finon, D. (2000). Why do the European Union’s electricity industries continue to differ? A new institutional analysis. in Claude Ménard (ed.), Chapters. Institutions, Contracts and Organisations, chapter 21. Edward Elgar Publishing. Glachant, J. M., & Finon, D. (Eds.). (2003). Competition in European electricity markets: a crosscountry comparison. Edward Elgar. Helman, U. (2006). Market power monitoring and mitigation in the US wholesale power markets. Energy, 31(6–7), 877–904. Joskow, Paul L., Edward Kahn. (2002). A quantitative analysis of pricing behavior in California’s wholesale electricity market during summer 2000. Energy Journal, 23(4), 1–36 Laffont and Tirole. (1996). Creating competition through interconnection: Theory and practice. Journal of Regulatory Economics, 10(3), 227–256. Mansur, E. T. (2008). Measuring Welfare in Restructured Electricity Markets. The Review of Economics and Statistics, 90(2), 369–386. Mohr J. (2018). The foundation of energy regulation in Europe on the basis of art. 102 TFEUThe example of energy grids. in A. Metaxas & L. Hancher (ed.), The transformation of the EU and Eastern Mediterranean Energy Networks, Legal, Regulatory and Geopolitical Challenges, European Energy Studies, Claeys & Casteels, Belgium, pp. 13–21. Nepal, R., Jamasb, T. (2012). Restructuring the power sector in transition: Do institutions matter? Energy Economics (34), 1675–1682 Newbery, D. (2001). Issues and options for restructuring the Electricity Supply Industries. Cambridge University, Working Paper, Department of Applied Economics. Puller, S. L. (2007). Pricing and firm conduct in california’s deregulated electricity market. The Review of Economics and Statistics, 89(1), 75–87. Wilkens, S., & Wimschulte, J. (2007). The pricing of electricity futures: Evidence from the European energy exchange. Journal of Futures Markets, 27(4), 387–410. Wilson, R. (2002). Architecture of power markets. Econometrica, 70(4), 1299–1340.

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Charly Gatete is a seasoned energy economist, holds a PhD in Energy Economics from the University of Paris Sarclay (France) and another in Energy from 2iE (Burkina Faso). He is an economist expert at ECOWAS Regional Electricity Regulatory Authority (ERERA), contributing to economic regulation ECOWAS’s Regional Electricity Market. Previously, he managed some renewable energy projects in Africa, was an energy expert for UNDP, UNITAR and assistant professor and researcher at Thomas Sankara University, 2iE and CIRAD.

Emerging Technologies and the Energy Transition

Energy-Related Climate Change Reportage in Africa: Has the Media Gotten It Right? Maame Esi Eshun, Israel Amenfia, and Ishmael Ackah

List of Abbreviations GBC UNDP MMDAs PAGE SEJN NBC SSBC TNT

Ghana Broadcasting Corporation United Nations Development Programme Metropolitan, Municipal and District Assemblies Partnership for Action on Green Economy Somali Environmental Journalists Network Namibian Broadcasting Corporation The state-owned South Sudan Broadcasting Corporation Tunisian National Television

1 Introduction This chapter discusses the role of the African media in reporting on energy-related climate change issues on the continent. Energy is at the core of sustainable development. So is climate change. This is because climate change increases the cost of development by exacerbating the effects of poverty and population growth. This exposes millions of people, especially in developing countries, to food and water shortages, M. E. Eshun (B) · I. Amenfia · I. Ackah Public Utilities Regulatory Commission, Accra, Ghana e-mail: [email protected]; [email protected] I. Amenfia e-mail: [email protected] I. Ackah e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_18

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and diseases, which can limit the opportunities for sustainable development if not addressed (Kyte, 2014; Ludwig et al. 2007; UN, 2009). Climate change can also affect the generation of energy and the development of energy infrastructure in many ways. For instance, the generation of electricity using coal is regarded by many industry experts as detrimental to the environment due to its associated emissions. Conversely, climate change issues have contributed to the aggressive pursuit of energy transition which has influenced the development of green technologies in energy generation (Healy & Barry, 2017). Relatedly, inputs or resources required for energy generation (such as fossil fuels, water, etc.) are impacted by climate change, in terms of their availability and adequacy. Extreme weather conditions such as heatwaves and droughts limit access and availability to existing energy generation sources.1 On the other hand, the output of energy generation also contributes immensely to climate change in the form of emissions, greenhouse gases, and other forms of waste (non-gaseous) emanating from extractive activities. The complexities of energy and climate change keep eliciting interest from several sector players. Energy production and use are major contributors to greenhouse gas emissions, which are the primary drivers of climate change. At the same time, climate change is having a significant impact on the energy sector, making it more difficult and expensive to produce and distribute energy. These present a major threat to Africa, especially as the African Development Bank has declared Africa the most vulnerable continent to climate change and its impacts.2 This is an indication that energy-related climate change issues require urgent attention in Africa. As climate change takes hold, Africans are increasingly demanding information about what is happening, and how its impact could be minimized or mitigated. This means that knowledge and access to information on energy-related climate change are essential for effective climate management and impact minimization. Availability and access to such information will also influence the African government’s decisionmaking on the required investments to accelerate the energy transition. That is, decisions taken by nation states on green investments in the energy sector will rely heavily on the availability of energy-related climate change information.

1.1 Relevance of the African Media in Energy-Related Climate Change Reportage The African media, as a source of information can play a significant role in disseminating knowledge about energy-related climate change. Their role in this regard is 1

World Meteorological Organization (2022), Climate change puts energy security at risk. https:// public.wmo.int/en/media/press-release/climate-change-puts-energy-security-risk#:~:text=Cli mate%20change%20directly%20affects%20fuel,to%20reduce%20fossil%20fuel%20emissions. 2 African Development Bank: Climate Change in Africa. https://www.afdb.org/en/cop25/climatechange-africa.

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indispensable because, in many instances, public sentiments are shaped by the media. Thus, the way that energy-related climate change is reported will have a profound effect on how people comprehend it, especially with respect to reports on the causes, sources, impact, recent dynamics in climate change, and how best its causal factors could be tamed. Additionally, the interest of Africa’s reading class may not necessarily be tilted towards scientific papers and reports on climate change to gain first-hand information on energy-related climate trends and related issues. Many basic concepts of energy and climate change, research findings, and scientific debates on these concepts would require the media to communicate to the population as a means of facilitating the involvement of the population in efforts to adapt or mitigate the effects of climate change (Sonwa et al., 2022). Moreover, as the continent struggles with literacy levels, there are significant portions of the population whose understanding of climaterelated information may be limited. For instance, the average national climate change literacy rate in Africa is 37%, which is far lower than that of Europe and North America, where rates are over 80% (Johnston, 2020). Recent studies have posited that the problem of understanding climate change is one of the major challenges confronting Africa, its governments, and the African Union (Tadesse, 2010). Thus, most Africans would look up to the media to demystify, in a straightforward and simplified way, the facts and realities of climate change. The media therefore becomes an important player in climate change communication in this regard. Indeed, research has confirmed that most people, including decision-makers and stakeholders, learn about climate change from the media, which also constitutes the main source of information for “lay” people especially (Schäfer & Schlichting, 2014). It is also important for media houses in Africa to churn out accurate and balanced reportage on the continent’s energy-related climate change. This means avoiding alarmist language or sensationalizing the issue. The media should be capable of presenting all sides of every story, including the views of experts and stakeholders. By accurately reporting on energy-related climate change in Africa, the media can help to raise awareness of the issue and promote solutions. This is essential for building a more sustainable future for the continent. Energy-related climate change reportage in Africa is however a complex and nuanced issue. A key responsibility of Africa’s media in this dispensation will focus on the full range of impacts of energy-related climate change in Africa. This includes both the negative impacts, such as droughts, floods, and rising sea levels, as well as the positive impacts, such as the development of renewable energy technologies. The media could also tell the stories of people who are affected by energy-related climate change. This can help to bring the issue to life, in a manner more relatable to the stakeholders. For example, the media could report on how a community in subSaharan Africa is using solar power to provide electricity to its members. A 2020 Digital News Report by Reuters Institute for the Study of Journalism acknowledged that, although climate change is now the defining issue of our time, and the role of the media is crucial in communicating and shaping public sentiments about it, generally, many people personally do not always feel directly affected by climate change (Newman et al., 2020).

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Despite this significant role of the African media, the reportage of energy-related climate change information of the continent has mostly been narrated through the lens of the Western media, which may not necessarily reflect Africa’s realities on climate issues. Often, Western media coverage of climate change in Africa may lack in-depth reporting and be nuanced. This may partly be due to a need to project the agenda of the Western media and foreign policies, or due to limited exposure to the African “climate change experience”.3 Given that African media reportage tends to rely heavily on information available from secondary sources (Western media houses), some pertinent climate-related storytelling specifically tailored towards the African reality may be missing from the continent’s media coverage of climate change. This leads to a lack of local ownership and limited local context of energy-related climate change information on African countries.4 Such gaps in reporting mostly stem from the fact that the African media is not investing enough in energy and climate change research to create a credible first-hand body of evidence on the issues.5 Rather, it appears Africa keeps telling its story on climate change from the perspective of the West. In view of the above, this Chapter explores and analyses the African media reportage of energy-related climate change issues on the continent. The Chapter will attempt to do this by addressing the scope of reportage of selected African media on energy-related climate change including specific issues the media covers in relation to energy and climate change reportage in Africa, and how the interests and challenges of the media influence their reportage of energy and climate change issues. The chapter further presents case studies on best practices in selected Western media houses, with respect to the pivotal role of the media in the reportage of energy-related climate change, with the intention of drawing lessons for the African media.

2 Methodology A mapping of Africa’s contemporary media houses and their attributes across the various regional blocs was conducted between 2022 and 2023. This included a review of TV, radio, newspaper, and online articles concerning energy and climate change, and energy-related climate change between the study periods. The period of study was considered significant to enable review of the most recent reports based on events raising awareness and improving the visibility of energy and climate change issues and to determine the contemporary status of energy-related climate change reporting in the selected countries. 3

Gathara P. (2019), The problem is not negative Western media coverage of Africa. https://www. aljazeera.com/opinions/2019/7/9/the-problem-is-not-negative-western-media-coverage-of-africa. 4 Ibid. 5 Igbohor, K. (2022), African Journalists: More training and resources will boost climate change coverage. Africa Renewal https://www.un.org/africarenewal/news/african-journalistsmore-training-and-resources-will-boost-climate-change-coverage.

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An in-depth review of the literature on climate change and media reporting, climate journalism, and broad communication of climate and energy-related issues in Africa was also conducted. The review draws on data available from various sources such as journals, climate change, energy literature, reports, and stories from media houses—both local and international. Reports and stories from most read, watched, or listened to media houses including TV, radio, online news portals, and print media (newspapers) were selected. Articles were accessed online from the websites of the selected media outlets using keyword searches on the media’s online search engines. Recommended keywords adapted from Harichandan et al. (2022) included energy, climate change, energy transition, decarbonization, global warming, floods, drought, environment, heatwaves, and rising temperatures to provide various word variants of energy-related climate change. This created the room for a broad search string providing better coverage of the targeted sample. The essence was to establish the scope of energy-related climate change reporting and consolidate the various findings in selected countries of the study.

2.1 Selection of African Countries Countries included in this review comprised Senegal, Ghana, Eritrea, Somalia, South Sudan, Central African Republic, South Africa, Namibia, Mauritania, and Algeria. These countries were selected principally based on the following criteria: (i) Extent of Media/Press Freedom, (ii) Penetration of independent media houses, (iii) Proliferation of climate-related issues/climate vulnerability, and (iv) Emergence of new media in addition to traditional media. Based on the criteria set, two countries were selected from each African regional bloc (see Table 1). This was done to provide room for possible contrasting analyses mainly because the selection of a single country could limit the analysis to a single perspective with no alternative view.

2.2 Selection of Media Houses in Africa Based on the countries selected, the study analysed 29 media houses across the ten African countries (see Table 2). Media houses were selected to cut across print, radio, online, and television broadcast. Preference was however given to media outlets with online presence and publicly accessible websites including social media, due to their extensive reach. To provide a fair balance of state-owned and privately owned media houses, between two to four media houses were selected from each country. Privately owned media houses were included due to the wide perception that state-owned media have a way of packaging information to reflect/amplify the successes of the current government while masking the inadequacies or gaps in government policies. Additionally,

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Table 1 Country selection and key attributes African region

Country selected

Key attribute per study criteria

West Africa

Senegal

Senegal has one of the most diverse and unrestricted media scenes in the West African region

Ghana

Developing country ranks in top 10 in Africa on the Press Freedom Index

East Africa Eritrea

Central Africa

Southern Africa

Northern Africa

Ranks as the 3rd most vulnerable country in SSA on the 2021 climate vulnerability index Absence of private participation in the media industry

Somalia

Part of the top ten most climate-vulnerable countries in SSA with limited media freedom

South Sudan

Part of the top ten countries in SSA with greater risk and level of exposure and vulnerability to climate and extreme weather events

Central African Republic

Ranks as the 2nd most vulnerable country in sub-Saharan Africa on the 2021 climate vulnerability index

South Africa

Most carbon-intense economy in Africa Second highest-ranked African country on the 2023 African Press Freedom Index

Namibia

As of 2023, Namibia ranked 22nd globally and 1st in Africa as the country with the most press freedom in Africa. Country vulnerable to climatic change

Algeria

Second-ranked North African country on the 2023 Press Freedom Index for North Africa. Limited media freedom

Tunisia

As of 2023, Tunisia was the leading country in North Africa for press freedom, with around 50 index points. Due to its relatively higher levels of political and economic freedom

it has been further established that state TV and radio steer clear of critical voices and dissenting views.6

3 Brief Review of Energy and Climate Change Reporting in Africa A cursory glance at the literature portrays a wide array of studies on energy and climate change issues. Literature on media coverage and communication of climate change in Africa also reveals an appreciable number of publications. This section will attempt to review a few. Tume et al. (2018) surveyed 28 media outlets composed of 25 radio stations and 3 newspapers to determine their role in climate change communication in the Northwest Region of Cameroon. The findings revealed that all 6

Freedom of the Press (2005). A Global Survey of Media Independence.

Radiodiffusion Télévision Sénégalaise (RTS)

Print

Daily Graphic

Senegal

Radio & TV Private

Joy FM

Radio & TV State

State

Radio & TV State

Ghana Broadcasting Corporation (GBC)

Ownership

Ghana

Type (Radio/TV/ Print)

Media house

Country

Table 2 African Media Houses Analysed

Yes

Yes

Yes

Yes

Online portal

Top

Top

Prominent

Top

Categorization

Yes

No

No

No

Dedicated energy-climate reporting desk

Coverage

(continued)

Environment Nationwide Energy Climate-induced events Renewable energy

Climate change Nationwide energy Renewable energy Climate-induced events Environment

Climate change Nationwide energy Renewable energy Climate-induced events Environment Environment-related climate change

Environment Nationwide Renewable energy Climate change energy Climate-induced events Energy-related climate change

Scope of reporting/ Issues reported on

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South Africa

Somalia

Eritrea

Country

Print

Print

Hiiraan Online

Garowe Online

Print

TV

Mail & Guardian

eNCA (eNews Channel Africa)

Private

Private

Radio & TV State

South African Broadcasting Corporation (SABC)

Private

Private

State

TV

Somali National Television (SNTV)

State State

Print

Eritrean Profile

State

State

Ownership

Radio Mogadishu Radio

TV

Print

Le Soleil

Eri-TV

Type (Radio/TV/ Print)

Media house

Table 2 (continued)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Online portal

Prominent

Prominent

Top

Prominent

Prominent

Top

Top

Top

Top

Top

Categorization

Scope of reporting/ Issues reported on

Coverage

Nationwide

Nationwide

Yes

Yes

Yes

Nationwide

(continued)

Climate-induced events Nationwide Climate change

Climate change energy Energy transition

Climate-induced events Nationwide climate change Energy transition energy

Data not available Climate change Nationwide Climate-induced events

Data not available Climate-induced events Nationwide

Data not available Climate-induced events Nationwide Climate change

Data not available Climate-induced events Nationwide

Data not available Climate change

Data not available Climate change

Data not available Environment Nationwide Climate-induced events Energy Climate change

Dedicated energy-climate reporting desk

404 M. E. Eshun et al.

South Sudan

TV

Radio

Radio Ndeke Luka

South Sudan Broadcasting Corporation (SSBC)

Radio

Radio Centrafrique

Print

The New Era

Central African Republic

Print

The Namibian

State

Private

State

State

Private

Radio & TV State

Namibian Broadcasting Corporation (NBC)

Ownership

Namibia

Type (Radio/TV/ Print)

Media house

Country

Table 2 (continued)

Yes

Yes

No

Yes

Yes

Yes

Online portal

Top

Prominent

Top

Top

Prominent

Top

Categorization

Dedicated website not available

Yes

Dedicated website not available

Yes

Yes

Data Not Available

Dedicated energy-climate reporting desk

Coverage

Capital and environs

Nationwide

Nationwide

Dedicated website not available

(continued)

Nationwide

Environment Nationwide Energy Climate change Climate-induced events

Dedicated website not available

Energy Energy transition Climate change

Energy-related climate change Energy transition energy Climate change environment

Climate change Nationwide Climate-induced events Energy Energy transition

Scope of reporting/ Issues reported on

Energy-Related Climate Change Reportage in Africa: Has the Media … 405

Tunisia

Algeria

Country

Print

The Citizen Newspaper

Print

Print

La Presse

Assabah

Private

State

Private

El-Watan

Print

State

State

Private

Private

Ownership

Radio Algérienne Radio

TV

Radio

Eye Radio

Télévision Algérienne (ENTV)

Type (Radio/TV/ Print)

Media house

Table 2 (continued)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Online portal

Prominent

Top

Prominent

Top

Top

Prominent

Prominent

Categorization

Coverage

Energy transition Renewable energy Climate change

(continued)

Nationwide

Nationwide

Climate-induced events Nationwide Energy Energy transition Climate change environment

Energy Nationwide Climate-induced events

Climate-induced events Nationwide Energy Energy transition Climate change

Climate change Nationwide energy Climate-induced events

Climate change Nationwide energy Renewable energy Climate-induced events

Scope of reporting/ Issues reported on

Data not available Energy Renewable energy Climate change

Yes

Yes

Data not Available

Data not Available

Yes

Dedicated energy-climate reporting desk

406 M. E. Eshun et al.

Country

State

TV

Al-Watania

Ownership

State

Type (Radio/TV/ Print)

Radio Tunisienne Radio

Media house

Table 2 (continued)

Yes

Yes

Online portal

Top

Top

Categorization

Scope of reporting/ Issues reported on

Data not available Environment

Data not available Energy

Dedicated energy-climate reporting desk Nationwide

Nationwide

Coverage

Energy-Related Climate Change Reportage in Africa: Has the Media … 407

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the media houses surveyed were fully aware of the vulnerabilities and direct impacts of climate change around their local environment. As a result, the local media tries to reach the masses through traditional communication channels by raising awareness of the phenomenon. However, the media insists their reporting is based on the scientific framing of climate change as the most convincing story, irrespective of the differences among their audiences. Okoliko and de Wit (2020), presented a systematic review of literature on media(ted) climate change communication in Africa and described the extent of growth and diversity in the field. The results suggested that there is a pale picture of the understanding of what communication effort is underway to get Africans to engage with climate change issues via the media. A study by Tagbo (2010) on media coverage of climate change in Africa using Nigeria and South Africa as case studies revealed that climate change is a relatively new subject in many African media. A few climate change journalists (30%) reported on the subject while the majority, about 60% identified a lack of training, lack of resources and funds, and time pressures as major reasons why the topic has rarely generated coverage. Additionally, climate change stories are considered a hard-sell compared to politics, entertainment, and other issues even though the concept has many dimensions that could excite public interest. Nwabueze et al. (2015) analysed three national newspapers in Nigeria to determine their coverage of climate change issues for a period of four months. The study found that the volume of coverage of climate change was scanty and that the dominant form of the presentation was feature stories. Additionally, most of the stories on climate change reported in the Nigerian media were based on specific events on climate change, as and when they happened. According to Levi (2021) climate change is not a popular topic in South Africa although most South Africans hear about climate change in the mass media. Climate journalists frequently set communication cues on climate change, but their messages are largely circulated in newspapers catering to an urban and educated readership and resonate less with people living in rural areas or those who rely on employment in the coal and mining sector. Moreover, climate change reports are mostly covered in high-quality English language outlets to which most people have no access. A few attempts have also been made to tease out the role of the media in advocacy and communication campaigns in promoting renewable energy, while others have also focused on media communication on environmental issues in Africa (Okaka, 2016; Suliman, 2018). There is however little evidence of studies and literature on the energy-related climate change reportage nexus in Africa. Okaka (2016) in his study on effective public communication campaign for geothermal energy policy innovations for sustainable energy in Africa highlighted the responsibility of the media in promoting geothermal energy research and policy for sustainable energy technology innovations to achieve SDG 7. The study underscored the importance of the media in promoting awareness and providing extensive coverage of geothermal energy policy and technology outputs, hosting talk shows on radio or television to promote awareness, while explaining the socio-economic or environment gains, and mainstream geothermal issues in regular news coverage.

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Energy-related climate change is a synergy of two themes—energy and climate change. Energy issues have mostly been considered as part of the general environmental, political, security, socio-economic, and sustainable development discourse (Chu & Majumdar, 2012; Kaygusuz, 2012), while issues pertaining to climate change have also attracted a lot of attention from stakeholders including environmentalists, climate activists, business entities, national governments, development partners, and development financial institutions in recent times (Dwivedi et al., 2022). Given the nexus between the two, energy-related climate change issues ought to be reported along such synergistic lines to give it the necessary relevance or attention that it may require. The review however revealed that these themes are mostly studied as isolated topics with limited research focusing on how the nexus is communicated. It is therefore the focus of this chapter to bring out evidence of the extent of reportage of energy-related climate change issues in ten countries across the African continent.

4 Analysis and Findings In this section, we present an analysis and findings of the specific coverage and scope of reportage on energy-related climate change issues of the selected African media houses. The section further explores the specific themes reported on, and the factors and challenges influencing such energy-related climate change communication in Africa. Finally, we draw lessons from some case studies from best practices in selected Western media houses in attempts to model Africa’s media reportage of energy-related climate change.

4.1 Attributes of Media Houses As presented in Table 2, media houses analysed were based on the following categories: type of media house, the ownership status, availability of an online portal or web address, level of prominence or media categorization, the availability of a dedicated energy-related climate reporting desk, scope of issues reported on, and the extent of media coverage. The study considered traditional media houses in the selected countries. These media houses were distinctly classified as either radio, television, or print. The ownership status of each media house was specified as state-owned or privately owned. Media houses were also assessed based on the availability of an online or web portal to determine the level of accessibility and reach of their contents and reports. The level of prominence or media categorization was grouped as “Top” or “Prominent”. Top media houses as defined by the authors are considered leading authorities in their respective countries, often with a strong national or international influence. They are typically well-established and may have significant government backing, state-owned, making them key players in shaping public opinion and policy

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discourse. Prominent media houses, while influential, may not necessarily have the same level of dominance as the “Top” category but still hold a substantial role in their countries’ media landscapes. They often have a significant audience and contribute to public discourse and policy discussions. The analysis was also based on the availability of a dedicated energy-related climate change reporting desk. This is principally the personnel or unit responsible for collecting information and stories on energy, climate change, energy-related climate change, and preparing it for publication or broadcast. Specifically, we focused on whether or not a particular media house has a desk dedicated to (i) energy reportage, (ii) climate change, or (iii) both. Additionally, for the media house to qualify as an entity that reports on energy-related climate change issues, such reportage should focus on the energy transition, sustainable energy, green economy, renewable energy auctions, or related themes. The authors also considered how recent the media publications were at least a year from the study period. In the absence of the media house having a dedicated energy-related climate change desk, editorials focusing on the same thematic areas were considered by the authors as an alternative to a desk dedicated to energy-related climate change reportage. Such editorials were characterized by some level of analysis and interpretation, and also commentary on current events pertaining to the topics of interest. Coverage was defined as the extent of broadcast, readership, and accessibility of the public to the stories, articles, and reports of the media house. For this study, any media house with an online or web portal, or non-traditional dissemination platforms such as social media channels is assumed to have nationwide coverage given that ideally such platforms and information published should be easily accessible anywhere.

4.2 Discussions 4.2.1

Ghana

Ghana enjoys significant media freedom and the press and broadcasters operate without significant restrictions. At least over 100 media outlets operate in Ghana, including radio stations, television networks, and internet-based sites.7 The stateowned Ghana Broadcasting Corporation (GBC) is the most popular media house, with its television and radio stations reaching a wide audience. Many of these media houses have launched online sites to facilitate the easy dissemination and accessibility of information. The common theme running across energy and climate change reportage of the three Ghanaian media houses selected for this study were climate change, environment, renewable energy, energy, and climate-induced events such as floods and 7

BBC 2023: Ghana Media Guide.

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extreme weather conditions. In recent years, there has been a noticeable trend in the reportage of energy-related climate change issues by these media houses. For instance, GBC has published a number of reports on climate change and its impact on the environment. Similarly, Joy FM, a popular private media house, has produced reports on environment-related climate change events. Despite the absence of dedicated energy-related climate change reporting desks, some journalists within these media houses have focused on sub-thematic areas like energy and the environment. This trend indicates a growing interest in energy-related issues within the Ghanaian media landscape. However, it is worth noting that Ghana’s ranking on the Global Press Freedom Index has dropped for the second consecutive year, from 60th in 2022 to 62nd in 2023. Despite this, on the African continent, the country’s performance improved by a point over the same period Ghana’s seeming rise in PFI rating may have been orchestrated by a steep decline in press freedom of other countries on the continent. A 2023 report by the University of Ghana and the Media Foundation for West Africa indicated that nearly a quarter of journalists in Ghana reported they do not feel safe. In terms of specific examples of energy-related climate change reportage, the media has played a critical role in creating awareness about the impact of climate change and the green economy on society1 . For instance, a one-day media training on climate change and green economy was organized by the United Nations Development Programme (UNDP) under the auspices of the United Nation’s Partnership for Action on Green Economy (PAGE).8 The training was aimed at improving the understanding of the participants of the mainstreaming process of the Metropolitan, Municipal, and District Assemblies (MMDAs), effective reporting on climate change and SDGs, and how to hold duty bearers accountable. Furthermore, a report by the World Bank Group highlighted that at least one million more people in Ghana could fall into poverty due to climate shocks if urgent climate actions are not taken.9 This report was widely covered in the media, emphasizing the need for a development pathway that builds resilience to climate change and fosters a transition to low-carbon growth.

4.2.2

Senegal

The country traditionally has one of the most unrestricted and diverse media scenes in the West African region.10 Radio is an influential medium of communication in Senegal, with outlets including commercial and community stations. The country has a diversified media environment with a mix of private and public outlets, which allows the media industry to play its watchdog role of monitoring governmental actions 8

Graphic Online (2018) Report. Mainstream climate change and green economy in reportage journalists urged. 9 World Bank (2022). Ghana Taking on Climate Change: Ghana Country Climate Development Report. 10 BBC 2023: Senegal Media Guide.

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(MFWA, 2019). Media content can be accessed through radio, TV, newspapers, audio-visual mediums, and online. Online news media are highly developed and include internet-based TV outlets. RTS and Le Soleil, both state-owned reported and published stories on the environment and climate-induced events. RTS however had a significant number of reports on energy and related issues, climate and environmental reports, with a desk dedicated to energy reporting. The media outlet also had a tab dedicated to environmental reportage on their website. Specific reportage under the environment tab includes climate-induced and extreme weather events such as flooding and rain storms, energy transition and climate action, environmental management, reforestation, and others. Data on a dedicated energy-related climate change reportage at Le Soleil was unavailable at the time of the study. The media outlet however had an environment tab dedicated to reportage on a vast number of topics including climate-induced events, climate change, migration, sanitation, land degradation, agriculture, and mining, among others. The President’s advocacy for implementation of climate adaptation and also closing the financial gap in climate adaptation, and the surge in renewable energy programmes could have spurred the interest of the state-owned media in energy-related climate change reportage.

4.2.3

Eritrea

Eritrea is the only African country to have no privately owned media.11 There are extensive restrictions to reporting, and the media are subject to the whim of the state. In 2021 Reporters Without Borders rated Eritrea as one of the countries with the worst press freedom in the world. The few privately owned newspapers were closed in 2001.12 Media outlets reviewed in this study, Eri-TV and Eritrean Profile, both stateowned, reported only on climate change and not on energy or related themes. Data on the availability of a dedicated energy-related climate change desk was non-existent in the two media houses at the time of the study. Eri-TV, for instance, only had some documentaries in 2019 and 2020 on climate change adaptation programme. The media house had no website, but has an internet-based TV outlet where news and programmes are broadcasted. An attempt at a search for the website of Eri-TV would direct one to a social media page such as YouTube. Eritrea Profile presented reports on news items of climate issues as part of their general news reportage. The media house is controlled by the Ministry of Information, with strict oversight and reportage on the state’s agenda.13 The seeming silence of Eritrea’s media on crucial regional and international developments makes online access to major international news and information quite

11

BBC 2023: Eritrea Media Guide. Remembering the day the Eritrean Press Died. Article by Abraham T. Zere, May 2017. 13 Reporters without Borders: Eritrea https://rsf.org/en/country/eritrea. 12

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limited.14 Additionally, it is presumed that the focus of the Eritrean media “used for this study”, on climate change issues may be as a result of the country’s location in the Horn of Africa, a region characterized by frequent climate-induced events (Gavin, 2022). Indeed, Eritrea remains highly vulnerable to the effects of economic shocks and climate change, as it encompasses vast drylands, numerous pastoralist communities, and multiple border disputes, which exacerbates existential issues.

4.2.4

Somalia

Journalists and reporters in Somalia regularly face harassment, arbitrary detention, fines, and threats of violence. In 2020, amendments to the media law granted the Ministry of Information powers to regulate the media. Nonetheless, private media outlets have emerged. The TV and press sectors are weak, and radio is the dominant medium of receiving information.15 Radio Mogadishu and SNTV both state-owned media outlets reportage reflects extreme climate and climate-induced events such as flooding and extreme weather events due to their location in the Horn of Africa. The privately owned media houses, Hiiraan Online and Garowe Online similarly report on the same. SNTV and Garowe Online additionally report on Climate Change. Data on a dedicated energy or climate reporting desk was not available at the time of this study. Journalists are expected to carry out reportage on climate and energy-related news. However, it seems the Somali media is already preoccupied with reportage on security issues while grappling with their own safety from attacks on the media which is ripe in Somalia (IRIN, 2015). This is evidenced in the 2022 Global Impunity Index which ranked Somalia as the world’s worst country for the eighth year in a row, with respect to the prosecution of murderers of journalists. The 2022/2023 annual report of Somali Mechanism for Safety of Journalists clearly reveals that the level of press freedom in Somalia remains complicated with constant attacks on individual journalists including imprisonment and detainment. Journalists have limited space of work and access to information is very critical. The dangers and pressures journalists face in Somalia undermine coverage of not only sensitive political and economic stories but also important humanitarian and social issues (IRIN, 2015). Regardless of this constraint, there have been some minimal efforts to improve the capacity of journalists in Somalia so as to enable them report on climate issues. For instance, in 2019, the Somali media launched the first-ever network of environmental journalists “The Somali Environmental Journalists Network (SEJN) as part of deliberate efforts to increase the media focus on environmental issues including climate change and other environmental challenges and opportunities in the country”.16 Similarly, in 2023 Somali Journalists Syndicate conducted a pioneering training

14

Remembering the day the Eritrean Press Died. Article by Abraham T. Zere, May 2017. BBC 2023: Somalia Media Guide. 16 UNEP (2019). Somalia Media Launch first-ever Network of Environmental Journalists. 15

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programme for journalists on climate change reporting for sustainable development in Somalia. The training benefited 30 local journalists across the country.17

4.2.5

South Africa

South Africa has an established state-owned and private broadcasting scene, and a lively press scene dominated by a few major publishing firms.18 The common themes explored by the three media houses selected were on climate change. SABC and the Mail & Guardian reported largely on energy issues and the energy transition. The research also showed that climate-induced events were often reported by SABC and eNCA. Although all three media houses have dedicated energy and climate reporting desks, research has shown that most South Africans generally were not adequately informed about energy-related climate change or climate change due to poor media reporting on the subject (Levi, 2021; Sithole, 2023; Shimhanda & Vivian, 2022). According to a report by the Conversation,19 which was corroborated by Sithole (2023) and Tagbo (2010), South Africa’s media houses rely heavily on events like conferences, climate disasters, the release of scientific papers and foreign news sources in their reporting on climate change. The report further points out that the kind of coverage favoured by the South African media does not do much to improve the public’s understanding of climate change as they may not associate the reporting with their day-to-day lives. This leaves the impression that climate change is an issue for the elites, politicians, and activists, and not for ordinary people. Related research by Levi (2021) also projected that in South Africa, journalists, environmental NGOs, and scientists often circulate news on climate change mostly in the newspapers which caters largely to the reading needs of the urban and educated elites with limited focus on rural folks. Although most South Africans hear about climate change in the mass media, journalists have always grappled with limited training opportunities and resources to conduct primary investigations into climate change stories and phenomena. For the mass media in general, climate change is covered in mostly high-quality English-language news outlets which most people do not have adequate access (Levi, 2021).

17

Horn Observer (2023). Somalia: SJS empowers local journalists with climate change reporting training. 18 BBC (2023): South Africa Media Guide. 19 Sithole, E. (2023). Climate change journalism in South Africa misses the mark by ignoring people’s daily experiences. Reported in The Conversation.

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Namibia

Namibia’s media remain critical of the government as the country’s constitution provides for press freedom which is generally observed in practice.20 This could possibly explain why Namibia emerged as the highest-ranked African country on the 2023 Press Freedom Index in Africa. The media landscape is diverse, and the population gets its news mainly from the state-owned radio and TV broadcaster, the Namibian Broadcasting Corporation (NBC). The independent and private daily, The Namibian, is the most widely read and most critical newspaper, followed by the state-owned The New Era.21 Common themes running through the reportage of NBC, The Namibian, and The New Era, in relation to the scope of this study were climate change, energy, and the energy transition. Reportage on energy-related climate change and the energy transition was quite typical of The Namibian and The New Era. Both media outlets had dedicated energy and climate reporting desks. The Namibian, for instance, has a dedicated “Energy Centre” focused on reportage of energy and related themes such as the energy transition and green energy. A study by Shimhanda and Vivian (2022) concluded that although the Southern African country’s media have made efforts to report on energy and climate change, most of the stories on these topics were based on stories that were originally produced and circulated by other foreign news agencies with limited local or regional context. Hase et al. (2021) also reported that countries from the Global South, including Namibia, rather emphasized the societal dimension of climate change, in particular its effects on humans, thus reporting more frequently on water scarcity, extreme weather effects, and threats to habitats as adverse effects of climate change. The dynamics of such reportage may be due to the fact that such countries are more vulnerable to climate change. Additionally, a lack of journalistic resources and scientific issues being of less importance more generally may lead to lower attention given to extensive research and reporting on energy-related climate change or climate change issues exclusively (Nguyen & Tran, 2019).

4.2.7

Central African Republic

The BBC Media Guide on Central African Republic reports that there is little support for independent journalism in the country, and media outlets are increasingly aligned with state interests. Radio is the most popular medium of communication and source of information in the country. The state-owned radio station, Radio Centrafrique, has limited FM coverage (the capital and its environs), with no dedicated website at the time of the conduct of this study. Hence information on energy or climate reportage could not be obtained.

20 21

BBC (2023). Namibia Media Guide. Reporters Without Borders, Namibia, https://rsf.org/en/country/namibia.

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Radio Ndeke Luka is run by a Swiss NGO Fondation Hirondelle, which provides balanced output, and rebroadcasts international news bulletins. From their website, the media outlet had reports on the environment, energy, and climate change, and a tab dedicated to environmental reporting. Broadly, such environmental reportage covered issues on climate, energy, reforestation, biodiversity, migration, agriculture, mining, and related themes. The search further revealed that Radio Ndeke covered events and programmes related to climate change such as COP 27 and the Convention on Climate Change during the time scope of the study. Print media was excluded from this analysis as their reach is limited by low literacy levels and a lack of distribution in rural areas.22 The production and distribution of print media also occurs exclusively in Bangui, the capital.23 Similar to the media industry in countries like Eritrea and Somalia, the media landscape in Central African Republic is characterized by limited security-inducing acts of harassment, intimidation, and physical violence (Kenmogne & Oyeniyi, 2021). It is in this context that the Central African Republic is rated as “Not Free” on the 2023 Freedom in the World given the limited support of independent media. The World Bank Climate Risk Country Profile (2021) also recognizes the Central African Republic as highly vulnerable to climate change impacts, due to a combination of political, geographic, and social factors, presenting an additional burden to sustainable development. This vulnerability presents an urgent need to communicate information about climate change and related themes in the country. However, security pressures, power supply challenges, a limited market size, low literacy levels, and lack of reliable communication networks present major constraints to the development of sustainable information and communication infrastructure.24 Journalists are also insufficiently equipped with the requisite knowledge in covering topics related to climate change, the energy transition, or energy-related climate change topics.

4.2.8

South Sudan

Radio is the most popular medium of communication and media broadcast in South Sudan. The state-owned South Sudan Broadcasting Corporation (SSBC), a television network, runs alongside other private media outlets. Newspapers, although relatively expensive for many locals, rank second to radio in terms of popularity. SSBC, although without a website, broadcasts news and current affairs programming, music, and entertainment, via digital satellite and some online streaming platforms like YouTube. The Eye Radio, funded by USAID, and the Dutch-funded newspaper, The Citizen Newspaper, both report on climate change, energy, and climate-induced events. 22

BBC (2023). Central African Republic Media Guide. Internews (2015). Central African Republic: Information and Communication with Communities. What are the needs? Accessed November 14, 2023. 24 Internews (2015). Central African Republic: Information and Communication with Communities. What are the needs? Accessed November 14, 2023. 23

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The Citizen Newspaper has dedicated columnists and editorials discussing a vast range of issues including climate change and its relation to the environment. Eye Radio has a Humanitarian tab on its website focused on aid and reliefs directed to victims of extreme weather events, food insecurity, migration, and other social support activities. While South Sudan’s media sector has made gains in recent years, it remains challenged by a rapidly changing environment and a population lacking access to reliable and trustworthy information (Internews, 2015). Likewise, the media lacks reliable data and access to crucial official information on energy, climate change, and related themes. According to a 2023 UN Human Rights Council report, there are no centralized depositories or websites that publish important official data, and authorities routinely deny access to information that should be publicly available. Additionally, journalists known for independent reporting are less likely to get access to official sources, and queries about sensitive issues or events can lead to threats of physical harm. The report further states that the persistence of such attacks has a significant bearing on the editorial considerations of media houses thereby influencing choices about reportage and credible sources of information. These challenges are further exacerbated by constant intimidation and threats to journalists, with a precarious media freedom environment (USAID, 2017). This situation has led many journalists to rely on government and international events, and other secondary sources to access information about important topics.

4.2.9

Algeria

The Algerian media are less free with further media restrictions following a 2023 law passed by the Algerian Parliament. State-owned media outlets steer clear of critical discussions and dissenting views. With the exception of online media sites, the state has a monopoly in the radio sector, although privately owned media are patronized by the majority of the population.25 Both state-owned Télévision Algérienne (ENTV) and Radio Algérienne have reported on energy and climate-induced events. For ENTV, typical climate change reporting covered international meetings and events on climate change including the United Nations Conference on Climate Change and COP 27. Reports from energy conferences, the energy transition, and oil markets have also featured in the stories on energy on their website. These were however reported as part of general news reportage. El-Watan reports on energy, energy transition, and climate change on a regular basis. Although the authors of this study did not find a unit dedicated to energy and climate change reportage, the media outlet has a reporter who consistently publishes news articles on energy-related climate change themes. For example, between August 2023 and October 2023, the reporter had published 25 different energy-related stories some of which were related to energy transition and climate-related themes. 25

BBC (2023). Algeria Media Guide.

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Tunisia

The subject of “energy” emerged as the cross-cutting theme from the Tunisian media houses sampled in this study. While Radio Tunisienne and Al-Watania generally report on energy and environmental themes respectively, La Presse and Assabah report on Climate Change, Renewable Energy, as well as Energy Transition. Of these two, La Presse happened to be the only media out of the sampled media outfits which has a dedicated desk for energy-related climate change reportage. Tunisia possesses a unique media landscape made up of a mixture of private and state-owned media houses, each with varying degrees of independence and alignment with state interests. In addition to print, television and radio play a significant role in Tunisia’s media landscape. The state-owned Tunisian Radio and Television Establishment (ERTT) operates several TV and radio channels, including Tunisian National Television (TNT) and Radio Tunis. These state-owned media outlets often adhere to government narratives and policies, which can impact their ability to provide unbiased and critical coverage of energy-related climate issues. Private media houses in Tunisia, on the other hand, generally have more editorial independence and freedom to report on a wide range of topics, including climate change and energy. There are private TV stations along with private radio stations whose reportage is characterized by more flexible coverage of energy-related climate issues. Despite these, Tunisia’s media landscape is also shaped by various social and economic factors. While the country’s literacy level stands at 82.7% (statistica 2023; microtrends 2023), there are still limitations in reaching all segments of society, particularly those in rural areas. Distribution of print media, for instance, may not be extensive beyond urban centres. Tunisia is also confronted with some other barriers when it comes to reporting on energy-related climate issues. Security pressures, especially after the Arab Spring revolution, have impacted press freedom and the ability of journalists to cover sensitive topics in some cases. Journalists have faced harassment, intimidation, and even violence in the exercise of their profession. The UN Office of the High Commissioner for Human Rights has expressed deep concern at the increasing restrictions on the right to freedom of expression and press freedom in Tunisia (UNOHCHR, 2023).

4.3 Summary Observations Reportage on energy-related climate issues appeared to be few across Africa’s media landscape. Where such reportages existed, specific coverage of climate and energy, sustainable energy, the energy transition, and other energy-related climate themes, were not properly categorized or labelled. With the few that were labelled, a serialized follow-up on the topics was scanty. Ideally, stories on such topics were not serialized with the objective of systematically bringing the themes to light. It is suggested that a more storied framing of the “issues” of energy-related climate change will bring

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up wider sets of solutions. Journalists could use such stories in a way to zoom out and allow readers to better appreciate the bigger picture. Relatedly, despite climate change issues being topical, they often compete for reporting space and sustained relevance with pressing socio-economic issues. As a result, energy-related climate change issues though significantly relevant, tend to be relegated to the backburners of societal conversations. For instance, even though countries in the Horn of Africa are at the mercy of climate-related events, issues about security and conflicts take centre stage in the media more than climate issues, and especially more so than energy-related climate change.

4.3.1

Challenges of African Media Outlets in Energy-Related Climate Change Reportage

African media outlets face a plethora of challenges that have hindered their roles in shaping public awareness and action effectively on energy-related climate change issues. This section explores the challenges African media outlets encounter in energy-related climate change reportage, shedding light on the complexities and barriers that hinder their ability to provide accurate and comprehensive coverage. Through an in-depth examination of these challenges, we aim to underscore the importance of addressing them to enhance climate change reporting in Africa. Political Interference and Censorship: Governments in some African countries exert control over the media through censorship, harassment of journalists, or restrictive laws when reporting on sensitive environmental and energy-related topics (Reporters Without Borders, 2021; World Press Freedom Index, 2021). This can stifle independent reporting and limit the media’s ability to hold powerholders accountable (CIPESA, 2022). Governments may suppress critical reporting to protect vested interests, hindering the media’s ability to provide balanced and independent coverage (FES, 2023). Safety Concerns for Journalists: Reporting on controversial environmental issues can expose journalists to safety risks, including threats, physical violence, and harassment from powerful stakeholders who may want to suppress critical reporting (Committee to Protect Journalists, 2021; Getting Away with Murder: 2020 Global Impunity Index). Limited Resources: One of the foremost challenges faced by African media outlets in energy-related climate change reportage is limited resources. Many media organizations in Africa struggle with limited financial resources, operating with constrained budgets, and face difficulties in allocating resources to in-depth environmental reporting (Mwesigwa and Fraser, 2018). The limitation of critical resources can lead to underinvestment in quality journalism and investigative reporting. This challenge is exacerbated by the fact that climate change is a complex, multifaceted issue that often requires substantial investigative effort. Lack of Environmental Expertise: Energy-related climate change reporting demands a solid understanding of environmental science, energy systems, and policy dynamics (Anyangwe, 2019). However, African newsrooms often lack journalists

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with the necessary expertise. Additionally, journalists in some regions may lack access to training and resources, including the latest technology and research tools, which can impact the quality of reporting. This gap in knowledge can lead to inaccuracies, oversimplifications, or misinterpretations in energy-related climate-related reporting. Sensationalism versus Accuracy: In the pursuit of readership or viewership, some media outlets resort to sensationalism when reporting on climate change. This sensationalism can lead to distorted or alarmist narratives that do not accurately represent the science of climate change, potentially leading to public confusion or indifference (Ikiebe, 2020). Funding Models and Advertising Pressures Many African media outlets rely heavily on advertising revenue to sustain their operations (Nyamnjoh, 2005). This dependence can create conflicts of interest when reporting on energy companies or other advertisers involved in environmentally sensitive practices. Media organizations may be hesitant to publish stories that could jeopardize their financial stability. Lack of Access to Reliable Data: Accurate reporting on climate change often requires access to reliable data which may be limited or inaccessible in some African countries. Data gaps can hinder the media’s ability to provide evidence-based reporting on energy-related climate issues (Taylor & Walter, 2019). Language and Accessibility Barriers: Africa is linguistically and culturally diverse, which poses challenges for media outlets in reaching a broad audience. Language barriers and low literacy rates in some regions can limit the impact of climate change reporting (Mwesigwa and Fraser, 2018). Competition for Attention: Media outlets in Africa face intense competition for readership or viewership, often leading them to prioritize sensational or attentiongrabbing stories over in-depth climate reporting (Salawu, 2007). This competition can divert resources and attention away from critical environmental issues. Lack of Climate Change Policies: Some African countries lack comprehensive climate change policies and regulations that could encourage media outlets to prioritize climate reporting (UNFCC, 2021). The absence of a supportive policy framework can limit the incentive for newsrooms to invest in environmental journalism.

5 Best Practices on Energy-Related Climate Change Reportage In a world grappling with the profound impacts of climate change, the role of media in reporting on energy-related climate issues is paramount. Media outlets have the power to educate, inspire, and mobilize audiences to address this global challenge. This section presents case studies of exemplary energy-related climate

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change reportage from different countries across the world. These case studies illustrate how responsible journalism can shed light on critical environmental issues, shape public perceptions, and drive positive change.

5.1 Case Studies of Exemplary Energy-Related Climate Change Reportage in Selected Countries These sampled cases highlight the pivotal role played by the media in energy-related climate change reportage in other countries. The Guardian’s “Keep It in the Ground” campaign showcased how a media outlet can use its platform to advocate for responsible environmental practices and influence global policy discussions. Al Jazeera’s “Earthrise” series exemplified how dedicated programming can educate and inspire viewers to take action on climate change. The Times of India’s “Lighting a Billion Lives” campaign illustrated how media can drive public engagement, advocate for policy changes, and promote sustainable energy solutions at both the community and national levels. These examples underscore the power of media to shape public opinion, mobilize communities, and drive positive change in the face of the urgent global challenge of climate change. They serve as inspirations for responsible journalism and the potential for media outlets worldwide to play a transformative role in addressing energy-related climate issues.

5.1.1

Case Study 1: The Guardian’s “Keep It in the Ground” Campaign (United Kingdom)

Publication: The Guardian In 2015, The Guardian, a prominent British newspaper, launched the “Keep It in the Ground” campaign, which focused on the imperative to keep fossil fuels in the ground to mitigate climate change. This campaign exemplified the power of media to advocate for environmental action. The campaign coincided with the Paris Agreement negotiations, a pivotal moment in international climate policy. It aimed to raise awareness about the need to limit global warming to well below 2 °C and to reduce reliance on fossil fuels. Key Features 1. Comprehensive Reporting: The Guardian published a series of in-depth articles, investigations, and op-eds that examined the science, economics, and political implications of fossil fuel extraction. These pieces provided readers with a holistic understanding of the issue. 2. Divestment Advocacy: The campaign encouraged institutions, including universities and pension funds, to divest from fossil fuels. This advocacy not only raised

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awareness but also had tangible impacts as numerous institutions heeded the call to divest. 3. Public Engagement: The Guardian actively engaged its readers, encouraging them to take action through petitions and social media. This participatory approach empowered the public to be part of the climate solution. 4. Global Reach: As an internationally recognized newspaper, The Guardian’s campaign had a global reach, influencing discussions on fossil fuel divestment and climate action in multiple countries. Impact The campaign contributed to a broader public discourse on fossil fuels and climate change, drawing attention to the moral and economic imperatives of keeping carbon reserves in the ground. The University of Oxford, the Rockefeller Brothers Fund, and other prominent institutions announced divestment from fossil fuels in response to the campaign. The “Keep It in the Ground” campaign contributed to the momentum that led to the adoption of the Paris Agreement in December 2015.

5.1.2

Case Study 2: Al Jazeera’s “Earthrise” Series (Qatar)

Publication: Al Jazeera English Al Jazeera’s “Earthrise” series is an example of how a media outlet can use dedicated programming to promote environmental sustainability and showcase innovative solutions to climate change. “Earthrise” was launched in 2010 as a documentary series that focused on environmental issues, sustainable technologies, and conservation efforts around the world. The series aimed to inspire viewers to act on climate change. Key Features 1. Global Coverage: “Earthrise” explored environmental stories from diverse regions, showcasing the interconnectedness of environmental challenges and solutions. 2. Solution-Oriented: The series emphasized solutions to environmental problems, highlighting innovative technologies, conservation efforts, and community initiatives that were making a positive impact. 3. Engagement and Education: In addition to documentaries, “Earthrise” featured interviews with experts, activists, and scientists, providing viewers with in-depth insights into climate change and environmental conservation. 4. Accessibility: Al Jazeera made the series freely available online, making it accessible to a global audience. Impact: “Earthrise” received critical acclaim and won several awards for its coverage of environmental issues. The series inspired viewers to act, from supporting renewable

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energy projects to engaging in local conservation efforts. By focusing on solutions, “Earthrise” contributed to a more hopeful and action-oriented narrative surrounding climate change.

5.1.3

Case Study 3: The Times of India’s “Lighting a Billion Lives” Campaign (India)

Publication: The Times of India The Times of India’s “Lighting a Billion Lives” campaign is a remarkable example of media-driven efforts to address energy-related climate change issues with a focus on renewable energy. India faces significant energy access challenges and is one of the world’s largest carbon emitters. The campaign was launched in 2008 to raise awareness about clean energy solutions and the need for sustainable development. Key Features 1. Educational Campaign: The Times of India published articles, special reports, and educational content about renewable energy, energy efficiency, and the importance of sustainable practices. 2. Community Engagement: The campaign involved communities across India in adopting solar lighting solutions. It organized workshops, distributed solar lanterns, and worked with NGOs to implement renewable energy projects. 3. Promotion of Solar Power: “Lighting a Billion Lives” actively advocated for the adoption of solar power in off-grid and energy-deficient regions. It showcased real-world examples of how solar energy was transforming lives. 4. Policy Advocacy: The campaign called for supportive government policies and incentives to promote renewable energy adoption at both the community and industrial levels. Impact The campaign reached millions of readers and raised awareness about the benefits of renewable energy and sustainable practices. It facilitated the distribution of solar lanterns to off-grid communities, providing them with access to clean and reliable lighting. The Times of India’s advocacy contributed to policy changes and initiatives supporting renewable energy adoption in India.

6 Recommendations for Improved Reportage Findings from the review of the selected media outlets coupled with the exemplary energy-related climate change reportage of the sampled case studies sparks further interest into how the African media can change the tide in their energy and climate change reportages. These would require concerted efforts by the different

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stakeholders including the media and media support organizations, civil society and academia, governments, and regional and international bodies, with each playing a unique role. Advocacy for press freedom and independence would be an initial step in overcoming the barriers imposed by the restrictions and repression of the African media. Such advocacy, be it global, regional, or national in nature should seek to continue to call for the “decontrol” of Africa’s media sector by freeing-up the landscape to allow for unrestricted and uncensored reportage, relaxing ownership and control rules, and opening up technological platforms to enable extensive reach and coverage of information. This is essential to engendering access to information including energy-related climate change issues. Additionally, such freedoms would also encourage editorial and the expression of independent opinions on energy-related climate change reportage. Further to this, the media can be encouraged to undertake comprehensive investigations into topical issues without fear of intimidation and harassment. Because energy-related climate change issues are cross-cutting, trainings organized by civil society organizations and NGOs and international development partners for the media, should be multidisciplinary in nature and tailored to broadening the understanding and appreciation of the emerging themes within the climate context. Specialized training modules would do African media practitioners a lot of good in redirecting and concentrating efforts on the specific thematic areas required to facilitate the dissemination of energy-related climate change issues. By taking these steps, the media can play a more effective role in raising awareness of energy-related climate change in Africa and promoting solutions. This is essential for building a more sustainable future for the continent. There are many local organizations in Africa that are working on climate change. The media can partner with such organizations to get the latest information and to share stories on energy-related climate change. The way and manner in which these stories can be shared by the media should not be confined to the formal reportage, that is through written stories. Other forms of disseminating or presenting energyrelated climate change issues such as radio and TV drama series, comics, and other relatable mediums can be adopted. Additionally, some African media can purposively depart from resorting to only English language in disseminating information but complement communication of energy-related climate change reportages with the local languages.

Notes 1.

2.

Kyte R. (2014), Climate Change is a challenge for Sustainable Development. As prepared for delivery https://www.worldbank.org/en/news/speech/2014/01/15/climate-change-is-cha llenge-for-sustainable-development Ludwig et al. (2007), Climate Change Impacts on Developing Countries – EU Accountability. Policy Department Economic and Scientific Policy, European Parliament.

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3.

UN (2009), The Impact of Climate Change on the Development Prospects of the Least Developed Countries and Small Island Developing States. 4. World Meteorological Organization (2022), Climate change puts energy security at risk. https://public.wmo.int/en/media/press-release/climate-change-puts-energy-security-risk#:~: text=Climate%20change%20directly%20affects%20fuel,to%20reduce%20fossil%20fuel% 20emissions. 5. African Development Bank: Climate Change in Africa. https://www.afdb.org/en/cop25/cli mate-change-africa 6. Johnston, J.D. (2020). Climate Change Literacy to Combat Climate Change and Its Impacts. In: Leal Filho, W., Azul, A.M., Brandli, L., Özuyar, P.G., Wall, T. (eds) Climate Action. Encyclopedia of the UN Sustainable Development Goals. Springer, Cham. https://doi.org/10. 1007/978-3-319-95885-9_31 7. Tadesse, D. (2010), The Impact of climate change in Africa. Institute for Security Studies. 8. Gathara P. (2019), The problem is not negative Western media coverage of Africa. https://www.aljazeera.com/opinions/2019/7/9/the-problem-is-not-negative-westernmedia-coverage-of-africa 9. Ibid. 10. Igbohor, K. (2022), African Journalists: More training and resources will boost climate change coverage. Africa Renewal https://www.un.org/africarenewal/news/african-journalists-moretraining-and-resources-will-boost-climate-change-coverage

References Anyangwe, E. (2019). Africa’s media battling to report on climate change. DW Akademie. Chu, S., & Majumdar, A. (2012). Opportunities and challenges for a sustainable energy future. Nature, 488, 294–303. https://doi.org/10.1038/nature11475. CIPESA. (2022). The state of media freedom and journalists’ safety in Africa 2022. Dwivedi, Y. K., Hughes, L., Kar, A. K., Baabdullah, A. M., Grover, P., Abbas, R., Andreini, D., Abumoghli, I., Barlette, Y., Bunker, D., Chandra Kruse, L., Constantiou, I., Davison, R. M., & De’, R., Dubey, R., Fenby-Taylor, H., Gupta, B., He, W., Kodama, M., Wade, M. (2022). Climate change and COP26: Are digital technologies and information management part of the problem or the solution? An editorial reflection and call to action. International Journal of Information Management, 63, 102456. https://doi.org/10.1016/j.ijinfomgt.2021.102456. FES. (2023). Journalism in the shadow of power. https://fesmedia-africa.fes.de/news/journalismin-the-shadow-of-power. Gavin, M. (2022). Climate change and regional instability in the horn of Africa. Council on Foreign Relations Center for Preventive Action. Discussion Paper Series on Managing Global Disaster No. 10. Harichandan, S., Kar, S. K., Bansal, R., Mishra, S. K., Balathanigaimani, M. S., & Dash, M. (2022). Energy transition research: A bibliometric mapping of current findings and direction for future research. Cleaner Production Letters, 3, 100026. https://doi.org/10.1016/j.clpl.2022.100026. Hase, V., Mahl, D., Schäfer, M. S., & Keller, T. R. (2021). Climate change in news media across the globe: An automated analysis of issue attention and themes in climate change coverage in 10 countries (2006–2018). Global Environmental Change, 70, 102353. Healy, N., & Barry, J. (2017). Politicizing energy justice and energy system transitions: Fossil fuel divestment and a “just transition.” Energy Policy, 108, 451–459. https://doi.org/10.1016/j.enpol. 2017.06.014. Human Rights Council (2023). Entrenched repression: systematic curtailment of the democratic and civic space in South Sudan. Human Rights Council Fifty-Fourth Session A/HRC/54/CRP.6. Ikiebe, B. (2020). Climate change reportage in nigerian newspapers: a study of leadership, vanguard, and punch newspapers. Mediterranean Journal of Social Sciences, 11(3).

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Maame Esi Eshun is an economist with keen interest in advancing research in economic regulation, energy, extractives, and gender responsive studies. She is a former Southern Voices Network for Peacebuilding Scholar of the Woodrow Wilson International Center for Scholars, USA. Maame holds an MPhil and BA Economics from KNUST, Ghana Israel Amenfia is a utility regulator with over 17 years of experience. Israel holds a BSc. in Environment and Natural Resource Management and an M.A in International Development Studies, both from Presbyterian University, Ghana. He focuses on Water, Environment and Climate Change. He currently resides in Accra. Ishmael Ackah is the Executive Secretary of Ghana’s Public Utilities Regulatory Commission (PURC). He chairs the Legal and Regulatory Committee of the Electricity Market Oversight Panel. He worked with the United States Agency for International Development (USAID) West Africa Energy Program, Deloitte, the Energy Commission, Ghana and the Africa Centre for Energy Policy. He’s an Adjunct Lecturer at University of Ghana Law School, GIMPA and University of Cape Coast. As a researcher, he has consulted for the AfDB, NRGI, SNV, UN, DFID/ GOGIG, Energy for Growth Hub among others. He holds a PhD in Energy Economics from the University of Portsmouth-UK, an MSc. From University of Surrey, UK, and a Bachelors from University of Professional Studies, Ghana.

Effect of Fossil Fuel Subsidies on Renewable Energy Transition in Sub-Saharan African Countries Souleymane Diallo, Youmanli Ouoba, and Charly Gatete

List of Abbreviations RET IEA SSA P.A IRENA GWEC FDI GMM GDP MENA FITs RES REC

Renewable Energy Transition International Energy Agency Sub-Saharan Africa Paris Agreement International Renewable Energy Agency Global Wind Energy Council Foreign Direct Investment Generalised Method of Moments Gross Domestic Product North Africa and the Middle East Feed-in tariffs Renewable energy standard Renewable energy certificates

S. Diallo (B) Norbert Zongo University, Koudougou, Burkina Faso e-mail: [email protected] Y. Ouoba Thomas Sankara University, Saaba, Burkina Faso C. Gatete ECOWAS Regional Electricity Regulatory Authority, Accra, Ghana © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_19

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1 Introduction Renewable Energy Transition (RET), seen as the switch from fossil fuels to renewable energies, is increasingly becoming a necessity in a context marked by energy crises and the imperative of sustainable development. Despite the emergence of alternative energy sources, the world remains dependent on fossil fuels for more than 80% of its energy (International Energy Agency, 2022). This heavy dependence on hydrocarbons has, however, become a source of concern in terms of climate change and energy security. The RET would facilitate access to energy, contribute to economic and social development and, above all, reduce climate change and the associated health and environmental impacts (Panwar et al., 2011). However, the transition requires significant capital investment, so investors are reluctant to commit to it given the associated risk. Against this backdrop, governments are still giving a larger share of subsidies to fossil fuels than to renewable energies. In fact, according to the International Energy Agency (IEA), subsidies for fossil fuel consumption amounted to more than four times those granted to the renewable energy industry in 2014. These subsidies are government measures put in place to reduce the price paid by consumers or to increase the price received by energy producers. The types of subsidy instruments vary from country to country and can be classified into the following four categories (Qadir et al., 2021): (i) direct financial transfers, (ii) preferential tax treatments, (iii) trade restrictions, i.e. customs duties and tariffs, and (iv) regulations, i.e. price controls and rate caps. Regardless of the category of subsidy, theoretically they are seen as an impediment to the development of renewable energy technologies for three reasons (Bridle et al., 2014a, 2014b). Firstly, they negatively affect the competitiveness of renewable energy sources by lowering the cost of fossil fuels. Secondly, fossil fuel subsidies divert investment away from renewable energy sources to some extent by reinforcing the relative attractiveness of the fossil fuel industry. Finally, given the inherently longterm nature of energy projects, subsidy-induced fossil fuel investments lock in an unsustainable energy system for decades to come and make the energy transition much more difficult (Unruh, 2000). Sub-Saharan Africa is heavily dependent on fossil fuels. According to Baye et al. (2021), over the last three decades, the share of renewable energy production in total primary energy in Sub-Saharan Africa (SSA) has declined over time, while there has been a steady increase in investment in the sector over the last two decades. These investments have been supported by government subsidies, even though these remain low compared with the subsidies granted to fossil fuels. The research question is therefore as follows: What is the effect of fossil fuel subsidies on renewable energy transition in SSA? Although the literature considers the main barriers to the deployment of renewable energy projects to be economic, institutional, technological and social, fossil fuel subsidies are considered to be a major determinant of renewable energy transition (Qadir et al., 2021). However, very few empirical studies analyze the effect of fossil

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fuel subsidies on RET. The work that does exist focuses on incentives to stimulate the production or consumption of renewable energy and is mainly concerned with ´ the case of developed countries (Melovi´c & Cirovi´ c, 2020; Zhao et al., 2016; Zhi et al., 2014). Similarly, other studies have focused on the economic and social effects of reducing fossil fuel subsidies (Geels et al., 2017; Lilliestam & Patt, 2015). The aim of this article is to analyze the effect of fossil fuel subsidies on renewable energy transition in Sub-Saharan Africa. This research contributes to the literature by exploring an area where very little work has been done. Secondly, from a methodological point of view, the article uses quantile regression with non-additive fixed effects, developed by Powell (2022), which makes it possible to take into account the differentiated levels of energy transition in the countries in our sample. Similarly, a robustness analysis was carried out by exploring the existence of asymmetric effects of fossil fuel subsidies on renewable energy transition. Finally, this research also takes account of the short- and long-term dynamics of these asymmetric effects. The rest of the article is divided into 4 sections. Section 2 presents the literature review. Section 3 presents the methodology used. Section 4 the results and discussion. Section 5 provides a conclusion and implications on economic policy and regulations.

2 Fossil Fuel Subsidies and Renewable Energy Transition: A Literature Review The literature abundantly analyzes the relation and effect of fossil fuel subsidies on renewable energy transition (RET) trying to identify the impact of fossil fuels on RE development and transition. Bridle and Kitson (2014) identified four key aspects of how fossil fuels impact RE development and transition. First, by reducing the cost of fossil fuel-based alternatives, fossil fuel subsidies harm the relative costcompetitiveness of renewables, making them less attractive, especially to investors. Second, since many national electricity systems are predominantly based on fossil fuel-based generation, fossil fuel subsidies can lock in and reinforce incumbent generation technologies and thus impose a barrier to entry for investors wanting to develop renewable technologies. Third, the transition to electricity systems based on renewable energy requires much investment, which is unfortunately wiped out by fossil fuel subsidies, which increase the attractiveness of fossil fuel technologies to the detriment of those of renewable energies. All the authors agree that fossil fuel subsidies are one of the major obstacles holding back the RE transition. According to Asmelash (2016), there are at least two ways in which fossil fuel subsidies hamper the development of renewable energy technologies (Bridle & Kitson, 2014; Bridle et al., 2014a, 2014b). First, by artificially lowering the cost of fossil fuels, fossil fuel subsidies impair the competitiveness of renewable energy sources. In this regard, fossil fuel subsidies must be more coherent with the numerous policy instruments, including carbon taxes and emission trading schemes many countries have adopted in international negotiations and agreements

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under the carbon market (Unruh, 2000). Second, by enhancing the relative attractiveness of the fossil fuel industry, fossil fuel subsidies tend to divert investment from RE sources. Although global renewable energy investment has increased continuously in the last decades, they are still insignificant compared to fossil fuel subsidies worldwide. Global renewable energy investment is predicted to reach US$7.4 trillion in 2040, representing only 15% of total investment in global energy supply (International Energy Agency, 2015). Reducing greenhouse gas emissions necessary to meet the 2ºC target will not be sufficient. In line with mitigation targets under the Paris Agreement (P.A.) and the international climate negotiations, governments engaged in fossil fuel reforms to reduce environmental impact by focusing on GHG emissions reductions, increasing renewable energy consumption and initiating energy transition. The renewable energy transition (RET) is a long process that replaces current fossil fuel-reliant systems with clean energy from renewable sources (Smil, 2016). Renewable energy has gained traction in the world, specifically in Africa. In Africa, in the past 15 years, many countries have embarked on ambitious transition strategies and adopted RE legislation. In addition to this legislation, countries reformed fossil fuel subsidies to remove or reduce them or transfer them into RE sources, which increased investments in the RE sector, favourited RE technology development and deployment and increased RE consumption. Regarding the impact of fossil subsidies on investment in RE, Müller et al. (2021) estimated that from 2006 to 2017, RE investments in Africa and the Middle East have multiplied from $ 1.2 billion to $19 billion. According to some authors, this can be a part of the effect of fossil fuel subsidy reforms. Indeed, fossil fuel subsidies could be repurposed to support renewable investment, from utility-scale plants to small-scale solar home systems. Knowing that fossil fuel subsidy reform aims to make oil and gas generators more expensive, the funds earmarked for fossil fuel subsidies could be repurposed to make clean energy cheaper, for example, through the provision of feed-in tariffs, tax exemptions or concessional loans (Phillips et al., 2020). According to Saturday (2021), the reforms could be complemented by other policy reforms to facilitate private investments, for example, reducing duties and tariffs on clean technology imports or the cost of electricity trading permits making oil and gas generators—which could be replaced with grid or decentralized power—more expensive. A study conducted by Sustainable Energy for All (2020) showed that replacing diesel generators with solar energy systems in green mini-grid programs would be possible with more private sector investment in clean energy generation, transmission and distribution gained by transferring fossil fuels into the RE sector. This transfer will significantly support the local RE transition while promoting access to energy for all following SDG 7. To facilitate rapid RE transition by distributing electricity services based on RE in semi-urban and rural areas, state and local governments must prioritize decentralized green off-grid projects. Private investment is particularly challenging for households, businesses and communities seeking to invest in decentralized renewable energy systems. Taken all the measures together, these should crowd in private capital for clean energy

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generation from households and firms while reducing energy poverty. Weber (2019) conducted an analysis showing that subsidy reforms help to increase investment in RE, especially for disadvantaged populations in Nigeria. Beyond the effect of fossil subsidies on increasing investment in RE, these can also help to develop technology or encourage investment in the deployment of RE. The achievement of RET requires an enormous amount of capital (Hall et al., 2017). Accelerating RE transition would entail public support for the manufacture of renewables and efforts to build the implementation and maintenance capabilities necessary to sustain the local value chain. In this way, reallocating fossil fuel subsidies toward renewables has been identified as a pathway for supporting clean energy access and financing low-carbon infrastructure in sub-Saharan Africa (Bridle et al., 2019; Whitley & Van der Burg, 2015). However, subsidies need to target technology capacity-building and projects that focus on RE generation (solar power plan, wind, biomass or hydro) and infrastructures in transmission and distribution networks to allow integration of RE in the energy market. Capacity development in the RE sector is one of the keys to a successful RE transition. The training of skills on all the value chains of the sector makes it possible to have technicians, engineers and various skills capable of assimilating the technology and allowing the transfer of technologies, pursuing and on RE technologies and its application at various levels of the value chain and different geographical levels: local, regional, national (Adulugba, 2021; Baker et al., 2014; Bridle et al., 2019). Alongside the provision of a significant mass of human skills to support the energy transition to RE sources, it can also lead to the creation of jobs in RE and contribute to Green Growth and sustainable development (Mutezo & Mulopo, 2021; Razzaq et al., 2023; Swilling et al., 2022). Government use subsidies to incentivize private sector participation in clean energy through other grants related to initiatives in RE sectors, such as and on RE technologies and support to industries and manufactories of RE technologies (Pedersen et al., 2021). Providing energy research and development subsidies to firms focused on domestic manufacturing of the critical technology required to accelerate a clean energy transition may be beneficial. Nigeria conducted the fossil fuel subsidy reforms in 2012 and set up subsidies for investments in renewable installation and Support domestic manufacturing of renewables (McCulloch, 2023). An economy of scale in the production of technologies is required to implement the cost-effective and cost-efficient adoption of renewables (Bridle et al., 2019; Whitley & Van der Burg, 2015). Climate change is one of the main reasons prompting a move from fossil fuels to renewable energy and from fossil fuels subsidies to RE subsidies. One option for the fossil fuel subsidies reform is to transfer the subsidies into the RE sector. The experiences in Germany and Denmark showed successful stories of RE subsidies used for RE transition (The International Renewable Energy Agency (IRENA) and Global Wind Energy Council (GWEC), 2012). Subsidies in the RE sector reduce the cost of RE technologies, making them more attractive for investors and affordable to many of the population (Agyeman & Lin, 2022; Evans, 2023; IRENA, 2020).

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The total amount of RE subsidies is less significant than fossil fuels subsidies. For example, renewable subsidies in power generation were $140 billion worldwide in 2016, according to Coady et al. (2019). In comparison, IRENA (2020) has estimated the supply-side subsidies for RE to have been around USD 167 billion in 2017, with total subsidies to renewable power generation of around USD 128 billion in 2015 and transport sector subsidies of USD 38 billion. In the total of subsidies in 2017, the part for solar P.V. was estimated at 48% of renewable power generation support, followed by onshore wind at 25%, biomass at 17% and offshore wind at 5%. However, efficient fuel pricing would remove one of the critical motivations for renewable energy subsidies given to the RE transition.

3 Methodology 3.1 Theoretical Field and Formalization of the Basic Model From a theoretical point of view, renewable energy subsidies are a barrier to the implementation of renewable energy projects insofar as they limit the production of these clean energies but also increase the demand for fossil fuels (Erickson et al., 2017). By measuring the renewable energy transition (RET) as the share of the consumption of these energies in total final energy consumption, it can be seen as a function of energy demand (Hasanov & Mikayilov, 2020). For this reason, we start with the following Cobb-Douglas function: F(L , K , E) = AL β K α E γ

(1)

From Eq. (1), (Hasanov & Mikayilov, 2020) derive the energy demand equation (E) as follows: Log E = β0 − β1 Log A − β2 Log Pe + β3 LogY

(2)

where A is total factor productivity, Pe is the price of energy E and Y income. E is made up of both renewable energy (RE) and fossil energy (FE) consumption, Eq. (2) becomes: Log R E = β0 − β1 Log A − β2 Log Pe − Log F E + β3 LogY

(3)

In order to take account of fossil fuel subsidies, which have a direct impact on energy prices, and given the correlation between F E and Pe and between F E and their subsidy, Eq. (3) can be re-specified as follows: Log R E = β0 − β1 Log A − β2 LogSub + β3 LogY

(4)

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In addition to these basic variables that affect RET, several other determinants have been identified in the literature. Starting from the context of Sub-Saharan African countries, the control variables identified are essentially human capital (Li et al., 2023), physical capital (Fuinhas, 2021), trade openness (Afonso et al., 2021), foreign direct investment (FDI) (Caetano et al., 2022; Patala et al., 2021), the urbanization rate (Wang, 2014) and natural resource rents (Ahmadov & Van Der Borg, 2019; Belaïd et al., 2021). In particular, human capital, through education and environmental training, improves knowledge absorption capacities at the company level, which favors the use of renewable energies (Li et al., 2023). Furthermore, the renewable energy sector is risky and requires significant investment. It is in this sense that the opening up of trade, FDI or the existence of a natural resource rent can be driving forces behind this transition. Taking into account the dynamic nature of renewable energy transition in accordance with Bourcet (2020) and the various control variables, the econometric model, which can be estimated using panel data, can be presented as follows: Log R E T it = β0 + β1 Log R E T it−1 + β2 Log F F S it + β3 LogG D P it + ϕ  Z it + ζit

(5)

where R E T it , F F S it and G D P it represent the level of renewable energy transition, fossil fuel subsidies and income respectively. Z it is a vector containing the control variables and ζit an error term. Quantile regression is used to estimate model (5). Quantile regressions are less sensitive to the presence of extreme values, as is the case with the differentiated levels of energy transition of the countries in our sample. This regression allows us to see the effect of the explanatory variables xi on different points of the conditional distribution of the dependent variable TER, rather than its conditional mean. The equation is therefore as follows: Q θ (Log R E T /xi ) = xi βθ + ζθi

(6)

where βθ is the vector of quantile parameters with θ ∈ ]0; 1[. Due to the short time horizon of our panel data, quantile estimation with additive fixed effects poses an incidental parameter problem (Galvao, 2011). Thus, to solve this problem, the estimator in quantile regressions with non-additive fixed effects developed by Powell (2022) will be used. This estimator makes it possible to analyze the effect of the explanatory variables on the TER variable from the smallest quantiles (θ = 0, 25) to the largest (θ = 0, 75) and the medians (θ = 0, 5), taking account of fixed effects and keeping the distribution of the error term unchanged. In order to account for the dynamic nature of model (5) the Powell (2022) estimator with instrumental variables was used following the example of Bruna et al. (2021). The lags of order 2 and up of the dependent variable were used as they are known to be good instruments to avoid endogeneity in a dynamic model (Roodman, 2009). The model is estimated using numerical optimization based on adaptive Markov Chain

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Monte Carlo (MCMC) sampling. This optimization approach proposed by Baker (2014) is based on the multivariate normal distribution.

3.2 Robustness Analysis Sub-Saharan African economies are highly dependent on fossil fuels (Copinschi, 2022). An increase in fossil fuel prices is generally likely to increase fossil fuel subsidies. However, there are several reasons for the current debate on the effectiveness of fossil fuel subsidies. Subsidies have considerable budgetary consequences, encourage pollution and do not generally benefit poor households. By way of robustness analysis, an analysis is carried out in terms of the asymmetric effects of fossil fuel subsidies. This type of analysis is important for capturing the possible existence of a difference in effect between a decrease and an increase in fossil fuel subsidies on renewable energy transition. To analyze the existence of asymmetric effects, this research draws on the work of Allison (2019). Consider the following panel data model of renewable energy transition: R E T it = μt + β F F S it + αi + εit

(7)

where R E T it represents the level of transition to renewable energies, F F S it fossil fuel subsidies, εit an error term, μt time fixed effects and αi individual fixed effects. Taking Eq. (7) in first difference, we obtain the following model: R E T it − R E T it−1 = (μt − μt−1 ) + β(F F S it − F F S it−1 ) + (εit − εit−1 ) (8) Following the work of Allison (2019), to capture increases and decreases in fossil fuel subsidies, Eq. (8) can be rewritten as follows: R E T it − R E T it−1 = (μt − μt−1 ) + β + F F S it+ + β − F F S it− + (εit − εit−1 ) (9) 

F F S it+ = F F S it − F F S it−1 i f (F F S it − F F S it−1 ) > 0, other wise0 F F S it− = −(F F S it − F F S it−1 )i f (F F S it − F F S it−1 ) < 0, other wise0 To take into account the positive and negative changes in fossil fuel subsidies over time, the variables F F S it+ and F F S it− in Eq. (9) can be transformed into cumulative sums. The equation thus becomes: with

t + R E T it − R E T it−1 = (μt − μt−1 ) + β + F F S is s=1 t − + β− F F S is + (εit − εit−1 ) s=1

The econometric model for estimation purposes can be specified as follows:

(10)

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437

R E T it = ρ R E T it−1 + (μt − μt−1 ) + β + Cum F F S it+ + β − Cum F F S it− + (εit − εit−1 )

(11)

  + − with Cum F F S is = ts=1 F F S it+ and Cum F F S is = ts=1 F F S it− . For the econometric estimations, in view of the dynamic nature of Eq. (10), the 2-step generalised method of moments (GMM) of Blundell and Bond (1998) was used. Indeed, the application of traditional estimation methods such as ordinary least squares (OLS) in this situation could lead to biased results due to the correlation between the lagged dependent variable and the residuals (Nickell, 1981; Roodman, 2009). According to Roodman (2009), the system GMM estimator of Blundell and Bond (1998) is more efficient than that of Arellano and Bond (1991) or Arellano and Bover (1995). The GMM estimator is robust to most common econometric problems such as endogeneity, heteroscedasticity and autocorrelation (Roodman, 2009). It is also suitable because in this research the time dimension is smaller than the individual dimension. To test for the existence of asymmetric effects, a Wald test (β + = β − ) can be performed. When the coefficients are statistically different, we can conclude that asymmetric effects exist. Renewable energy transition is a structural transformation of traditional energies toward zero emissions in the energy sector. This means that it is a long-term dynamic process that should be taken into account in the analyses. It would therefore be highly relevant to analyze the long-term effects of fossil fuel subsidies on renewable energy transition. To do this, the technique of Papke and Wooldridge (2005) is used in this research, like Phuc Canh et al. (2019), Qudrat-Ullah and Nevo (2021) and Xaisongkham and Liu (2022) to calculate long-run coefficients from the short-run coefficients derived from the estimation of Eq. (11) as follows: βl+ =

β+ β− and βl− = (1 − ρ) (1 − ρ)

(12)

with βl+ and βl− the long-term coefficients associated with an increase and a decrease in fossil fuel subsidies respectively.

3.3 Data This research uses panel data covering 35 sub-Saharan African countries (see Table A1 in the appendix) over the period 2010–2020. The sample size and analysis period were constrained by data availability. Regarding the dependent variable, there are several indicators in the literature for capturing the level of energy transition (Bourcet, 2020). In line with Liu et al. (2023), Murshed (2020) and Marques et al. (2010), in the present research, the level of renewable energy transition is measured by the percentage share of renewable energy consumption (hydroelectric,

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biomass, solar, wind, tidal, waste and geothermal) in total primary energy consumption. This indicator is the most widely used in the literature and is more appropriate for measuring the renewable energy transition in an economy, as it captures the potential for substitution of conventional energies by renewable energies (Bourcet, 2020). In addition, public decision-makers most often set their targets for renewable energy transition in terms of the share of renewable energies in the energy mix. For the variable of interest, as in the work of Solarin (2020a, 2020b), fossil fuel subsidies were measured by the subsidies to the various fossil fuels. These fossil fuel subsidies include subsidies for coal, natural gas, oil and electricity produced from fossil fuels. For the control variables, per capita income is captured by real per capita Gross Domestic Product (GDP), with reference to the work of Burke (2010, 2013). Human capital is measured by the human capital index calculated by Feenstra et al. (2015) using the average number of years of schooling and the assumed rate of return to education. Investment in physical capital was measured by the ratio in percentage of gross fixed capital formation to GDP. Natural resource wealth was captured by total natural resource rents as a percentage of gross domestic product. Trade openness is approximated by the sum of exports and imports as a percentage of gross domestic product. Foreign direct investment has been taken into account through foreign direct investment flows as a percentage of gross domestic product. Urbanization is measured by the urban population as a percentage of the total population. Tables A2 and A3 in the appendix present, respectively, the sources and descriptive statistics, the correlation matrix and the VIF for the different variables.

4 Results and Discussion 4.1 Results of Basic Analyses The results of the non-additive fixed-effect quantile regression model for five different percentiles of the distribution of the level of transition to renewable energy are shown in Table 1. The results show that fossil fuel subsidies reduce the share of renewables in the energy mix. Indeed, the coefficients associated with fossil fuel subsidies for all five quantiles estimated are negative and range from -0.0215 for the 10th quantile to -0.0035 for the 90th quantile. The coefficients are statically significant at the 1% level for the first 4 quantiles (10th, 25th, 50th and 75th) but not significant for the last quantile (90th). This result implies that fossil fuel subsidies hinder renewable energy transition. However, this negative effect is heterogeneous according to the level of transition to renewable energies. The results of the Wald slope equality tests reveal a significant difference between the 25th quantile, the 50th quantile and the 75th quantile coefficients. The magnitude of the effect is greater and significant in the lower quantiles (10th and 25th quantiles) and weaker, even non-significant, in the upper quintiles (75th and 90th quantiles). This result could be explained by the fact that in countries where

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Table 1 Results of basic analyses Dependent variable

Renewable energy transition (log)

Estimation method

Quantile with non-additive fixed effects (Powell, 2022)

Explanatory variables

Q10

Initial level of 1.1064*** renewable (0.016) energy transition (log)

Q25

Q50

Q75

Q90

1.0344***

1.0069***

0.9619***

0.8672***

(0.010)

(0.003)

(0.007)

(0.026)

Fossil fuel subsidies per capita (log)

−0.0215***

−0.0222***

−0.0152***

−0.0074***

−0.0035

(0.005)

(0.005)

(0.001)

(0.001)

(0.004)

Real GDP per capita (log)

0.0935***

0.1195***

0.0789***

0.0275**

0.0211

(0.015)

(0.046)

(0.003)

(0.013)

(0.039)

Human capital −0.0272

0.0026

−0.0591***

−0.0571**

0.0370

(0.024)

(0.010)

(0.004)

(0.025)

(0.023)

Physical capital investment (log)

−0.0417*

−0.0737***

0.0165***

0.0211*

0.0219

(0.023)

(0.025)

(0.002)

(0.013)

(0.022)

Natural resources rents (log)

0.0271***

0.0029

0.0312***

0.0104*

0.0313***

(0.006)

(0.003)

(0.004)

(0.006)

(0.006)

Trade −0.0873*** openness (log) (0.010)

−0.0306***

−0.0023

−0.0028

−0.0188***

(0.012)

(0.007)

(0.008)

(0.004)

Foreign direct investment (log)

0.0519***

0.0164***

0.0219***

−0.0036

0.0243**

(0.007)

(0.004)

(0.001)

(0.005)

(0.012)

Urbanization (log)

−0.0929***

−0.1852***

−0.0801***

−0.0194

−0.1232***

(0.026)

(0.050)

(0.004)

(0.012)

(0.022)

Number of observations

331

331

331

331

331

Number of countries

35

35

35

35

35

Wald quantile slope equality test for fossil fuel subsidies variable Test statistic (P-value)

Q10 vs Q25

Q25 vs Q50

Q50 vs Q75

Q75 vs Q90

0.0200 (0.8868)

95.4500 (0.0000)

31.2400 (0.0000)

0.8500 (0.3566)

Source Authors. Note (***), (**), (*) = significant at the (1%), (5%) and (10%) level respectively

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the level of renewable energy consumption is low, economies are heavily dependent on fossil fuels. Generally, in these countries, the deployment of renewable energies requires significant resources, which makes them more expensive than conventional energies (Brunnschweiler, 2010). In this context, fossil fuel subsidies encourage the use of fossil fuels and increase the demand for fossil fuels to the detriment of renewable energies (Erickson et al., 2017). By making fossil fuels cheaper than renewable energies, fossil fuel subsidies therefore increase the consumption of fossil fuels, thereby skewing the nature of the energy mix in favor of fossil fuels and slowing down renewable energy transition. In contrast, in countries where renewable energy consumption is high, the level of renewable energy deployment is greater, which reduces the cost of these energies and makes them relatively cheaper. The effect of fossil fuel subsidies on renewable energy transition is therefore weaker, if not negligible, in these countries. The results also show that the initial level of the share of renewables in the energy mix positively and significantly affects the transition to renewables at the 1% statistical level for all five quantiles. The effect is greater in the lower quantiles and weaker in the upper quantiles. This result reflects the lack of convergence in the transition to renewable energy for sub-Saharan African countries. Asongu and Odhiambo (2021) and Baye et al. (2021) also arrived at the same result for sub-Saharan African countries and Africa as a whole, respectively. The results also show that per capita income has a positive and statistically significant influence of 1% on the share of renewable energies in the energy mix in the 10th, 25th, 50th and 75th quantiles. An increase in per capita income therefore favors renewable energy transition. This result is in line with the energy ladder hypothesis of Hosier and Dowd (1987), which maintains that income is a determining factor in the transition from dirty to cleaner energy. This result is in line with those of Burke (2013) for 134 countries worldwide and Da Silva et al. (2018) for sub-Saharan African countries. Analysis of the results also shows that human capital has a negative but insignificant effect on the share of renewable energies in the energy mix for the 10th and 25th quantiles, and a negative and significant effect for the 50th and 75th quantiles. However, for the 90th quantile, the effect becomes positive but insignificant. This result could be explained by the low level of human capital development that prevails in most sub-Saharan African countries. A low level of human capital development could make individuals less able to understand the environmental issues of fossil fuel consumption and the need to switch to cleaner renewable energies. Investment in physical capital has a negative impact on the share of renewables in the energy mix in the lowest quantiles (10th and 25th quantiles). However, in the upper quantiles, investment in physical capital has a positive impact on renewable energy transition. Investment in physical capital generally requires and consumes a large amount of energy, which could explain the use of conventional energy sources to the detriment of renewable energy sources, especially in countries in the lowest quantiles (where fossil fuels are dominant). This result corroborates those found by Muhammad et al. (2022) for the BRICS countries. The coefficients associated with natural resource rents are positive and statistically significant at the 1% level on the share of renewables in the energy mix for all quantiles

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441

except the 25th. Natural resource rents therefore improve the level of transition to renewable energy. A similar result was also found by Belaïd et al. (2021) and Ahmadov and Van Der Borg (2019) for North Africa and the Middle East (MENA) and Europe respectively. Trade openness has a significant negative impact on the share of renewable energies in the energy mix at the 1% threshold for the 10th, 25th and 90th quantiles. However, the effect is not significant for the 50th and 75th quantiles. This result is in line with those found by Baye et al. (2021), also for 32 sub-Saharan African countries. The results also show that foreign direct investment has a positive and significant influence at the 1% level on the share of renewable energy in the energy mix for all quantiles except the 75th. Foreign direct investment therefore favors renewable energy transition and this can be explained theoretically by the technological transfers that these investments bring about in the host countries. Belaïd et al. (2021) also arrived at the same result for the MENA countries. Finally, urbanization has a positive and statistically significant impact at the 1% level on the share of renewable energies in the energy mix for all quantiles except the 75th, where the effect is not significant. This shows that urbanization in its current form in sub-Saharan African countries does not favor the transition to renewable energy. This result confirms those already found by Baye et al. (2021) for the same area.

4.2 Results of Robustness Analyses For the robustness analysis, a change of approach is made by using the GMM method to examine the possible existence of asymmetric effects of fossil fuel subsidies on renewable energy transition. The results of the estimates are shown in Table 2. The results of the diagnostic tests validate the consistency of the GMM estimator used. The probabilities of the AR (1) autocorrelation test for estimates 1 and 2 are all less than 1%, while those for the AR (2) autocorrelation test are greater than 10%. In addition, the probabilities of the Hansen test are all greater than 10%, confirming that the estimated models do not suffer from over-identification and that the instruments used in the estimates are valid. Analysis of the results of estimation (1) confirms the existence of a negative effect of fossil fuel subsidies on renewable energy transition found in the basic results. However, further investigation shows that this effect is not linear with changes in fossil fuel subsidies. In fact, the results of the Wald test allow us to reject the hypothesis of the existence of symmetrical effects at the 1% statistical level. This implies that positive and negative changes in fossil fuel subsidies do not affect the level of transition to renewable energies in the same way. This is confirmed by the results of the Wald asymmetric effects test, which reveals a significant difference in effects between positive and negative changes in fossil fuel subsidies at the 1% statistical level. The results of estimation (2) show that in both the short and long term a positive change in fossil fuel subsidies reduces the share of renewables in the energy mix.

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Table 2 Results of robustness analyses Dependent variable

Renewable energy transition

Estimator

Two-step system GMM

Explanatory variables

Model 1

Model 2

0.9705***

0.8991***

(0.011)

(0.010)

Short-run effects Initial level of renewable energy transition (2010)

−0.0174***

Fossil fuel subsidies (β)

(0.003) Positive change in fossil fuel subsidies

(βs+ )

−0.0127*** (0.004)

Negative change in fossil fuel subsidies (βs− )

0.0243*** (0.004)

Constant

0.0126

1.5589***

(0.350)

(0.347)

Long-run effects Positive change in fossil fuel subsidies (βl+ )

−0.1261*** (0.0388)

Negative change in fossil fuel subsidies (βl− )

0.2403*** (0.0303)

Time fixed effect

Yes

Yes

Number of observations

350

350

Number of countries

35

35

P-value Arellano-Bond AR (1)

0.0000

0.0000

P-value Arellano-Bond AR (2)

0.1021

0.1045

Number of instruments

34

30

Hansen test statistics (P-value)

25.3867 (0.2789)

17.3488 (0.4310)

Wald symmetric effect test (β = βs+ + βs− ) (P-value)

108.3800 (0.0000)

Wald asymmetric effect test (βs+ = βs− ) (P-value)

23.9300 (0.0000)

Diagnostic tests

Source Author. Note (***), (**), (*) = significant at the (1%), (5%) and (10%) level respectively

A sustained increase in fossil fuel subsidies therefore slows down renewable energy transition. However, the results show that negative changes in fossil fuel subsidies increase the share of renewables in the energy mix in both the short and long term. This implies that a reduction in fuel subsidies accelerates renewable energy transition. The magnitude of this positive impact on the transition to renewable energy is greater in the long term than in the short term. The key message that this result conveys is that a gradual reduction in fossil fuel subsidies could therefore enable a successful transition to renewable energy in sub-Saharan African countries in the long term.

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5 Conclusion and Implications on Economic Policy and Regulation Face to market distortions caused by fossil fuels subsidies, economic theory suggests that the best solution to correct these distortions is to remove subsidies so that the cost of power fully reflects the costs associated with each generation type. This solution should facilitate the development of an energy mix based on the actual costs of each generation type and facilitate the development of renewable energy and RE transition. In addition to these advantages, removing or reducing fossil fuel subsidies is also likely to reduce fiscal burden, improve macroeconomic stability, encourage energy conservation and efficiency, reduce depletion of resources and reduce pollution and GHG emissions (Beaton et al., 2013). Actions to accelerate the Renewable Energy Transition (RET) can be done through proactive economic policy and incentive regulations.

5.1 Economic Policy for RET Policy design plays a significant role in achieving a clean energy future. Policies designed to increase RE use by providing financial benefits, such as Feed-in tariffs (FIT), and subsidies, are termed “demand-pull policies”. In contrast, policies intended to develop a business environment are called “supply-push policies”; these include and support, corporate tax reductions, and the availability of loans to establish the required infrastructure. There is a lack of studies investigating hybrid policies incorporating demand-pull and supply-push policies in the literature. Several risks and uncertainties are arising during the implementation of policies. Designing incentives to aid the RET needs to incorporate the uncertainties and risks associated with RE, which, if not measured, will lead to the failure of incentives. Only a few studies offer a comparison between successful incentives within a region, and even fewer studies do so in a cross-regional manner. Based on the literature, several kinds of incentives can accelerate RE deployment. These can be categorized into four types of incentives, namely: (i) research and development (&), (ii) fiscal and tax, (iii) market development and (iv) grid connection and tariff incentives.

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Promotion of R&D in RE Technologies R&D in clean and RE technologies have high risk and uncertainty. Government support and incentives are essential to support research and development of clean technologies at the national level. It can contribute to supporting the development and production own solar panels, wind turbines, storage, batteries, etc., by national/local enterprises promoting the building of technopole or cluster of research centers on RE and clean energy technologies adapted to the African context. The support can also provide facilities to build capacities building and prepare technicians, engineers, researchers, etc., specialized in RE technologies or able to assimilate technology transfer from abroad, which is essential for RET. Tax and Fiscal Incentives Policy giving tax and fiscal facilities to national enterprises can encourage importing technologies and equipment that have yet to reach maturity in the country. Reducing barriers to entering RE technology in the country can facilitate its assimilation and integration into the national electricity system. One of the easy ways to promote RET is to transfer fossil fuel subsidies to RE sources. A policy can also set up a tax on fossil fuel generation, thereby increasing the per-unit cost of electricity generation and the competitiveness of RE source generation.

5.2 Incentive Regulations for RET These regulations concern RE market development (to avoid missing market) and incentives tariffs for RE. Market Development Regulations Regulations can be set to encourage RE market development by reducing bureaucracy to obtaining government approval for RE projects, establishing special facilities for RE projects, and facilitating funding of RE projects by private but also by public shareholding as has been done in specific strategic sectors in Africa. Building confidence in the market is essential, which is vital for investments. Governments and competent regulatory authorities should set up legal and institutional frameworks and regulations which allow potential investors to have confidence in the market and invest.

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Public acceptance of RE sources associated with the affordability of RE technologies should drive RE market development through RE consumption. The implementation of regulations encouraging RE consumption is critical for RET. On the other hand, regulation can act on the supply side. Regulation can be set to define a renewable energy standard (RES), which requires utility companies to source a certain amount of the energy they generate or sell from renewable sources. However, regulations encouraging RE demand and supply must be revised to develop the market. Adequate transmission and grid infrastructure is essential to bring electricity from renewables to consumers and storage infrastructures. Regulations should respond to this. Moreover, regulations can provide special tax exemptions for RE sources, a set of green certificates or renewable energy certificates (REC), RE mandates, auctions or guaranties for RE sources, etc. Nevertheless, the most effective regulation should be on tariffs. Tariff Regulations A vital issue for RE market development is setting up incentive and cost-reflective tariffs to guarantee a return on investment for investors and utilities. Feed-in tariffs (FIT) are investors’ and RE producers’ most common grid connection incentive. With this, the government sets the electricity price to benefit the producer; the high profitability paves the way for more investments. Regulations are required to bind the power grid companies to purchase the power generated by such RE producers. In the mini-grid off-grid, regulation should encourage investors to get a return on investments and to fix and guarantee to investors when the grid reaches the location. Tariffs have a double role in RE market development; they play a role in the amount of revenue collected by stakeholders and build confidence in the market. Tariff regulation should address these two roles. Investors need confidence that the revenue they earn from the RE markets (including those supplying the storage and ancillary services that the System Operator needs to ensure short-term stability) will be adequate to cover investment and operating costs. When the tariff does not allow adequate revenue, there is a “missing money” problem (Joskow, 2013). However, if it is adequate but not perceived by RE producers or financiers, there is a “missing market” problem (Newberry, 1989). Competent regulatory authorities should set appropriate tariffs to avoid these two problems and contribute to ensuring the effective development of the market.

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Appendix

Table A1 List of countries 1 Angola

8 Congo-Brazzaville 15 Kenya

22 Mozambique 29 South Africa

2 Benin

9 Congo-Kinshasa

16 Lesotho

23 Namibia

3 Botswana

10 Ivory Coast

17 Madagascar 24 Niger

31 Tanzania

4 Burkina Faso

11 Eswatini

18 Malawi

25 Nigeria

32 Togo

5 Burundi

12 Ethiopia

19 Mali

26 Rwanda

33 Uganda

6 Cameroon

13 Gabon

20 Mauritania

27 Senegal

34 Zambia

21 Mauritius

28 Sierra Leone

35 Zimbabwe

7 Central African 14 Ghana Republic

30 Sudan

Source Authors

Table A2 Sources of variables Variables

Abbreviation

Total primary energy consumption in Quad BTU

Sources U.S.EIA (2022)

Renewable energy consumption in Quad BTU

U.S.EIA (2022)

Share of renewable energy consumption (in % of total consumption)

RET

Authors

Fossil fuel subsidies per capita in US dollars

FFS

OECD, IEA, IMF

Real gross domestic product per capita in US dollars

GDP

PWT 10.1

Human capital

HC

PWT 10.1

Gross fixed capital formation (in % of GDP)

INV

PWT 10.1

Total rents from natural resources (in % of GDP)

TRR

WDI (2022)

Trade openness (Imports + exports in % of GDP)

TO

PWT 10.1

Foreign direct investment flows (in % of GDP)

FDI

WDI (2022)

Urban population (in % of total population)

URB

WDI (2022)

Source Authors

1 0.2596 0.1441

0.0980 0.3157

0.9622

Oxford University Press 2.1822

4.3878

385

1

−0.1175

−0.3792

−0.1276

0.0183

0.2150

0.0834

0.1239

−0.3377

Std. Dev

Min

Max

Obs

LogRET

LogFFS

LogGDP

HC

LogINV

LogTRR

LogTO

LogFDI

LogURB 1.87 0.8493

Mean VIF

Tolerance

Source Authors

1.18

VIF

0.0789

0.0916

0.2299

385

5.2582

0.0000

1.6376

1.7110

2.7641

Mean

LogFFS

LogRET

Variables

Table A3 Descriptive statistics and correlation matrix

0.2512

3.98

0.6214

0.0201

0.4419

2.26

0.7711

1.30

0.2269

0.3398

0.4285

0.3510

−0.0260

0.0322

1

385

4.0607

1.4383

0.4368

2.8989

LogINV

0.2549

−0.3700

0.3314

0.0708

−0.4722

1

385

2.9388

1.1661

0.4635

1.8671

HC

0.1973

0.6945

1

385

10.0817

6.6397

0.8471

8.0454

LogGDP

0.5947

1.68

−0.0222

0.0883

0.0280

1

385

0.7556

1.32

0.3222

0.2523

1

385

4.8360

−1.2516

−6.7490 4.0273

0.7042

3.4637

LogTO

1.5557

1.8066

LogTRR

0.8086

1.24

0.2242

1

385

3.6841

−6.1659

1.2307

0.8945

LogFDI

0.4953

2.02

1

385

4.5008

2.3648

0.4582

3.5967

LogURB

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S. Diallo is an assistant lecturer and researcher in economics at Norbert ZONGO University. His research interests include energy economics, natural resource economics, environmental economics, agricultural economics, and econometrics. He is the author of several articles published in listed journals and is also a reviewer for several journals. Y. Ouoba is a Professor in Development Economics, agrégé in Economics and a researcher at Thomas SANKARA University. Currently director of the Center for Economic and Social Studies, Documentation and Research (CEDRES). He holds a doctoral thesis in economics of natural resources and the environment, jointly between Thomas SANKARA University and Montpellier SupAgro. He has been an expert for UNDP, UNCDF, IUCN, WAEMU, Climate analytics, Burkina’s National Academy of Sciences. C. Gatete is a seasoned energy economist, holds a PhD in Energy Economics from the University of Paris Sarclay (France) and another in Energy from 2iE (Burkina Faso). He is an economist expert at ECOWAS Regional Electricity Regulatory Authority (ERERA), contributing to economic regulation ECOWAS’s Regional Electricity Market. Previously, he managed some renewable energy projects in Africa, was an energy expert for UNDP, UNITAR and assistant professor and researcher at Thomas Sankara University, 2iE and CIRAD.

The Gains and Pains of the Energy Transition: A Perspective on Sub-Saharan Africa Ishmael Ackah, Rexford Kweku Asiama, Albert Okanto Ohene, Vida Aba Essuman, Maame Esi Eshun, Charles Owusu, and Patrick Nyarko

List of Abbreviations IEA PWD IPPs VRA NNPC NEPA NERC TANESCO GRPP SPV ICA AfDB IMF IFC

International Energy Agency’s Public Works Department Independent power producers Volta River Authority Nigerian National Petroleum Company National Electric Power Authority Nigerian Energy Regulatory Commission Tanzanian Electric Supply Company Limited Great Ruaha Power Project Special Purpose Vehicle Infrastructure Consortium for Africa African Development Bank International Monetary Fund International Finance Corporation

I. Ackah (B) · M. E. Eshun Public Utilities Regulatory Commission, Accra, Ghana e-mail: [email protected] R. K. Asiama Department of Sustainable Energy and Resources, University of Environment and Sustainable Development, Somanya, Somanya, Ghana A. O. Ohene Electricity Company of Ghana Limited, Accra, Ghana V. A. Essuman Chief Executive’s Secretariat, Meinergy Technology Limited, Accra, Ghana C. Owusu · P. Nyarko Petroleum Hub Development Corporation, Accra, Ghana © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_20

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1 Background In 1955, Angola discovered oil in commercial quantities.1 From 1956, Nigeria, Sudan, and others followed suit.2 Despite these discoveries and oil production, various indicators such as poverty levels and inequality began to worsen. Indeed, by 2000, the Economist had declared Africa a ‘Hopeless continent’.3 Lack of value addition, elite capture, systematic corruption, and procyclical planning contributed to this phenomenon (Ackah, 2021). Post-2000, however, saw a number of reforms, leading to another interesting caption from the Economist, ‘Africa Rising’4 in 2011. Despite recent reforms, the consensus is that Africa could have done better with oil and gas. With abundant renewable energy resources, Africa is witnessing another energy revolution. This time, a transition from fossil-based fuels to renewable energy. Indeed, among the 15 pillars of the Africa Union’s Agenda 2063 is the implementation of the Grand Inga Dam Project which aims at transforming Africa from traditional to modern sources of energy and ensuring access to cleaner and affordable energy of all Africans. Again, the Agenda calls for a reduction in the export of raw materials and the promotion of value addition and domestic consumption of Africa’s resources. This calls for investments, and the development of energy resources that are available, affordable, and efficient. This means the continent has plans for an energy transition path. However, this path may be different from International Energy Agency’s (IEA) net-zero proposal and other global order, which call for an absolute ban on fossil fuel investments. Governments5 across the continent identify natural gas as a bridge fuel for power generation and for the petrochemical industry to feed industry, enhance access, and modernize agriculture.6 The energy transition has a number of advantages besides reduction in carbon emissions. For countries like the Democratic Republic of Congo, which account for more than 50% of global cobalt reserves, cobalt is a critical input in the production of battery technologies for renewable energy (Manley et al., 2022). Other energy transition-related minerals have been discovered or produced in South Africa, Madagascar, Zambia, Zimbabwe among others (see Fig. 1). However, if protocols such as the Africa Mining Vision and national industrialization policies are not implemented, these minerals will be exported in their raw form to earn a marginal share of the value. This has been Africa’s story on cocoa, gold, oil, and other natural resources. This calls for deliberate steps to partner with the private sector to set up industries 1

https://www.eia.gov/international/content/analysis/countries_long/angola/background.htm. See Industry History (http://www.nnpcgroup.com). 3 See Hopeless Africa|The Economist. 4 See Africa rising|The Economist. 5 See Senegal Calls for a Just and Equitable Energy Transition Based on Natural Gas (http://www. aew2021.com). 6 See Ministry of Energy (2012), Natural Gas Pricing Policy. 2

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Fig. 1 Electricity generation sources of selected African countries

that will add value to these minerals to create jobs and earn substantial revenues for development. Second, with the reduction in solar prices, their investments will help African countries to achieve the goals of reduction in carbon emissions, affordable electricity, and access especially for geographically dispersed and island communities (Amo-Aidoo et al., 2022). This, however, necessitates an improved, competitive, and transparent power procurement regime. In 2018, Senegal launched competitive bidding for the country’s Scaling Solar project and achieved a price of e¢3.8 which was 60% lower than prices achieved through direct negotiation in the same country.7 On the other hand, economies such as Nigeria, Angola, and others are structured around the oil and gas industry. In Angola for instance, oil contributes to about 70% of government revenues.8 This means that anything that impacts the oil sector affects other sectors of the economy. Petroleum revenues have been used for investments, social interventions, and debt repayment. In Ghana, for instance, oil revenue is a major contributor to the free senior high school initiative that has been rolled out as part of human capital development strategy (Ogbe et al., 2021). Even with oil revenues, 38 African countries owe $25 billion in repayments alone as of 2021. So far, 31 have requested relief.9 The payment of external debts of African governments doubled in two years, from an average of 5.9% of government revenue in 2015 to 11.8% in 2017. Removing investments in petroleum without any replacement will lead to a fiscal and social pandemic that may not be immediately solved by renewables. This requires gradual and systematic energy transition, something the continent has been doing since most countries had independence.

7

See Senegal achieves remarkable 3.8¢e tariff with Scaling Solar|Scaling Solar. See Angola Country Profile Report 2021. 9 See What do we know about Africa’s debts to China?—The Washington Post. 8

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In addition, since the discovery and production of oil began in Africa, a lot of investments have been made in skills and technology sector while industries have been created to provide services to the sector. While skills may be redeployed, it will be difficult to re-engineer drilling and other oil-specific companies to play roles in renewable energy. There are risks of stranded oil and gas assets, and premature decommissioning of oil infrastructure and thermal plants. If not properly addressed, this can lead to challenges and tensions between investors and governments. For instance, who should bear the costs of premature decommissioning? Another challenge is the ‘promise more but do less’ climate-finance diplomacy. According to Oxfam,10 developing countries are given less climate-finance than what official statistics show. This means such promises cannot be the basis for any energy investment plans. This paper differs from other studies in that it offers an assessment on why Africa needs a unique energy transition path, and how energy sector governance and investment financing of renewables on the continent can foster an effective energy transition. The paper, further, provides an overview of energy generation of selected African countries, discusses the gains and pains of the transition, and makes recommendations on how African countries can take advantage of the opportunities offered by the energy transition while minimizing the negative impact on their economies. Though the extant literature on the energy transition in Africa has attempted to review the implications and pathways of the transition (Ashraf & Seters, 2022; Asogwa & Anumudu, 2022; Bhagwat & Olczak, 2020; Dalberg, 2021; International Energy Agency (IEA) 2021; Mills et al., 2021; Osei-Tutu et al., 2021; Ouedraogo, 2020; African Energy Commission (AEC) 2019; RES4A, IRENA, & UNECA, 2022), no known literature on the gains and pains of the energy transition for Africa has been demystified. This paper attempts to bridge this gap in the energy transition literature on Africa.

2 Africa and the Energy Transition African countries, especially those that started transitioning before the Paris Agreement, have put in great effort to transition to cleaner fuels over the last decade. Therefore, to assess Africa’s energy transition progress, it is worth reviewing the history of energy sources in some African countries. This is the focus of this section. Although sources of energy vary across countries, this section highlights most of the sources used to generate energy or power, particularly electricity. Despite the efforts to transition, the reality is that African countries with relatively more industrial capacities like South Africa, Botswana, and Zimbabwe remain dependent on fossil fuels. Indeed, data available from the African Development Bank’s 2022 Annual Development Effectiveness Review show that Africa’s total 10

See Oxfam: Rich countries are not delivering on $100bn climate finance promise (http://www. climatechangenews.com).

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installed electric power capacity is 231 GW, an increase from the 2015 installed capacity of 168 GW, but eight times far lower than in any other world region. The implication is that the energy supply of production or the industry base in African countries can be improved greatly. Tackling this challenge would require a transition to reliable, affordable, and accessible energy supply. Figure 1 shows the electricity generation sources in Africa (continent-wide) and that of selected African countries respectively. From Fig. 1, it can be seen that African countries have adopted alternative energy sources besides coal and hydroelectric power supply. As part of the evidence of the energy transition, countries have also invested in renewable energy supply options like wind, solar, natural gas, and biofuels. These have contributed to increasing Africa’s total installed renewable energy generation capacity from 35GW in 2017 to 54GW as of 2021 (AFDB, 2021), an indication that the transition is in progress. This modest increase, however, accounts for less than 3% of global installed renewable energy generation capacity (IRENA, 2021). Figure 1 further depicts that Africa’s energy mix is dominated by natural gas (apart from South Africa). When South Africa is added, the energy mix for SSA is made up of coal 54%, Hydro 21.3%, Gas 11.5%, Oil -6.2%, and others 6.6% according to a 2018 report by the International Energy Agency. When South Africa, Botswana, and Zimbabwe are exempted, the mix becomes: Hydro 51.1%, Gas 28.9%, Oil 15.4%, Coal 1.1%, and others 3.6%. In addressing access and transition objectives, strategies should be targeted.

2.1 Ghana Hitherto 1965, diesel was Ghana’s primary source of power supply. The country relied heavily on diesel generators until the completion of the Akosombo Dam in 1965, which made it possible for a switch to hydropower. The country’s first public power supply was established in 1914 in Sekondi, in the Western Region of Ghana. This was operated by the Gold Coast Railway Administration, the institution responsible for maintaining and operating the railway system and its auxiliary facilities. It was not until 1928 that Takoradi, an adjoining city, received its first supply of electricity. Between 1922 and 1947, the Public Works Department (PWD) provided electricity to many towns and cities (Adu-Gyamfi et al., 2020). By 1947, the Electricity Department, established under the Ministry of Works and Housing had taken over the responsibility of electricity supply from the Public Works Department (PWD) and the Railways Administration (RA). The Tema diesel power plant was one of the Electricity Department’s most significant power generation projects. In 1956, the plant was built with a capacity of 1.95 MW (3 × 650 kW units). Between 1961 and 1964, the plant capacity was increased to 35 MW through the addition of ten 3 MW diesel generators and other smaller units (Asante & Clottey, 2007).

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The Akosombo Dam was constructed between 1961 and 1965 to generate hydroelectric power—the process of using water from a river or lake to move turbines that generate electricity—in Ghana (Asante & Clottey, 2007). The first phase of the Dam was completed in 1965, with the installation of four generating units of a total capacity of 588 MW. In 1972, two additional generating units were added, increasing Akosombo’s total installed capacity to 912 MW. The Kpong hydroelectric project, with an installed capacity of 169 MW, was commissioned in 1982 to further complement Akosombo Dam’s hydroelectric generator output. Hydroelectric power generation in the country has, however, become unreliable as a result of changing climate and weather conditions. Power generation from the Akosombo and Kpong dams has been significantly affected by changes in the water levels of the Volta River. The energy transition is of concern to policymakers because Ghana’s power systems have become increasingly vulnerable over time (Eshun & Amoako-Tuffour, 2016). The Tema Thermal 1 and 2 Power Plants in Tema, Ghana, have been complemented by a number of thermal power plants (TT1PP and TT2PP). The power generated by independent power producers (IPPs), such as Bui, AmandI, Sunon Asogli, TICO, Cenpower, Aksa, and CENIT generation plants, is supplemented by Akosombo Dam and the two thermal plants in Tema (Ghana Grid Company (GRIDCO) 2021). Furthermore, the Volta River Authority (VRA) and an independent power producer (IPP) both run solar power plants in Ghana as part of the country’s efforts to increase its reliance on renewable energy sources like solar power (AsumaduSarkodie & Owusu, 2016; Kuamoah, 2020). Nonetheless, more is required in order for the country to achieve its commitments regarding eliminating energy poverty and slowing down the changing climate.

2.2 Nigeria Wood, coal, oil, gas, tar sands, and hydropower are examples of Nigeria’s primary sources of energy (Oyedepo, 2021). Over time, the production and utilization of these energy sources have significantly changed, as part of measures to transition to cleaner fuels. Nonetheless, efforts toward harnessing renewable energy sources like solar, wind, and biofuels, to propel the energy transition in Nigeria have been quite constrained (Edomah, 2021). The paragraphs that follow provide a brief history of energy generation by source in the country. In Nigeria, wood has been used only sparingly as a source of industrial energy. However, it is more common in rural areas for cooking purposes. Several industries, such as bakery, furniture, and plywood, rely on wood for the construction of their products. Coal was the first fossil fuel to be discovered and used in Nigeria. Production of coal started soon after its discovery in 1909. It was, first, produced in 1916 at Ogbete,

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in the Enugu region of Anambra state, in eastern Nigeria. From about 24,904 tons per year to a peak of about 919,929 tons per year, production grew steadily over the years until 1959 when manufacturing output steadily declined. Consequently, production was halted in 1967 and then restarted in 1971, with about 24,796 tons of coal produced in the first year. By 1973, a total of 328,191 tons of coal were produced annually. This was less than half of the pre-war peak production of 919,929 tons (Oguejiofor, 2010). Coal was the primary energy source for the Nigerian Railway Corporation locomotive engines and the power generation industry between 1916 and 1958 when production grew significantly. However, since 1974, production has decreased. After the discovery of petroleum in 1956, and subsequent production in 1958, coal production began to decline. An additional factor that impacted coal production was the global energy crises of the 1970s which shifted the attention of government from the mining sector to the petroleum sector. The drop in the world prices of metals in the early 1980s also contributed to job losses of miners in the sector (GEUS, 2011). By the turn of the 1970s, the petroleum sector became the mainstay of the country, contributing significantly to domestic and export earnings (Emediegwu & Okeke, 2017). The country’s economy has undergone radical change as a result of the move away from agriculture and toward oil. Although the oil sector accounted for a significant part of government revenue and export earnings, these have depreciated over the years. Nigeria also uses natural gas to generate electricity. According to recent estimates by the International Energy Agency, about 80% of the country’s power generation is from gas. Nigeria holds the largest gas reserves in Africa, which is among the top ten in the world. The Nigerian National Petroleum Company (NNPC) estimates the country’s gas reserves to increase to 210.8 trillion cubic feet by 2022, although the estimated recoverable gas is 139.4 trillion cubic feet. Despite this potential of the country, the natural gas sector is largely underdeveloped with limited production of the reserves. Next is bitumen. Bitumen is a mixture of bitumen, sand, and water. Organic solvents can be used to dissolve bitumen, which has a similar viscosity drop when heated to a certain temperature (Alade et al., 2021). There are between 2 and 4 trillion barrels of crude oil in the tar sands around the world, according to estimates (Bunger, 2012). Out of this, Nigeria has an estimated 4.2 billion barrels of tarsands and heavy oil (KPMG, 2012). Finally, Nigeria also relies on water bodies to generate energy. The Kainji dam is the largest hydroelectric facility in Africa, and the largest power plant in Nigeria. The plant, which was completed in 1968, has an installed capacity of 760 MW, and is of a total length of 4200 km. The hydropower plant, which belongs to the National Electric Power Authority (NEPA), has in recent years been generating not more than 450 MW due to poor maintenance and excessive water leakage at the dam. Based on recent data from the Nigerian Energy Regulatory Commission (NERC), the following water and natural gas-based energy producers contribute to the energy mix: Afam Power, Sapele Power, Egbin Power, Ughelli Power, Kainji Power, Jebba Power, and Shiroro Power (Nigerian Energy Regulatory Commission (NERC) 2021).

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Only a small percentage of the remaining companies have received long-term concessions or been privatized.

2.3 South Africa South Africa is relatively new to the energy transition journey and is now targeted to receive support to fully kickstart the energy transition. Currently, the majority of Africa’s carbon dioxide emissions come from South Africa’s coal energy production. This is because the country relies heavy on coal for the generation of its grid power. The country’s power utility company, Eskom, continues to be the country’s leading greenhouse gas emitter (Myllivirta, 2021), even though it is the 7th largest electricity generator in the world. Consequently, South African electricity is among the world’s cheapest but comes at a significant cost due to the environmental costs of burning coal for electricity generation. South Africa has also made attempts to transition to cleaner energy, although marginal. Nuclear power accounts for only 4% of total generation, hydroelectric power accounts for 2% of total generation, wind energy accounts for 0.2% of total generation, and pumped storage facilities (6%) help with load management, but low-grade coal accounts for 83% of total generation (Report, 2021). South Africa’s energy mix also includes oil, biomass, and natural gas in addition to coal, nuclear, and hydroelectric power plants, according to the 2021 South African Energy Sector Report. South Africa is heavily reliant on oil from the Middle East and Africa for 60% of its needs.11 This makes it possible for the country to produce additional petroleum products using coal or natural gas as a feedstock for the process. South Africa is particularly vulnerable to global price fluctuations because of its dependence on imported fuel. Peak oil and its resulting price volatility are of great concern, as a consequence. South Africa is one of the countries that urgently requires energy transition, given that it is considered as one of Africa’s most industrialized economies.

2.4 Tanzania More than half of Tanzania’s current power generation comes from gas, with hydropower and oil used mainly as a backup. The Tanzanian Electric Supply Company Limited (TANESCO) has documented a significant portion of the history of power generation (Tanesco, 2021). 11

See South Africa’s Dependence on Fuel Imports Set to Multiply. https://www.bloomberg. com/news/articles/2022-05-06/south-africa-s-dependence-on-fuel-imports-set-to-multiply?leadSo urce=uverify%20wall.

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Construction of Tanzania’s Hale hydropower station, situated on the Pangani River, above Pangani Falls, began in 1962, with an associated transmission line to Dar es Salaam. President Nyerere commissioned and opened this power plant in 1964. In 1967, a number of towns began upgrading their existing power and distribution systems. The Ubungo diesel power station in Dar es Salaam was completed in 1969, replacing the old Kurasini plant. In 1969 an 8MW hydropower station Nyumba ya Mungu on the Pangani River’s headwaters, as well as its associated 65-mile wood pole transmission line, were completed in Arusha, Mwanza, and Morogoro, respectively, and a transmission line to connect Morogoro with a line from Hale at Chalinze was also built. Machame is now part of the Moshi network. The Dar es Salaam, Tanga, and Morogoro water systems were expanded to supply new industrial complexes and factories with water. The Tanzanian government, World Bank, and Swedish International Development Authority signed a financing agreement in 1968 for the construction of Tanzania’s first large hydroelectric power facility. At Kidatu, on the Great Ruaha River, the three-phase Great Ruaha Power Project was being put into action (GRPP). Beginning in 1977, construction of a 45-m concrete dam at Mtera, 170 km upstream from Kidatu, was the first phase of the development of the Great Ruaha Power Project’s eleventh phase, which also included the installation of the two remaining 50 MW generating units at Kidatu power station and the relocation of a road that passes over the dam. Early in the year 1981, these pieces were completed. The Kidatu hydroelectric power station’s installed capacity was doubled in 1980, and its capacity was further enhanced with the opening of a storage dam and reservoir at Mtera in February 1981. TANESCO had to keep upgrading its diesel-powered units in remote areas in addition to building large hydropower stations for the transmission grid. Mbeya, Dodoma, and Tabora all received new diesel power plants in 1983. In 1981, six diesel sets were delivered for use at other existing stations, either to increase capacity or replace worn-out units. With all this infrastructure set up to generate hydroelectric power, recent data from the IEA (International Energy Agency (IEA) 2021) shows that about 46% of electricity generated in Tanzania is rather from natural gas. Oil contributes 21% to electricity generation while Hydroelectric sources generate 31% of the power. The rest is from solar energy. In this way, Tanzania can better support its industrial expansion and economic development.

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Fig. 2 Percentage of global reserves of energy transition-related minerals found in Africa. Source Authors’ illustration based on data from U.S. Geological Survey, Mineral Commodity Summaries 2021

3 Africa Requires a Unique Energy Transition Path: This is Why The transition, from fossil-based energy to renewable ones, will require renewable energy resources, physical capital, technology, money, human capital, and good governance. Of these, Africa has natural resources in abundance, some human capital, and improved governance in many countries. According to the 2021 US Geological Survey, 50% of global cobalt reserves, and 40% of manganese are found in DR Congo and South Africa respectively. Figure 2 shows the percentage of global reserves of selected minerals that are relevant for the energy transition. Africa needs to add value to these minerals, in line with the Africa Mining Vision, to benefit from the wave of energy transition that is at the forefront of policy discussions currently. Not only will cleaner energy improve the efficiency and utilization of resources, but it will also create new and decent employment opportunities to gain from the transition (ILO, 2018). Secondly, by 2025, one in four young people worldwide will be from sub-Saharan Africa (Mills, 2018). Subsequently, 75% of these youth will be living in the cities. This calls for investment in infrastructure, and job creation over the remaining years to absorb them. If not, instead of becoming dividends, they may pose a big burden to the continent. Furthermore, Africa’s urban population is expected to increase by 600 million people in the next two decades.12 With increased income and enhanced tastes, they will require a reliable and efficient power supply. Taking cognizance of the increased population and the potential to reap demographic dividends, governments in SSA 12

See Africa’s energy future matters for the world—News—IEA.

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have been investing in human capital development. Research has shown that by 2050, SSA will have a larger and younger workforce than China or India and can contribute substantially to economic growth if proper plans are put in place and implemented (Bloom et al., 2010). The rural dynamics of some African countries require investments in standalone/off-grid renewable energy systems. In addition, it has been found that should all African countries triple their energy consumption using only natural gas, the additional contribution to global emissions will be only 1%.13 According to Fatih Birol, the Executive Director of IEA, Africa produces only around 2% of the world’s energy-related CO2 emissions.14 These low emissions may be a result of the high percentage of informal and low productive sectors in most economies in Africa. As countries such as Nigeria, Ghana, among others strive to industrialize, this trend may change. On one hand, industrialization will create jobs and lift people out of poverty. On the other hand, it may increase Africa’s emissions. This is why a combination of natural gas, solar, hydro, and nuclear should be explored. Moreover, investments in Africa’s energy sector are externally driven. This means that any abrupt reduction in investments in the sector has the potential of driving many people into darkness in the short to medium term. This can reverse Africa’s progress made toward reduction in poverty and inequality. Financing energy-related projects in developed countries are quite different from that of a developing country. Over the years, financing energy-related projects have evolved into project financing. Project finance has been in existence since the 1970s.15 There were, however, some challenges in the implementation of these schemes of financing between 1997 and 1998 due to the Asian crisis which continued to early 2000. Since then, project financing has become an integral part of investments in the energy sector. Project financiers include the government, international organizations, corporate institutions, financial institutions, and private investors. The interests of the sponsors may be political, financial, marketing, and technical management. Project financing can either be through direct finance or indirect finance. With direct financing, the sponsors manage their resources and assume every risk associated with the project. Indirect financing is a system that was first introduced by E. O. Williamson.16 The system involves the setting up of a special economic structure which is currently known as a Special Purpose Vehicle (SPV) to finance and manage the project. Investors of the SPV have the advantage of not assuming the risk associated with the project. All the liability related to the project is limited to the SPV. The source for investing in these projects can either be equity finance or debt finance or both.

13

Here’s why gas should be part of Africa’s clean energy future|World Economic Forum (http:// www.weforum.org). 14 See Africa’s energy future matters for the world—News—IEA. 15 See: https://ppi.worldbank.org/content/dam/PPI/resources/ppi_publication/sector/12--1-.pdf. 16 See: Williamson E. O. 1975. Transaction cost economics: an overview. http://www.overview.pdf.

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According to the World Bank, as of 2020, the electricity access rate of sub-Saharan Africa was 48.4% which does not compare favorably with other parts of the world.17 Furthermore, an estimated 600 million sub-Saharan Africans, that is 43% of the population, still do not have access to modern sources of energy as reported by the 2022 Africa Energy Outlook. In 2011, the World Bank estimated an annual addition of 8 GWh of generation capacity in order to fast track the achievement of a 100% access rate.18 With this kind of investment, the continent was expected to invest $29– $39 billion annually until 2025. In total, about $310 billion was expected until 2025 and an additional $215 billion by 2030.19 Relatedly the African Development Bank has estimated Africa needs between $32 and $40 billion in investments along the energy value chain to achieve universal access to electricity by 2030.20 For the renewable energy sector, an estimated $25 billion in investments is required per year in Africa until 2030 to achieve full access to modern energy (Africa Energy Outlook, 2022). In 2018, investments in the energy sector totaled $43.8 billion, a 67% increase from the 2015–2017 average.21 This is the highest number of commitments and the greatest distribution of commitments ever seen in the sector (44% of total). The consequence of China’s investments more than doubled from $9 billion in 2017 to $18.3 billion in 2018 (see Fig. 3). The considerable rise includes some very large projects, including a $5.8 billion hydropower project in Nigeria and a $4.4 billion loan to assist a coal project in Egypt. The private sector pledged $6.2 billion. In addition, members of the Infrastructure Consortium for Africa (ICA) pledged $4.4 billion more in 2018 than they did in 2017, while African governments (AfNatGov) increased their energy allocations by $2.1 billion in 2018. The nature of contracting and financing of power projects contributes to the cost of electricity related to per capita GDP as shown in Fig. 4. The reduced cost of renewables can help address these. With the onset of the COVID-19 pandemic in 2020, investments in the energy sector in Africa declined. For instance, while the energy sector received 49% of ICA commitments in 2019, this declined to 38% in 2020. This decline was mainly due to foreign contractors pulling out of the continent, supply chain disruptions, and price surges, with significant impact on the implementation of energy projects, especially solar.22 Since 2021, investments in Africa’s energy sector have rebounded marginally.

17

See: https://data.worldbank.org/indicator/EG.ELC.ACCS.ZS?locations=ZG. See:https://assets.publishing.service.gov.uk/media/5a2695a240f0b659d1fca8d6/Line_35_-_ Enabling_private_investment_in_renewable_energy_briefing_note_-_29.06.17.v1.pdf. 19 See: https://www.afdb.org/en/documents/estimating-investment-needs-power-sector-africa2016-2025. 20 See: https://www.afdb.org/en/documents/estimating-investment-needs-power-sector-africa2016-2025. 21 See: https://www.icafrica.org/en/topics-programmes/energy/energy-financing-trends/. 22 See: https://www.icafrica.org/en/topics-programmes/key-achievements-in-the-financing-of-afr ican-infrastructure-in-2019-2020/. 18

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Fig. 3 Total energy sector financing in Africa and sources (2014–2018). Source ICA (2021)

Fig. 4 Cost of powering a refrigerator for a year as a percentage of GDP per capita. Source World Bank (2019) (See electricity access in Sub-Saharan Africa (http://www.worldbank.org))

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This has largely been underpinned by investments by multilateral finance and capital market investors targeting the power and renewable energy sector.23

4 Energy Sector Governance In 2018, the African Development Bank (AfDB) released a report on a survey on the regulation of energy resources in African countries. The survey covered three major indices of regulation: governance, substance (implementation), and outcome (impact). The countries involved in the study were Ghana, Zimbabwe, Lesotho, Côte d’Ivoire, Senegal, Togo, South Africa, Cameroon, Kenya, Malawi, Nigeria, Tanzania, Namibia, and Uganda. It is worth noting that all these countries have an energy regulatory act or electricity sector law or both which establishes regulators. The work of these regulators spans economic and technical regulation, commercial quality of electricity, and licensing of producers, distributors, transmitters, and retailers. Despite the establishment of the regulatory institutions in some of these countries, there are major challenges with policies that give rise to conflicts of interest between the utilities and the regulator, as well as between the ministry and the regulator. This hinders the regulators’ ability to enforce its mandates. Some of these countries have not been able to implement their licensing framework to the latter. This reduces the expected impact of regulation on the sector. There is also the challenge of the public holding regulators accountable. With respect to transparency, some of these regulators do communicate effectively on their websites by providing relevant data to the public. Countries like Ghana and Senegal encourage consumer participation in the setting of tariffs as shown in Table 1. Africa is endowed with a lot of natural resources but lacks the commitment to convert these resources into useful and valuable products. African leaders must understand the increasing opportunities that technology and innovation come with, particularly boosting human capital and development. The continent as of now has limited technological capacity to drive sustainable development.24 The level of growth in technological capabilities has been slow at best, due to the inability of most educational facilities to provide such skills. Such educational institutions lack quality infrastructure and the finance to build this infrastructure. Moreover, most technologies used in Africa are typically manufactured outside the continent but assembled within the continent. In 2020 for instance, Burkina Faso inaugurated a solar production and assembly plant at Kossodo, north of Ouagadougou. The plant which is named ‘Faso Energy’ is estimated at e4.9 million and can produce 200 solar panels per day. Other African countries like Morocco and South Africa have publicly declared their intention to follow suit. To enable value addition to Africa’s natural resources, there is 23

See: World Investment Report, 2022 https://unctad.org/system/files/official-document/wir2022_ en.pdf. 24 See: https://www.itu.int/hub/2020/02/capacity-building-in-africa-is-an-essential-driver-of-gro wth/.

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Table 1 Modes of establishing regulatory institutions Mode of establishment

Countries

Electricity sector Law and a Regulatory Act Cameroon, Gambia, Kenya, Malawi, Namibia, that has received Presidential/Executive Assent Nigeria, Senegal, South Africa, Tanzania, (to become Law) OR Uganda Electricity Sector Law and a Regulatory Act backed by a Presidential decree No Electricity sector Law but only a Ghana, Lesotho, Togo, Zimbabwe Regulatory Act that has received Presidential/ Executive assent (to become Law) OR No Electricity sector Law but only a Regulatory Act backed by a Presidential decree Electricity sector Law but no Regulatory Act with Presidential/Executive assent (to become Law) OR Electricity sector Law but no Regulatory Act backed by a Presidential decree

Côte d’Ivoire

Source African Development Bank (AfDB), 2018

the need for policymakers on the continent to foster technological knowledge transfer, while addressing critical innovation barriers and gaps, especially in the educational sector (Adesida et al., 2021). To address the educational challenges caused by limited access to electricity in Africa, national electricity grids and transmission networks must be expanded, especially to remote locations, and renewable energy development in rural areas must be increased, particularly those involving natural resources such as solar.25 This will facilitate electrification of schools and educational facilities, while propelling rural economic development. Access to electricity, in essence, has the potential to significantly improve the quality and attainment of education in Africa by improving teaching resources and materials, enabling more efficient school administration, extending working hours beyond daylight hours for both students and teachers, and allowing students to spend more time in school.26 Furthermore, greater access to electricity has the potential to significantly reduce educational facility disparities between rural and urban areas.27 These are important to achieving SDG4 on inclusive and equitable quality education opportunities for all. 25

See: https://energycapitalpower.com/powering-africas-human-capital-development-the-correl ation-between-energy-and-education/. 26 See: UN (2019), Policy Brief 4 Energy and SDG 4 Quality Education https://sustainabledevelop ment.un.org/content/documents/24093pb4_cover.pdf. 27 See: UNDESA (2014), Electricity and Education: The benefits, barriers, and recommendations for achieving the electrification of primary and secondary schools. https://sustainabledevelopment. un.org/content/documents/1608Electricity%20and%20Education.pdf.

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Table 2 Renewable energy licenses issued in Ghana as of 2017 Category

Provisional licenses

Siting permits

Construction permits

Total proposed capacity (MW)

Solar

55

20

2

2,748.5

Wind

9

2

1

951

Hydro

5

–

–

208.62

Biomass

2

–

–

68

Waste-to Energy

10

2

1

570.81

Wave

1

1

1

1,000

Total

82

25

5

5,546.93

Source Ghana Energy Commission, 2017

Ghana’s Case Out of the 20 action items proposed in Ghana’s Nationally Determined Contributions, 9 are related to energy. These include investments in renewable energy, energy efficiency, and clean cooking technologies. To achieve these, Ghana has set a target of 10% of non-hydro renewable energy by 2030. Ghana’s Renewable Energy Masterplan estimates that the country will require $5.6 billion from 2018 to 2030 to install 1363.63 MW of green energy capacity. Out of this, 80% is expected from the private sector.28 According to the Masterplan, this investment will lead to carbon savings of about 11 million tons of CO2 by 2030. In addition, the country’s commitment under the Paris Agreement targets requires up to $22.6 billion of investment, with the private sector expected to contribute significantly. There are three dynamics in reaching this target. To begin with, the global agenda for investments in clean energy requires the cooperation of all countries that are signatories to the Paris Agreement and have adopted the United Nation’s Sustainable Development Goals. The United States for instance is repositioning itself for increased investments in clean infrastructure. This will make more funds available in the clean space for developing countries like Ghana to tap. Second, there appears to be a huge lag between the period investors receive renewable energy licenses and when generation commences. Table 2 details licenses that had been awarded by the Energy Commission for renewable energy capacity in 2017. As of 2021, less than 3% of these potential megawatts have been realized. The reasons for the lag between time of license issuance and commencement of actual generation include finance, government moratorium introduced in 2018, overcapacity in the energy sector, and regulatory requirements (Ackah, 2021). Third, with the advent of COVID-19 and Ghana’s debt levels projected by the International Monetary Fund (IMF) to exceed 84.6% of GDP by end of 2022,29 the 28

See Renewable-Energy-Masterplan-February-2019.pdf (http://www.energycom.gov.gh). See https://www.ghanaiantimes.com.gh/imf-forecasts-ghanas-debt-to-gdp-ratio-of-84-6-in2022/. 29

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government may not have the fiscal appetite to borrow from the traditional debt market. Historically, Ghana’s debt market has been dominated by the government’s treasury bonds.30 In 2015, the Ghana Fixed Income Market was launched. However, current fiscal challenges call for innovative financing. Clearly, with green bonds, the country can mobilize resources from domestic and international capital markets for climate change adaptation, renewable energy, and other environmentally friendly projects. While no government-level green bond has been issued, the International Finance Corporation (IFC) granted $40 million to Republic Bank, with a requirement to invest at least 25% in enterprises that are into climate-smart projects. Additionally, Ghana’s Security and Exchange Commission has approved guidelines for the issuance of green bonds and sustainability-themed products in the country’s capital market.

5 Conclusion While funding for renewable energy, energy efficiency, and clean cooking in Africa has been sourced from public, private, and development partners in the past, the dynamics are changing. This study evaluates Africa’s energy transition pathways and makes some recommendations. Africa needs to be part of the value chain not a mere consumer of technologies: With reserves in resources required for the energy transition, steps should be taken to start building industries around these resources. Africa is the leading producer of some energy transition-related minerals like Cobalt and Tantalum (Democratic Republic of Congo)31 ; Platinum and manganese (South Africa).32 This can be done in two ways. First, gradual conversion of skills acquired in the petroleum sector to the renewable energy sector. Second, investments in renewable energy technology manufacturing, installation, and maintenance. A balanced energy mix: A combination of gas-fired thermal plants, hydro, solar, concentrated solar power, and wind can serve Africa’s energy needs. Fix Africa’s financial sector: Access to credits is low while the cost of borrowing is high. This implies mobilizing financial resources for energy investments across the continent is challenging. Targeted renewable energy deployment: For instance, grid solar solution for rural and residential urban areas, natural gas for industry and industrial heating, and hydro as a baseload. Natural gas has many applications beyond power generation: While Africa’s consumption of natural gas is relatively lower compared with other continents, 30

See download the Feasibility study for green bonds in ghana.pdf. Produced 100,000 metric tons of cobalt and 740 metric tons of Tantalum in 2019. 32 Produced 5.5 million tons of manganese and 130 metric tons of Platinum. 31

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discoveries will change this. About 40% of new natural gas discoveries occurred in Africa. Gas is cleaner and is a good complement to renewables. Natural gas can support the economic transformation of the continent through chemical production, fertilizer manufacturing, cement, and clean cooking fuels. Leaving natural gas on the ground will just delay or deny Africa’s chance of industrializing.

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Edomah, N. (2021). The governance of energy transition: Lessons from the Nigerian electricity sector. Energy Sustainable Society, 11, 40. https://doi.org/10.1186/s13705-021-00317-1 Emediegwu, L., & Okeke, A. (2017). Dependence on oil: What do statistics from Nigeria show? Journal of Economics and Allied Research, 2(1), 110–125. [10]. Eshun, M. E., & Amoako-Tuffour, J. (2016). A review of the trends in Ghana’s power sector. Energy, Sustainability and Society, 6(1), 1–9. GEUS. (2011). Federal Republic of Nigeria: Nigeria Extractive Industries Transparency Initiative (NEITI) NEITI Secretariat, Scoping Study on the Nigerian Mining Sector Trust Fund No. 95381; Project No P114267. Ghana Grid Company (GRIDCO). (2021). System Data. http://smpweb.gridcogh.com/displayxx/. Accessed 15 Nov 2021. ILO. (2018). Decent work, just transition, decent work, and climate resilience. https://www.ilo. org/wcmsp5/groups/public/---dgreports/---dcomm/documents/publication/wcms_589098.pdf. Accessed 24 Aug 2022. International Energy Agency (IEA). (2021). Data on electricity generation mix—Tanzania. https:// www.iea.org/data-and-statistics/data-product/electricity-information. Accessed 15 Nov 2021. IRENA. (2021). IRENA Statistics Database, International Renewable Energy Agency (2021) Abu Dhabi. KPMG. (2012). Nigerian Mining Sector. KPMG Advisory Services. https://www.kpmg.com/ NG/en/IssuesAndInsights/ArticlesPublications/Documents/Nigerian%20Mining%20brief.pdf. Accessed 11 Sep 2022. Kuamoah, C. (2020). Renewable energy deployment in Ghana: The hype, hope and reality. Insight on Africa, 12(1), 45–64. Manley, D., Heller, P. R. K., & Davis, W. (2022). No time to waste: Governing cobalt amid the energy transition, NRGI. https://resourcegovernance.org/no-time-to-waste-governing-cobalt-amid-ene rgy-transition Mills, G. (2018). Why is Africa poor? In Culture and civilization (pp. 52–62). Routledge. Mills, S.M., Wells, J.A., & Gyasie-Hayford, R. (2021). Accelerating South Africa’s energy transition with gas power and renewables. https://www.ge.com/content/dam/gepower-new/glo bal/en_US/downloads/gas-new-site/future-of-energy/accelerating-south-africas-energy-transi tion-gea34992.pdf. Accessed 13 Sep 2022. Myllivirta, L. (2021). Eskom is now the world’s most polluting power company. https://energyand cleanair.org/eskom-worlds-most-polluting-power-company/. Accessed 8 Sep 2022. Nigerian Energy Regulatory Commission (NERC). (2021). Generation. https://nerc.gov.ng/index. php/home/nesi/403-generation. Accessed 15 Nov 2021. Ogbe, M., Ketil Rød, J., & Halvorsen, T. (2021). Opinions of Ghanaians on the management of petroleum revenue in Ghana. African Geographical Review. https://doi.org/10.1080/19376812. 2021.2007410 Oguejiofor, G. C. (2010). Modeling of linear and exponential growth and decay equations and testing them on pre- and post-war-coal production in Nigeria: an operations research approach. Energy Sources, Part B: Economics, Planning, and Policy, 5(2), 116–125. Osei-Tutu, P., Boadi, S., & Kusi-Kyei, V. (2021). Electrical energy transition in the context of Ghana. Energ Sustain Soc, 11, 47. https://doi.org/10.1186/s13705-021-00322-4 Ouedraogo, N. S. (2020). Transition pathways for north Africa to meet its (intended) nationally determined contributions ((I)Ndcs) under the Paris agreement: A model-based assessment. Climate Policy, 20(1), 71–94. https://doi.org/10.1080/14693062.2019.1685449 Oyedepo, S. O. (2021). Energy and sustainable development in Nigeria: The way forward. Energy, Sustainability and Society, 2012(2), 15. RES4A, IRENA, and UNECA. (2022). Towards a prosperous and sustainable Africa: Maximising the socio-economic gains of Africa’s energy transition. RES4Africa Foundation, Rome. South African Energy Sector Report 2021. http://www.energy.gov.za/files/media/explained/2021South-African-Energy-Sector-Report.pdf. Accessed 01 Sep 2022.

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I. Ackah is the Executive Secretary of Ghana’s Public Utilities Regulatory Commission (PURC). He chairs the Legal and Regulatory Committee of the Electricity Market Oversight Panel. He worked with the United States Agency for International Development (USAID) West Africa Energy Program, Deloitte, the Energy Commission, Ghana and the Africa Centre for Energy Policy. He’s an Adjunct Lecturer at University of Ghana Law School, GIMPA and University of Cape Coast. As a researcher, he has consulted for the AfDB, NRGI, SNV, UN, DFID/GOGIG, Energy for Growth Hub among others. He holds a PhD in Energy Economics from the University of Portsmouth-UK, an MSc. From University of Surrey, UK, and a Bachelors from University of Professional Studies, Ghana. R. K. Asiama is a Lecturer at the University of Environment and Sustainable Development, Somanya, Ghana. He was a Research Assistant at the University of Johannesburg. He holds a Ph.D in Economics from University of Johannesburg and an M.Phil in Economics from the University of Ghana. A. O. Ohene is currently the Senior Energy Trading Analyst at the Electricity Company of Ghana Limited. He is also a member of the power purchase agreement review committee of the Electricity Company of Ghana. He formerly worked with the Energy Commission of Ghana as an Assistant Statistician. At the Energy Commission, Albert was assigned to the Electricity Market Oversight Panel Secretariat (EMOPS) where he coordinated research and reviewed data for publication. At the Energy Commission, he was a member of the Market Rules Review Committee and Ancillary Service Pricing Review Committee. V. A. Essuman holds an M.Sc. in Energy Economics and is a certified Project Management Professional. She possesses almost half a decade’s experience in a Multicultural Private Sector, specializing in Renewable Energy development. She is proficient in English, French and Spanish, with a limited working proficiency in Mandarin Chinese. M. E. Eshun is an economist with keen interest in advancing research in economic regulation, energy, extractives, and gender responsive studies. She is a former Southern Voices Network for Peacebuilding Scholar of the Woodrow Wilson International Center for Scholars, USA. Maame holds an M.Phil. and BA Economics from KNUST, Ghana. C. Owusu has more than a decade’s wealth of experience and expertise in oil and gas, power, shipping and ports, mining, FMCG industries and a stint at consulting with Deloitte. He has both national and international exposure through work and engagements with the Ministry of Finance, Deloitte, Blue Ocean Investments (Bulk Oil Distribution Company) now Puma Energy and the Energy Commission of Ghana. He is a lawyer and a Chartered Accountant and holds Masters Degree in Energy Management from Stirling University, UK. Charles is the CEO of Ghana’s Petroleum Hub Development Corporation. P. Nyarko is the Deputy CEO (Finance and Administration) at the Petroleum Hub Development Corporation, Ghana. He has over 15 years’ experience in retail, business, corporate banking, and credit risk, having worked as Branch Manager at the Capital Bank between 2016 and 2017, and as the Sales and Relationship Officer at Ghana Commercial Bank from 2018 to 2019. Other experience includes a period with Baobab Energy as Energy Policy Analyst and with Kandifo Institute as Director of and Policy.

Willingness to Change to Electric Cars: Is the Ghanaian Consumer Ready? Ishmael Ackah, Ibrahim Mohammed, Albert Okanto Ohene, Rexford Kweku Asiama, Alhassan Atta-Quayson, and Theophilus Adoko

List of Abbreviations ESRP SDGs EVs WTP SSA VIF WTC

Energy Sector Recovery Programme Sustainable Development Goals Electric Vehicles Willingness to Pay South Saharan Africa Variance Inflation Factor Willingness to Change

I. Ackah (B) Public Utilities Regulatory Commission (PURC), Accra, Ghana e-mail: [email protected] I. Mohammed Research and Consultancy, University of Professional Studies, Accra, Ghana A. O. Ohene Electricity Company of Ghana Limited, Accra, Ghana R. K. Asiama Department of Sustainable Energy and Resources, University of Environment and Sustainable Development, Somanya, Ghana A. Atta-Quayson Department of Economics, University of Education, Winneba, Ghana T. Adoko Mining and Mineral Policy, Africa Centre for Energy Policy, Accra, Ghana © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_21

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1 Background Ghana’s energy sector has seen three strategic changes over the past decade. First, the production of oil from December 2010 changed the economic growth narrative. In 2011, besides joining the class of lower-middle-income countries, the country achieved a growth rate of 14.4%, one of the highest in the world (UNDP, 2014). Second, the production of natural gas and the setting up of a gas processing plant changed the power production dynamics. Indeed, in 2016, thermal power became the main source of electricity in Ghana. The thermal component in the energy mix increased from 31% in 2010 to 60% in 2019 (Energy Commission, 2020). Third, hydroelectric projects above 100 megawatts were classified as renewable energy for the first time through the amendment of the Renewable Act 2011 (Act 832) in 2020. The implication is that the renewable energy component in Ghana’s energy mix has risen to about 40%. Despite this innovation of making the cost of electricity cheaper to the final consumer, the country is faced with the challenge of excess capacity which has been contracted on a take-or-pay basis for the supply of natural gas and electricity. Taking a dive into Ghana’s power sector, the grid installed electricity generation capacity as at 2020 was 5,229 MW and this was 41% higher than the system peak demand of 3,090 MW recorded for the same year. Also, the dependable generation capacity for the grid installed capacity was 4,808 MW in 2020 and this was still significantly above the reserve margin of 18–25% recommended by the IEA. These changes coupled with overcapacity and take or pay obligations in power and natural gas contracts, have led policy makers to find ways of creating demand to reduce the financial burden on the government. The Energy Sector Recovery Programme (ESRP) Committee in 2019 estimated that the excess capacity in both electricity and natural gas will cost the country $12.5 billion by 2023 if no structural solutions are implemented. A number of options, including export, reduced tariff for industries and re-negotiation of some power purchase agreements have been considered. In relation to this, the government of Ghana launched the Drive Electric Initiative1 in October, 2019. In addition to encouraging productive uses of the excess capacity by electric vehicles, the Drive Electric Initiative has sustainable development and green consumption goals. Clearly, electric vehicles have many advantages. These include environmental friendliness and the absence of emissions, technical efficiency, relatively cheaper cost, and in some cases affordable fuel (electricity) (Gelmanova et al. 2018; del Carmen Pardo-Ferreira). Despite these advantages, Ayetor et al. (2020) posit that there exists huge skills gap in electric vehicle maintenance, spare parts are currently not available, charging infrastructure and the high initial price of electric cars are the main challenges to overcome to boost electric vehicle penetration in Ghana. Hidrue et al. (2011a, 2011b) find that the cost of battery needs to drop significantly before electric vehicles can find a mass market without subsidy especially in developing countries. In addition to these challenges, Ghana’s end-user tariff is relatively higher 1

See http://www.energycom.gov.gh/efficiency/drive-electric-initiative.

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than Nigeria and Cote D’Ivoire and has been cited by the Association of Ghana Industries as one of the top three challenges over the past five years.2 Estimated figures from the website of the Public Utilities Regulatory Commission indicate that commerce/service customers are charged a tariff in the range of 14–24 US cents per kWh. With this, it would be cheaper running own diesel alternative at certain time of the month, except for convenience. Indeed, the current tariff classification has no room for electric car charging for personal use. With increased per capita income, access to personal loans, and a growing middle class, car ownership has been increasing in Ghana. According to Abdul et al. (2022), factors such as higher average monthly income, a greater traveling distance to work, a perception that the provision of non-motorized infrastructure is inadequate, increasing age, being married, and being male correlate with a higher likelihood of owning a car in Ghana. Despite improved economic conditions, general awareness of environmental issues, and passage of regulatory instruments, most vehicles imported into Ghana are used and rely heavily on petrol or diesel. Indeed, 65.6% of the cars imported into the country in 2017 were used vehicles.3 This is however a reduction from 92% in 2008 (Obeng-Odoom, 2010; Chalfin, 2008). This begs the question of whether Ghanaians would acquire electric vehicles which are mostly new, in line with the country’s aim of promoting renewable energy consumption and building and sustaining a green economy. While electric vehicles have attracted the interest of both policy makers and investors, little is known about consumers’ interest and willingness to acquire electric vehicles in African countries. Though a number of studies have been conducted on willingness to pay for electric vehicles (see Fergusson et al., 2018a, 2018b; Noel et al. 2019; Tanaka et al. 2014), most of these are conducted in environments that are different from the unique characteristics of Ghana. Wahab et al. (2019) applied the logit model to examine the willingness to pay for electric motor cycles in Tamale, the capital of the northern region of Ghana. They find that price, availability of subsidy and maximum distance that the motor can cover after charging will influence decision of buyers. This paper is unique because it focuses more on the determinants of the consumers’ willingness to change to or pay for electric vehicles (cars) that can be adopted in urban or peri-urban areas within Ghana. The adoption of such technology is crucial to promoting the use of renewable energy and sustaining a green economy in Ghana. The adoption and use of EVs in Ghana is also important because it helps with progress toward achieving Sustainable Development Goals (SDGs) 3 (Good health and well-being), 7 (access to affordable and clean energy), and 11 (Sustainable cities and communities).

2 3

See https://agighana.org/barometer.php. See http://cdn.cseindia.org/attachments/0.75770600_1529742955_Ghana.pdf.

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2 Literature Review Over the past decade, there has been increased attention on the analysis of potential demand for Electric Vehicles (EVs) and consumer preferences for various attributes of EVs, especially in the developed world and increasingly in middle-income countries. Studies on potential demand for EVs date back to the 1980s following the 1970s oil crisis. The best-known works among the first wave of studies on EVs are Beggs et al. (1981) and Calfee (1985). Both studies focused on households with multiple cars and therefore with favorable driving and demographic characteristics such as greater relative ability (and hopefully willingness) to purchase an EV. Despite observed preference for heterogeneity which favors demand for EV, both studies found that households involved in their study were rather concerned about low market share for EVs and “range anxiety” (short driving range) (Beggs et al., 1981; Calfee, 1985). In the early 1990s through to the 2000s what may be referred to as the second wave of studies on EVs started. Works that are prominent in this wave of studies include Bunch et al. (1993), Brownstone et al. (1996, 2000a, 2000b), Tompkins et al. (1998), Brownstone and Train (1999), Ewing and Sarigollu (2000), and Dagsvike et al. (2002). California’s zero-emission vehicle mandate implemented in September 1990 by the California Air Resources Board has been identified in the literature as critical in the second wave of studies. Indeed, California’s law on emissions is well-documented. The mandate required that starting in 1998, 2% of in-state new light duty vehicle sales of major automakers should have no emissions of criteria pollutants. This percentage had to go up to 5% in 2001 and 10% in 2003. In light of this, most of the studies in this wave tried to predict the potential demand for EVs in California, though there were others that focused on other geographical areas. Hidrue et al. (2011a, 2011b) identify the following four major departures of the studies of the second wave from those of the 1980s: a. They expanded the study target from multicar households to entire population; b. A measure of emission level was included as a standard vehicle attribute; c. Other vehicle technologies such as concentrated natural gas, hybrid electric, methanol, and ethanol as alternatives for conventional gasoline vehicles were included as part of the choice set; and d. Authors employed some form of survey customization (different respondents receiving different choice options) to increase the relevance of the choice task. Like the first wave of studies on potential demand for EVs, most studies in the second wave also concluded that chances of penetrating the auto market were still rather low on grounds of long charging time, limited driving range, and high purchase price. These factors outweighed observed favorable factors such as consumer willingness to pay higher price to reduce carbon emission and save on gas (see Bunch et al., 1993; Tompkins et al., 1998; Ewing & Sarigollu, 2000). One of the earliest studies for the current wave of EV studies was authored by Hidrue et al. (2011a, 2011b) and based on a national survey in the United States of

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America. The willingness to pay (WTP) for five key attributes of EVs was estimated using a latent class random utility. This was a time when existing economic analysis of EVs was not favorable due to factors such as high battery cost, short driving range, long charging times, and limited recharging infrastructure (Hidrue et al., 2011a, 2011b). Most of the studies found these factors to be significant. Yet these factors have been evolving with advances in technology as well as the design and implementation of several privilege-driven policies on consumer preferences for EVs. Over the past few years, there have been intense studies on potential demand for EVs that are producing more favorable findings in support of adoption of EVs by consumers. Some of these studies have explored the role of advances in technologies and supportive policies. Policies that have received attention as far as enhancing consumer adoption of EVs is concerned include providing EVs with access to specialized lanes, lower public charging fees, subsidized parking and congestion pricing (Ferguson et al., 2018a, 2018b; Figenbaum, 2017; Langbroek et al., 2016; Wang et al., 2017). Other studies have also explored the role of consumer attitudes in influencing preferences for EV attributes. Some of the attitudes that were explored are risk-averse decision making, environment-friendliness, trust in technology, general awareness about EVs, and social network (Axsen et al., 2016; Barth et al., 2016; Huang & Qian, 2018; Lin & Tan, 2017; Nazari et al., 2019). Whereas the first and second wave of studies on potential demand did not feature Sub-Saharan Africa, the current wave has seen some studies on exploring consumer uptake of EVs in Africa especially over the past three years. One of the earliest studies on South Saharan Africa (SSA) explored extent of EV adoption and implication of fuel migration from petroleum products is by Ahjum et al. (2018). Using a full energy sector least-cost optimization model developed by the South African Times, authors found the viability of hydrogen fuel cell vehicles, potentially meeting 70% of travel demand by 2045. Earlier, Caetano et al. (2017) conducted a socio-economic analysis of transport sector futures in South Africa focusing on decarbonizing the transport sector and expected roles for EVs. In Ghana, just two studies were found on EVs. The first was by Wahab and Jiang (2018) and explored factors influencing the adoption of electric motorcycles in Northern Ghana as a means of predicting factors that would influence adoption of EVs. Factors such as price, government subsidies, performance, and drive range had significant impact on motorcyclists’ willingness to adopt electric motorcycles. Ayetor et al. (2020) review vehicle standards in Ghana relative to some African countries to explore feasibility of adoption of EVs. Focusing on initial cost, maintenance cost, fuel cost, and availability of skilled labor, they found that, other things being equal, EVs are 13.5% more expensive while government’s tax incentive reduces cost per mile by just 2.5%. While Ghana’s energy surplus of 6,400GWh4 in 2019 is enough to power more than 1.5 million electric vehicles, huge skills gap regarding maintenance, non-availability of spare parts, and concerns about charging infrastructure remain important issues of concern debilitating against future adoption of EVs. 4

See http://www.energycom.gov.gh/emop/wep-reports.

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The overview of literature on potential demand for EVs reveals a dearth of knowledge about what is going on in Sub-Saharan Africa as far as potential demand for EVs is concerned. Our analysis builds on this body of work and contributes to the literature by shedding some light on willingness to pay among consumers in Ghana using data gathered in 2020.

3 Method We are guided by the household production function theory of consumer behavior, which argues household demand patterns are not only driven by the desire to attain utility from consumption but also to use some of their goods as factors of production in services that are important to households (Abdalla et al. 1990, 1992; Amoah et al., 2021). An electric car therefore is one of such goods that follows such theory, as it does not only provide satisfaction to the owner but can also be used to fulfill other important tasks of the household. Our empirical approach follows Ouyang et al. (2020) who investigated the factors driving the purchase of electric vehicles in China. The authors adopt the logistic regression to determine the factors that influence the demand for electric vehicles. This method has also been used frequently in the literature (Brownstone et al., 2000a, 2000b; Zhang et al., 2013; Axsen et al., 2015; Junquera et al., 2016). However, we decided to account for some country-specific factors that may influence consumer decisions to purchase electric vehicles because of uniqueness of microeconomic choices in different economies. Following Ouyang et al. (2020), we specify the following model, noting that our dependent variable is whether one would purchase (1) or not purchase (0): P = Pr ob (Y = 1) = exp(β0 + β1 X 1 + β2 X 2 + β3 Z n )/1 + exp(β0 + β1 X 1 + β2 X 2 + β3 Z n ) (1) where P represents the dependent variable, X 1 , X 2 and Z n represent price, income and other demand factors such as the respondent’s educational level and preferences in a vehicle, the vehicle ownership history of respondents, greenhouse gas emissions of cars, average travel distance and even the expenditure on fuel. Factors such as average travel distance and fuel expenditure are localized factors and therefore may vary if the model is analyzed in another country. Equation (1) is estimated using the maximum likelihood estimation technique and both odd ratios and marginal effects are presented. We rely on the marginal effects as the true measure of the effect of each determinant on the decision of respondents to purchase or not to purchase an electric vehicle. From Eq. (1), we anticipate that the signs of the coefficients on X 1 and X 2 should be negative and positive respectively, as people will demand more electrics if the prices are lower (affordable) and if their real incomes increase. Electric vehicles can be

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assumed to be a normal good and therefore in line with consumer behavior, people will purchase with price and income factors in mind. We do not form any prior expectations for the remaining covariates because in a different context, different results may be obtained. We also check the robustness of our results by using the probit estimation technique. Not many studies combine both binary variable regression techniques to find the factors that drive the willingness to pay for electric vehicles. Finally, issues of identification, resulting from heteroscedasticity, multicollinearity or endogeneity may bias the estimates. Nonetheless, the logit model is developed to naturally check itself and drop whatever factor that might cause such issues in order to allow the estimation to proceed (Cramer, 2007; Greene, 2018; Hosmer et al., 2013). Nevertheless, since econometric issues such as multicollinearity and heteroscedasticity are common with cross-sectional data, we conducted some initial tests. The study employed the Variance Inflation Factor (VIF) to check for multicollinearity. Men (2016) stipulated that a VIF value of more than 5 or 10 is an indication of problematic collinearity. The VIF results for all the variables are less than 5, which is a sign of low multicollinearity issues among the explanatory variables.

3.1 Data The study combined online and face-to-face distribution of questionnaires between March and June, 2021. While the target was 300, 230 respondents completed the questionnaires fully. Table 1 presents the definition of some variables.

4 Results and Discussion 4.1 Respondents’ Characteristics and Vehicle Ownership History We first discuss the demographic of respondents who participated in this study. Out of the 230 persons who took part in the online survey, 227 persons responded fully to all the questions asked. This left us with a response rate of almost 100%. Additional frequency analysis showed that our sample was made up of 50 female and 177 male respondents, who were averagely aged between 26 and 35 years. This suggests respondents were adults and qualified to partake or consent in a survey on their own volition. We also realized that on average, respondents were mostly selfemployed and had had obtained postgraduate or professional qualifications. Finally, descriptive analysis of results showed that respondents earned between GHC 3000 and GHC 4000 on average per month. This suggests that most of the respondents

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Table 1 Definition of variables Variable

Definition

Age

1 = 18–25, 2 = 26–35, 3 = 36–45, 4 = 46–55, 5 = 56 and above

Gender

1 = female, 2 = male

Number of years owned a car

1 = 1 year or less, 2 = between 1 and 2 years, 3 = between 2 and 3 years, 4 = between 3 and 4 years, 5 = More than 4 years

Number of cars owned

1 = 1 car, 2 = 2 cars, 3 = 3 cars, 4 = 4 cars, 5 = 5 or more cars

Income

1 = less than 1000, 2 = 1001 to 2000, 3 = 2001 to 3000, 4 = 3001 to 4000, 5 = More than 4000

Work profile

1 = Public Sector, 2 = Employed by a private sector entity, 3 = Self-employed, 4 = Employed by NGO 5 = Other, please

Educational level

1 = SSSCE/WASSCE, 2 = First Degree, 3 = Postgraduate, 4 = Professional Qualification, 5 = Other, please

Engine capacity

1 = 1.0 or less, 2 = 1.1 to 1.8, 3 = 1.9 to 2.4, 4 = 2.5 to 3.5, 5 = More than 3.6

State of car when first purchased 1 = Bought it brand new, 2 = Home used, 3 = Bought it second hand from Ghana user, 4 = Other, please Distance travelled in a week

1 = less than 5 km, 2 = 5.1 to 10 km, 3 = 10.1 to 15, 4 = 15.1 to 20 km, 5 = more than 20 km

Expenditure on fuel

1 = less than 100 Cedis, 2 = 101 to 150 Cedis, 3 = 151 to 200, 4 = more than 200 Cedis

Green house gas emissions

1 = No, 2 = Yes

Source Author’s own calculations

could effectively demand goods and services, by exchanging their money for any good or service, if they decided to do so. These results are displayed in Table 2. We asked respondents further questions regarding their history of car ownership and experience. The results obtained showed that on average, respondents had owned at least one car for an average of period of one to two years. Respondents also indicated that the engine capacity on their cars ranged between 1.9 and 2.4 L on average. More so, the results showed that on average, respondents first owned home used or second hand cars bought from Ghanaian users. These results help us provide the context within most respondents in relation to their vehicle purchase decisions at the time when the survey was being conducted. With these conditions of respondents, the results further showed that respondents, on average, were using green-house gas emitting cars, which they used to travel between 10 and 15 km (km) on average and averagely spent between GHC 151 and GHC 200 on fuel per week. These results gave us an indication of the baseline level of willingness to pay of respondents for the cars that they owned. The level of greenhouse gas emissions from used cars is relatively higher compared to those that are coming from new ones. These emissions eventually harm the environment by increasing the carbon content in the atmosphere and contribute to global

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Table 2 Descriptive statistics of variables (n = 230) Variable

Definition

Mean

SD

Age

1 = 18–25, 2 = 26–35, 3 = 36–45, 4 = 46–55, 5 = 56 and above

2.73009

0.87059

Gender

1 = female, 2 = male

1.77974

0.41534

Number of years owned a car

1 = 1 year or less, 2 = between 1 and 2 years, 3 = between 2 and 3 years, 4 = between 3 and 4 years, 5 = More than 4 years

2.42983

1.13004

Number of cars owned

1 = 1 car, 2 = 2 cars, 3 = 3 cars, 4 = 4 1.42105 cars, 5 = 5 or more cars

0.71355

Income

1 = less than 1000, 2 = 1001 to 2000, 4.11404 3 = 2001 to 3000, 4 = 3001 to 4000, 5 = More than 4000

1.2185

Work profile

1 = Public Sector, 2 = Employed by a 3.08772 private sector entity, 3 = Self-employed, 4 = Employed by NGO 5 = Other, please

1.55409

Educational level

1 = SSSCE/WASSCE, 2 = First Degree, 3 = Postgraduate, 4 = Professional Qualification, 5 = Other, please

3.67105

1.01602

Engine capacity

1 = 1.0 or less, 2 = 1.1 to 1.8, 3 = 1.9 2.72368 to 2.4, 4 = 2.5 to 3.5, 5 = More than 3.6

0.95168

State of car when first purchased

1 = Bought it brand new, 2 = Home 2.57456 used, 3 = Bought it second hand from Ghana user, 4 = Other, please

0.68891

Distance traveled in a week

1 = less than 5 km, 2 = 5.1 to 10 km, 3.3114 3 = 10.1 to 15, 4 = 15.1 to 20 km, 5 = more than 20 km

1.49137

Expenditure on fuel

1 = less than 100 Cedis, 2 = 101 to 150 Cedis, 3 = 151 to 200, 4 = more than 200 Cedis

2.83772

1.05987

Green House Gas Emissions

1 = No, 2 = Yes

1.51754

0.50079

Source Author’s own calculations

warming, which needs to be checked in order to ensure environmental sustainability. Electric vehicles (EVs) have been developed to address this problem of emissions while giving consumers more safety options and torque/power for locomotion. Therefore, based on the initial results obtained in Table 2, we went further to ask respondents if they were willing to change their cars and use an electric vehicle and to identify the factors that would contribute to such a purchasing decision. We discuss the results obtained from respondents on their willingness to change to electric vehicles in the next section.

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4.2 Willingness to Change (WTC) to Electric Vehicles We adopt a binary measure of willingness to change (WTC) in order to estimate Eq. (1) above. As a result, responses obtained to the willingness to change question were coded as ‘1’ and ‘0’, where ‘1’ represents the willingness of an individual to change from a conventional vehicle to an EV and ‘0’ represents the unwillingness of an individual to switch to the use of an EV. Our measure of the WTC to EVs is captured in two forms to ensure robustness of our results. First, we measure WTC by asking the respondents about their willingness to change to EVs based on the limited information that the respondents may have on EVs. Secondly, after realizing their limitations of knowledge regarding EVs and giving them further advantages of EV ownership, we measure the respondent’s willingness to change to EVs after exposure. Therefore, we consider the provision of knowledge on EVs to the respondents as some form of a treatment. We estimate Eq. (1) using both measures while controlling for socio-economic factors and the results of these analyses have been presented in Tables 3 and 4 respectively. We compared the results obtained using both the logit and probit estimation techniques. The results in Tables 3 and 4 first show that age has a negative relationship with the respondents’ WTC to EV before introduction to the benefits of owning an EV. This suggests that without any prior knowledge on EV, older respondents are less willing to change to EV relative to younger respondents. However, after sharing with the respondent the benefits of owning an EV, the results showed that age is not significant determinant of the willingness of respondents to change to an EV. Thus, one shouldn’t consider the age of an individual when marketing EV in Ghana to respondents who are aware of the benefits of EVS. Secondly, the gender of the respondents was also not significant for one to consider the use of EV even though it exhibited a positive relationship. Also, to our surprise, the monthly income level of the respondent didn’t show a significant positive relationship but a negative relationship. This is of great concern because we expected that increasing the income levels should have resulted in one’s willingness to change to EV. We argue that this result is plausible because the income elasticity of demand for such goods is greater than one, suggesting that EVs are not necessities that people require to survive in Ghana. With limited information on EV, the work classification of the respondents had a non-significant negative impact on the WTC but when extra information was given, the impact became significant. This finding means that individuals in the private sector are more motivated to switch to EV than those in the public sector. The educational level of the respondent was seen to have a non-significant negative impact on the individuals’ willingness to change to EV but when extra information was given, the direction changed to positive but was also not significant. In other words, one’s willingness to patronize EV is not dependent on how educated they are. Further results showed that the history of conventional vehicle ownership of a respondent was not significant to convince an individual to switch to EV even when extra information was given. Additionally, the variable is seen to have a negative

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Table 3 WTC to EV prior to information provision on EVs Explanatory variables

Coefficient (Logit)

Marginal effect

Coefficient (Probit)

Marginal effect

Age

−0.06678 (0.04511)

−0.0165016

−0.0395 (0.04473)

−0.01561

Gender Number of years owned a car Number of cars owned

0.489963 (0.08439) −0.07193 (0.03128)

0.026479 (0.07863)

0.1216922 −0.0177738

0.00654

0.299567 (0.08308) −0.0451 (0.03073)

0.023269 (0.07778)

0.118904 −0.01783

0.009193

Income

−0.13105 (0.02803)

−0.0323844

−0.08227 (0.02751)

−0.03252

Work profile

−0.09295 (0.02417)

−0.0229686

−0.05688 (0.02369)

−0.02248

Educational level

−0.03397 (0.04182)

−0.0083942

−0.02138 (−0.02132)

−0.00845

Engine capacity

−0.31803 (0.05326)

−0.0785907

−0.19491 (0.04109)

−0.07705

State of car when first purchased

0.200116 (0.02438)

0.0494521

0.122824 (0.05238)

Distance −0.09645 (0.03745)* travelled in a week

−0.0238347

−0.05905 (0.03695)*

Expenditure on fuel

0.381967 (0.03745)

0.0943902

0.234197 (0.06965)

Green house gas emissions

0.832782 (0.07058)

−0.0165016

0.517019 (0.07236)

_cons

−0.06678 (0.03667)

−0.0395 (0.03785)

LR chi2(12)

18.81

18.86

Prob > chi2

0.0932

0.0919

Pseudo R2

0.0608

0.0610

0.048553

−0.02334

0.092579 −0.01561

0.118904

Source Author’s own calculations

relationship with the WTC. Again, individuals who reportedly owned more cars were willing to change to EV when less information had been provided but the situation changed when extra information was given. In both cases, the variable was not significant. Based on the results, considering the expenditure on fuel, respondents, who relatively spend more were willing to convert to EV with less information on EV. Unfortunately, the direction of the relationship changed when more information on EV was provided. Respondents who spend more became more inclined to change to EV but this result was not significant.

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Table 4 WTC to EV after information provision on EVs Explanatory variables (extra information)

Coef. (Logit)

Marginal effect

Coef. (probit)

Marginal effect

Age

−0.06176 (0.3854)

−0.0114792

−0.03114 (0.03891)

−0.0098837

Gender

0.444936 (0.07785)

0.0876596

0.283697 (0.07697)

0.0944777

Number of years owned a car

−0.01442 (0.02692)

−0.0026802

−0.00602 (0.02696)

−0.00191

Number of cars owned

−0.25663 (0.06998)

−0.0487399

−0.15559 (0.06971)

−0.0502348

Income

−0.08393 (0.02463)

−0.0156006

−0.05252 (0.02461)

−0.0166714

Work profile

−0.21808 (0.02142)*

−0.0405379

−0.13034 (0.02142)

−0.0413716

Educational level

0.443453 (0.28991)

0.0909551

0.260583 (0.29472)

0.0892186

Engine capacity

0.184068 (0.03651)

0.034215

0.098173 (0.03627)

0.0311609

State of car when first purchased

0.310146 (0.04284)

0.0576507

0.174038 (0.04352)

0.0552407

Distance travelled in a week

0.191866 (0.02057)*

0.0356646

0.116073 (0.02062)*

0.0368424

Expenditure on fuel

−0.28094 (0.03283)

−0.0522219

Green house gas emissions

0.58862(0.06055)*

0.1094143

−0.16397 (0.03238) 0.345377 (0.06054)*

_cons

−0.47944 (0.02478)

−0.24495 (0.02894)

LR chi2(12)

16.67

16.63

Prob > chi2

0.1626

0.1641

Pseudo R2

0.0649

0.0648

−0.052045 0.1096249

−0.0098837

Source Author’s own calculations

Regardless of the level of information provided on EV, the respondents were willing to consider Green House Gas emissions as a reason for using EV and the result was significant when more information was given. Individuals who travel shorter distances were willing to change to EV but the result wasn’t significant when less information was provided on EV. Contrary to this result, the situation changed when more information was provided on EV. Persons who travel long distance were willing to migrate to EV.

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Lastly, it is worth noting that persons who buy brand new cars were less likely to switch to EV even when given extra information on EV. This result was, however, not significant.

4.3 Willingness to Pay (WTP) We further consider how the determinants used in analyzing the willingness to change to EVs influence the willingness to pay (WTP) for EVs. The results on the willingness to pay have been presented in Table 5. The results in Table 5 show the respondent’s willingness to pay for an Electric Vehicle after they have been given enough information about EV. First, the results show that age, gender and the highest level of education of the respondent exhibited a positive and non-significant relationship with the respondents’ willingness to pay for an Electric Vehicle. This result was not surprising, since these variables could not influence respondents’ willingness to change to electric vehicles in the first place. Also, in Table 5, we see that the variable work has a negative impact on the respondent’s willingness to pay for the Electric Vehicles but it wasn’t significant. This can be interpreted as workers in the private sector are more willing to pay for Electric Vehicles than their counterparts in the public sector. A negative and significant relationship was established between the income levels of the respondents and their willingness to pay for Electric Vehicles, as shown in Table 5. However, the negative direction of the relationship was not surprising since individuals who earn less were willing to change to Electricity Vehicles. Individuals with more number cars and those who have owned a conventional vehicle for a long period were also willing to pay for Electricity Vehicles but the results weren’t significant to influence their decision. The respondents who owned imported/home used vehicles were more willing to pay for Electric Vehicles, relative to those who buy brand new ones since the variable state of the car exhibited a positive relationship with the willingness to pay but the result wasn’t significant. This result could however be skewed toward buyers of a home used vehicle since the automobile industry in Ghana is dominated by home used vehicles. The results from Table 5 also showed that long-distance travelers and respondents who are owners of cars with high engine capacity are willing to pay for Electric Vehicle but the result wasn’t significant. In relation to this, individuals who spend more on fuel are also willing to pay for Electric Vehicle and this result was significant. Lastly, Green House Gas Emission is of great concern for an individual to pay for an Electric Vehicle but surprisingly the result wasn’t significant.

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Table 5 Determinants of the WTP for EVs Explanatory Coefficient (logit) variables

Marginal effect

Coefficient (probit)

Marginal effect

Age

0.2547823(0.215516)

0.0498677

0.1441318(1. 122,997)

0.047528

Gender

0.3587715(0.362668)

0.0702211

0.218091(0. 218,535)

0.0719164

Number of years owned a car

0.0178261(0.135809)

0.003489

0.0148637(0. 081,187)

0.0049014

Number of cars owned

0.0608535(0.250942)

0.0119106

0.0478892(0. 15,078)

0.0157916

Income

−0.1998394(0.0.153245)* −0.0391139 −0.1220778(0. 090,712)* −0.0402557

Work profile

−0.0966049(0.108367)

−0.0189082 −0.0579761(0. 063,995)

−0.0191179

Educational level

0.092702(0.172721)

0.0181442

0.0596348(0. 101,931)

0.0196648

Engine capacity

0.2288615(0.198079)

0.0447943

0.1338655(0. 115,087)

0.0441427

State of car when first purchased

0.1606721(0.227923)

0.0314478

0.0987654(0. 138,348)

0.0325683

Distance travelled in a week

0.0533669(0.107726)

0.0104453

0.0306807(0.064211)

0.0101171

Expenditure on fuel

0.226928(0.172011)*

0.0444158

0.1336174(0. 102,295)*

0.0440609

Green house gas emissions

0.0464803(0.323237)

0.0090974

0.031001(0.191424)

0.0102227

_cons

−0.3138268(0.788365)

−0.1944512(0.776125)

LR chi2(12)

8.39

8.43

Prob > chi2

0.7536

0.7511

Pseudo R2

0.0317

0.0318

Source Author’s own calculations

4.4 Conclusion and Recommendations The purpose of this study is to examine the consumers’ willingness to change and pay for electric vehicles (EVs) in Ghana. The total responses received from the survey was 230 and out of this, 227 respondents provided an answer to all the questions. First of all, the respondents were asked if they were willing to change and pay for EVs before providing more information on the benefits of EVs and whether this information would affect their response. The results obtained were analyzed by using binary logistic model to assess the impact of the explanatory variables on the willingness to change and pay for EVs.

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Based on the responses received, the following conclusions were drawn: • Respondents who travel on shorter distances were willing to change to EVs as compared to long distance travelers with or without more information on EV. • The respondents who earn less than GH¢ 3,000 were more willing to pay for an EV and this result was consistent with their willingness to change to EV. • The expenditure on fuel was a good reason for a respondent to pay for an EV and the willingness increases with increasing expenditure on fuel. • Green House Gas emission was a reason one could consider changing to or paying for EV and the variable was significant when a lot more information was provided on EV. Considering the current automobile industry in Ghana, a transition from a conventional vehicle to an electric vehicle would not be a smooth one unless the following are critically examined: i. There needs to be an extensive education on EV and this should cover the areas of: a. the benefits to the environment, b. the relatively cheaper operation and maintenance cost. ii. The government of Ghana must introduce incentives on the acquisition of EV. These incentives should be on import duties, and issue a special tariff for the charging of these cars. iii. The government must invest or partner with private companies in the construction of commercial charging units for EV.

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I. Ackah is the Executive Secretary of Ghana’s Public Utilities Regulatory Commission (PURC). He chairs the Legal and Regulatory Committee of the Electricity Market Oversight Panel. He worked with the United States Agency for International Development (USAID) West Africa Energy Program, Deloitte, the Energy Commission, Ghana and the Africa Centre for Energy Policy. He’s an Adjunct Lecturer at University of Ghana Law School, GIMPA and University of Cape Coast. As a researcher, he has consulted for the AfDB, NRGI, SNV, UN, DFID/GOGIG,

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Energy for Growth Hub among others. He holds a Ph.D. in Energy Economics from the University of Portsmouth-UK, an MSc. From University of Surrey, UK, and a Bachelors from University of Professional Studies, Ghana. Prof. Ibrahim Mohammed is a Senior Research Fellow at the University of Professional Studies Accra, Ghana. He has over ten years teaching experience in higher institutions of learning. His research interests span a number of areas including Economics, Hospitality and Tourism Management, Accounting, and Financial Management. A. O. Ohene is currently the Senior Energy Trading Analyst at the Electricity Company of Ghana Limited. He is also a member of the power purchase agreement review committee of the Electricity Company of Ghana. He formerly worked with the Energy Commission of Ghana as an Assistant Statistician. At the Energy Commission, Albert was assigned to the Electricity Market Oversight Panel Secretariat (EMOPS) where he coordinated research and reviewed data for publication. At the Energy Commission, he was a member of the Market Rules Review Committee and Ancillary Service Pricing Review Committee. Rexford Kweku Asiama is a Lecturer at the Department of Sustainable Energy and Resources, University of Environment and Sustainable Development, Somanya. Ghana. He completed his PhD in Industrial development with the DST/NRF SARCHI Chair in Industrial development at the University of Johannesburg, South Africa. Alhassan Atta-Quayson is a Lecturer at the Economics Education Department, University of Education, Winneba and a Member of Ghana-based National Coalition on Mining (NCOM). Theophilus Adoko is Policy Lead, Minerals and Mining Policy at Africa Centre for Energy Policy. He holds a Masters in Development Planning and Policy from the Kwame Nkrumah University of Science and Technology.

Economic Power and the Transition to Renewables in South Africa Sumayya Goga

List of Abbreviations REI4P MEC JET-IP EU CBAM EGD DPE NERSA DME COSATU IRP ANC NUMSA NDP MYPD ESG ETS

Renewable Energy Independent Power Producers Procurement Programme Minerals-Energy Complex Just Energy Transition Investment Plan European Union Carbon Border Adjustment Mechanism European Green Deal Department of Public Enterprises National Energy Regulator of South Africa Department of Mineral Resources and Energy Congress of South African Trade Unions Integrated Resource Plan African National Congress National Union of Metalworkers of South Africa National Development Multi-year Price Determinations Environmental, Social and Governance Emissions Trading System

S. Goga (B) Centre for Competition, Regulation and Economic Development (CCRED), University of Johannesburg, Johannesburg, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_22

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1 Introduction In line with its international mitigation commitments, South Africa is charting a path towards a cleaner and more sustainable economy through an energy transition that aims to be just and inclusive. Climate mitigation in the South African context is focused on energy transition since South Africa is one of the most carbon-intensive energy suppliers in the world, with coal-based electricity from the monopoly state power supplier, Eskom, accounting for around 90% of the electricity produced (IEA, 2022). At the same time, the electricity sector in South Africa is deeply intertwined with the structure of the economy, which is resource-based and energy-intensive (Andreoni et al., 2021). This structure is as a result of industrial policy under the apartheid regime, which oversaw the development of an extensive coal-based electricity sector to service large-scale mining, steel and petrochemicals industries, among others, referred to as the minerals-energy complex (MEC) (Fine & Rustomjee, 1996). The energy transition in South Africa is thus occurring in the context of a coal-based electricity sector together with an energy-intensive economy. South Africa’s Just Energy Transition Investment Plan (JET-IP) sets out its priorities in the 2023–2027 period in order to meet mitigation commitments, with the three main sectors identified being electricity, automobiles and green hydrogen. The focus in electricity is on decommissioning the retiring coal generation fleet, the development of renewable generation at scale and pace and strengthening the grid infrastructure. Decarbonization in South Africa is becoming more urgent as mitigation pressures on countries are increasing as a result of policies being promulgated in developed countries that are increasingly set to impact on the competitiveness of goods in the global economy. For instance, the European Union (EU), which has the most advanced set of mitigation policies in the world, is instituting carbon border taxes on certain goods through the Carbon Border Adjustment Mechanism (CBAM). This will in the near future force exporters of those goods from other countries to pay a carbon price equal to local producers unless they are equally carbon taxed or have already decarbonized (Montmasson-Clair, 2021). The CBAM and other European Green Deal (EGD) initiatives are expected to impact negatively on a number of African countries who are heavily exposed to the European market and whose production of goods is particularly carbon-intensive (African Climate Foundation and The London School of Economics and Political Science, 2023). The broad reach of mitigation initiatives under the European Green Deal (EGD) is expected to impact on several of South Africa’s key exports, including steel, motor vehicles and agro-food sectors (PCC, 2023; Bell et al., 2022). At the same time as mitigation pressures have been rising, South Africa has been experiencing unprecedented electricity outages (“loadshedding”) since around 2008 stemming from a complex set of factors including lack of capacity as a result of failure to approve new generation capacity in the 1990s, as well as maintenance issues and mismanagement. The impact of loadshedding on the economy has been severe, and is expected to detract two percentage points from growth in 2023 (Erero, 2023, SARB,

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2023). Given that South Africa has among the best solar and wind resources in the world, it is well-placed to pursue an ambitious transition to renewable energy which will also help to alleviate the crisis in electricity supply. Thus, transition is important for South Africa from both a mitigation and an electricity supply perspective. South Africa has been experimenting with decarbonizing the electricity sector for some time now. The Renewable Energy Independent Power Producers Procurement Programme (REI4P) was launched in 2011 in response to both the supply crisis and the need to decarbonize. However, the programme was halted between 2015 and 2021, as early efforts to kick-start decarbonization were met with resistance by powerful groups in the economy. This chapter will consider the interests that have influenced policy choices as far as decarbonization of the electrical sector is concerned, and analyse the competing power structures that have influenced the agenda, shaped policy, and ultimately influenced outcomes. Section 2 considers the structure of the economy, and how economic power has shaped energy policy and implementation in the South African context. Section 3 takes a forward-looking view of renewable energy promulgation in South Africa. Section 4 concludes.

2 Structure of the Economy, Economic Power and Energy Policy in South Africa Economic structure is a source of power—where large groups of firms yield significant economic power they can use this power to lobby and enter into arrangements with political actors in order to influence institutions (or the rules of the game) in their favour to protect rents (Khan, 2010). Thus, understanding power is critical to understanding why certain policy choices are made or not made as this ultimately determines outcomes and who benefits from rents created. South African case studies have shown how powerful interests in upstream sectors like steel and chemicals have shaped policy and regulation in their favour to the detriment of downstream sectors (Goga et al., 2020; Mondliwa & Roberts, 2019). Industrial policy in the apartheid period was oriented towards the development of coal-based energy and energy-intensive sectors such as mining and minerals beneficiation (Burton et al., 2019). The South African economy has been characterized as the minerals-energy complex (MEC), which refers to a system of accumulation based on cheap coal-based electricity which formed the basis for the development of significant mining and minerals sectors in South Africa (Fine & Rustomjee, 1996). The MEC can be understood as an architecture which includes relationships and networks between private firms, government entities like Eskom (South Africa’s monopolistic vertically integrated supplier of electricity) and the Industrial Development Corporation (IDC), and the financial sector (Tooze, 2023).

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Coal plays a central role in South Africa’s economy, both for production of electricity by Eskom and for liquid fuels by SASOL (synthetic liquid fuels and chemicals company), and in turn, electricity, coal, and liquid fuels are critical inputs into MEC sectors in mining and minerals, including gold, coal, platinum group metals, manganese, chrome, and iron and steel. Coal mining contributes around 2.5% to South Africa’s GDP and the coal sector directly employs around 120,000 people (Hanto et al., 2022). Mining and minerals accounted for 40% of electricity consumed in South Africa in the 1990s (McDonald, 2009). The 1990s were also a time when reserve capacity was high, with Eskom maintaining a reserve capacity above the comfort threshold of 20% throughout the period (Tooze, 2023). Since the fall of apartheid, the structure of the economy has largely remained the same, with some changes. The importance of the mining and agricultural sectors has waned and the financial services sector has grown, but overall, the economy remains mineral-extractive and energy-intensive, and a black elite class has emerged (Altieri et al., 2015; Baker et al., 2015; Cargill, 2010). The Energy Intensive Users Group (EIUG), composed of 27 of Eskom’s largest customers, consumes around 40% of the electricity produced by Eskom,1 while 20% of electricity is consumed by residential consumers either directly from Eskom or through municipalities (Baker et al., 2015). Eskom and SASOL account for more than 50% of emissions in South Africa (Tyler & Hochstetler, 2021). Eskom, SASOL, coal miners and intensive electricity users are thus the central figures in the discussion around decarbonization in South Africa. In addition, in post-apartheid South Africa, the coal and electricity sectors are increasingly intertwined with a black political elite which shapes electricity policy and implementation (Hanto et al., 2022; Trollip, 2020). Electricity production is governed by various government departments in South Africa. The main governing institutions are the Department of Energy (DOE), Department of Mineral Resources (DMR), the Department of Public Enterprises (DPE), and National Energy Regulator of South Africa (NERSA). DOE is responsible for electricity generation and allocation of new capacity, while DMR is responsible for mining regulation. Eskom falls under DPE and Eskom tariffs are regulated by NERSA. The National Treasury oversees Eskom from a financial perspective. Importantly, energy and mining policies were initially both under the Department of Mineral Resources and Energy (DME), which was only split into the DMR and DOE in 2009. The DME was more focused on mining than energy policy (Baker, 2017). In 1998, the then Department of Minerals and Energy “Energy White Paper” articulated a policy position for private developers to contribute to energy generation in South Africa. This was however opposed by Eskom and the trade union COSATU (Congress of South African Trade Unions) which prevented commissioned developments (Kamanzi, 2021). The Electricity Regulation Act came into being in 2006 and allocated electricity planning responsibility to what is now the DOE (separated from the Department of Minerals in 2009). It gave the DOE the power to conduct an

1

https://eiug.org.za/.

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integrated resource planning process (Baker et al., 2015). The Integrated Resource Plan (IRP) governs electricity planning in South Africa. Policy for energy and electricity planning in South Africa has been slow and reactive, driven by crisis management rather than being forward-looking (Yelland, 2020). Furthermore, domestic policy for transforming the energy sector has not been a priority in South Africa, even as international commitments regarding decarbonization were being made (Tyler & Hochstetler, 2021). However, the electricity supply crisis which began in the mid-2000s lent support to more renewable energy in the electricity mix, particularly in light of the economic challenges that the 2008 financial crisis brought on the economy. Furthermore, the need for more renewable energy was given further importance by the commitments made by South Africa at COP17 in 2009 (Cassim et al., 2023; Pedersen et al., 2021). The IRP 2010 for electricity covering the 2010–2030 period was South Africa’s first long-term electricity plan developed outside of Eskom, though both Eskom and the EIUG played a significant role in the drafting of the IRP (Tyler & Hochstetler, 2021). The promulgation of the plan meant that any new generation project had to be in accordance with the technology allocations set out in the IRP, which set out that approximately 20% of installed generation capacity could come from renewable energy (Baker, 2017). After consultation with among others, the business and the financial sector (Tooze, 2023), the DOE launched the Renewable Energy Independent Power Producers Procurement Programme (REI4P) in 2011 in line with the IRP 2010 in order to procure renewable energy through competitive bid auctions. Under the REI4P, Eskom is the single buyer of electricity generated from IPPS after a Power Purchase Agreement (PPA) is signed, with the PPA being valid for 20 years. Eskom guarantees payment to IPPs. The offtake agreement with Eskom as well as the guarantee of payment are used to lure investors to participate in the programme (Cassim et al., 2023). From 2011 to 2021, four bidding windows of the REI4P were completed. Excluding Bid Windows 5 and 6, 302 bids were submitted, with around 30% (92) selected, amounting to 6.4 GW of power. Of the 92, close to 70% (4.41 GW) are operational. Most projects are in wind and solar (5.65 GW) (Nxumalo, 2022). However, these four windows bidding windows occurred between 2011 and 2015 (Fig. 1), with the government stalling the programme between 2016 and 2021 when no new clean energy auctions were held. In addition, round 4 power purchase agreements were only signed in 2018. The programme was finally brought back onstream in 2021 (Bell et al., 2022). The REI4P auction scheme was successful in kick-starting renewables investment in South Africa, and the programme has been hailed a successful model for procurement of utility-scale renewable energy (Ebehard et al., 2014). Investment was rapidly boosted following each successful round, and the costs of renewable energy have declined (Fig. 2).2 South Africa is now producing renewable energy at some of 2

Auctions allow for costs to be revealed through setting up competitions, and successive auctions enable learning to flow through to lower prices. Thus, competitive auctions generally result in prices that reflect ongoing technology cost trends, which can lower subsidy costs (Esser and Champion, 2021).

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Fig. 1 New renewable investment in South Africa between 2010 and 2020. Source Bloomberg NEF

the lowest tariffs in the world. Had the renewable energy programme been pursued post-2015, tariffs would likely have been lower. The evidence suggests a potential to unlock low-cost renewable energy exists, given an appropriate policy framework in South Africa that sets up a foundation for attracting finance. However, the lack of commitment to the REI4P creates significant investor uncertainty. Renewable energy increased from 0.14 to 4.7% in the total electricity mix between 1990 and 2020 while coal still accounted for 87.6% of electricity in 2020 (Hanto et al., 2022). While the REI4P programme was successful in procuring renewable energy in the period between 2011 and 2015, it was thereafter halted as the pressure mounted by coal-linked interests saw the programme coming to a halt from 2016 onwards, even though electricity blackouts worsened in this period (Tyler & Hochstetler, 2021). Coal-linked interests fought hard to protect their rents, both halting the RE4IP programme and pushing new coal build. The importance of the coal mining sector for power players including political elite in the economy is underscored in the linkages between coal and elites. Actors in coal mining hold positions in political parties and there are business deals between coal companies that are linked to elites and Eskom (Hanto et al., 2022). For instance, the ruling African National Congress (ANC) party’s investment arm Chancellor House bought a 25% stake in Hitachi Africa in 2005. Hitachi Africa was awarded a contract by Eskom to build boilers at Medupi power station, one of the two new coal-powered stations that were pushed in the post-apartheid period. It is reported that between 2008 and 2012, Hitachi Africa paid Chancellor House $10.5 million.3 There have also been allegations of preferential treatment of coal companies owned by the Gupta family which have close ties with key actors in the ANC, including ex-President Jacob Zuma (Kamanzi, 2021). Thus, interests tied to the coal sector in South Africa, including political elites, have a strong incentive to protect their rents 3

https://mg.co.za/article/2020-04-29-the-story-of-sas-biggest-power%E2%80%89plant-and-itslittle-town/.

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Fig. 2 REI4P Bid 1–5 Pricing Trends R/kWh. Source Nxumalo (2022)

linked to coal, which has served to weaken the promulgation of renewable energy in South Africa (Hanto et al., 2022). In addition, while groups pushing for coal build have been well-organized and entrenched in networks within the current structure of the economy, those representing a pro-mitigation stance have been dispersed and fragmented. In a country with an extremely high unemployment rate, the former have used growth and employment arguments to argue against renewable energy (Baker et al., 2015). The arguments have centred around the ownership of renewable energy firms and the jobs impact of transitioning from coal to renewables, given that coal is a significant employer in the economy. Even while the early experience with the REI4P demonstrated gains in that capital was raised, largely domestically, and renewable energy prices fell, black renewable energy firms did not emerge, and renewable energy firms were predominantly large foreign-owned companies (Baker et al., 2015; Cassim et al., 2023; Hanto et al., 2022). While there have been some important pro-mitigation voices among the relevant

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unions, many of the union sectors are carbon-intensive which means that they have an incentive to protect coal-linked jobs (Baker et al., 2015). In addition, pro-coal union leaders have played an important role in political institutions (Hanto et al., 2022). The REI4P has been criticized by National Union of Metalworkers of South Africa (NUMSA) and other organizations as “a mechanism to privatise energy provision in the interests of white monopoly capital”, among others (Kamanzi, 2021: 25). In 2018, NUMSA interdicted Eskom from concluding outstanding power purchase agreements, and it has expressed concern about job losses in the coal sector (Kamanzi, 2021). Another grouping that has an incentive to resist the uptake of private renewable energy has been municipalities. Municipal distributers of electricity garner significant revenue from on-selling electricity, and use their revenues to cross-subsidize other activities. They therefore have an incentive to limit small and medium-scale embedded generation within cities (Baker et al., 2015). The lack of support for the IPP programme further stems from how the programme was set up; the IPP unit which oversees the REI4P programme for the DOE was set up by the National Treasury’s Public–Private unit together with foreign technical consultants, thus functioning outside of formal departmental governmental structures (Baker, 2017). The discourse which has formed around renewable energy was one of job losses and anti-transformation (Hanto et al., 2022; Tyler & Hochstetler, 2021). It has pitted renewable energy against coal-based energy, focusing heavily on the jobs impact of moving away from coal power plants and mining to renewable energy. The narrow framing of the energy transition as coal versus renewables and the maintaining of Eskom as a monolithic integrated electricity supplier has been aligned with the interests of coal mining. In this framing, green jobs and the REI4P have been portrayed as resulting from foreign-led moves to undermine South Africa’s national interest. This discourse has been used by powerful groups, including coal miners and political elites to protect their interests in coal and resist the decarbonization of the energy sector in South Africa (Baker et al., 2015; Ting & Byrne, 2020; Tyler & Hochstetler, 2021). The stop-start implementation of the REI4P has led to investor uncertainty (GreenCape, 2020). In addition to lobbying for the halting of the renewable energy programme, coallinked interests also pushed for further coal capacity, which was given impetus by the loadshedding crisis. The National Development (NDP) 2030 projected that energy demand would double by 2030, lending support to new coal build, and ultimately leading to the development of Medupi (4.7 MW) and Kusile (4.8 MW) coal-fired power plants. Medupi is the first base-load station to be built in 20 years by Eskom4 and one of the largest coal-fired power stations outside of Asia (Tooze, 2023). Despite the strong coal mining interests that have stalled the promulgation of renewable energy in South Africa, a number of issues have been contributing to a turning tide. Firstly, South Africa has been undergoing a severe power supply crisis. From 2007 onwards, South Africa has experienced a series of electricity blackouts, and electricity has gone from a success story of the new South Africa to a significant 4

https://www.eskom.co.za/eskom-divisions/gx/coal-fired-power-stations/medupi-projects/.

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Fig. 3 Load shedding in South Africa. Source CSIR (2023)

hindrance to growth and development of the economy. Figure 3 shows that loadshedding5 has been on the increase from 2018 and increased dramatically between 2021 and 2022. While not shown in the figure, 2023 has seen the most severe loadshedding in the post-apartheid period. In light of the electricity supply crisis, political pressure on the government and Eskom under the new administration of President Ramaphosa served to reignite the renewable energy programme but tensions over the role of coal versus renewable energy have remained (Pedersen et al., 2021). Electricity prices have also been rising in South Africa. 2006 saw a change to Eskom’s pricing formula in order to align pricing more closely with the costs of generation through multi-year price determinations (MYPD) (Tooze, 2023). Electricity tariffs increased substantially in the 10 years between 2010 and 2020 as a result of a number of factors, including the coal mining sector facing pressure with cheaper coal resources being depleted and the end of long-term contracts between Eskom and tied coal mines, as well as other issues such as the move in coal exports from Europe towards Asian markets, and cost overruns linked to Eskom’s new build (Hanto et al., 2022; Baker et al., 2015; Tooze, 2023). The increasing electricity tariffs as well as the significant drop in prices in the renewable energy markets meant that price-sensitive industry groups started to change their view on renewable energy (Tyler & Hochstetler, 2021). Increasingly, the priority for business groups is reliable electricity at an affordable tariff, which implies support for more renewable energy in the mix since the cost of building new wind and solar has been cheaper than coal since 2015 (Baker et al., 2015; Hanto et al., 2022). The most energy-intensive users in South Africa have also increasingly started to transform how they view renewable energy (Tyler & Hochstetler, 2021). The EIUG 5

The higher the stage, the more severe the power cuts experienced in terms of power cuts per day.

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is composed of 27 of Eskom’s largest customers and consumes around 40% of the electricity produced by Eskom.6 It has shown support for an energy transition through public statements, including on its website which states that the energy future in South Africa should be lower carbon with a reduction in harmful emissions.7 The EIUG has supported the integration of wind and solar into South Africa’s energy mix in a 2021 consultation response to government and has supported the IRP’s provision for own-use renewable energy deployment and increase in the threshold limit for generation facilities by entities outside of Eskom.8 Energy-intensive users are also increasingly concerned about decarbonization through their value chains as a result of policies like carbon border taxes being promulgated in developed countries to mitigate against climate change. In November 2021, the EIUG wrote a letter of support to the then Eskom CEO, supporting decarbonization of the electricity sector and outlining reasons for why it supports decarbonization.9 The reasons outlined in the letter, while including operational disruptions related to climate change, focus heavily on the impact of global mitigation efforts. These include increased operational costs related to the possibility of global carbon border taxes, a decreased global environmental, social, and governance (ESG) performance, restricted access to capital markets, and increased costs of capital, as well as an impairment of local products in favor of products that are greener. The letter states that the: failure to decarbonise is already negatively impacting on the ability of our members to attract investments from investors who are becoming increasingly stringent about the sustainability and social impacts that their investment decisions support. With carbon pricing and carbon border adjustment mechanisms being considered or adopted globally, our products and the country are going to become less competitive in the global markets, without significant decarbonisation support. There is thus an urgent need to decarbonise our industrial energy systems and the power sector before South Africa’s competitiveness in the global markets completely wanes. It is thus critical that Eskom in turn decarbonises its electricity generation, not only to ensure its own survival, but the survival of its key commercial and baseload customers and the country at large.

It is clear then that the EIUG as a group (or that powerful members of the EIUG at least) are concerned about the carbon-intensity of production in light of global developments, including carbon taxes, decreased demand for carbon-intensive products, decreased access to funding, and increased costs of capital, among other things. The crisis in electricity generation, falling costs of renewable energy, and increased concern among the most energy-intensive users regarding global mitigation developments have spurred changes in regulation and legislation, slowly resulting in a more favorable environment for renewable energy. Initially, own generation by large energy-intensive users, bilateral contracts, and wheeling of electricity remained 6

https://eiug.org.za/. https://eiug.org.za/. 8 https://lobbymap.org/influencer/Energy-Intensive-Users-Group-of-South-Africa-51663c8ca800 738ef4dcd305a2682e93/projectlink/Energy-Intensive-Users-Group-of-South-Africa-in-ClimateChange-86b97c7f7b65a9e2b7cab8d79b3db403. 9 https://eiug.org.za/wp-content/uploads/2022/09/Eskom-Decarbonisation-Support-Letter.pdf. 7

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limited due to the regulatory system, thus limiting the ability of renewable energy to help ease the supply crisis (Baker et al., 2015; Renaud et al., 2020). The EUIG began to push for independent renewable energy producers to secure wheeling agreements with consumers (Baker et al., 2015) and, through consultations, advocated for an increase to the limit on generation from 1 to 100 MW.10 Among regulations that have been approved recently is the scrapping of licencing requirements for generation below 100 MW to wheel power across the grid and sell power to multiple customers. In addition, to ease the supply crisis, municipalities in good financial standing would be allowed to procure their own electricity (Cassim et al., 2023). SASOL is a significant emitter of anthropogenic emissions in South Africa, second only to Eskom. It has increasingly adopted a pro-decarbonization stance, citing mainly risks related to global developments. In its 2022 disclosure for the Carbon Disclosure Project (CDP), SASOL notes that risks related to decarbonization stem from SASOL potentially being subject to carbon tax in South Africa from 2026 as well as SASOL being subject to the Emissions Trading System (ETS) in Europe. Furthermore, they note that global mitigation efforts are of concern, since there is increased pressure on institutional investors to progressively divest from fossil fuel (coal-based) companies with a view to invest in more sustainable businesses using cleaner energy sources and there are stricter legal regulations necessitating reduction in environmental footprints. These could result in limited market access and the competitiveness of SASOL’s products, particularly in more mature environments such as Eurasia. In light of these, SASOL is investigating the viability of green hydrogen11 as a clean energy source and has undertaken steps by supporting pilot projects on hydrogen potential and forming strategic partnerships, laying the foundation for introducing green hydrogen at scale (CDP, 2022). In 2021, SASOL approved a significant increase in its commitment of the 2030 GHG emissions reduction target for SASOL’s energy business (from 10 to 30% by 2030) and introduced a 30% target for SASOL Chemicals, both on scopes 1 & 2 emissions (CDP, 2022). SASOL has been actively pursuing a decarbonization strategy, exploring the potential for green hydrogen to produce green fuels and chemicals for local and global demand. However, this will require renewable energy at scale (1.2 GW of renewable energy for SASOL’s existing CTL plant) and developing capabilities for production of green hydrogen. SASOL and the IDC concluded an MOU to jointly develop and shape South Africa’s green hydrogen economy in 2021 (SASOL, 2021), and in 2023, an R18 billion green hydrogen fund dedicated to financing green hydrogen projects in the country was announced, supported by the Dutch government, climate-focused blended finance investment firm Climate Fund Managers,

10

https://lobbymap.org/influencer/Energy-Intensive-Users-Group-of-South-Africa-51663c8ca 800738ef4dcd305a2682e93/projectlink/Energy-Intensive-Users-Group-of-South-Africa-in-Cli mate-Change-86b97c7f7b65a9e2b7cab8d79b3db403. 11 Green hydrogen is an energy carrier produced using renewable energy and water.

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Fig. 4 Power generation capacity registered with NERSA under licencing exemption conditions. Source Montmasson-Claire (2021): accessed at https://twitter.com/GaylorTIPS

SANLAM (a South African insurer/investment house) and South African development finance institutions the Development Bank of South Africa and IDC, among others.12 In the same vein, in 2022, AngloGold Ashanti (one of South Africa’s mining majors) announced a carbon reduction target of 30% of scope 1 and 2 emissions by 2030, using 2021 as the base, targeting renewable energy projects, fleet electrification and lower-emissions power. Anglo has partnered with EDF Renewables to develop 3−5 GW of clean power for its operations in Southern Africa.13 The increased appetite for renewable energy among private actors has seen power generation capacity in South Africa rise significantly in 2022 and 2023 (Fig. 4). This rise has been matched with a significant increase in the imports of solar panels, with over 5 GW imported since January 2022 (Fig. 5). Indications are that large companies are concerned about loadshedding and the price of electricity, and are also increasingly concerned about the global risks associated with carbon-intensive production in a world in which greening production is becoming the standard. Given that the pace of South Africa’s transition has been slow, they are undertaking transitions privately, leveraging their substantial economic power. Power players in the economy like SASOL and mining house Anglo have

12

https://www.idc.co.za/development-of-local-green-hydrogen-economy-taking-shape/. https://www.dailymaverick.co.za/article/2022-11-07-anglo-anglogold-and-sasol-strut-theirstuff-on-the-decarbonisation-catwalk/. 13

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Fig. 5 South African imports of solar panels from China. Source Montmasson-Clair, based on Chinese customs data compiled by Ember

been forging ahead with decarbonization efforts by concluding MOUs and partnerships with interested parties, including international governments and financing institutions.

3 Renewable Energy Policy and Promulgation in the Future There is a dependency on coal-based energy in South Africa due to the historical linkages between energy, finance, and energy-intensive industries like mining and minerals. Given the dominance of coal in the economy, there are powerful interests that have an incentive to protect coal-based rents, including Eskom, coal miners, political elites, trade unions and to a lesser extent the business sector. They do so by leveraging the jobs and economic impact of moving from coal-based energy towards renewables, given that the coal sector is a significant employer in the economy (particularly in the Mpumalanga province) and an important source of foreign currency reserves (Hanto et al., 2022). However, studies are increasingly showing that scaling up of renewable energy generation is the most cost-optimal option for energy generation in South Africa (Renaud et al., 2020), and there are associated benefits in terms of job creation and growth if the transition is viewed from the context of the structure of the economy. Thus, despite the discourse pitting coal against renewables, a green transition presents an opportunity for economic growth and greater sustainability in the South African context. Given the abundance of wind and solar resources in South Africa and the decreasing costs of renewable energy, there is an opportunity to alleviate the crisis in supply of electricity and decarbonize the economy through promulgation of more renewable energy in the electricity mix. But the scale of renewable energy required means that there is a need for a strong policy commitment, including funding

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support14 to set the basis for investment in renewable energy capacity (Renaud et al., 2020). Investments to the grid are also paramount—grid integration was a key factor in delays to the announcement of winning projects under bid round four of the REI4P and the financial close of projects in bid round three (Baker et al., 2015).15 The shortage of grid connections is thus a major challenge to the ramping up of renewable energy in South Africa. The concerns around jobs and whether the transition will be just are not unfounded. However, there are two things to note here. Firstly, there is an opportunity to build local supply chains in among others, solar, wind, and battery storage, though this will require purposeful and feasible industrial policies and identification of specific opportunities within these value chains (Kamanzi, 2021). The South African Renewable Energy Master Plan must ensure that appropriate industrial policy levers are put in place to stimulate industrialization around renewable energy and battery storage, including for instance incentives where required. An integrated industrialization and mitigation strategy is required by seeking synergies across industrial, energy, and climate policy, and managing tradeoffs.16 Secondly, the decarbonization of the electricity sector should be viewed in the context of broader industrialization of the South African economy. The framing of the energy transition in South Africa has focused on replacing coal with renewable energy and the resultant impact on job creation, that is, pitting of the loss of coal jobs against “green jobs” that would be created in moving to renewable energy. While the REI4P has thus far been largely unsuccessful in stimulating local manufacturing of renewable energy technologies, this framing does not however account for the role of a just transition in the context of the structure of the South African economy (Andreoni et al., 2023). A Just Transition should be concerned with broader economic development given stalled GDP growth for the past 10 years, significant unemployment in the economy, and a poor trade balance. The transition should stimulate growth in a number of sectors, rather than just replacing coal-based power stations with renewable energy (Cassim et al., 2023). South Africa’s economy is largely resource-based, and energy-intensive industries like chemicals and steel—which are inputs into a range of important employmentintensive sectors—dominate manufacturing (Andreoni et al, 2021). Transition and growth of heavy industries is critical for a number of reasons. Firstly, heavy manufacturing industries are facing mounting trade risks as trade partners implement their transition commitments, with the EU notably beginning to implement carbon border taxes in key industries like steel, aluminium, fertilizer and potentially chemicals in the future (PCC, 2023). This will impact the competitiveness of these industries

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Direct funding for renewable energy has been small compared to funding for more traditional sectors (Cassim et al., 2023). 15 See also https://www.timeslive.co.za/news/south-africa/2023-03-14-inadequate-gridhamperssouth-africas-power-generation-plans/. 16 https://theconversation.com/south-africa-can-reduce-emissions-and-create-jobs-A-tough-taskbut-doable-193870.

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in global markets and therefore the viability of these industries, making transition critical. Secondly, transition of heavy industries can lead to growth in the economy if managed for the benefit of employment-intensive sectors using heavy industries as inputs, thus creating employment and leading to industrial and socio-economic development. These downstream industries include machinery and equipment, plastics, fertilizer and explosives, transport, etc. In the context of significant unemployment in South Africa, the decarbonization and growth of heavy industries for the benefit of downstream industries is critical from the perspective of supporting a Just Transition through sustainable job creation and broader socio-economic development. It also links to regeneration of industries that have been in decline. For instance, the metals sector has been in structural decline in the last 10 years, with a 20% reduction in the number of jobs in basic iron and steel, fabricated and structural metal products and a 53% decline in nonferrous metals, with electricity prices and supply being one of the pressing challenges (NBI, 2023). Thirdly, the transition itself will be a driver of demand locally and globally for other industries using inputs from heavy industries (steel, cement, and aluminium) as a result of the overhaul of power systems and transport infrastructure as well as construction of social infrastructure like housing.17 The global demand for steel is expected to increase as a result of transition commitments in other countries creating an economic opportunity for South Africa, if it can transition to producing green steel. In the same vein, decarbonization of the petro-chemicals industries creates an opportunity for South Africa to produce green fuels and chemicals for both local and global markets (NBI, 2023).

4 Conclusion The structure of the economy and its energy-intensity make transition in South Africa a contested process, with powerful groups and networks linked to coal and Eskom seeking to protect coal-linked rents. On the other hand, there are legitimate concerns around the jobs impact of moving from coal-based energy to renewable energy, given the number of jobs that are tied to coal-linked industries as well as the transnational nature of businesses operating in the renewable energy industries. However, business, including the most intensive energy users are increasingly concerned about the cost of electricity, the reliability of electricity supply, and global mitigation policies which will impact on their businesses. With South Africa possessing excellent wind and solar resources and renewable energy costs becoming competitive, there is an increased appetite for renewable energy, particularly among powerful energy-intensive users in the economy. They have lobbied for regulations

17

For instance, local steel demand is driven by construction (54% of local demand), automotive manufacturing (8%) and machinery manufacturing (6%), among other sectors (NBI, 2023).

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for private generation, and are pursuing partnerships and undertaking pilot projects linked to green hydrogen and renewable energy, outside of government’s REI4P. Given the severity of loadshedding in South Africa, the rising cost of electricity and South Africa’s wind and solar resources, a transition to renewable energy can be leveraged for growth and job creation when viewed within the structure of the economy. This will however require large investments in renewable energy capacity, the grid, and storage capacity, as well as coordination between energy policy, industrial policy, finance, and energy regulation. Crucially, investments in the emissions reductions space must be linked to regeneration of diversified downstream industries for the transition to succeed in terms of its developmental objectives.

References African Climate Foundation and The London School of Economics and Political Science. (2023). Implications for African Countries of a Carbon Border Adjustment Mechanism in the EU. Altieri, K., Trollip, H., Caeteno, T., Hughes, A., Merven, B., & Winkler, H. (2015). Pathways to deep decarbanization in South Africa. Sustainable Development Solutions Network (SDSN) and Institute for Sustainable Development and International Relations (SDIR). Andreoni, A., Mondliwa, P., Roberts, S., & Tregenna, F. (2021). Structural transformation in South Africa: The challenges of inclusive industrial development in a middle-income country. Oxford University Press. Andreoni, A., Bell, J.F., & Roberts, S. (2023). Green hydrogen for sustainable (re)industrialisation in South Africa: Industrial policy for hard-to-abate industries and linkages development (CCRED Working Paper 2023/08). Baker, L., Burton, J., Trollip, H., & Godinho, C. (2015). The political economy of decarbonisation: exploring the dynamics of South Africa’s electricity sector. Research Report, Energy Research Centre, ERC, University of Cape Town, Cape Town. Baker, L. (2017). Post-apartheid electricity policy and the emergence of South Africa’s renewable energy sector (Version 1). University of Sussex. Bell, J.F., Goga, S., & Robb, N. (2022). Climate change policies and trade: Implications for industrial policy in South Africa (CCRED Working Paper Series 2022/5). Burton, J., Marquard, A., & McCall, B. (2019). Socio-economic considerations for a Paris Agreement-compatible coal transition in South Africa. Cargill, J. (2010). Trick or treat: rethinking black economic empowerment. Jacana Media Cassim, A., Taylor, J., Crompton, R., & Valodia, I. (2023). Renewable energy, the just transition and inequality: insights from South Africa’s renewables procurement (SCIS Working Paper Number 47). Climate Disclosure Project (CDP). (2022). Sasol limited—Climate change 2022. Eberhard, A., Kolker, J., & Leigland, J. (2014). South Africa’s Renewable Energy IPP Procurement Program: Success Factors and Lessons. PPIAF, South Africa. Erero, J. L. (2023). Impact of loadshedding in South Africa: A CGE analysis. Journal Economics and Political Economy, 10(2). Esser, S., & Champion, E. (2021). 2030 South Africa Roadmap. Multiplying the Transition: Marketbased solutions for catalyzing clean energy investment in emerging economies. Bloomberg NEF and Climate Investment Funds. Fine, B., & Rustomjee, Z. (1996). The Political Economy of South Africa: From minerals-energycomplex to industrialisation. C. Hurst & Co., Ltd.

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Goga, S., Mondliwa, P., & Roberts, S. (2020). Economic power and regulation: the political economy of metals, machinery and equipment industries in South Africa. In Francis, D., Valodia, I., & Webster, E. (eds.). Inequality studies from the global South. Routledge. GreenCape. (2020). Utility-scale renewable energy—2020 market intelligence report. GreenCape. Hanto, J., Schroth, A., Krawielicki, L., Oei, P.-Y., & Burton, J. (2022). South Africa’s energy transition – unraveling its political economy. Energy for Sustainable Development, 69, 164–178. Kamanzi, B. (2021). The Crisis in South Africa’s Energy Sector: Towards a Just Transition centring job creation and social ownership. Institute for Social Research Johannesburg. Khan, M. H. (2010). Political settlements and the governance of growth-enhancing institutions. Mondliwa, P., & Roberts, S. (2019). From a developmental to a regulatory state? Sasol and the conundrum of continued state support. International Review of of Applied Economics, 33(1), 11–29. Montmasson-Clair, G. (2021). One last chance to decarbonise of forgo the EU market. Business Day. https://www.businesslive.co.za/bd/opinion/2021-08-01-gaylor-montmassonclair-one-lastchance-to-decarbonise-or-forgo-the-eu-market/. McDonald, D. (2009). Electric capitalism: Conceptualising electricity and capital accumulation in (South) Africa. Electric capitalism: Recolonising Africa on the power grid, 8. National Business Initiative (NBI). (2023). Decarbonising South Africa’s petrochemicals and chemicals sector. just transition and climate pathways study for South Africa. Nxumalo, C. (2022). Renewable energy in South Africa. https://www.gtac.gov.za/wpcontent/upl oads/2022/08/Keynote_an-overview-of-the-renewable-energy-landscape-inSouth-Africa_Cha nda-Nxumalo.pdf. PCC (Presidential Climate Commission). (2023). Carbon border adjustment mechanisms and implications for South Africa. A Presidential Climate Commission Working Paper. Pedersen, R.H., Andersen, O.W., & Renkens, I. (2021). The political economy of energy transitions in Sub-Saharan Africa. Contributions to an Analytical Framework (No. 2021: 15). DIIS Working Paper 2021: 15. Renaud, C., Tyler, E., Roff, A., & Steyn, G. (2020). Accelerating renewable energy industrialisation in South Africa: What’s stopping us. Meridian Economics, Cape Town, South Africa. Sasol. (2021). Sasol and IDC formalise partnership to co-develop South Africa’s hydrogen economy. [Online] Available at https://www.sasol.com/media-centre/media-releases/sasol-and-idcformal ise-partnership-co-develop-south-africa-s-hydrogen. South African Reserve Bank (SARB). (2023). Financial stability review. First Edition 2023. Ting, M. B., & Byrne, R. (2020). Eskom and the rise of renewables: Regimeresistance, crisis and the strategy of incumbency in South Africa’s electricity system. Energy Research & Social Science, 60. Tooze, A. (2023). Carbon Notes 4 from feast to famine: Apartheid’s power bonanza and the genesis of South Africa’s electricity crisis. Available at https://adamtooze.substack.com/p/carbon-notes4-from-feast-to-famine. Trollip, H. (2020). The politics of energy transitions policy in South Africa. COP21: Results and implications for pathways and policies for low emissions European Societies. COP21 RIPPLES. Tyler, E., & Hochstetler, K. (2021). Institutionalising decarbonisation in South Africa: Navigating climate mitigation and socio-economic transformation. Environmental Politics, 30, 184–205. Yelland, C. (2020). South Africa’s Energy Policies: Are Changes Finally Coming? https://www.ifri. org/sites/default/files/atoms/files/yelland_south_africa_energy_policies_2020.pdf (accessed on 31 July 2023).

Sumayya Goga works at the Centre for Competition, Regulation and Economic Development (CCRED) at the University of Johannesburg. She previously worked at Pegasys and the Development Policy Research Unit (DPRU) at the University of Cape Town. She has a master’s in economics. Her research interests include industrial policy, sustainable development and development more generally.

An Analysis of the Implications of Imported Clean Cooking Technologies. Implications for Policy Development in Ghana Crispin Bobio, Dramani Bukari, Eric Zunuo Banye, Ishmael Ackah, and Sarah Anang

List of Abbreviations COPD GLSS SSA ICS CSIR CSOs

Chronic Obstructive Pulmonary Disease Ghana Living Standard Survey Sub-Saharan Africa Improved Cookstoves Council for Scientific and Industrial Research Civil Society Organizations

C. Bobio (B) Public Utilities Regulatory Commission, Accra, Ghana e-mail: [email protected] D. Bukari Kwame Nkrumah University of Science and Technology, Kumasi, Ghana E. Z. Banye United Nations Industrial Development Organization, Accra, Ghana I. Ackah Accra, Ghana S. Anang University of Kent, Kent, UK © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_23

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1 Introduction Cooking has been around for more than 2.3 million years, according to Organ et al. (2011). It thus plays a vital function because it is linked to human survival and development. The art of cooking often necessitates the use of energy and as a result, Bansal et al. (2013) posit that the culinary industry is one of the most energyintensive in developing countries. Cooking is a monumental undertaking in rural settings, particularly in impoverished countries. In North-East India, for example, it is believed that cooking is the most energy-intensive out of all the different categories of energy use (Bhatt & Sachan, 2004). Albeit the substantial efforts over the years to improve cooking technologies globally, Wiedinmyer et al. (2017) assert that a larger proportion of the population continues to rely on biomass and conventional cooking methods. Traditional methods of cooking are not only inefficient, but they also pollute the environment and are harmful to the health of the users. Pollution from the use of inefficient cookstoves remains a major cause of respiratory issues as well as other ailments including lung cancer, ischaemic heart disease, chronic obstructive pulmonary disease (COPD), etc. Indeed, pollution from traditional three-stone stove fuel is thought to be the world’s most serious energy-related health threat (Singh, 2014). The energy ladder theory states that as affluence rises, households and food-related sectors will shift away from inefficient traditional fuels and cooking stoves toward more efficient ones. Consumers are more likely to switch to better, more efficient, and less polluting stoves as their income status and urbanization improve. The energy ladder hypothesis, according to Heltberg (2004), proposes three stages of consumer fuel switching behavior; the first stage is marked by excessive reliance on biomass. Consumers then switch to charcoal and kerosene in the second stage, following an increase in their level of income, status, and urbanization. Lastly, as the household earnings or disposable income continues to increase, coupled with availability, users switch to LPG and electricity in the last stage (Barnes & Floor, 1999). These assume that there is a direct link between rising income and the adoption of cleaner fuels. In Ghana, however, the rate of convergence between rising wealth and the use of improved cookstoves has been modest. In 2000, when the country’s per capita GDP was US$ 141, and it was still a developing economy, only 6% of the population had access to improved cookstoves. In 2020, it was estimated that 22% of the population belonging to the lower middle-income country category with a GDP per capita of US$ 12,614 had access to clean cooking fuel technology. These figures indicate that, whereas GDP per capita has expanded by 8,846%, access to improved cookstoves has increased by only 14%, with an annual growth rate of 1.3%. Indeed, three in ten Ghanaians have access to clean cooking stoves like LPG, Gyapa, improved charcoal burners, and electric stoves. In 2020, it was estimated that in rural Ghana, only 1 out of 10 people have access to clean stoves according to the Ghana Living Standard Survey (World Bank, 2021). Households in rural areas which own stoves increased from 1.1% in 2000 to 8.6% in 2020 (World Bank, 2021). The seventh round of the Ghana Living Standard Survey (GLSS 7), indicated that, about 46.48%, 28.16%, 18.37%,

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and 0.21% of Ghanaian households still use wood, charcoal, gas, and electricity, respectively, as their choice of energy for cooking.1 This suggests that 74.6% of households in Ghana still depend on traditional biomass as the main fuel for cooking (Bofah et al., 2022). The low access rate of clean cookstoves over the years has exhibited serious ramifications in various forms especially health. According to the WHO, a total of 16,600 Ghanaians are predicted to die each year as a result of improper cooking methods and cookstoves. Inefficient cooking methods have also led to deforestation, in addition to health and discomfort. It’s hardly unexpected that Ghana had 8.2 million hectares of forest in 1900, but that has dropped to 1.2 million by 2008 due to charcoal production, urbanization, and inefficient farming. According to the Ghana Forestry Commission’s estimates, deforestation occurs at a rate of 2% each year (Forestry Commission, 2015). Furthermore, these low figures reflect poorly on the country’s international energy reputation. Ghana is a signatory to a number of international treaties and obligations, including the Sustainable Energy for All Protocol. For example, the ECOWAS White Paper for Regional Policy on Access to Energy Services, which was adopted in 2006, calls for universal access to modern cooking facilities by 2015, among other things (Ahiataku-Togobo, 2013). Despite this promise, the World Bank estimates that over 22 million Ghanaians lack access to clean cooking fuels in 2016. With the global conversation on energy transition toward more cleaner energy use, governments in the past and present have taken initiatives to promote access. For example, the LPG promotion effort began in 1990 with two basic goals. The first step was to stop LPG flaring at the Tema Oil Refinery. The policy’s second goal was to ensure that households used clean cooking fuel. The findings of the 1988 living standard survey, which showed that just 4.8% of Accra residents use LPG, 0.8% in other metropolitan areas, and 0% in rural Ghana, were one of the key motivations of the program. Furthermore, when the Rural LPG Promotion Programme was initiated in November 2013 at Garu-Tempane in the Upper East Region, 1,500 pieces of 6kg cylinders and cookstoves were provided on a trial basis. The program began officially in 2014 with the delivery of cylinders and cookstoves in the districts of Tano South, Ajumako-Enyan-Essiam, Tolon, and Central Gonja. A number of national policies on energy, the environment, gender, and health, such as the Forest and Wildlife Policy of 2012, the National Energy Policy of 2010, the REDD 2 Strategy, and the National Gender Policy, have all made provisions for efficient wood harvesting, charcoal use, and the adoption of efficient cooking systems. Apart from being poorly coordinated, these policies place an excessive emphasis on the policy-consumer interaction, with insufficient attention paid to the better cookstove maker. In an attempt to fill both policy and research gaps, the study. a. Collected data on all commercially available household biomass improved cookstoves in Ghana. b. Assessed the effects of importing improved cookstoves into the country. 1

https://www.statsghana.gov.gh/gssmain/fileUpload/pressrelease/GLSS7%20MAIN%20R EPORT_FINAL.pdf.

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2 Literature Review Adoption of off-grid or decentralized renewable energy technologies (RTech) such as solar photovoltaics, biogas digesters, and improved cookstoves (ICS) is considered as a way to alleviate poverty, particularly in rural communities in Sub-Saharan Africa (SSA) (Baurzhan & Jenkins, 2016; Chirambo, 2016). RTech provides renewable energy that can help with revenue production, indoor air pollution reduction, and deforestation reduction. Nonetheless, in SSA, access to clean energy, particularly for cooking, remains a critical concern. SSA is home to 30 of the 47 least developed countries, and 657 million people rely on biomass (firewood, agricultural waste, and cow dung) to provide their basic energy needs for cooking (Piroschka, 2014; United Nations, 2017). Biomass burning is inefficient thermally and creates smoke, which causes respiratory ailments such as TB, bronchitis, and pneumonia (Piroschka, 2014; Pope et al., 2010). Overreliance on biomass, particularly firewood and charcoal, leads to deforestation, which is a major contributor to climate change (Kumar et al., 2015; Sesan, 2012). While RTech is one of the answers to severe poverty and the negative health and environmental consequences of utilizing biomass for cooking, its adoption in SSA has been gradual. For the provision of clean energy services and poverty alleviation, it is critical to understand the variables impacting the sluggish acceptance and subsequent dissemination of RTech at the household or community level.

2.1 The History of Improved Cookstoves in Ghana The Cookstove Sector in Ghana started in the 1990s, with the focus on promoting improved charcoal stoves and cleaner fuels such as the ‘Ahibenso coalpot’ program by the Ministry of Energy (MoEn) through the Institute of Industrial Research (IIR) of the Council for Scientific and Industrial Research (CSIR). This program saw the distribution of over 12,000 pre-financed coal pots (MoEn, 2015). Within the same period, the LPG promotion program was also started with the introduction of subsidies on domestic LPG consumption by the Government of Ghana and free distribution of LPG cookstoves and cylinders to rural areas under the Rural LPG program (MoEn, 2015). Further, in 2002, a major improved cookstove program was launched to train local manufacturers in producing the ‘Gyapa cookstove’ which is currently the most commonly and widely used ICS in Ghana (GACC, 2011). In addition, development partners including the World Bank, SNV, NGOs, as well as the private sector have been running various ICS programmes in Ghana that seek to promote the adoption of ICS by both domestic and institutions to replace the traditional stoves such as charcoal stove, popularly known as coal pot and the three-stone fire/mud stoves.

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2.2 Access to Improved Cookstoves in Ghana Ghana’s cookstove business is currently promising, since the country has numerous upgraded cookstove manufacturers and a diverse range of fuels for cookstoves. Wood, charcoal, LPG, electricity, biogas, biomass, and solar energy are examples of fuel resources (Ahiekpor et al., 2015). Nonetheless, Ghana falls behind the rest of the globe in terms of availability of upgraded cookstoves. Figure 1 illustrates that while the country’s access to improved cookstoves climbed from 6.48% in 2000 to 22.6% in 2019, the global average access rate increased from 49.4% in 2000 to 66.18% in 2019. In rural areas, according to the Ghana Living Standard 6 (GLSS 6), the percentage of families with stoves climbed marginally from 7% in 1998 to 10% in 2013. This implies that most households continue to cook using biomass burners. The varieties of biomass cookstoves used by households are depicted in Fig. 2. The classic coal pot/three-stone fire still reigns supreme, with 62.5% of families using it. According to the GLSS 7, around 12.2% of households use improved mud stoves with/without chimneys, 11.9% use improved charcoal stoves, and 0.6% use improved firewood stoves. At the same time, the report shows that 34.1% of households use charcoal, 33.3% use wood, and 24.5% use gas as a source of energy. According to these figures, efforts should be focused on efficient stoves to ensure efficient fuel utilization through the use of ICS. In Ghana, there are a variety of cooking options for households. On a nationwide basis, 49.1% of households cook outside, 17.9% have separate houses, 17.9% have verandas/roofed platforms with at least two open sides, 13.7% do not have a sleeping area, and 1.2% do have a sleeping area (GLSS 7-Ghana Statistical Service, 2019). Furthermore, with 48.5% and 49.8%, respectively, outdoor cooking is almost as significant for rural as it is for urban households. Cooking on a veranda is also more common in urban than rural families at 26.2%, while cooking in a separate

Fig. 1 Access to ICS. Source Author’s computation based on data from World Bank Development Indicators (2018)

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Fig. 2 Sources of fuel for cooking in Ghana. Sources GLSS 7-Ghana Statistical Service (2019)

dwelling and indwelling not sleeping quarters are more common in rural than urban households at 23.6% and 15.6%, respectively (GLSS 7-GSS, 2019).

2.3 The Value Chain of Improved Cookstoves in Ghana The ICS sector in Ghana has evolved. There are various actors/stakeholders involved in the ICS value chain in the country (Ahiekpor et al., 2015). These are consumers/ end-users, manufacturers, financial institutions and international donor agencies, distributors, importers and retailers, raw material suppliers, and research institutions (Ahiekpor et al., 2015). The value chain for ICS is illustrated in Fig. 3. In the value chain, there are local manufacturers who produce locally made ICS for domestic and institutional purposes in Ghana. They produce improved charcoal stoves, firewood stoves, LPG stoves, etc. There are also raw material suppliers who supply raw materials like clay, clay liners, scrap metal, iron rods, cement, etc., directly used for the local manufacturing of ICS. Distributors, importers, and retailers distribute local brands of ICS, imported foreign brands of ICS, and engage in major retail trade of both foreign and local brands. Financial (such as banks, savings and loans, and credit unions), national, and international donor agencies provide financial and other forms of support to manufacturers, distributors, importers, consumers, etc. In addition, along the value chain are research and training institutions which conduct research into ICS and provide technical training on clean cookstoves and fuels. These also include testing centers for ICS. Finally, domestic and institutional users of ICS are classified as consumers, in other words, end-users.

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Fig. 3 The value chain of ICS in Ghana. Source Adopted from Ahiekpor et al. (2015)

2.4 Determinants of Consumer Choice for ICS Consumers in Ghana are familiar with a wide assortment of cookstoves with various fuel requirements (wood, charcoal, LPG, and electricity). Consumers’ choices of new cookstoves are influenced by a number of factors, according to Ahiekpor et al. (2015). They discovered that, despite the fact that ’Gyapa’ is superior, many consumers are still hesitant to use it due to concerns regarding the durability of the clay liner and the value of their investment. Some customers avoid LPG and electric stoves because

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of safety concerns and fuel shortages. The 4-burner stove with oven is particularly appealing to those who still want to use LPG because of its versatility and grandeur (GACC, 2014). As a result, proper stove design is a critical aspect in consumer adoption of better and cleaner cooking solutions. Stove design and performance have a direct impact on consumers’ willingness to pay and adopt, and are key predictors of long-term stove use (World Bank, 2014). Several design elements of ICS are particularly crucial for uptake, according to the rich literature on Ghana’s cookstoves (Table 1). Moreover, both urban and rural consumers in Ghana target a combination of stoves with different kinds of fuel and need to give them a mix of fuel options for their convenience (Ahiekpor et al., 2015). For instance, consumers using LPG stoves will have to resort to charcoal stoves when there is shortage of LPG supply or when they want to prepare specific recipes such as ‘banku’ (Ahiekpor et al., 2015). On the other hand, consumers using charcoal stoves may also have LPG stoves. Further, wood stove users who cook in the open may prefer charcoal stoves when it’s raining. As a result, a cookstove’s basic needs must be appealing to the end-user in terms of utility, cultural appropriateness, aesthetics, and perceived improvement over a traditional stove (Rehfuess et al., 2014; Simon et al., 2012). This usually necessitates customizing the improved stove design for various target groups and requirements (Simon et al., 2012). Investing in market research up front and designing the stove with a user-centered approach will assist in ensuring the development of a finished Table 1 Determinants of consumer choice of ICS Fuel savings Time savings Smoke reduction Fit with cooking preferences and convenience

Durability Safety and Stability Aesthetic appeal and aspirational Long-term health, public good benefits, others Source GACC (2014) and World Bank (2014)

• Fit with pot size • Cooking time for key dishes • Ease of and time for fuel preparation • Ease of lighting and fuel reloading • Heat intensity and control • Ability to access/stir food • Ease of handling • Stove size and height • Portability/chimneys • Stove cleanliness/ash disposal • Specific adaptations for local dishes • Fit with multi-pot cooking behavior

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product that customers will want to buy and use (Lambe & Atteridge, 2012). Households are more likely to embrace a stove if it offers real benefits, such as lower fuel expenditures (Brinkmann, 2014). Furthermore, because many users live in remote areas where a stove’s failure would simply result in it being dumped, a stove must be durable in order to be adopted. According to Ahiekpor et al. (2015), when it comes to purchasing new cookstoves, consumers prioritize material quality. Brinkmann (2014) also discovered that aftersales service, such as repairs, warranties, and follow-up, influences consumer choice of cookstove (Table 2). Table 2 Barriers and drivers of ICS Drivers

Barriers

Improved stove design: Technical performance, quality and appearance

• New ICSs do not meet the consumer’s design expectations for key stove features, such as time savings, or fit with cooking preferences or safety • Stove appearance is not tailored to consumer concerns and aspirations (e.g., simple and rugged for rural older consumers, modern and aspirational for urban young)

Awareness of new cooking solutions and their benefits

• Very limited consumer awareness of new clean and high-end ICS and alternative fuel technologies; knowledge of basic ICS is also low for many rural poor • Little knowledge and, where known, little appreciation of long-term health benefits of clean cooking due to present bias

Confidence in new stove technologies and • Limited confidence in promised stove performance trust in stove/fuel suppliers (e.g., advertised fuel savings) and durability, due to prior experiences with inferior products • Low trust in existing sales channels and little faith in reliability of aftersales support Accessibility to improved stoves and fuels • Reach of improved and clean cooking solution distribution is growing but is still highly limited across the country, particularly for rural areas • Constraints on clean fuel supply (i.e., lack of distribution infrastructure for LPG) reduce consumer interest in clean cooking solutions Affordability of stove and fuel

• High costs in absolute terms—upfront costs of the higher performing stoves and ongoing costs of clean fuels place solutions in out of reach rural areas • Significant consumer liquidity constraints especially for rural households

Source Ahiekpor et al. (2015), GACC (2014), World Bank (2014)

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3 Methodology This is a cross-sectional study that gathered data from commercially available household biomass improved cookstoves in Ghana in order to assess the strengths and weaknesses of foreign and locally manufactured improved stoves and assess the effects of improved cookstove importation into the country. The study’s target audience was Ghana’s ICS makers, distributors, and consumers. The research was based on survey data collected in eleven Ghanaian areas. Manufacturers, distributors, retailers, and customers were all surveyed. The study used snowball and purposive sampling approaches to find producers and distributors, as well as GHACCO, the Ministry of Energy, the National Petroleum Authority, and the Energy Commission, among others. Data was gathered through the use of questionnaires. Each goal was approached in a unique way. A total of 196 distribution shops and 35 ICS producers were surveyed. Tables, bar graphs, and pie charts were used to illustrate the findings of the survey. Percentages are calculated by multiplying the number of occurrences by the number of respondents who responded to a specific question (valid responses). The software packages SPSS version 21 and Microsoft Excel version 2013 were used for data entry and analysis. The methods for each target are discussed in the sections below.

3.1 Reviewing Existing Literature and Synthesize the Varying Cookstove Models in Ghana For this objective, an up-to-date survey of the ICS literature on Ghana was conducted in section two of this paper. It involved a desk analysis of the varying models of cookstoves in Ghana, the determinants of consumer choice of cooking appliances, the barriers, the drivers, and the dynamics between imported clean cooking technologies and Ghana made ones, relying on tables, literature review, and literature gap analysis.

3.2 Collecting Data on All Commercially Available Household Biomass Improved Cookstoves in Ghana In general, this study took a case study method, concentrating on cookstove producers, distributors, retailers, users, and other stakeholders across the country. A case study technique, according to Denscombe (2003), often seeks to offer a complete description of a specific phenomenon by examining the connections and processes that constitute the case or problem. Data was collected from ICS manufacturers and distributors across the ten regions using questionnaires. Snowball and purposive sampling approaches were used to pick 35 manufacturers and 196 wholesalers. The data is then displayed in tables and graphs, as well as in the analysis.

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3.3 Assessing the Effects of Importing Improved Cookstoves into the Country Based on the data that was collected, a Multiple Linear Regression was used to estimate the effect of the importation of ICS on local manufacturers. The study applied a modified version of a method applied by D’Souza (1999). Specified as; Yi = βi + βi X i + μi where Y i represents the sales of local manufacturers, X i is a set of explanatory variables including imports (measured in sales of imported improved stoves in cedis), taxes on local manufacturers, cost of production (raw materials, labor, and other resources), number of distribution channels, a set of dummy variables among others. Also, β is a vector of estimated parameter coefficients. Error term is represented by μi. The results are presented in tables and interpreted to be compared with findings of previous studies and to serve as a basis for policy recommendations. Specifically, the following questions would be asked; i. ii. iii. iv.

What size of the market are imported stoves serving? What type of market or income group has been targeted? What is the effect of stove pricing generally? Effects on stove technology modification by local manufacturers.

3.3.1

Definition of Variables of Analysis

Sales of Local Manufacturers This variable is a measure of the volumes of sales made by local manufacturers either by monthly or per year sales. Respondents were asked a direct question to indicate how many of their manufactured ICS they sold on an average per year for the last three years. The responses of retailers on the volumes of locally manufactured ICS were also used to streamline the figures given by local manufacturers.

Volume of Sales of Imported ICS This variable was used to explain how the importation of ICS could affect the operations or sales of local manufacturers. Alternative goods play an important role in the economics of a business operation. In this case, imported stoves tend to be a substitute for the locally manufactured products and hence the volume that is being sold in the Ghanaian market would greatly impact the operations of the local manufacturer and is very relevant in the regression analysis of this study. This variable was estimated using data from GHACCO and the field.

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Taxes or Subsidies on Locally/Imported ICS Another important factor influencing the sales of local manufacturers is the taxes on their goods. Taxes have the effect of influencing the end prices of the goods they produce which affects demand by end-users. From the responses obtained from the survey, respondents could not indicate the amount of taxes they pay on locally manufactured products. It was further established that there are no existing tax subsidies for locally manufactured ICS nor the imported ICS. The study, however, obtained data on average taxes paid on imported ICS from major importers like Envirofit, which was also used as one of the independent variables for the regression analysis.

Cost of Production The study considered the unit cost of producing a stove by local manufacturers and one of the explanatory variables influencing the sales and operations of local manufacturers in the country. Respondents were asked to indicate how much it cost them to produce a single ICS for sale and this variable was used to explain how it influences the total sales of local manufacturers. Factors considered in determining the cost of production included; cost of raw materials, operational cost, distribution cost (as some manufacturers made deliveries to their retailers), etc.

Amount Invested and Production Capacity The capacity to produce to meet the increasing demand is another factor to consider when analyzing the effect of imported ICS on operations of local manufacturers. The study therefore considered how much a local manufacturer has invested and the volume they could produce given the opportunity. This information was obtained from the local manufacturers to help in the regression analysis of the study.

3.3.2

Multiple Linear Regression

Using the variables explained above, the study built the model; Sales of local manufacturers = f (cost of production, production capacity, taxes, investments, etc.) Specifically, Yt = β0 + β1 C P t + β2 PC t + β3 Tt + β4 It + β5 S I t + β6 V S t + εt whereas Y is the dependent variable, sales of local manufacturers, CP = Cost of production CP = Production capacity

(1)

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T = Taxes I = Investment amount SI = Sales of imported VS = Volume of sales ε = error term, the residual variable in the model is assumed to be distributed independently with mean 0 and constant variance B1 , … Bt = coefficients of the model.

4 Results of the Analysis 4.1 Assessment of the Effects of Importing ICS into the Country Governments, development partners, and civil society organizations (CSOs) have all advocated for the adoption and usage of ICS in the country over the years. The Clean Cooking Alliance, Ghana Alliance for Clean Cookstoves, Energy Commission, and others have been relentless in their campaigns and policy decisions, resulting in a boom in demand for the goods. To match the demand and taste for new technologies, the importation of ICS from other regions of the world has become necessary. The importation of ICS may have benefited the country, affecting the economy as a whole and, in particular, local Ghanaian producers and consumers. The purpose of this study is to determine the many ways in which the importation of ICS has influenced the activities of merchants and producers, as well as the Ghanaian economy as a whole. The impact on employment, technological transfer, revenue generation, and other factors are investigated in the study.

4.2 Manufacturers’ Assessment of the Impact of Imported ICS The survey asked manufacturers to evaluate the impact of imported ICS on the local ICS manufacturing industry. In answer, 54.3% claim that imported cookstoves have no detrimental impact on their operations. 45.7%, on the other hand, disagreed (Fig. 4). The 45.7% of manufacturers who believed imported ICS affected them listed the following as the negative effect of imported ICS. • Customers prefer foreign ICSs to local ones. • Customers think foreign ICSs are more improved than locally made ones.

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Fig. 4 Do imported ICS negatively affect local ICS manufacturing. Source Survey data

• • • •

Foreign ICSs bring about competition. Foreign ICSs have made locally produced ones less popular. Foreign ICSs have reduced the sales of the Ghana made stove. Foreign ICSs have reduced employment.

4.3 Regression Analysis The results of the regression analysis of the effect of importing ICS on the economy and the operations of local manufacturers in the country are presented in the table below. Volume of sales made by local manufacturers was used as the dependent variable, which outcome is largely influenced by a number of factors set as independent variables including sales of imported ICS, taxes on imported ICS, cost of production, and amount invested by local manufacturers. The results of the regression analysis utilizing data provided by respondents during the survey are shown in the table. The coefficient displays the least squares estimates for B1 , B2 , B3 , and so forth. While maintaining other predictors in the model constant, the regression coefficient represents the mean change in the response variable for one unit of change in the predictor variable. The coefficient denotes that for every additional unit of change in the input variable, a matching change in the output variable is expected (sale of local manufacturers). The T-statistic is the ratio of a parameter’s estimated value to its standard error when compared to its hypothesized value. The term ‘standard error’ refers to an estimate of the coefficient’s standard deviation, or how much it changes among situations. It can be regarded as an accuracy metric for calculating the regression coefficient. The 95% confidence interval for B1 , B2 , B3 , B4 , and so on is defined by the values in the columns Lower 95% and Upper 95%. Given the findings, the

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study’s regression line can now be stated as follows: Y = − 227.3 + (−5.35) X1 + (−4.23) X2 + (4.61) X3 + (−2060) X4 + (2.073) X5 + (−0.43) X6 From the regression equation shown above, Y-intercept is the value of Y (the dependent variable) when all values of the independent variables are zero. The slopes for other variables are the expected increase in Y, sales of local manufacturers corresponding to a one-point increase in the value of X, either cost of production, sales volume of imported ICS, etc., when other independent variables do not change. Multiple R as shown in the results displayed refers to the correlation coefficient and its values often range between −1 ≤ r ≤ + 1, where −1 means a perfect negative relationship and +1 means a perfect positive relationship. The R-square value is the coefficient of determination. It tells the percentage of variation in Y that is explained by the X variables. Hypothesis Test of Significance for Parameters This section considers the individual significance of the slope of the variables used in the regression model. The test is to determine if any of the slopes is equal to zero which would mean there exists no relationship. The specific hypothesis is. H0 : B1 = 0 H1 : B1 /= 0 The rejection rule used was to reject H0 if P-value < α. Where α is the critical value = 0.05. The result of the regression analysis reported in Table 3 shows that except for the variables: production capacity and amount invested by manufacturers, the rest of the independent variables do not have any significant relationship with the dependent variable, sales of local manufacturers. The P-values of production capacity of local manufacturers and the amount local manufacturers invested in the business were 0.0065 and 0.00073, respectively, which are less than the 0.05 critical value hence a rejection of null hypothesis. However, the P-values of the other variables; cost of production, sales volume of imported stoves, and taxes on imported stoves were reported to be insignificant since their respective values were more than the 0.05 critical failure and the study failed to reject the null hypothesis. It therefore suggests that the study did not find any relationship between the importation of ICS on the operations or sales of local manufacturers.

4.4 Further Analysis of the Impact of Imported ICS Here the views of stakeholders including GHACCO and importers are assessed for a holistic understanding of the impact of ICS importation into Ghana.

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Table 3 Results of multiple regression analysis Coefficients

Standard error

t Stat

P-value

Lower 95.0%

Upper 95.0%

Cost of production

−5.36

9.14

−0.59

0.56

−24.08

13.37

Production capacity

−4.23

1.44

−2.94

0.01

−7.19

−1.28

Investment amount

4.61

1.21

3.79

0.00

2.12

7.11

−2060.86

2589.50

−0.80

−7365.23

3243.50

Sales of imported

2.07

2.23

0.93

0.36

−2.50

6.65

Volume imported

−0.43

1.57

−0.27

0.79

−3.65

2.79

Tax amount

0.4328

Multiple R 0.6712; R-Square 0.4505; Adjusted R-Square 0.3328; Standard Error 17,526.86; Observations 35

The Impact on Employment On employment, it was established that the industry employs a lot of people estimated at 25,000 along the chain of activities. According to GHACCO, this figure could be doubled in the next two to three years if there is a lot of investment and much faster technology penetration than the current rate. In their estimation, the sector could create about 50,000 job opportunities both direct and indirect for Ghanaians, if necessary, policy intervention and investments are made. Importation of ICS will speed up technology transfer to realize the estimated 50,000 jobs. The Market Share of Imported Cookstoves Questionnaires were administered at Ghana Alliance for Clean Cook Stoves, Envirofit and other Cookstove importers and industry players to determine the market size of imported ICS. The analysis revealed that imported ICS control 40% of the ICS market whereas locally manufactured products control 60%. This is corroborated by an earlier finding in which 74% of the customers in the survey responded that they use locally manufactured ICS at their homes or workplaces. That notwithstanding, a 40% market share is significant in meeting the demand of Ghanaians. Target Market Analyses of the responses from key industry players who are largely involved in the importation of the ICS suggest that there is no deliberate policy to target a particular income group. However, as a result of their coverage areas and pricing system, some groups of people are cut off. For instance, Envirofit, a major importer of ICS indicated they cover only four regions including Greater Accra, Ashanti, and Northern and Upper East Regions of the country. In terms of pricing, the imported ICS are generally priced higher, averaging between 100 Ghana cedis to 250 Ghana cedis, pricing out

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low-income earners and targeting the middle to high income earning class. According to the GLSS6, the average household expenditure in urban localities (GH¢11,061) is about 1.5 times that of the rural localities (GH¢7,152), the expenditure gap between urban and rural households suggests that more urban households would be able to afford imported ICS than the rural households. Thus, rural areas are cut off from the reach of imported ICS. This is unlike the local manufacturers for whom rural and urban markets are important. Very few (5.75%) of the local manufacturers sell their product exclusively to urban dwellers, majority (85.71%) sell to every segment of the market (urban, peri-urban, and rural dwellers). No local manufacturer sells exclusively to rural or peri-urban dwellers. The Effect on Stove Pricing Generally Pricing as earlier discussed has numerous consequences on the rate of adoption of ICS in the country. The effect of stove prices transcends to reflect the quality and efficiency level of the product. According to GHACCO the cost involved in producing quality and efficient cookstoves is very high. Local manufacturers of ICS are not able to afford it. Thus, locally manufactured cookstoves mostly do not meet the quality and efficiency level of their imported counter-part due to the cost involved in producing such quality products. The high cost of imported ICS reflects the high cost of producing quality and efficient products. Should local manufacturers invest heavily in quality and efficient products, prices of locally manufactured Cookstoves may also rise. Contribution to Government Tax Revenue In a similar vein, it was established that government taxes on both locally manufactured and imported ICS influence the pricing of the ICS. The findings of the study suggest that ICS importers are taxed between 20 and 30 Ghana cedis per stove imported into the country. Data from importers indicated they import about 35,000 ICS per year, which means an average of 700,000 million Ghana cedis accrue to the economy in the form of taxes on imported cookstoves alone. Though living standards in Ghana have improved with poverty levels reducing by more than half (from 56.5% in 1992 to 24.2% in 2013) and extreme poverty declining further to 8.4% following high social investment to achieve MDG Goal 1, inequality is however on the rise and poverty levels remain prevalent in many parts of the country especially the rural areas and the north due to failure to achieve productive and full employment (MDG Goal 1B) (Living Income Report 2018; Cook et al., 2016). In effect, higher ICS prices are a threat to ICS campaigns for universal adoption and could cut off or deny a section of the population from being able to purchase the stoves due to their low-income level and inability to afford them at higher prices. This is a key reason the majority of end-users indicated they opted for locally manufactured ICS despite the high efficiency and more durable imported ICS.

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Effects on Stove Technology Modification by Local Manufacturers (Technology Transfer) Regardless of the size, mobility, or shape, the binding factor of all improved cookstoves is that the technology used should ensure reduced fuel use and clean combustion. Cleaner combustion reduces CO2 and PM emissions, while lower fuel consumption reduces costs of money spent or time spent on collecting firewood and restrains deforestation. By comparison, it was established that the imported ICS had better technology design than the locally manufactured ones. It is then imperative for local manufacturers to adopt the appropriate technologies that would make their products more efficient for use. There are some improvements in the technology used by local manufacturers though. According to GHACCO, the improvement by the local manufacturers can be attributable to the transfer of technology as a result of the imported ICS. They reckon efforts are being made by local manufacturers to be globally competitive hence some have re-designed their ICS to incorporate new technology such as reverse engineering. GHACCO further revealed in the survey that local manufacturers have enhanced the thermal efficiency of their ICS and also improved upon the safety measures of their products. Respondents indicated that there is a fast rate of technology penetration and innovative designs in the manufacturing of local ICS but financial and other resource constraints do not allow them to be rolled out.

5 Conclusion and Policy Implications Following the findings as stated above, the study notes that technologies on ICS have advanced in developed countries whereas the technology transfer reaches Ghana largely through the distribution chain hence making the technology transfer slow. There is therefore the need for Government and development partners to take pragmatic steps to train local manufacturers in industrial centers abroad. A year spent in an ICS manufacturing firm abroad can accelerate technology transfer and grow the local industry faster than what it is now. In addition, Technical and Vocational institutions should be encouraged and supported to set up ICS technology incubation centers. Manufacturers highlighted access to finance as a top issue, according to the data. This has an impact on their ability to produce at full capacity. Manufacturers have a hard time portraying their businesses as lucrative. For example, the survey indicated that some producers took out loans but were unable to repay them due to a lack of sufficient product sales. This is not a favorable sign for attracting financial institution loan facilities. As a result, the industry requires assistance from stakeholders in order to become bankable. A structured financial facility provided by government agencies can be an excellent place to start. Their capacity to use the facility to turn around their company will demonstrate their bankability. Financial institutions can get directly involved in the sector and its financials in order to gain a better understanding of it.

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The banks and GHACCO can work jointly on this. Local ICS manufacturers may be prioritized for credit by one or two of the several microfinance organizations. Manufacturers should be trained in proposal and business plan preparation. Local manufacturers should be challenged to export their products. As found, none of the manufacturers captured in our survey is into export, which means exporters are hard to find among local manufacturers. Export has the potential to improve the quality and standards of local design as well as increase the market size. It takes certain quality standards to be able to export to other countries. As local manufacturers work to meet this standard, the quality of their designs will improve. Similarly, competition from manufacturers in the export market will compel our local manufacturers to improve their efficiency. There is a need for government policy that grants subsidies or tax waivers to local manufacturers as a way of reducing their cost of production while maintaining quality of product. While offering tax waivers to reduce cost of production, the policy should make necessary provisions to rack up household demand for locally manufactured products.

References Ahiataku-Togobo, W. (2013). National cooking energy strategies—Lessons from Ghana. In Presentation at the WACCA workshop, Ouagadougo, April. Ahiekpor, J., Antwi, E., Bensah, E. C., & Ribeiro, J. X. F. (2015). Determinants of urban household cooking fuel choice in Ghana. International Journal of Current Research, 7(6), 17203–17206. Bansal, M., Saini, R. P., & Khatod, D. K. (2013). Development of cooking sector in rural areas in India—A review. Renewable and Sustainable Energy Reviews, 17, 44–53. Barnes, D. F, & Floor, W. (1999). Biomass energy and the poor in the developing world. Journal of International Affairs 237–259. Baurzhan, S., & Jenkins, G. P. (2016). Off-grid solar PV: Is it an affordable or appropriate solution for rural electrification in Sub-Saharan African countries? Renewable and Sustainable Energy Reviews, 60, 1405–1418. Elsevier. https://doi.org/10.1016/j.rser.2016.03.016 Bhatt, B. P., & Sachan, M. S. (2004). Firewood consumption pattern of different tribal communities in Northeast India. Energy Policy, 32(1), 1–6. Bofah, R. O., Appiah-Konadu, P., & Ngwu, F. N. (2022). Transition to cleaner cooking energy in Ghana. Clean Energy, 6(1), 193–201. Brinkmann, S. (2014). Doing without data. Qualitative inquiry, 20(6), 720–725. Chirambo, D. (2016). Addressing the renewable energy financing gap in Africa to promote universal energy access: Integrated renewable energy financing in Malawi. Renewable and Sustainable Energy Reviews, 62, 793–803. https://doi.org/10.1016/j.rser.2016.05.046 Cook, J., Oreskes, N., Doran, P. T., Anderegg, W. R., Verheggen, B., Maibach, E. W., ... & Rice, K. (2016). Consensus on consensus: A synthesis of consensus estimates on human-caused global warming. Environmental research letters, 11(4), 048002. D’Souza, J. (1999). Agency cost, market risk, investment opportunities and dividend policy—An international perspective. Managerial Finance, 25(6), 35–43. Denscombe, M. (2003). The good research guide Maidenhead. UK: Open University. Forestry Commission. (2015). National REDD+ Strategy; Report Prepared by Prize Water House Coopers for the Forestry Commission of Ghana; Forestry Commission: Accra, Ghana.

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GACC (Global Alliance for Clean Cookstoves). (2011). Igniting Change: A Strategy for Universal Adoption of Clean Cookstoves and Fuels. Washington, DC. GACC. (2014). 100 Million by 2020: The Global Alliance for Clean Cookstoves is Expected to Reach Its Phase I Goal Ahead of Schedule. http://cleancookstoves.org/about/news/09-30-2014100-million-by-2020-the-global-alliance-for-clean-cookstoves-is-expected-to-reach-its-phasei-goal-ahead-of-schedule.html Ghana Ministry of Energy. (2015) GiveItUp. http://www.givitup.in/about.html Ghana Statistical Service. (2019). Ghana Living Standard Survey 7, Main Report. https://www.sta tsghana.gov.gh/gssmain/fileUpload/pressrelease/GLSS7%20MAIN%20REPORT_FINAL.pdf Heltberg, R. (2004). Fuel switching: Evidence from eight developing countries. Energy Economics, 26(5), 869–887. Kumar, S. K., et al. (2015). Biogas: A boon for sustainable energy development in India’s cold climate. Renewable and Sustainable Energy Reviews, 43, 95–101. Elsevier. https://doi.org/10. 1016/j.rser.2014.11.028 Lambe, F., & Atteridge, A. (2012). Putting the cook before the stove: a user-centred approach to understanding household energy decision-making: A case study of Haryana State, northern India (pp. 2012–03). Stockholm Environment Institute. Organ, C., Nunn, C. L., Machanda, Z., & Wrangham, R. W. (2011). Phylogenetic rate shifts in feeding time during the evolution of homo. Proceedings of the National Academy of Sciences, 108(35), 14555–14559. Owusu, E. S., Ribeiro, J. X., Ayesu, E., Antwi, E., Ahiakpor, J. C., & Bensah, E. C. (2015). Adoption and utilization of improved cookstove in Ghana. International Journal of Innovative Research and Development, 4(9), 2. Piroschka, P. (2014). Solar cooking in Mozambique—An investigation of end-user’s needs for the design of solar cookers. Energy Policy, 74, 366–375. https://doi.org/10.1016/j.enpol.2014. 06.032 Pope, D. P., et al. (2010). Risk of low birth weight and stillbirth associated with indoor air pollution from solid fuel use in developing countries. Epidemiologic Reviews, 32(1), 70–81. https://doi. org/10.1093/epirev/mxq005 Rehfuess, E. A., Puzzolo, E., Stanistreet, D., Pope, D., & Bruce, N. G. (2014). Enablers and barriers to large-scale uptake of improved solid fuel stoves: A systematic review. Environmental Health Perspectives. https://doi.org/10.1289/ehp.1306639 Sesan, T. (2012). Navigating the limitations of energy poverty: Lessons from the promotion of improved cooking technologies in Kenya. Energy Policy, 47, 202–210. https://doi.org/10.1016/ j.enpol.2012.04.058 Simon, G. L., Bumpus, A. G., & Mann, P. (2012). Win-win scenarios at the climate–development interface: Challenges and opportunities for stove replacement programs through carbon finance. Global Environmental Change, 22(1), 275–287. Singh, D. (2014). Estimates of polycyclic aromatic hydrocarbons and other indoor air pollutants emitted from biomass fuels used in residential sector of northern India. United Nations. (2017). List of least developed countries (as of June 2017), Development Policy and Analysis. New York. Wiedinmyer, C., Dickinson, K., Piedrahita, R., Kanyomse, E., Coffey, E., Hannigan, M., Alirigia, R., & Oduro, A. (2017). Rural–urban differences in cooking practices and exposures in Northern Ghana. Environmental Research Letters, 12(6), 065009. World Bank (2014). Clean and improved cooking in sub-Saharan Africa. The World Bank. 1818H Street, N.W. Washington, D.C 20433, USA. World Bank (2021). Improved Cookstoves, a way to care for one’s family. 1818 H Street NW.

Crispin Bobio is an Energy Economist with a knack for research and data analysis, spanning over 6 years with a number of peer reviewed journals. He holds M.Sc in Energy Economics and his research works basically seeks to investigate the many ways of deploying affordable, clean and

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secure energy to the very poor in society. He has a strong background in quantitative and qualitative data analysis and very conversant with STATA, ATLAS-ti, EVIEWS, NVIVO, Power-Bi and OXMETRICS data management tools. Dramani Bukari is an energy and sustainability analyst with a focus on energy access and transition, energy systems modelling, and the economics of energy policy and regulation. He holds a Ph.D. in Sustainable Energy Technologies from the Kwame Nkrumah University of Science and Technology, Ghana, and is a seasoned professional with a career spanning almost two decades. Eric Zunouh Banye is an international development management professional with experience in programmes and project designs and management across different sectors and countries. He is PMP certified and he is currently a Ph.D. Candidate in Project Management at the Ghana Institute of Management and Public Administration (GIMPA). His research interest includes sustainable development, strategic management, project governance, resource access, and efficiency. Ishmael Ackah is the Executive Secretary of Ghana’s Public Utilities Regulatory Commission (PURC). He chairs the Legal and Regulatory Committee of the Electricity Market Oversight Panel. He worked with the United States Agency for International Development (USAID) West Africa Energy Program, Deloitte, the Energy Commission, Ghana and the Africa Centre for Energy Policy. He’s an Adjunct Lecturer at University of Ghana Law School, GIMPA and University of Cape Coast. As a researcher, he has consulted for the AfDB, NRGI, SNV, UN, DFID/ GOGIG, Energy for Growth Hub among others. He holds a Ph.D. in Energy Economics from the University of Portsmouth-UK, an M.Sc From University of Surrey, UK, and a Bachelors from University of Professional Studies, Ghana. Sarah Anang is a Management Specialist with over 7 years of experience that spans corporate and academia. She holds a Ph.D. in Management from the University of Kent, an M.Sc in Corporate Governance/GRAD ICSA (London South Bank), and a Bachelor’s degree from UPSA. She possesses stellar management, leadership, communication, and problem-solving skills. Her research interests include; business management, operational risk management, international business, corporate governance, organisational behaviour and entrepreneurship.

Natural Gas as a Transition Fuel; Domestic Natural Gas Production and Energy Security in Ghana Paul Minsung Gyeng, Shafic Suleman, and Francis Xavier Tuokuu

List of Abbreviations ARDL BTU LPG IOCs BCF WAGP WAPCO LNG MoE ADF PP ARDL SBC AIC

Auto-Regressive Distributed Lag British Thermal Units Liquefied Petroleum Gas International Oil Companies Billion Cubic Feet West African Gas Pipeline West African Gas Pipeline Company Liquefied Natural Gas Ministry of Energy Augmented Dickey–Fuller Phillips–Perron Auto-Regressive Distributed Lag Schwartz–Bayesian Criterion Akaike Information Criterion

P. M. Gyeng ENI, Ghana and Ghana Institute of Management and Public Administration, Accra, Ghana S. Suleman (B) Institute for Oil and Gas Studies, University of Cape Coast, Cape Coast, Ghana e-mail: [email protected] F. X. Tuokuu Mercy Corps, Washington, D.C., USA © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_24

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1 Introduction Energy security has been defined in a variety of ways: as the relationship between national security and the availability of natural resources for energy consumption (Williams, 2009); as the assurance of meeting the daily energy needs of consumers through actions that improve the lives of people in a society (Sorrell, 2015); and as the maintenance of transnational relationships that ensure citizens of countries have access to external sources of energy (Williams, 2009). Consequently, the definitions are case-specific and encompass, among others, the condition of supply security when enough energy is available for the national economy to function and is deemed politically acceptable, as well as supply, import, and uninterrupted energy at a reasonable price (IEA, 2020). The varying definitional conflicts make it difficult to arrive at a unified method for assessing energy security. From an economic standpoint, energy security pertains to the capacity of families, companies, and governments to adapt to interruptions in energy market supply (Metcalf, 2014). Regarding this, energy security might have both long-term and short-term aspects (Hefele et al., 2018). These include the long-term, where energy security is concerned with timely investments to supply energy following economic developments and environmental needs, and the short-term, where energy security is concerned with the energy system’s ability to react quickly to sudden changes in the supply–demand balance (Hefele et al., 2018). For instance, several Sub-Saharan nations, such as Ghana, encountered major energy supply issues, resulting in enormous energy debts for numerous companies and the collapse of some industries owing to the energy crisis. During 2014–2016 in Ghana, energy insecurity posed significant obstacles that made it difficult for many companies to remain in operation. It is crucial to mention that comprehending energy security challenges will necessitate a deeper comprehension of the intricacies of the dimensions and parameters of the idea, as the results would eventually give more secure solutions for many organizations. Issues of availability, affordability, economic efficiency, and environmental stewardship or sustainability of energy, as well as timeframe, resilience, health, culture, literacy, policy, employment, military, cyber security, and location, are a common energy security dimension in scholarly discourse (Azzuni & Breyer, 2018). These debates suggest, however, that issues of Energy security differ from both the domestic and international perspectives, and this variation of energy security has become a crucial component of many industrial setups due to the impact the concept can have on revenue mobilization, cost of doing business, and general acceptability of a business entity (Suleman & Zaato, 2021). Despite the abundance of energy resources in Africa, according to a 2020 assessment by the International Council for Science, Africans have access to and consume far less energy than countries on any other continent. As of 2015, the annual consumption of all primary energy sources in Africa was 15.4 million British thermal units (Btu) per person, while the global average per capita energy consumption was 70.8 Btu and the United States consumed 337.1 Btu of energy per year (nearly 22 times

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the average African’s consumption) (Meierding, 2011). The disparity is much more pronounced regarding the utilization of contemporary energy sources such as fossil fuels and electricity. According to a report by the International Council of Science, outside of South Africa, 80% of Sub-Saharan Africans’ primary energy requirement is met by biomass, which includes wood fuels, charcoal, agricultural wastes, and animal dung. As of 2010, it is stated that 71% of Sub-Saharan African homes lack access to electricity (Annual Energy Outlook, 2022). However, there is sufficient energy output in many Sub-Saharan African nations (Meierding, 2011). According to IEA (2020), access to modern energy supplies is essential in enhancing human welfare and economic prosperity. Electrification improves lighting and communications and enables the automation and expansion of small enterprises (Jinapor et al., 2023). Electric refrigeration minimizes post-harvest losses, enhances food security, and improves the preservation of medical supplies, all of which contribute to economic growth and human well-being (Nkansah et al., 2022). Access to petroleum-based fuels boosts internal transportation networks to allow commerce and people movement, contributing to economic growth and enhancing the quality of life (Suleman & Ennin, 2023). Since traditional types of energy are expensive, the incapacity of many firms to investigate alternatives for energy security has made it difficult for them to achieve a competitive edge for accelerated growth and development in their corporate agenda.

2 Literature Review Ghana, as a nation in Sub-Saharan Africa, cannot be excluded from the discussion of energy security, as it has had its fair share of energy issues over the past decade. For the past decade, Ghana’s power industry has been plagued by electricity supply challenges, which have substantially influenced the country’s economic standing. The World Bank ranked electricity as the second-greatest impediment to the country’s capacity to do business, and it is estimated that the 2007 power outage cost Ghana 1.8% of its GDP (Mathrani et al., 2013). Consequently, the country experienced a loss of around $680 million (2% of GDP) in 2014 due to the power outage (ISSER, 2005). As a result of its reliance on hydroelectric sources, the nation has been pursuing alternate energy sources such as solar, natural gas, and thermal to diversify its power-generating mix. This rendered power generation susceptible to fluctuations in weather and atmospheric conditions (Kumi, 2017). In 2007, with the Jubilee partners’ discovery of oil and gas, the nation planned to develop natural gas fields to supplement its domestic energy requirements. In an effort to use the majority of its associated gas in the fields, the Jubilee field established a “no gas flaring” policy from the commencement of its operation (Ministry of Energy, 2021). In light of this, the Ghana National Gas Development Taskforce was established to examine all planned Gas Commercialization Project elements. This task force’s suggestion led to the formation of the Ghana National Gas Company (Ghana Gas) in July 2011. (Ministry of Energy, 2021). The gas plant has

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been functioning since 2014, providing thousands of Ghanaians with stable jobs. Citizens’ liquefied petroleum gas (LPG) demands have been met, and its products serve as a source of raw materials for some ceramic and tile manufacturers in the Western area as the nation advances its industrialization plan. Other International Oil Companies’ (IOCs) relentless efforts resulted in the discovery of 270 million barrels of oil equivalent (mmboe) of non-associated gas (Ministry of Energy, 2021). The Sankofa gas field is the name of this field. The discovery of this field was heralded as a game-changer in the country’s energy value chain, as it was expected to supply more than 70% of the country’s gas demand for power production. This was an integrated oil and gas project with offshore developments and the onshore building of a compression facility to transport gas to the country’s power plants (World Bank, 2020). In 2012, using a constructed composite energy security index, Ghana’s energy security condition was compared to thirty-four (34) other nations (Sovacool, 2010). The survey revealed that Ghana ranked seventeenth (17th) in the rankings and sixth (6th) among African nations in terms of energy performance. However, it was also unknown how different energy sources affect the nation’s energy security and what measures are in place to improve it. In addition, the Ministry of Energy asserts that Ghana’s power supply comes from hydroelectricity, thermal plants powered by crude oil, natural gas, and diesel, solar power, and imports from Côte d’Ivoire. Currently, the total installed capacity of existing plants in Ghana is 4,132 MW, with Hydro accounting for 38%, Solar for less than 1%, and Thermal for 61% with natural gas constituting 99% of the thermal composition. Although natural gas contributes to Ghana’s electricity supply, its installed capacity is unknown. With the discovery of natural gas in the country and the drive for cleaner energy sources, research must be conducted to determine how this fuel source affects the nation’s energy security. Studies on the nation’s energy security have focused mostly on international comparisons and the enhancement of power supply (Asante, 2018; Gyamfi et al., 2015). The natural gas research analyzed current legislation governing the industry but did not assess the role of natural gas in enhancing energy security (Acheampong & Ackah, 2015). Therefore, the objectives of this study include: firstly, to examine the long-run impact of domestic natural gas production on energy security in Ghana. Secondly, the study examines the short-run effect of domestic natural gas production on energy security in Ghana. And thirdly is to analyze how the other forms of energy (crude oil, hydro, biomass, solar) affect energy security in Ghana. In line with these objectives, this study aims to investigate the impact of Ghana’s natural gas output on the country’s energy security.

2.1 Natural Gas Production and Energy Security in Ghana Ghana is a small oil and natural gas producer in Africa compared to Nigeria, Libya, Angola, Algeria, and Egypt. Oil and natural gas production are both expected to

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increase within the subsequent years with the start of new offshore projects. Ghana exports its crude oil production to international markets, and its natural gas production is used to fuel its domestic power plants. According to national energy statistics, Ghana started commercial natural gas production at the Jubilee field in 2014 and produced approximately 23 billion cubic feet of gas (Bcf) in 2016. Natural gas is sent via pipeline from the Kwame Nkrumah FPSO to the onshore Atuabo natural gas processing facility and is used for domestic power generation. All of Ghana’s natural gas imports are from Nigeria via the West African Gas Pipeline (WAGP), which runs east to west from Nigeria to Ghana. Pipeline imports have become unreliable, partially as a result of feedstock constraints in Nigeria but also because of Ghana’s inability to meet its debt repayment obligations. These factors have resulted in the West African Gas Pipeline Company (WAPCO) suspending exports to Ghana in June 2016. To fill the gap created by unreliable pipeline natural gas imports and to accommodate growing natural gas demand, which is entirely driven by the power sector, the Ghanaian government is turning to liquefied natural gas (LNG) as an alternative fuel source (Energy Sector Report, 2022). Ghana is currently producing gas from three fields—Jubilee, TEN, and OCTP Sankofa with the scope for greater domestic production in the years ahead from yet to be developed gas fields. Figure 1 shows the significant oil and gas fields in Ghana. It is estimated that Ghana has between 1.5 Tcf and 1.7 Tcf of gas reserves. These estimates also include reserves, in Jubilee, TEN, OCTP Sankofa, and the Pecan field by Aker. The completion of the reverse flow to allow the evacuation of gas from Takoradi to Tema paved the way for the smooth flow of gas from the Aboadze power enclave

Fig. 1 Ghana’s key oil and gas fields. Source Suleman (2018)

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for use by the various gas off-takers in the Tema-Accra enclave. Imported natural gas arrived in Ghana from Nigeria via the West African Gas Pipeline (WAPCO) toward the end of 2008. Initial transporting volumes were small until contractual commitments were met in 2011. Supply, however, has been erratic but with the introduction of domestic gas from Ghana’s domestic fields, the country secured long awaited reliability in gas supply for power generation. Figure 2 shows the gas production and distribution networks in Ghana. Gas Demand In 2020 and 2021, the Ministry of Energy (MoE) estimated that 285 mmscf/d and 350 mmscf/d respectively would be the average daily demand for gas, from the following sources (Table 1). Gas received has been generally utilized for electricity generation as it is the primary driver of gas demand and LPG supplier in Ghana. Demand for electricity is

Fig. 2 Gas production and distribution in Ghana. Source Suleman (2018)

Table 1 Source and gas demand averages

Source

Gas demand (mmscf/d) 2020

2021

Jubilee/TEN

125

125

Sankofa

130

180

WAGP

30

50

Total

285

355

Source Ministry of Energy (2021)

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Table 2 Gas supply averages Source

Capacity (mmscf/d)

2020 Av. Supply (mmscf/d)

Jubilee

190

70

TEN

180

15

OCTP Sankofa

300*

155

Nigeria (WAPCO)

120

60

Tema LNG

200

0

Totals

990

300

Domestic production

Imports

Source Energy Commission (2022) *260 mmscfd can be made available with little modification and potentially further increased to 300 mmscfd

as a result of the population—currently estimated at 30 million, its growth—estimated at approximately 3% per annum (Energy Commission, 2022), urbanization, rising living standards, and energy intensity per capita. The average demand for power in Ghana is around 2,700 MW/d with a substantial amount being generated by two main sources: hydro—Akosombo, and Bui dams (35–40%) and Thermal (60–65%) (Energy Commission, 2022). It is estimated that about 40% of LPG distributed in Ghana comes from the Jubilee/TEN fields through the Ghana National Gas Company. Gas Supply Ghana’s gas supply comes from the following sources: domestic supply (Jubilee, TEN, OCTP Sankofa) and imported gas from Nigeria via the West Africa Gas Pipeline (WAPCO). The table below provides the estimated volumes each source is capable of producing and compares it with the average daily volumes off-taken by the aggregator (GNPC/GNGC) in 2020 (Table 2). The total production design capacity of locally sourced gas and gas from Nigeria is approximately 790 mmscf/d. The gas demand projection for 2021 is estimated at 355 mmscf/d. There is therefore an excess of approximately 435 mmscf/d of gas—more than adequate to power a significant amount of Ghana’s total installed generating capacity for the foreseeable future.

3 Methodology This research employs a quantitative approach to quantify data via statistical analysis. The study used an explanatory research approach. Because this design focuses on the cause-and-effect connection, knowing what produces what consequences is critical. In this research, causal analysis emphasizes how the independent factors (domestic natural gas and control variables) affect the dependent variable (energy security).

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This study used a quarterly time series on Ghana data, which spanned 21 years (from 2000 to 2021). Natural gas, hydro, oil, solar, and biomass were all measured as a natural log of their thousand tons of oil equivalent, while energy security was measured as a ratio of energy supply over energy consumed as used by Radovanovi´c et al. (2018). Data was sourced from the Energy Commission of Ghana database. Additional data sources included economic bulletins, textbooks, the internet, and published field papers.

3.1 Model Specification The Cobb–Douglas production function is used in this study, which can be written as: β

Yt = AK αt L t eμt

(1)

where Y is agricultural productivity, K represents capital, and L stands for labor. The parameters α and ß are marginal impacts of capital and labor on agricultural growth and they lie between 0 and 1, thus, 0 < α < 1 and 0 < ß < 1. i refers to the number of countries, t is time period, and μ is the stochastic error term. The study investigates the impact on energy security by recognizing domestic natural gas as a key factor of energy growth and security. When domestic natural gas (DNG) is included in the model, the Eq. (1) becomes: β

γ μt

Yt = AK αt L t N DG t e

(2)

The parameter γ must lie between 0 and 1, i.e., 0 < γ < 1, and shows domestic natural gas’s marginal impact on energy security. After taking the natural logarithm, the above equation becomes: yt = β0 +αk t + βl t + γ dng t + μt

(3)

where β0 is the intercept, α, β, and γ become the coefficient of the variable capital, labor, and domestic natural gas. μ is the error term. Besides domestic natural gas, some other energy sources, including hydro, oil, solar, and biomass, affect energy security. Now the above equation in its augmented form can be written as follows: E N S t = β0 + β1 D N G t + β2 H Y D t + β3 O I L t + β4 S O L t + β5 B I M t + εt (4) where, ENSt —Energy Security; DNGt —domestic natural gas; HYDt —Hydro power; Oilt —Crude Oil; SOLt —Solar; BIMt —Biomass and ε t —error term. This equation expresses energy security to be determined by domestic natural gas, hydro power, crude oil, solar power, and biomass energy.

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Table 3 Description of data, measurement, and expected signs Variable Dependent

ENS

Description

Measurement

Energy security

Ratio of energy supplied over energy consumed

Expected Sign Source NES

Independent DNG Domestic Natural Gas Natural log of thousand + tons of oil equivalent. [ln(ktoe)]

NES

Controls

HYD Hydro

Natural log of thousand + tons of oil equivalent. [ln(ktoe)]

NES

OIL

Crude Oil

Natural log of thousand + tons of oil equivalent. [ln(ktoe)]

NES

SOL

Solar

Natural log of thousand + tons of oil equivalent. [ln(ktoe)]

NES

BIM

Biomass

Natural log of thousand + tons of oil equivalent. [ln(ktoe)]

NES

Source Constructed from data from Energy Commission Statistics (2022) Note NES is National Energy Statistics; Energy Supply represents the amount of energy that is available in the national territory during the reference period. It includes production, import and stock changes, less export, and international aviation and marine bunkers; Energy Consumption refers to all fuel and energy delivered to final users for their energy use

3.2 Description of Data, Measurement, and Expected Signs The variables of the study are defined, and their measurements, as well as their expected signs, are indicated (Table 3).

3.3 Estimation Technique The research used the Granger causality test in cointegration and error correction models to assess the direction of causation between domestic natural gas and energy security. The stages in the empirical process are as follows. The researchers used the Augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) tests to analyze the data’s time-series features. The stationarity of the data was checked using the unit roots test. The autoregressive distributed lag (ARDL) approach was used in the second phase to check for cointegration (Pesaran et al., 2001). The ARDL model’s stability and diagnostic test statistics are also assessed to confirm the model’s dependability and goodness of fit. Finally, Granger causality was used to test for causality. Because

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the existence of cointegrated links has ramifications for how causality testing is conducted, it is preceded by cointegration testing. Stationarity Test The study used a variety of unit root tests. This was done to ensure reliable stationarity test results due to the inherent unique flaws of the various approaches. In this analysis, the Phillips-Perron (PP) and the Augmented Dickey–Fuller (ADF) tests were used. The only difference between these tests is how they account for residual autocorrelation. Test for Cointegration The two-time series integrated in the same order “d” are said to be cointegrated if one unique linear combination exists and is integrated in an order inferior to (d − b) with b ≥ 1. After determining that variables are stable, it is time to see whether there is a long-term link between them, which requires testing for cointegration. Autoregressive Distributed Lag (ARDL) Approach to Cointegration Using the Engel–Granger, Johansen, or Phillips–Hansen techniques to examine the long-run and short-run behavior of domestic natural gas on energy security. Bounds Testing/ARDL Procedure The following constrained (conditional) version of the ARDL model is estimated to evaluate the long-run connection among the variables of interest to execute the limits test process for cointegration. This framework is implemented by modeling Eq. (5) as a conditional ARDL, given as: E N G t =β0 + θ E N G t−1 + β1 D N G t−1 + β2 H Y D t−1 + β3 O I L t−1 + β4 S O L t−1 + β5 B I M t−1 +

ρ ∑

1

ϕ E N G t−i +

i=0 3

+

q ∑ i=0

q ∑

γ1i D N G t−i +

i=0 4

γ3i O I L t−i +

2

q ∑

q ∑

γ2i H Y D t−i

i=0 5

γ4i S O L t−i +

i=0

q ∑

γ5i B I M t−i + μt .

(5)

i=0

The first step in the ARDL method is to use OLS to estimate Eq. (5). The calculated F-test (Wald test) is then used to determine if the variables have a long-run connection. The coefficients of the lagged level variables are set to zero to achieve this. The null hypothesis that there is no long-run link between the variables in Eq. (5) is compared to the alternative hypothesis that there is a long-run relationship between the variables designated by: FLY = (E N G t /D N G t , H Y D t , O I L t , S O L t , B I M t ) The hypothesis tested is specified as:

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H0 := β1 = β2 = β3 = β4 = β5 = β6 H0 := β1 /= β2 /= β3 /= β4 /= β5 /= β6 Pesaran et al. (2001) generated and presented the appropriate critical values according to the number of independent variables in the model of presence or absence of constant term or time trend in the model, given that the asymptotic distribution of F-statistics is non-standard without considering the independent variables being I (0) or I (1). As a result, the derived F-statistics are compared to two sets of critical values produced using I(d) (where 0 ≤ d ≤ 1) as the independent variables. All variables are assumed to be I (0) in the lower critical limit, whereas all variables are assumed to be I (1) in the upper critical bound (1). Long-Run Dynamics The estimation technique for Objective One, thus to examine the long-run relationship between domestic natural gas and energy security is conducted once cointegration has been established from the ARDL model, this study estimated the following AR DL(P, q 1 , q 2 , q 3 , q 4 , q 5 ) model to obtain the long-run coefficients. E N S t =ϑ0 +

ρ ∑

1

τ1 E N S t−i +

i=0

+

2

τ2 D N G t−i +

i=1

3

q ∑

q ∑

τ4 O I L t−i +

i=1

τ3 H Y D t−i

i=1

4

q ∑

q ∑

5

τ5 S O L t−i +

i=1

q ∑

τ6 B I M t−i + εt

(6)

i=1

Short-Run Dynamics The estimation technique for Objective Two, thus, to examine the short-run relationship between domestic natural gas and energy security is conducted once the long-run relationship has been established. Equation (7) is to estimate the short-run coefficients. When the variables have a long-term connection, the unrestricted ARDL error correction representation is approximated as: ΔE N S t =θ0 +

ρ ∑

1

λ1i E N S t−i +

q ∑

i=0 3

+

q ∑ i=0

2

λ2i D N G t−i +

i=0 4

λ4i O I L t−i +

q ∑

q ∑ i=0

λ3i H Y D t−i

i=0 5

λ5i S O L t−i +

q ∑

λ6i B I M t−i + υ EC T t−1 + εt .

i=0

(7)

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P. M. Gyeng et al.

where Δ is the first difference operator, ρ and q1 −q5 are the lag order selected by Akaike Information Criterion (AIC), the p lags and the q lags are not necessarily the same, the p is the lag of the dependent variable, and the q lags are for the exogenous variables. The parameters λi denote the short-run parameters to be estimated through the error correction framework in the ARDL model, θ is the constant term (drift) while εt is a white noise error term which is ~N (0, δ 2 ). Error Correction Model Where the coefficients are the short-run dynamics, ECTt−1 is the error correction term, or the residuals derived from the equation and is the speed of adjustment to longrun equilibrium after a shock to the system (6). The residuals from the cointegration equation with a one-period lag may be written as follows: EC T t =E N S t − θ0 −

ρ ∑

1

λ1i E N S t−i −

i=0 3

−

q ∑

q ∑

2

λ2i D N G t−i −

i=0 4

λ4i O I L t−i −

q ∑

i=0

i=0

q ∑

λ3i H Y D t−i

i=0 5

λ5i S O L t−i −

q ∑

λ6i B I M t−i

(8)

i=0

In order to capture both the short-run and long-run relationships, Granger (1987) argued that when variables are cointegrated, their dynamic relationship can be specified by an error correction representation in which an error correction term (ECT) computed from the long-run equation must be incorporated. The error correction term indicates the pace of adjustment to long-run equilibrium in the dynamic model. In absolute terms, the higher the coefficient of the error correction factor, the quicker the convergence to equilibrium. Diagnostic Tests Diagnostic and stability tests are also performed to validate the model’s goodness of fit. The diagnostic test looks at the chosen model’s serial correlation, functional form, normality, and heteroscedasticity. The statistics CUSUM and CUSUMSQ are iteratively updated and plotted against the break points. The Granger causality test was used to determine the direction of causation between Y and X.

4 Results and Discussion This section presents a detailed analysis and discussion of the study results.

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543

Table 4 Descriptive statistics of the variables Energy security

Hydro

Natural gas

Oil

Solar

Biomass

Mean

1.2622

6.2822

3.8199

8.0464

0.3581

8.1729

Median

1.2729

6.3103

5.8201

8.0352

0.0000

8.1737

Maximum

1.4128

6.5806

8.0674

8.4182

2.3978

8.3603

Minimum

1.0964

5.7714

0.0000

7.4949

0.0000

8.0287

Std. Dev

0.0768

0.2136

3.4227

0.2920

0.6646

0.1062

Skewness

−0.1092

−0.7843

−0.1240

−0.3329

1.7763

0.3238

Kurtosis

2.8683

3.2051

1.1461

1.8492

5.1161

1.9572

Jarque–Bera

0.2386

9.1774

12.826

6.4819

62.699

5.5247

Probability

0.8875

0.1101

0.1216

0.1391

0.0010

0.1631

Sum

111.07

552.83

336.15

708.08

31.514

719.21

Sum Sq. Dev

0.5140

3.9694

1019.23

7.4182

38.433

0.9824

Observations

88

88

88

88

88

88

Source Estimated Results from Eviews 10

4.1 Descriptive Statistics The descriptive statistics of the various variables were carried out using the standard descriptive such as mean, median, maximum, minimum, standard deviation, skewness, kurtosis, sums, sum of squared deviations, and number of observations. These statistics are illustrated in Table 4. With close observation, it was noticed that all the variables in the table have positive average values (mean and median). The average values are normal and clearly the minimal deviation of the variables from their mean values are shown by the standard deviation. From the results, there is relatively moderate rate of deviations of these variables within our defined period of study. Variables such as solar and biomass are positively skewed while oil, domestic natural gas, hydro, and energy security are negatively skewed.

4.2 Discussion of Time Series Properties of the Variables 4.2.1

Results of Unit Root Tests

The study tested for unit roots of all the variables, to examine the stationarity properties of all the variables before applying autoregressive distributed lag bound testing to cointegration and Granger causality test. The study carried out trend analysis of the graphical representation of the variables. The study observed that all the variables appeared to be non-stationary. Which illustrate the plot of all variables at their first differences exhibit stationarity. To establish the order of integration, the study employed Augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) test at both

544

P. M. Gyeng et al.

Table 5 Unit root test of the variables Variable ENS DNG HYD OIL SOL BM

ADF

PP

Intercept

Int & Trend

Intercept

Int & Trend

0.124

−3.375***

−2.559

−3.679**

I(1)

−6.603***

−6.567***

−9.195***

−9.151***

I(0)

−0.608

−1.941

−0.586

−1.941

I(1)

−9.462***

−9.407***

−9.465***

−9.409***

I(0)

−2.125

−2.606

−2.227

−2.713

I(1)

−9.167***

−9.137***

−9.167***

−9.137***

I(0)

−1.647

−2.877

−1.644

−3.007

I(1)

−9.369***

−9.359***

−9.369***

−9.391***

1.633

3.162

0.887

I(0)

I(0)

2.219

I(1)

−6.752***

−6.245***

−9.663***

−10.997***

I(0)

−0.274

−2.317

−0.274

−2.465

I(1)

−9.185***

−9.998***

−9.185***

−9.996***

Note ***, **, * represent 1%, 5% and 10% significant levels respectively PP—Phillips–Perron Statistics and ADF—Augmented Dickey–Fuller Statistics Source Estimated Results from Eviews 10

level and first difference. The Schwartz–Bayesian Criterion (SBC) and Akaike Information Criterion (AIC) were used to establish optimal number of lags to include in the test. The study used the p-values for deciding on unit roots conclusions like critical values. Table 5 presents the results of both test for unit roots for all the variables at levels with intercept and trend, and their first difference. As shown in the table, the null hypothesis of unit root for all the variables is accepted at both levels and, trend and intercept except for energy security (ENS) for the intercept and trend at levels. This implies that except for ENS all the remaining variables are not stationary at level since most of their p-values for Augmented Dickey–Fuller and Phillips–Perron test are insignificant at some or almost all conventional levels of significance on levels basis.

4.2.2

VAR Lag Selection Criteria

The appropriate lag length selection was done before estimating Auto-Regressive Distributed Lag (ARDL) models. The lag length plays a vital role in diagnostic tests as well as in estimation of VAR model for cointegration and impulse response (Kholkhar et al., 2011). The appropriate lag length (p) was done using standard model selection criteria (AIC and SBC) to ensure normal distribution of white noise errors with no serial correlation. The results of lag selection criteria are presented in Table 6.

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Table 6 Lag length selection criteria Lag 0

LogL 73.89909

LR

FPE

AIC

SC

HQ

NA

7.53e−09

−1.676521

−1.499154

−1.605359

1

594.2434

950.7526

4.84e−14*

−13.63564*

−12.39407*

−13.13751*

2

601.2557

11.77367

1.00e−13

−12.91989

−10.61413

−11.99479

3

613.9070

19.36752

1.85e−13

−12.34338

−8.973418

−10.99131

4

653.6697

54.98049

1.81e−13

−12.43629

−8.002124

−10.65724

5

724.0256

86.85907*

8.76e−14

−13.28458

−7.786217

−11.07857

6

735.7424

12.72943

1.93e−13

−12.68500

−6.122434

−10.05201

7

758.6113

21.45724

3.57e−13

−12.36077

−4.734010

−9.300816

Note *indicates lag order selected by the criterion. LR: sequential modified LR test statistic (each test at 5% level). FPE: Final prediction error. AIC: Akaike information criterion. SC: Schwarz information criterion. HQ: Hannan–Quinn information criterion Source Estimated Results from Eviews 10

It is clear from the lag selection criteria that the asterisks are attached to FPE, AIC, SC, and HQ at lag length 1.

4.3 Discussion of Empirical Findings 4.3.1

Estimated Long Run Coefficients

The long-run connection among the variables was approximated using the ARDL framework based on the findings of the cointegration analysis. The Schwartz– Bayesian Criterion was used to pick the ARDL model (1, 1, 0, 1, 1, 1) (SBC) and was used to estimate the long-run ARDL model because it produces parsimonious results. Given the nature of the data collected and the lag length criteria, the estimation was done with a lag length of two. The results showed that the long-run coefficient of domestic natural gas is positive and statistically significant at the 1% level of significance, which addresses the first objective of examining the long-run effect of domestic natural gas on energy security. This illustrates that if Ghana’s natural gas advances by a percentage, energy security will improve by 6.9%. This suggests that investments in domestic natural gas, in the long run, have the potential to increase the energy security in Ghana as it would complement other forms of energy like hydro. These findings collaborate with the study of Litvinenko (2020) and Field and Derwent (2021) that investments in natural gas would serve as a complementary source of energy to petroleum and hydro and would aid in sustaining the energy depletion levels in their countries. Also, the results showed that the coefficient of hydro is negative and statistically significant at the 1% level of significance, this illustrates that if Ghana’s hydro energy advances by a percentage, energy security will decrease by 26.37%. This implies that

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the Ghanaian population out-weighs its major source of hydro (Akosombo, Bui and Kpong) and therefore the dams have reached their declining stage and any extra utilization of this energy source will not ensure energy security. Based on this reason there is the need to consider alternative sources of energy to enhance energy security of the country. The findings support Sovacool (2010) who asserted that hydro energy was and has been one of the major sources of energy for about 34 developing countries however the over reliance has declined the level of energy security, energy justice, and the technological capabilities of hydro power. In addition, the results showed that the coefficient of oil is positive and statistically significant at the 1% level of significance, this illustrates that if Ghana’s crude oil energy increases by a percentage, energy security will increase by 18% in the long run. This implies that the country should put efforts in refining the oils extracted from the oil field than exporting them in their raw state, the country can generate additional power to supplement energy security levels in the long run. Furthermore, the results showed that the coefficient of solar is positive and statistically significant at the 5% level of significance, this illustrates that if Ghana invests in solar energy, an increase by a percentage will increase energy security by 5.43% in the long run. This implies installing solar panels in areas with high levels of sunshine like the northern sector of the country will reduce the pressure on the traditional energy sources like hydro and will increase the energy security of the country. The findings are consistent with that of Rathore et al. (2019) who asserted that decentralizing solar panels would enable households to generate and use their own power and this will put less pressure on other energy forms like the hydro and thermal for industrial utilization. This will also improve energy security in the long run. Finally, the results showed that the coefficient of biomass is positive and statistically significant at the 10% level of significance, this implies that an increase in the biomass energy level by a percentage will increase energy security by 25.1% in the long run. This implies that increased production of biomass for energy has the potential to offset substantial use of fossil fuels thereby increasing energy security. The findings support the findings of Kumar et al. (2022).

4.3.2

Estimated Short-Run Coefficients

This section concentrates on the short-run connection between the variables in Eq. 7. Equation 8 (the error correction model) was approximated to accomplish this. An efficient way of estimating cointegration in the short run is through the error correction term (Narayan, 2005). The computed coefficient of the error correction term is −0.1798. This means the speed of adjustment of the model back to equilibrium is approximately 17.98% annually. The negative significance of the coefficients is an indication of the existence of cointegration relationship among the variables. This implies that, following any short-term shock, the speed of adjustment back to equilibrium will be around 17.98% per year in the long run. The results showed that the short-run coefficient of domestic natural gas is positive and statistically significant at the 1% level of significance, which addresses the second objective of examining

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the short-run effect of domestic natural gas on energy security. This illustrates that if Ghana’s natural gas increases by a percentage, energy security will improve by 1.56% in the short run. This implies that natural gas has the impact of increasing the energy security levels in the short run to ensure sustainability. These findings collaborate with the study of Litvinenko (2020). In addition, the results showed that the short-run coefficient of oil is positive and statistically significant at the 1% level of significance, this illustrates that if Ghana’s crude oil energy increases by a percentage, energy security will increase by 37.9% in the short run. Furthermore, the results showed that the short-run coefficient of solar is negative and statistically significant at the 1% level of significance, this illustrates that if the country relies on solar energy in the short run, an increase by a percentage will decrease energy security by 5.3%. This is because the country is situated in the tropical areas of west Africa and is prone to heavy rainfall and cloudy conditions that do not guarantee allyear sunshine. Finally, the results showed that the short-run coefficient of biomass is positive and statistically significant at the 1% level of significance, this implies that an increase in the biomass energy level by a percentage would, will increase energy security by 32.3% in the short run.

4.3.3

Granger Causality Test

Here, the pairwise Granger causality has been conducted to establish the nature of the causal relationship among the macroeconomic variables, affirming the cointegration analysis results and helping in giving policy directions. The Granger causality test results show that the null hypothesis that domestic natural gas does not Granger cause energy security is rejected at a 1% significance level. This means that domestic natural gas Granger causes energy security. And the null hypothesis that energy security does not Granger cause domestic natural gas is rejected, implying that energy security does Granger cause domestic natural gas, suggesting a bidirectional causality between natural gas and energy security. This result indicates that data in Ghana supports the fact that natural gas can affect energy security and vice versa. The findings conform to the bound test and align with the studies of Litvinenko (2020) who had similar results.

5 Conclusion and Recommendations This section summarizes the research findings and gives policy recommendations. This study sought to identify and examine the impact of domestic natural gas on energy security in Ghana. The study employed the quantitative research approach by employing the explanatory research design. The study modified the Cobb–Douglas production function to establish the theoretical foundation and to model the relationship between domestic natural gas production and energy security. In this the dependent variable was energy security and the independent variables were natural gas

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energy, hydro energy, solar energy, oil energy, and biomass energy. The researchers used secondary quarterly data derived from the Ghana Energy Statistics and other reliable source that spans from 2000 to 2021. The first objective of this study which was to determine the long-run impact of domestic natural gas on energy security in Ghana concluded that, at a 1% significance level, domestic natural gas has a positive statistically significant impact on energy security in Ghana. The second objective, which was to establish the short-run effect of domestic natural gas on energy security in Ghana concluded that, at a 1% significance level, there was a significant positive effect of domestic natural gas on energy security in Ghana. The third objective sought to determine the impact of other forms of energy on the energy security of Ghana; the study concluded that, at 1%, 1%, and 5% significance levels, solar, oil, and biomass have positive statistically significant effect on energy security in Ghana while hydro has a negative statistically significant effect on energy, all in the long run. However, in the short run, at 1% significance levels, oil and biomass have positive statistically significant effect on energy security in Ghana while solar has a negative statistically significant effect on energy. Considering the findings above, it is recommended that due to the growing electricity demand in Ghana, there is the need to make arrangements to increase gas supply volumes within both the short and long runs to enable more thermal generation in order to avoid excessive draw down on hydro facilities. In addition, government should make necessary investments toward improved gas supply reliability owing to the increasing dependency on natural gas for power generation.

References Acheampong, T., & Ackah, I. (2015). Petroleum product pricing, deregulation and subsidies in Ghana: Perspectives on energy security. In Deregulation and Subsidies in Ghana: Perspectives on Energy Security (August 14, 2015). Asante, K. P. (2018). Ghana’s rural liquefied petroleum gas program scale up: A case study. Energy for Sustainable Development, 46, 94–102. Azzuni, A., & Breyer, C. (2018). Definitions and dimensions of energy security: A literature review. Wires Energy and Environment, 7, e268. Energy Commission. (2022). Energy supply and demand outlook in Ghana. Retrieved August 23, 2023, from Energy Outlook for Ghana (energycom.gov.gh) Field, R. A., & Derwent, R. G. (2021). Global warming consequences of replacing natural gas with hydrogen in the domestic energy sectors of future low-carbon economics in the United Kingdom and the United States of America. International Journal of Hydrogen Energy, 46(58), 30190–30203. Granger, C. W. (1987). Forecasting. The New Palgrave Dictionary of Economics, 1–4. Gyamfi, S., Modjinou, M., & Djordjevic, S. (2015). Improving electricity supply security in Ghana— The potential of renewable energy. Renewable and Sustainable Energy Reviews, 43, 1035–1045. Hefele, P., Palocz-Andresen, M., Rech, M., & Kohler, J. H. (2018). Climate and energy protection in the EU and China: 5th workshop on EU-Asia relations in glob al politics. Springer. IEA (2020). Our work on energy security. Retrieved August 23, 2023, from https://www.iea.org/ topics/energy-security

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ISSER. (2005). Guide to electric power in Ghana. Resource Center for Energy Economics and Regulation. Institute of Statistical, Social and Economic Research. University of Ghana. Jinapor, J. A., Suleman, S., & Cromwell, R. S. (2023). Energy consumption and environmental quality in Africa: Does energy efficiency make any difference? Sustainability, 15(3), 2375. Kumi, E. N. (2017). The electricity situation in Ghana: Challenges and opportunities. Center for Global Development. Kholkhar, I., Haider, M., Mukhtar, I., & Mushtag, S. (2011). Evaluation of antagonistic activity of soil bacteria against plant pathogens fungi. Pakistan Journal of Phytopathology, 23, 166–169. Kumar, I., Feng, K., Sun, L., & Bandaru, V. (2022). Adoption of biomass for electricity generation in Thailand: Implications for energy security, employment, environment, and land use change. Renewable Energy, 195, 1454–1467. Metcalf, G. E. (2014). The Economics of energy security. Annual Review of Resource Economics, 6, 155–174. Meierding, E. (2011). Energy security and Sub-Saharan Africa. In G. Carbonnier (Ed.), International development policy: Energy and development (pp. 44–59). Palgrave Macmillan. Ministry of Energy (2021). Annual Report on Petroleum Revenues. Retrieved August 23, 2023, from 2021-Annual-Petroleum-Report.pdf. mofep.gov.gh Mathrani, S., Santley, D., Hosier, R., Bertholet, F., Braud, A., Dawson-Amoah, G., ... Reinoso, G. (2013). Energizing economic growth in Ghana: making the power and petroleum sectors rise to the challenge. Narayan, P. K. (2005). The saving and investment nexus for China: Evidence from cointegration tests. Applied Economics, 37(17), 1979–1990. Nkansah, H. K., Suleman, S., Ackah, I., Amarh, B. A., Eduah, D., & Jinapor, J. A. (2022). Determinants of electricity demand in Cote D’Ivoire, Ghana Nigeria and Senegal. Energies, 15(14), 4998. Litvinenko, V. (2020). The role of hydrocarbons in the global energy agenda: The focus on liquefied natural gas. Resources, 9(5), 59. Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. Radovanovi´c, M., Filipovi´c, S., & Golušin, V. (2018). Geo-economic approach to energy security measurement–principal component analysis. Renewable and Sustainable Energy Reviews, 82, 1691–1700. Rathore, P. K. S., Chauhan, D. S., & Singh, R. P. (2019). Decentralized solar rooftop photovoltaic in India: On the path of sustainable energy security. Renewable Energy, 131, 297–307. Sovacool, B. K. (2010). Introduction: Defining, measuring, and exploring energy security. In The Routledge handbook of energy security (pp. 1–42). Routledge. Sorrell, S. (2015). Reducing energy demand: A review of issues, challenges and approaches. Renewable and Sustainable Energy Reviews, 47, 74–82. Suleman, S., & Zaato, J. J. (2021). Local content implementation and development in Ghana’s upstream oil and gas sector for sustainable development: Contemporary issues on policy management. Discover Sustainability, 2, 1–15. Suleman, S., & Ennin, G. K. (2023). An empirical review of petroleum revenue management and distribution after a decade of oil production and export in Ghana. The Extractive Industries and Society, 13, 101228. Williams, D. (2009). Energy Security and National Security; Securing US Energy Resources. U.S. Army War College, Carlisle Barracks, PA 17013-5050. World Bank. (2020). What is the Sankofo gas project. What is the Sankofa Gas Project? Retreived August 23, 2023, from worldbank.org

Paul Minsung Gyeng PMP, PE-GhIE, is an engineer with previous experience in manufacturing, and currently with Eni Ghana Exploration and Production Limited. Paul holds a B.Sc. in Electrical and Electronic Engineering from KNUST and an M.Sc. in Energy Economics from GIMPA.

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His research interest is in energy systems and looks forward to further grow this desire. He is a certified Project Management Professional and a Professional Engineer of the Ghana Institution of Engineering. Shafic Suleman is a Senior Lecturer at the Institute for Oil and Gas Studies at the University of Cape Coast, Ghana. He holds a Ph.D. in Energy and Sustainability from the De Montfort University, UK, an M.Sc. in Energy Management from the Robert Gordon University, UK, and a B.A. in Geography from the Kwame Nkrumah University of Science and Technology, Ghana. Shafic is also a certified Energy Risk Professional (ERP) from the Global Association of Risk Professionals (GARP-USA). Francis Xavier Tuokuu is an international development professional serving as the Senior Advisor—Environmental Sustainability and Safeguards at Mercy Corps’ Technical Support Unit in Washington, D.C. He boasts a portfolio of 23 scientific papers in esteemed journals and has coauthored 2 book chapters published by Routledge. Currently, Dr. Tuokuu is enrolled at Harvard Kennedy School’s Executive Education Program, focusing on Public Policy. He holds a Ph.D. in Environmental Studies from Antioch University and dual master’s degrees from Antioch University and The Robert Gordon University.

Gender Mainstreaming in the Energy Sector

Putting Gender on the Corporate Agenda in Ghana’s Oil and Gas Industry Phil Faanu and Emmanuel Graham

List of Abbreviations SSA STEM ILO NDC ILO AA IPU GTPCWU MCC CEO CEDAW EITI CMA SEC PURC REMP

Sub-Saharan Africa Science, Technology, Engineering, and Mathematics International Labor Organization National Democratic Congress The International Labor Organization Affirmative Action Inter-Parliamentary Union General Transport, Petroleum and Chemical Workers’ Union Millennium Challenge Corporation Chief Executive Officer Convention for the Elimination of Discrimination Against Women Extractive Industries Transparency Initiative Capital Markets Authorities Securities and Exchange Commissions Public Utilities Regulatory Commission Renewable Energy Master Plan

P. Faanu (B) McMaster University, Hamilton, Canada e-mail: [email protected] E. Graham Department of Political Science, York University, Toronto, Canada e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_25

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1 Introduction Existing research on extractive resources focuses on the contradictions related to oil discoveries and production (Jiang, 2009; Mideksa, 2013; Obeng-Odoom, 2015a; O’Shaughnessy & Krogman, 2011), while others focus on the paradoxes associated with oil exploration and economic growth (Fleming et al., 2015; Murphy & Hall, 2011; Ross, 1999). There is also literature on natural resource exploration and civil conflicts (Bannon & Collier, 2003; Humphreys, 2005; Ross, 2004) and other equally relevant socio-political and economic phenomena. Over the years, the industry has caught the attention of many scholars and practitioners’ attention, leading to enormous literature. The mixed results associated with the extraction of “black gold” (oil and gas) in developing countries have particularly attracted researchers growing interest in the industry. Petroleum (oil and gas) is one of the natural resources that turn the fortunes of countries like Sweden, Norway, and other oil-dependent states in the North, but the story in the global south is different. Darkwah (2010) believes that oil stimulates the global economy as crude oil facilitates the different means of transportation that allow the movement of goods and people around the globe. There is no doubt that oil serves as the engine that speeds growth in every economy. The argument is made that some oil-endowed countries, predominantly in Africa, are embedded in systemic and endemic poverty. In this case, oil-dependent countries suffer from what economists call the “resource curse”—a paradoxical situation in which a country underperforms economically despite being home to valuable natural resources (Ross, 1999) and “Dutch disease”—oil windfalls can hurt other sectors of the economy by pushing up the real exchange rate of a country’s currency and thus rendering most other exports non-competitive (Karl, 2007). Oil extraction has also been identified to be characterized by socio-cultural issues in some countries besides endemic poverty traits. Nwachukwu and Mbachu’s piece on “The socio-cultural implications of crude oil exploration in Nigeria” establishes that oil extraction in Nigeria has negatively affected the people’s economic, social, and cultural lives (Nwachukwu & Mbachu, 2018). Similarly, Farioli and Dafrallah (2012) demonstrate how oil extraction negatively affects household and vulnerable people, while Scott et al. (2013) study on three developing countries underscores how gender is impacted. Similarly, Ovadia (2021) shows how gender is overlooked in local content laws in Africa, pointing to how the sector is male-dominated in Tanzania, yet the negative externalities of the sector impact more women than men. As such, Ovadia (2021, p. 1) argues for “a holistic approach to gender equality in legislation, regulation, policy, education and training” in the extractive sector for it to benefit all in developmental outcomes. It is from this background that this paper emphasizes the nuanced nature of oil and gas endowment and extraction in developing countries through gender lenses. Gender as a socio-cultural feature is identified as a challenge in Ghana’s oil and gas industry. For Murphy et al. (2021), women must have tough skin to work in the oil and gas industry because of masculine characteristics. Against this backdrop, we argue for the deliberate and purposive inclusion of gender (women) in the corporate agenda of the oil and gas industries. We are proposing a framework,

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“gendering the corporation,” to demonstrate how firms in the extractive industry can address gender inequalities in the oil and gas or the energy industry. Gendering the corporation is conceptualized to imply the deliberate inclusion of women on the corporate agenda of extractive activities, such as hiring more women and liberating women’s access to extractive benefits. In Ghana, oil extraction presents a crucial ingredient for economic development and reshaping of socio-cultural dynamics—gender equality and equity in all spheres of socio-economic activities (Gyan, 2013). However, gender inequality continues to be a systemic and structural problem in all sectors of the economy. Ghana’s present journey to achieving Sustainable Development Goal #5—achieve gender equality and empower all women and children—is far from realization despite some noticeable significant progress. In Ghana, just like in most developing economies, there is an appreciable representation of women in executive employment in the formalpublic sector, while the private and informal sectors are the reverse. Nevertheless, such jobs tend to be insecure, and conditions of services and benefits are nothing to write home about. As demonstrated below, more women are into entrepreneurial businesses. However, the increasing number of women in the private sector are predominantly in the menial entrepreneurial businesses but not hard-core businesses like oil and gas extraction. For instance, Gyan (2013) contends that women are over-represented in informal employment, with its lack of benefits and security, while Rucker (2001) discusses complex reasons why women continue to be underrepresented in the oil and gas sector. Women and, broadly, the vulnerable face systemic discrimination in all phases of an extractive industry project, especially in developing countries. An Oxfam paper by Greenspan (2017) confirms the systemic discrimination against women in the industry reflecting the existing power asymmetry in society, while Hill et al. (2017) contend that there are gendered divisions in the extractive industries, which make women more vulnerable in all phases of the extraction than their male counterparts. Greenspan (2017) further laments how the entrenched gender bias constrains women from accessing economic benefits. Most extractive societies in the developing world are characterized by gender-blind policies and practices in company–community consultation and decision-making processes that reflect the systematic exclusion of women and silencing of women’s experiences, perspectives, and interests in extractive industries projects (Greenspan, 2017; Lieu et al., 2020; Ovadia, 2021; Rickard, 2020). With these noticeable genderblind spots, discrimination, marginalization, and under-representation in the oil and gas industry, it leaves one skeptical if Ghana is en-route to achieving SDG #5. Against this backdrop, this chapter believes that tackling gender inequality within Ghana’s oil industries requires a fundamental shift within the industry and the state’s policy direction and scope. There is a need for a paradigm shift in the approach to gender inequality in the industry. Conventional approaches, such as the state being the sole actor in designing gender policies, must be reviewed, especially if the corporate world will have to be instrumental and play a key role in realizing gender equality in the extractive industries. This will require gendering the corporate world with private–public collaborated gender-sensitive policy initiatives. We believe that the process requires reshaping the values, culture, and norms that produce and maintain

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gender bias within the industry (Greenspan, 2017). Gendering the corporate world requires “deliberately putting” women on the corporate agenda of extractive firms to complement the affirmative action efforts from the state. It is our hope that this can be done through policy initiatives such as quotas or diversity programs. This is particularly important because the country’s economy is driven by the extractive industries. Besides meeting SDG #5, extant studies confirm a positive correlation between gender equality, progressive women’s rights, and poverty alleviation (Chant, 2014; Shikha, 2019). Gendering the corporate agenda to ensure gender equality must become one of the central indicators of the country’s success as a driver of sustainable development. Therefore, the central proposition of this chapter is that Ghana’s oil and gas industry can play an unmatched role in ensuring gender equality in the political and economic domain of the country and the country’s quest to meet the SDGs on poverty reduction and gender equality. Gendering the corporation requires institutional and stakeholder commitment and collaboration, particularly public–private stakeholder engagement. Public stakeholders from the Ministry of Land and Natural Resources, Ministry of Energy, Ministry of Employment, Ministry of Education, Ministry of Gender, Children, and Social Protection, the Energy Commission, civil society, and other related institutions must seek deliberate cooperation with the private industry for policy options to address gender disparities in the industry. A review of the existing institutional policy frameworks reveals a silence on the overarching importance of gender mainstreaming in the corporate world, and this needs redress. This being the case, it is relevant to understand the existing dynamics of the oil and gas industry, the corporatestate policy scope, the gender content of the industry (mainstreaming gender), and the socio-cultural barriers that characterize the industry. This will help inform policy recommendations for the gendering of the extractive industry. The discussion begins with a brief overview of gender and oil extraction in Ghana.

2 Gender and the Dynamics of Oil Extraction in Ghana: An Overview In 2007, Ghana discovered oil in commercial quantities 60 km offshore of the country’s Western Region (Darkwah, 2013; Obeng-Odoom, 2015b). Since the production of oil in 2010, the Ghanaian government’s main goal has been to capitalize on the interest of multinational and local companies in oil production to generate revenue and foster socio-economic development. In furtherance of the multinational and local interests, the government of Ghana passed several policies and Acts to ease exploration and production. For instance, Ghana passed the Petroleum Revenue Management Act 815/893 and the Local Content Policy to ensure that the country generates enough revenue from oil production for socio-economic development (Ackah & Mohammed, 2020; Ackah et al., 2020; Aryeetey & Ackah, 2018).

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Ghana’s upstream oil extraction sector has seen significant growth and development in recent years. The discovery of oil in commercial quantities off the coast of Ghana in 2007 has transformed the country’s economy and energy landscape broadly (Acheampong & Stephens, 2022). However, like many industries in the energy sector, there are gender inequalities and disparities in the participation and distribution of benefits (Boohene & Peprah, 2011; Overå, 2017). This disparity is usually skewed in favor of men than women. Briefly, we give an overview of the dynamics of gender inequalities in Ghana’s upstream oil sector. First, women are significantly under-represented in the Ghanaian upstream oil sector, particularly in technical and leadership roles. A study by Africa Development Bank (AfDB) estimates that in 2012 women were only 7.8% of the global labor force in the oil and gas industry, and the incident of gender balance is even more skewed in offshore operations (Traore, 2017). This translates into the global arena, where women make up only 5% of executive members and 14% of senior management at the top 200 power and utility companies (EY, 2016). Overall, this reflects the lower figures of women’s representation in the oil and gas industry and the general extractive industry. In instances where women are employed in the industries, they often hold lowerechelon jobs with lower earnings than men (Baah-Boateng et al., 2022). In Ghana, based on 2013 figures, women represent less than 20% of people employed in the oil and gas industries as well as in the mining and quarrying sector, and their earnings were only 73% of those of men (Baah-Boateng, 2016). This is comparatively lower than the percentage in Côte d’Ivoire, where women represent 22.1% of the labor force in the oil and gas industries. Quite recently, Mr. Kweku Awotwi, the Executive Vice President of Tullow Ghana, an oil production company, has described the representation and participation of Ghanaian women in the energy sector as “depressively low.” This places the spotlight on the need for policy considerations on women’s access to jobs and skills-based training in the oil and gas industry. This under-representation is partly due to historical gender biases and stereotypes in STEM (Science, Technology, Engineering, and Mathematics) fields (Overå, 2017). Limited access to education and training opportunities in STEM fields for women contributes to their under-representation in technical roles within the industry. Additionally, women have limited participation in oil-related jobs, especially those involving offshore operations and drilling. These roles are often seen as physically demanding and hazardous, which may discourage women from pursuing careers in the sector (Boohene & Peprah, 2011). Also, women in the sector often face income disparities compared to their male counterparts. This is partly due to their limited access to high-paying technical and managerial positions. Sadly, in some instances, there is gender-based discrimination and harassment which persist in the workplace, creating a hostile environment for women and hindering their career progression in the oil and gas sector. Women are often excluded from decision-making processes related to oil sector policies, regulations, and community engagement initiatives. Finally, the oil industry can have social and environmental impacts on local communities. Women in these communities may experience disproportionate negative effects, such as displacement and disruption of traditional livelihoods (Overå, 2017). A similar case was pointed out by Ovadia (2021), highlighting the oil and

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gas sector’s pronounced male dominance in Tanzania, which is a concern since the adverse consequences of the sector disproportionately affect women than men. With the African region’s extractive industry being tagged as having deep-seated gender disparities (see Onditi, 2022), have there been efforts to mitigate the situation? Just like the situation being murkier, so is the answer to this question. The corporate world, especially in the energy industry, is overwhelmingly patriarchal and gender mainstreaming remains in the gray area.

3 Mainstreaming Gender: Affirmative Actions and Institutional Provisions In sub-Saharan Africa, gender mainstreaming appears to be gaining ascendancy as the region experiences “some progress” in its overall score on the 2020 SDG Gender Index. The region’s score of 52 in 2020 is still “very poor” despite steady progress from 49.8 in 2015 (Crotti et al., 2021; Hawke, 2022). The 2020 SDG Gender Index sheds light on 36 countries, covering 96% of girls and women in sub-Saharan Africa (ibid). Also, the UN-SDG 2018 facts sheet for the region reports that only about one in five countries have achieved gender parity in industry, innovation, and infrastructure, and female researchers stand at 31% (UN Women, 2018). The gender disparity is more worrisome when measured with income inequality between men and women within households; women are more likely than men to live below 50% of the median income. In the political domain, according to the IPU (2023), SSA women currently hold just 27.8% of parliamentary seats (both lower and upper chambers), a little above the global average of 26.8%. In the continent, Rwanda continues to reign as the leader in women’s representation in national parliaments, with 61.3% of parliamentary seats held by women, as shown in Table 1. The table does not represent all countries in the region but is a sample to illustrate the trend of women’s representation in politics. While no other country surpasses gender parity, 15 countries in sub-Saharan Africa demonstrate female representation in national parliaments that surpasses the global average—26.8%. Also, Longitudinal data from the Global Gender Gap Index shows that the global average share of women in ministerial positions nearly doubled between 2006 and 2022, increasing from 9.9% to 16.1%. In contrast, women’s leadership in Sub-Saharan Africa, alongside Europe, East Asia, and the Pacific, has been growing (Pal et al., 2022). Gender parity in labor-force participation has improved moderately or steadily since 2012 in SSA. Nevertheless, gender parity in the region is still far from reach. The gender mainstreaming policies institutionalized in national politics—gender quotas in (Rwanda, Angola, South Africa, Mozambique, Namibia, Senegal, Tanzania, the DRC, Uganda, etc.) have caused an increase in the representation of women in parliament. This, in many ways, helps to address the problem of the under-representation of women in national decision-making and inevitably facilitates the march toward the realization of SDG #5. The decision to use quotas is

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particularly relevant since women usually constitute 50% of the population or even more in some countries in the region (Ballington, 2004). Nonetheless, in countries like Ghana, where gender quotas are non-existent, women compete fearlessly with their male counterparts in politics and other realms for representation. In such environments, women’s personal ambitions and resources, coupled with the efforts of civil society, NGOs, and gender advocacy groups, are instrumental in bridging the gender inequality gap. Gender parity or women’s representativeness in the public bureaucracy in Ghana continues to be a significant puzzle to crack. In Ghana, women continue to be ranked (in terms of numbers) at the lower basis of the social, economic, and political pyramid. Table 1 2023 women’s representation in SSA parliaments Country

Chamber

% of Women

Benin

National Assembly

26.61

Burkina Faso

Transitional Legislative Assembly

16.9

Cabo Verde

National Assembly

41.67

Ghana

Parliament

14.55

Guinea

Transitional National Council

29.63

Guinea-Bissau

People’s National Assembly

13.73

Angola

National Assembly

33.64

Central African Republic

National Assembly

12.86

Chad

Transitional National Council

25.89

Comoros

Assembly of the Union

16.67

Djibouti

National Assembly

23.08

Malawi

National Assembly

20.73

Mali

Transitional Council

28.57

Mauritius

National Assembly

20

Mozambique

Assembly of the Republic

43.2

Nigeria

National Assembly/House of Reps

27.3

Rwanda

National Parliament

61.25

Sao Tome and Principe

National Assembly

14.55

Senegal

National Assembly

46.06

Seychelles

National Assembly

22.86

Sierra Leone

Parliament

13.01

South Africa

National Assembly

46

Togo

National Assembly

19.78

Uganda

Parliament

33.81

Republic of Tanzania

National Assembly

37.4

Zambia

National Assembly

14.97

Source: Inter-Parliamentary Union (2023)

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This makes it difficult for women to break the so-called “glass ceiling” despite constituting most of the country’s population. Women’s under-representation is not a unique trait of the public sector but also in the corporate world. Private businesses like those in the extractive industry (oil and gas and mining), for instance, are arguably gendered in their operations. The general perception surrounding jobs in the extractive industry is that they are hard-core and manly work and unsuitable for women. This is nothing more than a patriarchal argument. Feminists like Cynthia Enloe, Ann Tickner, and Christine Sylvester, among others, over the years, criticized search masculinized arguments as ways of discriminating against women, consigning women to subordination and preventing them from realizing their full potential. Despite the masculinized and patriarchal nature of the global south economies and societies, there have been efforts from succeeding governments and nongovernmental organizations in the public realm to promote women’s participation in politics and public life. Such efforts and advocacy are, however, predominantly in public institutions. A case in point is the stalled Ghana’s affirmative action efforts, which we turn to shortly. The literature, however, is silent on corporate efforts in promoting women’s participation or representation in key positions of private industrial businesses. Our goal here is to shed light on this and demonstrate why it is necessary to put gender in the corporate world, too, but not just in the public sphere. This is because “the personal or the private” is increasingly becoming “public” as the corporate world demonstrably creates more jobs. The International Labor Organization (ILO) posits that in some developing countries, over 90% of jobs are created by the private sector.1 To contextual the gender mainstreaming perspective in the public sphere, reference is made to Ghana’s Affirmative Action Bill. Between 2009 and 2016, the government of the National Democratic Congress (NDC) of Ghana initiated the Affirmative Action (AA) bill and submitted it to the parliament of Ghana. However, to date, the Bill has still not been passed. Successive government has made several promises to get the Bill passed in 2017 and 2020, yet none of these promises have materialized. The affirmative action bill is a temporary mechanism aimed at removing discrimination and improving the rights of marginalized groups (women in our case) who have been historically disadvantaged. This marginalization is characteristically gendered. The failed or stalled AA bill seeks to remove the historically low representation of women in all decision-making spaces while promoting democracy and development through the effective participation of all citizens. In addition, it seeks to promote women’s representation to a minimum of 40% in all policy-making spaces. It is unclear how this bill, when passed into law, could bridge the gender gap in the corporate sector and industries like oil and gas, but successes in passage and implementation could have rippling effects in the private sector. The success of the bill could serve as a benchmark for inclusive decisionmaking not just in the public sector but also in the private sector. The yardstick of Ghana’s goal toward gender equality or increasing women’s representation in the socio-economic and political sectors of the country is the creation of the Ministry of Women and Children Affairs, the appointment of the first female Chief Justice 1

https://www.ilo.org/pardev/public-private-partnerships/jobs-growth/lang--en/index.htm.

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and the introduction of domestic violence law by the erstwhile Kufuor administration. Barring the political agenda or capital behind these appointments, it is fair to acknowledge that these are steps in the right direction with respect to the quest for gender equality. As a sovereign state and a member of the “League of Nations,” Ghana’s gender equality targets and goals are guided by the country’s commitment to International Instruments, the 1992 Constitution, and national development frameworks. Specifically, Article 17(1) and (2) of the 1992 Constitution guarantees gender equality and freedom of women and men, girls, and boys from discrimination based on social or economic status, among others. In 2015, the country’s national gender policy document, “Mainstreaming Gender Equality and Women’s Empowerment into Ghana’s Developmental Efforts,” was launched to complement existing initiatives of gender equality, equity, and women empowerment. The policy document challenges stakeholders in respective sectors of the economy to take strategic policy actions as directed [by this Policy] to address bottlenecks, barriers, and critical issues in the country. The issues of concern include (National Gender Policy, 2015, vii). Inequality in access to social protection by the marginalized, vulnerable and the poor. Inequalities in the burden of extreme poverty, education, skilled training gaps, and excess maternal mortality. Unequal access to social and economic power and justice, including lack of respect for and inadequate protection and promotion of human rights of women and girls. Inequalities between women and men in sharing power and decision-making at all levels and dealing with all kinds of conflicts, security, and threats on women and girls. Inequality in macro-economic issues, including trade, industry structures, and productive resources. Stereotyping and persistent discrimination against women and girls manifest in hostile gender relations and values for gender roles and responsibilities with severe implications for maternal health and mortality. But as demonstrated above, the AA bill is still hanging in the current “hungparliament,” and it is unclear when this bill will be metaphorized into law. For some scholars, the obstacles to the realization of the goals of the AA policy include a lack of buy-in from existing women who have benefitted from previous gender initiatives. Quite persuasively, women in leadership/executive positions tend to be protective of their jobs instead of actively being engaged in serving as role models to younger females. In other words, women in power fail to pull other women along, and this stifles any affirmative action initiative. Also, systemic problems—bureaucratic redtapism—nepotism, and favoritism are limiting factors. Despite this, Ghana has made strides in meeting SDG #5 on gender equality. The country’s parliament has progressively witnessed an increase in women’s representation (see Table 2), and women now occupy executive and managerial positions in both public and private sectors. Notable but not exclusive successful women inspiring the future are Nana Oye Bampoe Addo, a barrister, politician and former Minister of Gender, Children and Social Protection; Angela Dwamena-Aboagye; Executive Director of the Ark Foundation; Patricia Blankson Akakpo; Programme Manager at Network for Women’s Rights in Ghana, Theresa Ayoade; CEO of Charterhouse Productions Ltd., Dorcas CokerAppiah; Executive Director of Gender Studies & Human Rights Documentation

562 Table 2 Gender representation in Ghana’s extractive industry, 2013

P. Faanu and E. Graham

Sector

Male

Female

Mining

85.9

14.1

Quarrying

55.7

44.3

Petroleum and Gas

92.3

Crude oil

75

25.0

100

0

Natural gas

7.7

Source: Baah-Boateng (2017)

Centre. This list also includes Professor Naana Jane Opoku-Agyemang, the former Vice Chancellor of the University of Cape Coast and 2020 running mate of the NDC flagbearer, Professor Rita Dickson, Vice Chancellor of KNUST, Professor Nana Aba Appiah Amfo, Vice Chancellor of the University of Ghana and the Chancellor, Mrs. Mary Chinery-Hesse. The list continues. However, the overall effect of this progress in the gender parity project is still a critical contestation. Women’s reproduction and production roles in the political economy of Ghana cannot be contested, and there is a need to reposition the gender spotlight not only in the public sphere but also in corporations, especially in the extractives for holistic development. The famous Dr. James Emmanuel Kwegyir-Aggrey saying, “If you educate a man, you educate an individual; if you educate a woman, you educate a nation,” resonates here. The insinuation is that women who are financially and economically empowered tend to ensure equitable distribution of family resources and stable homes (Abankwah & Abebe, 2011). Statistically, women’s representation in Ghana’s fourth republic parliament since 1992, when Ghana reset its democratic button after a series of military rules, has been appreciative. The number of female parliamentarians in the country’s legislative has been moderately incremental, from 8% in 1992 through to 14.55% in 2023.2 For specific years’ scores, refer to the Inter-Parliamentary Union (IPU) 2023 country analysis. More women engage in the political domain without institutional motivations to incentivize gender parity. Ghana’s electoral system, especially for parliamentary elections, is first-past-the-post with no electoral quotas to facilitate women’s representation in national and local politics. So, it can be argued that the level of political maturity, stability, and democratization are viable and enabling factors driving women’s representation in politics. These advances in women’s increased representation in parliament and other leadership positions in Ghana reflect the private sector strides, too. Ghana, joined by Uganda and Botswana, is recently ranked highest globally as the country producing the most female entrepreneurs, with an estimated percentage of 46.4, according to the Mastercard Index of Women’s Entrepreneurship (Mastercard, 2022). However, the walk toward gender parity is still a long walk in the private sector. There is a need for deliberate and purposive action to put gender on the agenda of all sectors of the economy. The oil and gas industries and their twin, the mineral sector, 2

https://www.ipu.org/parliament/gh.

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can be an avenue to meeting gender parity. The government of Ghana, through its shares in the mining and oil and gas concessions, can mandate some gender quotas for women’s recruitment into some of the key positions of the industries. Table 2 is a synopsis of the conspicuous under-representation of women in the extractive industry, with a meager 7.7% of women in the oil and gas industry (Baah-Boateng, 2017). McQuinn and Sallah’s (2022) “Oil in Ghana: The Work of the General Transport, Petroleum and Chemical Workers’ Union (GTPCWU)” further stresses this disparity, recording only 81 females out of 505 GTPCWU workers. Critics may raise the question of qualification and eligibility. But this is outrightly shot down because there are many STEM graduates out there in the market who are eligible to be recruited if the unreasonable years of experience requirement are moderated. This point is reinforced by the Millennium Challenge Corporation (MCC) asserting that in Ghana, the number of women graduating with Science, Technology, Engineering, and Math (STEM) degrees is increasing, but women’s employment in the power sector is not (Dejene, 2020). Regrettably, women attempting to enter the energy sector face barriers such as gender stereotypes and bias and a lack of training, mentorship, and networking. As a result, women who are graduating with STEM degrees and technical training certificates too often end up working in unrelated fields, underutilizing the skills they have developed (ibid). Gender dynamics within the oil and gas sector of Africa present a multifaceted landscape of disparities and opportunities. In Ghana, all levels of labor skills are disproportionate in women’s representation, as highlighted in Table 3. The sector has traditionally been male-dominated, with limited representation of women in key decision-making roles and technical positions (Ovadia, 2021). Occupational segregation and wage gaps persist, contributing to gender-based economic inequalities. Moreover, gender-based discrimination and harassment further deter women from pursuing careers in this critical industry (Overå, 2017). Nevertheless, there is a growing recognition of the need for gender-inclusive policies and practices in the African oil and gas sector. Some governments have introduced local content policies to encourage the participation of women-led enterprises in the sector, and capacity-building programs aim to equip women with the skills needed for technical and managerial roles. Women entrepreneurs have also emerged in sectors related to oil and gas, contributing to local economic development. Civil society organizations play a vital role in advocating for gender equity, shedding light on disparities, and fostering change within the sector (Pastorini, 2005; Shafto, 2019). Beyond employment disparities, the gender dynamics within the African oil and gas sector extend to the realm of social reproduction. The migration of men to oilproducing regions for employment often leads to significant shifts in household and community dynamics. Women are left to manage households and families, leading to changes in traditional family roles and power structures. Additionally, women frequently shoulder the burden of unpaid domestic and caregiving labor, including childcare, eldercare, and household chores. This unpaid care work, compounded by the demands of the oil and gas sector, can limit women’s opportunities for education and employment. Furthermore, gender disparities in employment and benefits distribution can perpetuate gender-based inequalities within oil-producing communities,

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Table 3 Job types and gender in the extractive industry, 2013 Job level

Mining and petroleum

Quarrying

Male

Male

Female

All extractives Female

Male

Female

High skilled

11.4

8.9

4.4

0.0

9.9

Semi-skilled

3.2

2.2

0.0

1.8

2.6

4.0 3.0

Production

41.3

28.9

22.1

20.4

37.4

24.0

Elementary

66.0

41.6

60.0

70.6

72.2

47.6

Other

2.6

0.0

2.9

5.6

2.6

3.0

Total

100.0

100.0

100.0

100.0

100.0

100.0

Source: Baah-Boateng (2017)

hampering women’s access to community development opportunities and resources. Understanding and addressing these social reproduction challenges is crucial for fostering equitable development in oil-dependent regions of Africa.

4 Gendering the Corporation Creating the conditions to unlock the full potential of women and achieve their economic goals is a complex and difficult challenge. At a macro level, there is significant potential to raise women’s labor participation rates across the continent. At a corporate level, where high-skilled where few women are employed, it can serve as an opportunity to capitalize on to advance women into leadership positions where they can make the greatest contributions. To do this, we propose gendering the corporation. Gendering the corporation implies deliberately putting gender (women) on the agenda of extractive corporate activities, such as hiring more women and liberating women’s access to extractive benefits. The insinuation is that the extractive corporate world is gendered—patriarchal and masculinized. The hope is that this approach can help bridge the gender gap in corporations to complement public institutional efforts toward gender equality in the Ghanaian economy. For the dyed-in-the-wool neoclassical law and economics scholar, thinking about corporations in terms of gender attributes is pushing the reification metaphor a notch too far. But it is never an impossible task. It is only a die-hard patriarchy that sees this as a task beyond realization. As demonstrated elsewhere (see below), corporations stand to gain more with women occupying executive and other key company positions. Regrettably, emerging research on corporate governance continues to affirm connections between values stereotypically associated with the masculine or feminine gender and the values that directors and managers prioritize in the corporate world (Li & Harrison, 2008; Martin, 2015). This portrays some sense of discriminatory tendency in a sector that is already gendered in its pay structure, recruitment, and leadership or managerial appointments.

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The economic advantages of achieving gender equality in the corporate sector are noticeable, as are the inequalities in Ghana and the larger SSA region. Women have started outnumbering men in tertiary education in some countries in the region because of the awareness of girl-child education. In Ghana, the situation is bleak. Female and male enrollment ratios in tertiary institutions still fall short of the government goal of achieving 50–50, as male enrolment constitutes fifty-eight percent of total nationwide tertiary institutions. This arguably translates into the underrepresentation of women in employment, particularly in management and decisionmaking positions (Tanye, 2008; Warth, 2009). In our limited knowledge, we recognize that no society has realized gender parity in every sector of the economy, but there are societies where equal opportunities are provided for both genders to realize their potential. Arguably, the increasing number of educated women in Ghana does not translate into increased employment. This is characteristic of the SSA region. This lack of correlation between increased women’s education and increased employment, especially in decision-making positions, threatens the twin goals of ending extreme poverty and achieving gender parity. Gender equality in the corporate sector is not only desirable on human rights grounds but also makes good business sense. Research by Forbes shows that inclusive teams make better business decisions up to 87% of the time and that teams with less diversity are likelier to make poor choices for their companies.3 In recent years, the number of studies analyzing business implications and measures to enhance gender equality and diversity has grown (Campbell & Mínguez-Vera, 2008; Labelle et al., 2015). These very often stress the benefits companies stand to accrue by employing more women. For Lisa Warth, the benefits of balanced participation of women and men in business, particularly in management, range from improved staff recruitment and retention, creativity, innovation, and problem-solving to improved marketing strategies and outcomes (Warth, 2009). These are untapped benefits from women, and companies must open up their leadership positions to have access to a wider talent pool of women. Desvaux and Devillard (2008) found that gender diversity in senior management correlates with “organizational excellence” as measured by criteria including leadership, direction, accountability, coordination and control, innovation, external orientation, capability, motivation, work environment, and values. Putting “gender” on the extractive corporate agenda is multi-beneficial as companies gain from the untapped potential of women, societal and state decision-making become more equitable, and women tend to be more financially and economically empowered for stable family development. While some African Petro-economies have moved further ahead than others in adopting some policies or programs to address the paucity of women in the ranks of corporate decision-makers (Boserup, 2007; Kamberidou, 2020), there are still far too many who have yet to realize that this is even an issue of concern. This begs the question of whether gender inequality in the corporate world is a case for legislation. Globally, progress in the corporate sector remains slow, though employers are 3

https://www.forbes.com/sites/eriklarson/2017/09/21/new-research-diversity-inclusion-better-dec ision-making-at-work/?sh=48141f074cbf.

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increasingly introducing measures to promote gender equality voluntarily (Warth, 2009). The African continent is argued to be positioned third after the US and Europe and first among other emerging regions in terms of women’s representation in boardrooms of top listed companies (Howaidy, 2017; Terjesen et al., 2015). Women entrepreneurship is blossoming in Ghana and the SSA region as there are rising female entrepreneurs propelling business innovation in emerging markets and positively impacting families’ livelihoods. This shows that women’s entrepreneurial activities anchor economic growth and development despite the endemic challenges they continue to encounter and navigate to overcome. Some studies established that the SSA private sector has more women in the executive committee, Chief Executive Officer (CEO), and board roles in companies than the worldwide average. For instance, Moodley et al. (2016) posit that Africa performs well globally, with a higher percentage than the average of women executive committee members, CEOs, and board members. The numbers vary by industry and region—not surprisingly—and are much lower in extractive industries that traditionally rely on men for their workforce—heavy industry, for example. The African Development Bank research also reveals that women in Africa hold 12.7% of board directorships (364 out of 2,865) in 307 listed companies based in 12 African countries in 2015 (Fraser-Moleketi et al., 2015). Yet women are still under-represented at every level of the corporate ladder—non-management, middle and senior management—with only five percent of women making it to the top.4 Figure 1 is a sample of 2015 women board directors’ representation in selected African countries, indicating a laggard in the corporate world’s gender equality agenda. This is unsurprisingly an opposite trend of progress compared to the political realm in which some countries have quotas to bridge the gender gap. The data on respective countries’ cases are worst off as few women are employed, and a negligible number are in top executive positions. The UN study on “Corporate boardrooms: where are the women?” reports that in Africa, countries with the highest percentage of women board members are Kenya (19.8%), Ghana (17.7%), South Africa (17.4%), Botswana (16.9%), and Zambia (16.9%).5 In the extractive corporate world of most countries in SSA, more than half of senior women occupy staff roles rather than positions they can be promoted to CEO. Lisa Warth refers to this as vertical gender segregation, where women continue to predominate in the lower echelons of the career ladder and continue to be strongly under-represented in top management (Warth, 2009). In context, gender disparity is more pronounced in the masculinized and patriarchal extractive industry. Despite the salience of gender parity, women’s involvement in mining, oil, and gas extraction has increasingly been on the edge of corporate interests (Williams et al., 2014). The 2018 Study on Gender Representation in the Petroleum Sector by energy policy NGO—Ghana Oil and Gas for Inclusive Growth—reveals only three female chairs on the 33 boards surveyed, with only five having more than one woman represented. 4

https://www.mckinsey.com/featured-insights/sustainable-inclusive-growth/chart-of-the-day/ women-remained-significantly-outnumbered-in-management-roles-at-the-beginning-of-2020. 5 https://www.un.org/africarenewal/magazine/december-2017-march-2018/corporate-boardr ooms-where-are-women.

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Fig. 1 Percentage of women board directors in selected African countries. Source: Fraser-Moleketi et al. (2015)

Data on gender representation in the oil and gas sector point to disparities, which is obvious since Ghana has yet to have a substantive or deputy female minister for the energy sector. In the wake of oil and gas discovery and exploration, Ghana ratified various international and regional protocols, such as the Convention for the Elimination of Discrimination Against Women (CEDAW) and the Africa Protocol on Women’s Rights, which aim to promote women’s rights—yet compliance with such protocols is hardly evident in any of the country’s oil and gas sector. Also, there is no sectorspecific institutional framework demonstrating a commitment to gender responsiveness in the oil and gas sector. A review of the country’s oil and gas value chain shows a skewed strategic interest in the sector’s scientific, technical, and economic development. With the growing talent pool of women, it is quite surprising that the sector does little to diversify its labor force to tap from the talents and potentials of women. In as much as scientific, technical, and economic aspects of the oil and gas sector are necessary, other critical gender and social issues require equal attention from policymakers, corporate shareholders, and other critical actors. Why is it important to pay attention to gender equality in Ghana’s oil and gas sector? What is the value added to ensuring women have equal roles or representation in corporate oil and gas leadership? From the human rights perspective, women have the same right to development as men, so if the oil and gas sector diminishes their access to economic and social development, that violates human rights. Also, women are often the linchpins of their communities, with critical roles in ensuring the health, nutrition, education, and security of those around them; hence, increasing women’s participation in the sector is more far-reaching than men’s in Ghanaian society. Investing in women and assuring their participation in development is critical for their development and the socio-economic development of their families and communities. Simionescu et al. (2021) found a correlation between women on a company’s board of directors and improved financial performance of the company.

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Hence, women’s representation on boards is not only a gender equality issue but is also a performance optimization strategy. More and more evidence shows that a better gender mix among senior management is linked with minimal errors and greater profitability (Krishnan & Parsons, 2008; Noland et al., 2016). There is a clear development case for investing in women and ensuring access to economic and financial resources in the extractive sector. Besides contributing to the realization of SDGs # 5 and 13, women are more likely to devote resources to food and children’s health care and education when in control of financial resources. In Brazil, women’s increased control of household income resulted in a 20% increase in child survival (Hessel et al., 2020). Other studies have indicated that children’s growth is increased by 17% when mothers control credit than when fathers do (The World Bank, 2002). Other studies have demonstrated that women in managerial positions also tend to be less corrupt than their male counterparts (Dollar et al., 2001). This is debatable anyway. According to Eftimi et al. (2009), ensuring women actively participate in corporate activities is suitable for women, families, and businesses. This is because extractive operations depend not only on the characteristics of the ore bodies and oil and gas reservoirs being developed but also on the social license of the communities in which companies operate, which women are in a better position to secure than men. Indeed, where companies solicit women’s input and participation, women’s approval and social license may be viewed as a litmus test for the success of a company’s employment, environmental, social, community consultation, and gender-related policies and activities (Eftimi et al., 2009). The Ghanaian governments and extractive companies can work independently and in partnership to support women’s economic empowerment in and around extractive operations. In addition to increasing women’s presence in operations and management, extractive companies can also monitor their suppliers and identify examples of suppliers with a high percentage of women employees. These can become examples for others to follow. Extractive companies can then work with suppliers and provide incentives for suppliers to increase their employment of women (such as preferences in bid evaluations for women’s businesses or businesses with a large proportion of women employees) and/or requirements (such as minimum percentage of women employees) for a supplier in their requests for proposals and contracts with suppliers. Across the broader spectrum of the industry, there is strong interest across diverse stakeholders—including government, industry, and civil society—to empower women’s participation in the oil, gas, and mining sectors and ensure that extractives contribute to the livelihoods of men and women equally. According to the Extractive Industries Transparency Initiative (EITI), if extractive resources are to benefit all citizens, governance, and employment opportunities in the industry must be equal for both genders (Granado, 2018). The EITI laments how the extractive industries are disproportionately governed and operated patriarchally, and sectorspecific policies that take gender into account are relatively scarce. In the words of Talmika Hawiindi, Transparency International Zambia, “Deliberate efforts are needed to build the capacity of women to strengthen their voice and agency within EITI multi-stakeholder groups.” In agreeing with Talmika Hawiindi, we are saying

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that efforts are needed to deliberately put gender (women) on the agenda of extractive corporate operations. In making these arguments in favor of women’s active role in the extractive industries, we recognize that the industry is conspicuously embroiled with challenges and barriers that must be addressed to boost gender equality. And the larger corporate world cannot be gendered (deliberate involvement of women) when the current masculine traits persist. In the gendering of the corporation, we suggest a deliberate appointment of qualified women at the top positions of oil and gas firms, either informed by some diversity programs or policy frameworks. Some countries and firms adopt corporate/national policy frameworks to increase women’s representation in state-owned enterprises, which can be applied to Ghana’s oil and gas sector. For instance, the governments of Kenya and South Africa have mandates for women’s representation on the boards of state-owned companies, while the private sector in Kenya, Morocco, Malawi, Nigeria, and South Africa has integrated gender diversity into principles of good corporate governance (Fraser-Moleketi et al., 2015). But these cannot be viable actions with endemic social-cultural and patriarchal barriers preventing women’s development. The barriers to women’s development and realization of potential in the industry are well known: a mix of cultural factors, ingrained mindsets, and stubborn forms of behavior, including a tendency to tap a much narrower band of women leaders than is possible given the available talent pool. These barriers are broadly classified as business culture and structural. Regarding business culture, most board appointments continue to be made in a largely informal process based on the proverbial “old-boy” networks fed by family, clan, school, and business relations. Boards often lack an understanding of the necessity and benefits of a diverse board. The lack of visibility of women in senior executive posts is an obstacle to more women gaining board seats. This invisibility is tied to the stone-age reasoning and the patriarchal thought of businesses. The structural barrier is understood from the corporate and government perspectives. Corporate structural barriers relate to the infantile nature of corporate governance in Ghana and the larger SSA region. This does not help with the inherent transparency issues that characterize the governance process throughout the nomination process. Also, smaller boards with limited length of board service lead to fewer opportunities for board changes. Finally, weak state institutions and regulatory and policy environments serve as structural barriers that governments face. In such weak regulatory enforcement of current guidelines, corporate reporting becomes inconsistent and incomplete, making the application of additional regulations difficult. So, what is the way forward for gendering the corporation under these conditions? The way out of these endemic problems is unsurprising with the state institutions, corporations, and civil society. We propose that data be made available on the status of women on boards and corporate leadership positions to help determine what measures or policy choices must be taken to improve women’s representation in extractive corporate boards or top positions. Here, scholars in academia, gender activist researchers, and NGOs, among others, have a critical role in ensuring accurate and reliable data on women’s representation in the extractive industry.

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Secondly, we encourage governments to set up commissions to provide reports on and recommendations for action on improving women’s access to board seats in state-owned extractive enterprises and other extractive companies in Ghana and SSA in general. To complement this effort, Capital Markets Authorities (CMA), Securities and Exchange Commissions (SEC), or equivalent regulatory agencies in extractive countries must consider requiring companies to provide sex-disaggregated data on women directors and senior management in annual reports. Furthermore, states and corporations must mandate that women directors be considered as a strategy for addressing the lack of women in extractive companies. We further recommend that governments use legal mandates to appoint women to boards or top positions, beginning with state-owned companies or companies where they hold major stakes. Finally, the private sector and civil society have instrumental roles to play in helping to put gender on the corporate agenda. Following Doldor et al. (2012) and Fraser-Moleketi et al. (2015), we recommend corporate governance codes outlining good corporate practices for board nominations to ensure transparency and inclusiveness in the nomination process. Such corporate governance codes and standards and commissions should consider requiring companies to report women’s representation at all levels in the company—on the board of directors, in senior management, and company-wide. In all this, a stronger gender diversity language is required to ensure female representation on boards. On the ticket of civil society, the ability of women’s groups, advocacy groups, gender activists, and other professional associations to apply pressure to effect change in boardroom composition will contribute to gender parity. As we earlier alluded to, women themselves must be proactive in applying for board positions, and those in positions must be seen as a source of role modeling.

4.1 Ghana’s Institutional Efforts in Gender Mainstreaming Gender Mainstreaming framework encapsulates a process of identifying, taking full account of and integrating the needs and interests of women and men into all policies, strategies, programs, and administrative and financial activities (Caglar, 2013; Walby, 2005). It involves the recognition of and examination of the co-operative and conflicting relations which exist between women and men. As such, the framework utilizes gender analysis as a tool to enhance and enable development practitioners to identify the opportunities and constraints that each gender faces and to determine whether the policies and programs that they implement provide the same opportunities for women and men. Over the years, as demonstrated elsewhere in this edition, Ghana has made significant improvements in women’s inclusiveness in the general political domain. However, there are still critical gender mainstreaming issues facing the country, especially in the extractive industry. Suffice it to say that Ghana’s case is not unique as the entire Africa is argued to be experiencing deepseated gender disparities in the extractive industry (Onditi, 2022). Ghana’s step to addressing gender disparities is the 2015 National Gender Policy, which seeks to

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mainstream gender equality concerns into the national development processes by improving the social, legal, civic, political, economic, and socio-cultural conditions of the people of Ghana, particularly women, girls, children, the vulnerable and people with special needs—persons with disability and the marginalized (Ghana Gender Policy 2015). The country’s goals toward achieving gender equality targets are guided by its commitment to International Instruments, the 1992 Constitution, and national development frameworks. The country has provided the institutional and legal foundations for gender mainstreaming in the extractive industry with the establishment of the Ministry of Land and Natural Resources, which closely works with the Ministry of Gender, Children and Social Protection, the Ministry of Employment, the Ghana Energy Commission, the Public Utilities Regulatory Commission (PURC) and other related institutions to ensure gender-related issues are addressed in the industry to achieve its gender policy targets. Among other things, stakeholders are expected to take strategic policy actions as directed by this Policy to address bottlenecks, barriers, and critical issues existing alongside the successes (National Gender Policy, 2015). Prior to this policy document, Schiffer and Nkpeebo Yesutanbul’s (2021) policy brief acknowledges that the Ghana National Energy Policy recognizes the need for gendered responses to improving energy access. Ghana’s Energy Policy 2010 clearly indicates that women are some of the most important actors in the energy sector in terms of their use and management of household energy, including renewable sources. It, therefore, seeks to mainstream energy-related gender concerns and align them with wider health and safety as well as environmental standards. Similarly, the Ghana Energy Commission’s (2019) Renewable Energy Master Plan indicates that the development of policies and strategies should always seek to ensure equitable participation and delivery of energy services to men, women, children, and the vulnerable. Nevertheless, there is still a wide gap between gender-aware text in an energy policy statement and its actual implementation at the nationwide level in terms of access and labor representation. It is, however, unsurprising since some foundational legal frameworks of responsible institutions like the PURC and Ghana Energy Commission are regrettably silent on gender-related issues. For instance, the Renewable Energy Act 2011, PURC Act 2010, and the Energy Commission Act 1997 have not catered for gender equality as a tool for its operations. However, the 2019 Ghana Renewable Energy Master Plan (REMP) detailed cross-cutting issues incorporating gender mainstreaming. The REMP places special focus on gender inclusion to improve the well-being of women and children, especially. Gender shall be further mainstreamed into the implementation of the REMP to (Ghana Energy Commission, 2019, 60): – Build a strong gender-based database within the energy sector to establish the individual involvement of gender in the entire energy value chain. – strengthen coordination mechanisms and promote initiatives that ensure gender equality. – provide equal opportunity for women to work in the renewable energy sector. – increase awareness of the benefits of energy and gender.

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– create financing opportunities for women entrepreneurs. – Support end-use consumer and gender disaggregated data assessment to inform policies on women, children, vulnerable groups, and persons with disabilities. It is worth noting that the realization of these objectives is contingent on the right environment and the platform to empower women to play active roles in decisionmaking in the energy space. We found that these policy initiatives to ensure gender parity in the energy industry failed to outline the role of corporations in this quest. It is surprising corporations are not given instrumental roles or even recognized as significant players in the gender equality initiatives in the industry, given that they are key decision-makers. Secondly, we note that the legal instruments of mandated institutions and authorities are silent on gender equality. This legal and instrumental gap creates a deficiency in the institutions’ mandate to mainstream gender in the energy space in Ghana. So, what can be done to boost gender mainstreaming in the respective institutions and energy industry? We address this question below with some policy recommendations in our concluding remarks.

5 Concluding Remarks We have argued that there is a need for deliberate and purposeful positioning of women on the agenda of oil and gas operations and even in the general activities of the extractive industries to help address the widening gender disparities in Ghana. We demonstrated that gender dynamics within the African oil and gas sector, in general, are characterized by persistent disparities in employment, representation, and wages. However, there are encouraging initiatives aimed at promoting women’s participation and economic empowerment within the industry. These skewed gender dynamics also have profound implications for social reproduction, influencing household and community dynamics, women’s unpaid labor, and community development. To harness the full potential of women’s contributions to the African oil and gas sector and promote equitable and sustainable development, concerted efforts are needed to address gender disparities and ensure that women have an equal stake in the sector’s growth and benefit. For a start, there is a need for concerted efforts to create a pipeline for women in STEM to enter careers in energy. There have been efforts from sectorial partnerships, such as the MCC working with the Electricity Company of Ghana (ECG) to develop a gender and social inclusion policy to bridge gender disparities in the industry. According to the Managing Director of the ECG, Mr. Kwame AgyemanBudu, “ECG will make concerted efforts to ensure that its strategies, policies, plans, activities, budgets, programs, projects, systems, and structures are promoting gender equality, diversity and social inclusion.” The policy commits to having a workforce comprising 40% women (currently 24.4%), with 40% of women in leadership positions (currently 11%) in the company by 2035. However, this is just a drop in the ocean of gender issues in the extractive industry. It is our recommendation that

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responsible ministries—education, gender and social protection, labor and employment, energy, and natural resources—formulate a collaborative policy prioritizing STEM and women’s career development in the energy sector to boost women’s representation in the industry. We encourage intensive gender mainstreaming. The Ghanaian government and the industry stakeholders should work to integrate gender considerations into policies and practices within the sector. Relatedly, education and training initiatives should be implemented to promote STEM education and training opportunities for women’s career development. Second, there is the need for a proactive approach to address the socio-cultural discriminations that disproportionately seclude women’s employment in the energy industry and the wider extractives. We recommend policy and regulatory instruments that address “hidden” intimidation, sexploitation, and cultural and genderrelated discrimination in the industry. We propose that harsh punishment and penalty should be meted out to perpetrators and should be incorporated into such policies and regulations. Thirdly, diversity and inclusion programs should be encouraged by oil companies operating in Ghana by increasingly implementing diversity and inclusion programs to promote gender equality in their workforce. Also, the Ghana government must design a policy document with some quota scheme strategies targeting women in STEM recruitment in the general extractive industry. Having said this, we recognize the general high unemployment rate in the country, which is beyond the scope of this chapter. However, we believe that any steps to create employment should concurrently be supported by a quota system and diversity programs in recruitment to improve women’s employment in the industry at all levels. This will fully promote women’s economic empowerment and career development in Ghana. Finally, civil society organizations should intensify their advocacy and awareness roles on gender inequalities in the sector and advocate for change.

References Abankwah, V., & Abebe, M. (2011). Economic empowerment of rural women in Northern Ghana through indigenous rural enterprises. Journal of Sustainable Development in Africa, 13(2), 106–115. Acheampong, T., & Stephens, T. K. (Eds.). (2022). Petroleum resource management in Africa: Lessons from ten years of oil and gas production in Ghana. https://www.tandfonline.com/doi/ full/10.1080/02646811.2022.2052462 Ackah, C. G., & Mohammed, A. S. (2020). Local content law and practice. In J. Page & F. Tarp (Eds.), Mining for change (pp. 1–24). Oxford University Press. https://doi.org/10.1093/oso/978 0198851172.003.0001 Ackah, I., Bobio, C., Graham, E., & Oppong, C. K. (2020). Balancing debt with sustainability? Fiscal policy and the future of petroleum revenue management in Ghana. Energy Research & Social Science, 67, 101516. https://doi.org/10.1016/j.erss.2020.101516 Aryeetey, E., & Ackah, I. (2018). The boom, the bust, and the dynamics of oil resource management in Ghana. WIDER Working Paper 2018, 89, 21.

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Phil Faanu is a PhD candidate at McMaster University, Canada, specialising in International Relations. He was a Graduate Teaching Assistant Department of Political Science, University of Windsor. Previously, he served as an Associate Researcher Ghana Center For Democratic Development (CDD-Ghana) and a Pattern developer at Standex International . He holds MA in Political Science from the University of Windsor, MSc in Globalization and Politics from the Norwegian University of Science and Technology and a Bachelor from the University of Ghana. Emmanuel Graham is Business Intelligence Consultant, Natural Resource Governance Consultant and a PhD Candidate at York University Department of Politics in Toronto, Ontario Canada. He was a Graduate Assistant at the Political Science Department University of Windsor in Canada. He was the Extractive Governance Policy Advisor consultant at the Africa Centre for Energy Policy (ACEP). He holds a Bachelor of Arts (B.A) and Master of Philosophy (MPhil) in Political Science from the University of Ghana where he was a Teaching and Research Assistant from 2010 to 2011 (as national service personnel) and 2013 to 2014 (Graduate Assistant). In terms of research interest, Graham’s focus is on the political economy of the extractive sector and energy politics in Ghana and West Africa. His research has been on the role of civil society in escaping the resource curse in Ghana, oil exploration and production in sub-Saharan Africa. He is also, interested in electoral politics, political vigilantism, and democratic consolidation in Ghana and West Africa. He has some publications in international peer-reviewed journals such as Extractive Industry and Society, Africa Review, Insight on Africa, and Journal of African Elections. He can be reached at [email protected] or [email protected]

The Impact of Gender, Culture, and Other African Traits in Cooperating with Energy Regulators Dominic Kwesi Eduah

1 Introduction The energy sector is one of the most important contributors to global economic growth and development. Energy is critical for maintaining quality of life and encouraging economic growth (Crentsil et al., 2019; Ding et al., 2014). As a result, attaining universal access to sustainable sources of energy in order to improve people’s lives throughout the world remains a critical goal. Enhancing the availability of sustainable energy is essential, but it also calls for political will and the will to set targets for reducing energy poverty (Patnaik & Jha, 2020). Thus, energy regulators play a key role in ensuring that energy suppliers operate within legal and regulatory frameworks that protect consumer interests and ensure fair competition. The effectiveness of energy regulations can be influenced by many factors, including gender, culture, and other African characteristics. Culturally and gender conscious strategies for comprehending routine habits and associated facets of energy use can provide an acceptable substitute and yield new knowledge for enhancing the results of energy conservation projects, such as retrofitting programmes (Goggins et al., 2022). The availability of energy is crucial to the daily lives of individuals and critical societal functions, and inequitable access to dependable energy can harm economies. It is argued that female-headed families have lower incomes than maleheaded households and hence face larger financial obstacles to energy access. Given this gender-based inequality, electricity regulators may reduce inequitable use and boost local economies by ensuring that women have access to electricity. Building equity for women in terms of representation as employees and leaders in regulatory organizations, decision-makers in energy infrastructure projects, and an important

D. K. Eduah (B) GNPC Foundation, Takoradi, Ghana e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_26

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constituency to consider in regulatory policy design will all help move energy regulation closer to gender equality. Improving gender equity in energy regulation can also help regulatory commissions support the United Nations Sustainable Development Goal of ensuring universal access to affordable, reliable, and modern energy services by 2030 (United Nations Development Programme, 2018). Morris et al. (2015) further argues that making sure that women are represented as decisionmakers and stakeholders in regulatory organizations and policy formulation can lead to more inclusive decision-making that takes into consideration varied viewpoints. Gender-inclusive decision-making can also result in more efficient and well-informed outcomes. Energy regulations are frequently intended to be gender-neutral. Integrating gender into energy regulatory policy design can assist in identifying disparities in policy impacts on men and women and lead to strategies that mitigate such impacts. In Guatemala, for example, rural electrification increased women’s labour force participation by 9%, while no similar trend was observed for men, implying that the rural electrification policy and subsequent increased energy access benefited men and women differently (Köhlin et al., 2011). This paper aims to examine the impact of these factors on cooperation with energy regulators in African countries. It examines how gender and cultural differences influence energy suppliers’ willingness to comply with energy regulations and their potential impact on the development of the region’s energy sector. It also examines other characteristics of Africa, such as traditional governance structures and social norms, and their impact on energy regulation. The results of this study will provide valuable insight into the complex dynamics of energy regulation in African countries and help policy-makers, energy regulators, and energy suppliers to effectively promote energy regulatory compliance in the region. Provides information on how.

2 The Impact of Gender in Cooperating with Energy Regulators Gender issues in energy regulation have become increasingly important in recent years, as the energy sector plays a key role in shaping sustainable development and climate protection. However, gender inequality and bias persist in the energy sector. Women are underrepresented in decision-making positions and face many barriers to accessing and using energy services. One of the key gender issues in energy regulation is the underrepresentation of women in decision-making positions. Women are often excluded from energy policy and regulatory processes, and their experiences and perspectives are much considered. This is especially true in developing countries where women are disregarded and lack the necessary opportunities and resources to engage in energy decisions. The International Energy Agency (IEA) stated that only 24% of the global energy sector jobs are occupied by women and women hold only 5% of top management positions in the sector (IEA, 2020).

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The unequal distribution of benefits and costs of energy services is another gender issue. Both men and women have various energy requirements and consumption patterns. Women often rely on energy for household chores like heating, cooking and lighting. However, women have less access to reliable and affordable energy services which limits their efficiency, income opportunities, and general well-being. This is especially true in rural areas where women commit much time and resources to gathering biomass for cooking and heating (UN Women, 2021). Gender in cooperating with energy regulators refers to the impact of gender on the attitudes and behaviour of individuals and organizations towards energy regulators. This includes how gender influences regulatory compliance, interactions with regulators, and decision-making processes related to energy management. Gender can influence regulatory compliance in many ways. Research shows that women tend to be more risk-averse than men when it comes to regulatory compliance. Research has established that there is a higher tendency that women will comply with regulations and be less likely to take non-compliance risks (Baldwin, 2004). By implication, women are more likely to cooperate with energy regulators to avoid penalties and legal consequences. Additionally, a study by Cardwell and Smit (2019) examined the factors that influence compliance by energy companies in the oil and gas sector. The study revealed that there is a higher tendency that female executives will prioritize compliance compared with male executives and that women may be willing to work with energy regulators to avoid penalties and legal consequences. Again, gender interactions with energy regulators refer to the ways in which gender influences the nature of interactions between individuals or organizations in the energy industry and regulators. Research shows that gender can have a significant impact on these interactions. For example, female managers in the energy industry may face more scrutiny and scepticism from regulators than male managers, which impacts their ability to build relationships and interact effectively with regulators. It is possible (Eisenhardt & Kahwajy, 1998). This poses a barrier for women in the industry and can limit their ability to influence decision-making processes related to energy management. Additionally, gender biases and stereotypes influence how regulators perceive and interact with individuals and organizations. Studies have shown that women in the energy industry may be viewed as less competent and less knowledgeable than men, which may result in lower levels of trust and cooperation with regulators (Larson et al., 2013). This makes it extremely difficult for women to communicate their ideas and effectively contribute to the decision-making process in terms of energy regulation. Not that withstanding, gender diversity in regulators can lead to more inclusive decision-making and better collaboration with different stakeholders. For example, there is a higher tendency that regulators with more women on their boards would consider the interests of marginalized groups like low-income households and rural areas (Arvai et al., 2015). Moreover, gender diversity in decision-making institutions can lead to more inclusive and equitable decision-making processes related to energy management. For example, research has shown that more women on boards are associated with greater

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consideration of social and environmental concerns in corporate decision-making which includes energy management (Terjesen et al., 2016). Research shows that gender plays a role in working with energy regulators in Africa. For example, in Tanzania, women are found to be less likely to engage with energy providers due to a lack of knowledge and trust, and cultural norms that restrict movement and participation in public spaces (Kathuria & Banerjee, 2017). Similarly, in Nigeria, women were found to have limited knowledge and awareness of energy policies and regulations, which hindered their engagement with energy regulators and service providers (Adenikinju & Akinlo, 2015). In Ghana, women also face barriers to accessing modern energy services, especially in rural areas. For example, a study by Boateng and Okoe (2017) found that women in rural Ghana rely on traditional energy sources such as firewood and charcoal which are harmful to health and the environment. The study also revealed that women are less likely to adopt renewable energy technologies due to cultural barriers and limited access to information and resources. In contrast, some studies show that gender can also be a positive factor in energetic cooperation. For example, in Kenya, women have been found to be effective energy entrepreneurs, promoting the use of clean energy technologies in their communities and contributing to poverty alleviation and social development (Akumu, 2016). Similarly, in South Africa, women are found to be active participants in community energy projects and play a key role in decision-making and resource management (van der Horst & Bond, 2017). Overall, the impact of gender on engagement with energy regulators is complex and contextual, influenced by factors like socioeconomic status, culture, and access to resources and information. It is critical that energy policy-makers and regulators consider gender dynamics in the process of making effective decisions to ensure that women are not left behind in efforts to improve energy access and use in Africa.

3 The Impact of Culture on Cooperating with Energy Regulators Culture plays an important role in how companies interact with energy regulators, and this can affect the success of collaborations. Culture refers to the shared beliefs, customs, values, and behaviours that characterize a group or society. It influences the way organizations and individuals approach problems, make decisions, and interact with others. With the energy sector in mind, culture influences how companies view regulation, the significance of compliance, and their readiness to work with regulators (Alshahrani & Dey, 2020; Hofstede, 1980). An important aspect of culture is trust between companies and regulators. In some cultures, trust is easy to build and regulators are seen as fair, necessary to ensure fair competition and protect the public interest. However, in other cultures, there may be a widespread mistrust of regulators and companies may view regulators

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as bureaucratic and overly intrusive. This leads to resistance and non-compliance, making collaboration more difficult (Pardo & Ospina, 2014). Another cultural factor that can affect collaboration is the importance of hierarchy and authority. In some cultures, following rules and authority figures is very important. Other cultures value individualism and autonomy, allowing businesses to resist regulations they see as restricting their freedom. These cultural value differences can influence the way companies interact with regulators and the degree of collaboration that can be achieved (Le Heron & Low, 2014). One way culture affects collaboration is through differences in communication styles. Some cultures, for example, value indirect communication while others prefer both direct and explicit communication. This leads to misunderstandings and confusion in communicating regulatory expectations and requirements (Gudykunst & Ting-Toomey, 1988). Another way culture influences collaboration is through different attitudes towards regulation and compliance. Some cultures prioritize compliance, while others see regulation as an obstacle to innovation and growth. This can lead to resistance or non-compliance with regulatory requirements (Hall & Lamont-Black, 2013). Additionally, cultural differences affect perceptions of risk and safety. Some cultures prioritize safety and risk mitigation while others are willing to accept higher levels of risk. This leads to disagreements about suitable safety standards and regulations (Slovic, 2000). The impact of organizational culture on working with energy regulators is a complex issue that varies from African country to country. For example, in Kenya, the Energy and Petroleum Regulatory Authority (EPRA) has sought to promote a culture of transparency and accountability through regular stakeholder engagement and publication of regulatory decisions (Kamau, 2019). This has contributed significantly to building trust between regulators and industry stakeholders, thereby leading to more effective collaboration. Similarly, in South Africa, the South African National Energy Regulatory Authority (NERSA) holds regular stakeholder engagement forums and public hearings to provide information and feedback on regulatory decisions to promote openness and fostering a culture of transparency. This approach has helped foster cooperation between NERSA and the energy industry, resulting in greater predictability and stability in the sector. In other African countries, the organizational culture of energy regulators does not always support effective cooperation. A study on energy regulation in Nigeria found that corruption and political interference can lead to a lack of transparency and accountability, undermining cooperation between regulators and industry stakeholders (Adereti, 2019). In Tanzania, the Energy Regulatory Authority (EWURA) has been criticized for the lack of transparency in its decision-making process, leading to mistrust and conflict with industry stakeholders (Mwenda & Kavishe, 2017). In Uganda, the Electricity Regulatory Authority (ERA) has been praised for its efforts to promote a culture of openness and transparency, but concerns have been raised about the regulator’s independence and possible political interference (Katusiimeh, 2019). In Morocco, the Energy Regulatory Agency (ANRE) has been criticized for

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its lack of independence and transparency, and there are concerns that the regulation could overwhelm the interests of the industry (International Energy Agency, 2019a, 2019b). In Ghana, the institutional culture of energy regulators has been influenced by many factors, including historical and political background, organizational structure and regulatory framework. For example, the Public Utilities Regulatory Commission (PURC), which oversees Ghana’s energy sector, fosters a culture of responsibility and transparency and that is deeply reflected in its regulatory practices and organizational structure (Abane & Essuman, 2019). In Ghana, a typical example of how culture has affected energy regulators is that of the Ghana Electricity Company (ECG) and its relationship with the Public Utilities Regulatory Commission (PURC). ECG is responsible for the distribution of electricity in Ghana and PURC is the regulatory body that oversees the energy sector. A study published in the International Journal of Energy Economics and Policy showed that cultural factors such as hierarchy and the importance of authority influence the relationship between ECG and PURC. The study found that ECG has a hierarchical organizational culture that influences its ability to meet PURC’s regulatory requirements. In particular, ECG has proven resistant to changes in regulatory requirements deemed incompatible with internal practices and procedures (Alhassan & Jin, 2017). A study published in the International Journal of Energy Economics and Policy revealed some challenges in the organizational culture of Ghana’s energy regulators. The research found that PURC’s culture of transparency and accountability is not always reflected in its decision-making processes. Additionally, the study recognized a lack of political independence and a weak regulatory framework as factors hampering energy regulation effectiveness in Ghana (Boakye & Boateng, 2017). Another study published in the South African Journal of Energy highlights the role of institutional culture in shaping Ghana’s regulatory landscape. The study revealed that the organizational culture of Ghana’s energy regulators is influenced by many factors, including political pressures, bureaucracy, and stakeholder interests. By implication, there must be a more consultative and collaborative approach to regulatory decision-making which would help address some of the challenges facing energy regulation in Ghana (Asumadu-Sarkodie & Adu-Ampong, 2018). It must be established that cultural aspects like power distance, individualism, and uncertainty avoidance affect cooperation with energy regulators. A study published in the Journal of Cleaner Production provides that cultural factors have a significant impact on the adoption of renewable energy technologies in different countries. This study analyses cultural aspects of power distance, individualism and uncertainty avoidance and how these factors influence the extent to which renewable energy technologies are adopted and endorsed by regulators and the public (Oyedotun et al., 2019). Power distance, individualism, and uncertainty avoidance are cultural dimensions that Hofstede (1980) identified as influencing factors shaping social attitudes and behaviour. These aspects may influence the adoption and diffusion of renewable energy technologies in Ghana.

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Power distance refers to the extent to which a society accepts and expects an unequal distribution of power and authority. In societies like Ghana where power is far away, people tend to accept and obey authority without questioning it. This can make it difficult for individuals to take the lead in adopting renewable energy technologies as they tend to submit to government agencies and conventional energy sources. Individualism refers to the degree to which people in society put their own interests above the interests of the group. In individualistic societies, individuals are more likely to take initiatives and adopt new technologies and behaviours because they are focused on achieving their own goals. In contrast, a collectivist society like Ghana puts the interests of the group above those of the individual. This can make it difficult for individuals to adopt renewable energy technologies that may not benefit the group as a whole (Boateng & Okoe, 2017; Danso & Boateng, 2018; Hofstede, 1980). Uncertainty avoidance refers to the degree to which a society tolerates ambiguity and uncertainty. In societies that are highly uncertainty-avoidant, like Ghana, people prefer clear rules and structures to guide their actions. This can make it difficult for individuals to adopt renewable energy technologies. This is because you may be unfamiliar with these techniques and don’t know how they actually work (Boateng & Okoe, 2017).

4 The Impact of Other African Traits in Cooperating with Energy Regulators Aside from culture and gender, other traits and factors can help in cooperating with energy regulators in Africa. These are discussed in the following sub-sections.

4.1 Knowledge and Expertise Knowledge and expertise play a key role in cooperation between African energy regulators and stakeholders. Energy regulators require technical expertise and expertise in effectively regulating and monitoring the energy sector and ensuring compliance. In the same way, stakeholders including energy investors and companies must have a better insight into the technical aspects and regulatory framework of the energy sector in order to operate and comply effectively with regulations (The African Development Bank Group, 2019). Knowledge and expertise are essential for effective collaboration between energy regulators and stakeholders in Africa, according to a study published in the Journal of Energy in Southern Africa. The study emphasized the significance of capacitybuilding initiatives to enhance the knowledge and technical skills of both energy regulators and stakeholders. This includes training programmes for regulators on

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technical aspects like renewable energy, energy efficiency and energy access, and stakeholder training on regulatory reporting and compliance (Narsoo & Mashiri, 2019). Another study published in the African Journal of Science, Technology, Innovation and Development emphasizes the significance of knowledge sharing and collaboration between energy regulators and stakeholders. It was established that knowledge and expertise are fundamental to building trust and encouraging a sense of cooperation between regulators and stakeholders. The study emphasized the need for transparency in sharing expertise and information to enhance the regulatory environment and encourage investment in the energy sector (Fosu & Mbohwa, 2019).

4.2 Stakeholder Engagement Stakeholder engagement is important to foster cooperation between African energy regulators and stakeholders. This allows for an open and transparent communication channel between the two. By working with stakeholders, regulators can better understand the needs and concerns of the communities they serve and the players in the regulated energy industry (African Development Bank Group, 2018). In the energy sector, stakeholders include energy companies, consumers, nongovernmental organizations, governments, and communities. These stakeholders may have different goals and perspectives, and by working with them, regulators can develop better policies that reflect the needs and concerns of all stakeholders (IRENA, 2019). Stakeholder engagement also helps regulators build trust and credibility with the communities they serve (IEA, 2019a, 2019b). By listening to and responding to stakeholder concerns, regulators can demonstrate their commitment to advancing the public interest and addressing challenges facing the energy sector (African Development Bank Group, 2018). In addition, stakeholder engagement helps regulators identify and address likely conflicts of interest and other issues that may arise in the energy sector. When regulators work closely with stakeholders, they can develop effective, efficient, and acceptable solutions for all stakeholders (World Energy Council, 2020). A study published in Renewable and Sustainable Energy Reviews found that stakeholder engagement is critical to ensuring the regulatory environment is inclusive, transparent, and effective. The study recommended that energy regulators engage with stakeholders through public consultations, stakeholder forums, and other means to ensure that their views and concerns are considered in regulatory decision-making (Eberhard & Gratwick, 2011). Another study published in the South African Journal of Energy highlights the importance of stakeholder engagement in fostering cooperation between energy regulators and stakeholders. The study revealed that stakeholder engagement helps in building trust, promoting transparency, and fostering cooperation in the energy sector. The study recommends that energy regulators adopt stakeholder engagement

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strategies that are transparent, comprehensive, and promote collaboration between regulators and stakeholders (Gombe & Bhattacharyya, 2018).

4.3 Innovation and Adaptability Innovation and adaptability are key factors influencing engagement with African energy regulators. Africa’s energy sector faces a range of challenges, including inadequate infrastructure, high costs of energy production and unreliable electricity supply. It is therefore critical that stakeholders in the sector develop innovative and adaptable solutions to these challenges (Buckley, 2019). Innovation helps energy companies develop new technologies and approaches to generate and distribute energy efficiently and cost-effectively. For instance, using renewable energy sources including wind and solar can reduce energy production costs and promote sustainability. Innovative solutions also help improve energy efficiency and reduce waste which invariably reduces the overall cost of energy production (Kema Consulting, 2013). Adaptability, on the other hand, refers to an energy company’s ability to adapt its strategies and operations to meet changing market demands and regulatory requirements. For instance, energy companies are required to adjust their operations to conform to new environmental rules or to meet the constantly changing preferences of consumers (World Bank, 2017). There is a higher tendency of innovative and adaptable energy companies to work with African energy regulators. By designing and implementing innovative and adaptable solutions, energy companies are able to show their commitment to meeting regulatory needs and addressing sector challenges. This builds trust between energy companies and regulators which leads to more effective collaboration and cooperation (African Development Bank Group, 2016).

4.4 Political Connections Political connections can have a significant impact on cooperation with African energy regulators. In some cases, companies affiliated with political parties may receive preferential treatment from regulators while companies not affiliated with such political parties may face greater scrutiny and regulatory hurdles. This creates an uneven playing field and may limit competition in the energy sector. The phenomenon of political connections and its implications for working with African energy regulators can be analysed through the lens of regulatory capture theory. Regulatory capture refers to a situation in which a regulator tasked with protecting the public interest is captured by the industry it is supposed to regulate, thus allowing the industry to manipulate regulatory decisions in its favour (Stigler, 1971). Political party affiliation can be viewed as a form of regulatory capture in

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which companies use their political influence to steer regulatory decisions in their favour. Empirical evidence supports the notion that political ties can influence cooperation with African energy regulators. Gelb et al. (2017) find that political affiliation has a significant impact on power contract arbitrage in Kenya, with firms with political affiliation receiving more contracts and preferential treatment from regulators. Wane (2015) similarly found that regulatory coverage is a significant issue in the power sector in sub-Saharan Africa as companies use political ties to make regulatory decisions. The impact of political ties on cooperation with energy regulators in Africa could have adverse effects on the energy sector and consumers. By creating an unfair playing field, political ties limit competition and reduce the efficiency of the energy sector, leading to higher costs and limited access to energy services. Moreover, political ties can undermine confidence in the regulatory process and reduce public confidence in the energy sector.

5 Conclusion Gender and cultural factors have a significant impact on energy regulator cooperation with energy regulators in African countries. Gender issues, such as the underrepresentation of women in decision-making positions, unequal sharing of energy benefits, gender bias and stereotypes, and lack of knowledge and trust among women, are contributing to conflicts with energy regulators and service providers. Moreover, cultural norms that restrict movement and participation in public spaces exacerbate the problem. However, research shows that gender diversity in decision-making bodies and regulators can lead to more inclusive and equitable decision-making processes related to energy management. It is therefore important to consider gender and cultural factors when formulating energy policies and regulations in African countries to ensure effective and equitable development of the regional energy sector. Culture plays a key role in how energy companies work with energy regulators. Trust, regulatory and compliance attitudes, communication styles, and risk and safety attitudes are all factors that can influence how energy companies and regulators work together. Some cultures value hierarchy and authority, while others value individualism and autonomy. Different African countries have different organizational cultures within energy regulators, which can affect the effectiveness of collaboration. An energy regulator’s organizational culture is influenced by many factors, including historical and political background, organizational structure, and regulatory environment. Energy regulators can foster collaboration by promoting transparency, accountability, and stakeholder engagement. A better understanding of cultural factors can help energy regulators formulate strategies to improve cooperation with energy companies.

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Cooperation between energy regulators and stakeholders in Africa is influenced by a variety of factors aside from culture and gender. Knowledge and expertise, stakeholder engagement, innovation and adaptability, and political connections all matter. Knowledge and expertise are essential for effective collaboration, and capacitybuilding is needed to enhance the technical capabilities of both energy regulators and stakeholders. Stakeholder engagement assists regulators in understanding the needs and concerns of all stakeholders and building trust in the communities they serve. Innovation and adaptability are key to developing cost-effective and sustainable solutions to energy sector challenges. Finally, political party affiliation can lead to gains for regulators, which can create an unlevel playing field and limit competition in the energy sector.

6 Recommendation Based on the information given, we can make the following recommendations: Gender and cultural factors need to be considered when formulating energy policies and regulations in African countries. This ensures that the development of the region’s energy sector is effective, equitable, and inclusive. Energy regulators should promote transparency, accountability, and stakeholder engagement to foster cooperation with energy companies. They also need to understand the cultural factors that affect collaboration and formulate strategies to improve collaboration accordingly. Capacity-building is needed to improve the technical capacity of both energy regulators and stakeholders. This strengthens their knowledge and expertise and enables effective collaboration. Stakeholder engagement is critical to building trust in the communities that energy regulators serve. This helps regulators understand the needs and concerns of all stakeholders and ensure their voices are heard. Innovation and adaptability are key to developing cost-effective and sustainable solutions to energy sector challenges. Energy regulators should encourage innovation and use new technologies to improve the sector. Political affiliation should not influence the decision-making process of energy regulators. This ensures a level playing field and promotes healthy competition in the energy sector.

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Dominic Kwesi Eduah is the Executive Director of the GNPC Foundation. He holds a Masters in Energy Economics from GIMPA. He is a sustainability practitioner and has interest in strategy, project management and governance.

Imperatives for Gender Mainstreaming in Energy Sector Regulation in Africa Ifeyinwa Ikeonu

1 Gender Equality and Gender Mainstreaming Concepts 1.1 Gender Equality Gender Equality is one of the United Nations Sustainable Development Goals (SDG) and has been identified as a necessary imperative for the achievement of other Sustainable Development Goals including SDG 7 on ensuring access to affordable, reliable, sustainable, and modern energy for all (Clancy & Feenstra, 2019). The concept of gender equality has been enshrined as a human right in a number of declarations and conventions, including the Rio+20 outcome document ‘The Future We Want’; the Beijing Declaration and Platform for Action and the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW), which offers a comprehensive description of this right as stating that “Gender equality refers to the equal rights, responsibilities and opportunities of women and men and girls and boys” (Subba, 2022). Equality does not mean that women and men will become the same but that women’s and men’s rights, responsibilities, and opportunities will not depend on whether they are born male or female (Patel, 2014). Gender equality implies that the interests, needs, and priorities of both women and men are taken into consideration, recognizing the diversity of different groups of women and men.1

1 United Nations: Convention on the Elimination of All Forms of Discrimination Against Women https://www.un.org/en/global-issues/gender-equality.

I. Ikeonu (B) Energy Policy, Markets, and Regulation Consultant, Abuja, Nigeria e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_27

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What is Gender Mainstreaming? The concept of Gender Mainstreaming first gained prominence during the 1995 United Nations Fourth World Conference on Women in Beijing and was mandated in the Beijing Declaration and Platform for Action, as a strategy to bring about transformative change for women and girls at all levels of development (Dominelli, 2019). Governments and development organizations at the conference agreed on the need to make a dramatic shift in terms of making gender equality integral to their human development efforts, to become more accountable to women, and to address male bias in the institutions responsible for protecting the rights of women and girls. The vision, which analysts argued required “a seismic change in the global order” was that “the concerns for women and gender issues should not remain marginal to the ideas and practices of development organizations, but should be central to them, and hence located in their ‘mainstream’.”2 According to the 1997 Agreed Conclusions of the United Nations Economic and Social Council, gender mainstreaming is “the processes of assessing the implications for women and men of any planned action, including legislation, policies or programmes, in all areas and at all levels. It is a strategy for making women’s as well as men’s concerns and experiences an integral dimension of the design, implementation, monitoring and evaluation of policies and programmes in all political, economic and societal spheres so that women and men benefit equally, and inequality is not perpetuated. The ultimate goal is to achieve gender equality.”3 In addition to ensuring that gender considerations are integrated into service delivery and sectoral programs at national and local levels and in public and private organizations, gender mainstreaming also aims to challenge the internalized belief systems that shape discriminatory institutions, laws and policies, societal norms, community practices, and everyday habits and relationships that underpin and perpetuate inequality.

2 Gender Mainstreaming in Energy Energy is regarded as a key factor for economic growth globally and access to energy is increasingly seen as a sine qua non for sustainable economic and social development and cuts across all the other key developmental sectors including health, education agriculture, and infrastructure services (Leal Filho et al., 2023). However, about 775 million people around the world (more than two-thirds of whom reside in Africa) still lack access to electricity (IEA, 2022). Even though some significant improvement has been made in the last decade to improve access to electricity globally, the last couple of years have seen a downward trend in Africa, with regard to

2 3

Ines Smyth, “Talking of Gender: Words and Meanings in Development Organisations”. United Nations Economic and Social Council-ECOSOC Agreed Conclusions 1997/2.

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electricity access, primarily as a consequence of the Covid Epidemic in 2020/21 worsened by the effects of the ongoing war in Ukraine. According to available energy data, the figures on access to modern clean cooking in Africa are even more dismal than that of electricity. In June 2023, the International Energy Agency (IEA) reported that “the number of people globally without clean cooking fell from 3 billion in 2010 to 2.3 billion in 2022. China, India and Indonesia all halved their populations without clean cooking access. These efforts relied largely on providing free stoves and subsidised canisters of liquefied petroleum gas (LPG). During the same period, the number of people without clean cooking access continued to grow in sub-Saharan Africa, where clean cooking campaigns did not keep pace with population growth. Today, 1 billion people on the continent—roughly four in every five—rely on highly polluting cooking fuels used in open fires or basic stoves” (IEA, 2023). Evidence abound to show that African women, especially those who are poor and tend mostly to live in rural areas, are more disadvantaged with respect to energy access as compared to their male counterparts (Elum, 2021). Yasmin and Grundmann (2020) posits that, overall, women tend to exercise less influence than men at the household level regarding energy purchase and usage for domestic use and typically, their preferences are also not considered when these decisions are made. In addition, even in areas relating to the productive use of energy, community decisions are typically taken by the menfolk with little or no input from women in terms of their preferences regarding choice in determining how productive use of energy can be deployed in communities. Female-headed businesses, on average, have a reduced ability to invest in productivity enhancing energy assets and women energy entrepreneurs have been shown to have more limited information about markets and opportunities and have constrained business networks, resulting in smaller businesses (Carranza et al., 2018). This insufficient access to business services and opportunities can be referred to as energy poverty. Energy poverty can be described as the lack of adequate modern energy for the basic needs of cooking, heating, and lighting as well as the provision of basic energy services for schools, health centers, and income generation which limits human development (Zhang et al., 2021). Conditions of energy poverty foster a distinctly gendered experience with regard to energy needs, access, and use not present at higher income levels. Addressing the differences, as well as the overall lagging levels of clean energy access among women, is critical to advancing the sustainable development goals (Clancy et al, 2019). Gender mainstreaming in the energy sector therefore primarily ensures that gender concerns, needs, interests, and differences are considered in planning, policy-making, project implementation, and monitoring. It also identifies the impacts of such interventions on women and men. Gender mainstreaming strives to address the specific needs of women and men towards ensuring access to modern energy services and other opportunities in the energy sector, taking into account their specific interests and the need to enhance social and economic development (Baker et al, 2021). In particular, it focuses on the needs of men and women, especially those with low incomes or those living in rural areas, who are more disadvantaged in terms of their

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ability to access modern energy, which deprives them of the right to enjoy a better standard of living. The focus of Gender mainstreaming therefore is to enhance the overall quality of life and more specifically address the following issues: • Improve quality of life, by reducing women labor and time in activities such as firewood collection and processing, carrying water, agricultural labor, food processing, etc. • Increase women’s productivity and income, by providing them with energy access needed to work more efficiently and to work in new or emerging areas. • Ensure project efficiency and sustainability, because unless men’s and women’s needs are properly understood, project interventions may be wrongly targeted and thus fail. • Increase participation of women and men in productive activities which will result in their investing in more energy efficient appliances and fuels. Participating in energy enterprises also offers opportunities for women as well as men. In addition to the focus on ensuring more equitable access to energy through gender mainstreaming, another major dimension of gender mainstreaming is at the institutional level where it is considered impactful in addressing the huge gap in terms of gender disparity in the ratio of men to women employed in the energy sector. In terms of employment, the energy sector has always had disproportionately lower numbers of women employees especially at the decision-making level. According to the International Energy Agency, “the energy sector has historically been a male-dominated field and its workforce continues to be unrepresentative of the population and workforce at large. On average, there are 76% fewer women than men working in the energy sector, a significant difference from the average 8% gap seen in the total workforce, according to 2018 data from 29 countries”.4 Addressing this imbalance would enable the energy sector to benefit from having a better balance in terms of contributions to decision-making as numerous studies have shown that institutions that have better good gender balance tend to do much better than those dominated by one gender given the advantage that comes from effective decision-making through broader consultation forums.

2.1 Implementing Gender Mainstreaming in the Energy Sector The challenges most African countries face in striving to attain and implement gender equality program in energy access are typically at three levels namely the political level, the service provision level (which includes public and private sector service providers), and the level of the energy consumer. Intervention at the political level is 4

International Energy Agency “Gender and Energy Data Explorer” https://www.iea.org/data-andstatistics/data-tools/gender-and-energy-data-explorer.

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often influenced by government ministries through policies and laws while regulators are better able to influence the service provision and consumer levels through sector regulations and market development instrument (Maduekwe et al., 2019).

2.2 Gender Mainstreaming and Policies At the political level, the key challenge typically with regard to gender used to be the absence of a policy and legal framework for gender in the energy sector. It was not until the last decade or so that countries in Africa began the slow process of ensuring that policy and legal frameworks were developed to serve as the enabling platform for the promotion of the objectives of respective governments towards ensuring gender equality. Indeed, beyond the remit of national governments, some of the regional communities in Africa have also taken the initiative to further broaden the scope of gender mainstreaming on a regional level by developing regional policies on gender, given the importance placed on gender equality as one of the sustainable development goals. The UN women developed a set of benchmarks which seeks to guide policymakers in addressing the key considerations that have to be considered while developing enabling frameworks for gender mainstreaming policies. The Table below summarizes these key considerations. The Economic Community of West African States (ECOWAS) blazed the trail in the development of regional energy gender mainstreaming policy in Africa with the enactment of the ECOWAS Policy on Gender Mainstreaming in Energy Access in 2013 which was followed by the ECOWAS Directive on Gender Mainstreaming in Energy Projects adopted in 2017. The Policy conforms largely with most of the indicators stated in Table 1. A summary of these two important documents is discussed in the case study below. Case study: ECOWAS Policy on Gender Mainstreaming The ECOWAS Policy on Gender Mainstreaming in Energy Access was enacted on June 4, 2017 through the Supplementary Act A/SA.2/0617. The Policy was predicated on the following: • Energy Access for Rural, Peri-Urban & communities are necessary for improved standards of living. • Women are more affected by low levels of electricity access in member states. • Gender is generally marginalized or absent from national policies of most member states. • Need to improve universal access to clean and affordable energy services by directly addressing the different energy needs of women and in an effort to address gender equality and sustainable development.

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Table 1 Analytical Framework for Gender-Responsive Energy Policies No Key theme

Indicator

1

Women and/or girls as a vulnerable group

• Does the policy refer to the vulnerable situation of women and/or girls and related implications (e.g. in terms of access to sustainable energy)? • Does the policy recognize women and/or girls as key agents of change in the energy sector? • Does the policy refer to the impact of energy poverty on women’s situation?

2

References to men/males

• Does the policy include specific references to men or males? • If yes, in what context are men referred to, and are they described as active agents of change, as • Vulnerable, or in relation to women?

3

Use of energy at the household level

• Does the policy refer to the different energy needs and uses of women and girls/men and boys at the household level and related implications (e.g. health)? • Does the policy refer to the different energy roles of women and girls/men and boys at the household level and related implications (e.g. in terms of work burden)? • Does the policy identify solutions to address gender inequalities related to household energy access, needs, and related work?

4

Access to energy, services, • Does the policy refer to the enabling role of energy in and appropriate women’s socio-economic empowerment? technologies for women’s • Does the policy refer to the role of energy in women’s income-generating activities (e.g. entrepreneurship empowerment activities, such as food processing)? • Does the policy indicate actions to enhance women’s access to energy, services, and appropriate technologies (e.g. through better access to finance)?

5

Women’s participation in • Does the policy recognize the need to increase women’s decision-making processes participation in policy- and decision-making processes and and in the energy sector in the energy sector at large (e.g. employment)? • Does the policy refer to women’s and men’s decision-making powers over energy that needs to be considered in and inform policy-making processes? • Does the policy identify specific actions on how to enable women to participate in the energy sector? (continued)

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Table 1 (continued) No Key theme

Indicator

6

Gender mainstreaming

• Does the policy make any reference to gender mainstreaming in any form or section? • Does the policy refer to gender mainstreaming/gender integration/gender responsiveness as an important aspect in achieving energy policy goals? • Does the policy recognize gender equality and or women’s participation as important in achieving stated goals and targets in various facets of the energy sector?

7

Gender and environment

• Does the policy make a link between addressing gender inequalities and/or enhancing women’s participation in the energy sector and environmentally sustainable energy solutions? • Does the policy make the link between environmental degradation (e.g. deforestation), women’s workload, and dependency on biomass?

Source UN Women/UNDP: “A Review of Gender Policies in East and Southern Africa”

• Need to mainstream gender in energy access to meet the needs of all citizens with regard to access to modern energy services for improved standards of living and productivity. The Policy established 5 key Objectives as well as several targets with which to monitor and evaluate the effectiveness of the Policy across the 15 Member States of ECOWAS. These objectives and targets are summarized below. Strategic objective

Target

Strategic objective 1: Achieve widespread • 100% of energy sector government understanding of energy and gender employees will have received some relevant considerations at all levels of society training by 2020 (and routinely thereafter) • 50% of citizens will be exposed to some form • Official recognition of gender and energy of relevant public service announcement by considerations • Promotion of increased scientific 2020 growing to 90% by 2030 • At least 50 new scientific articles about understanding • Widespread awareness of issues among gender and energy in West Africa published non-state actors including the private sector, in peer-reviewed scientific journals by 2020, international financial institutions, civil and 20 per year after that society, and the general public (continued)

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(continued) Strategic objective

Target

Strategic objective 2: Ensure that all energy policies, programs, and initiatives are non-discriminatory, gender-inclusive, gender balanced, and directed towards addressing energy poverty differentially affecting women and men • More precise, regular, timely, and results-oriented data collection and evaluation methods that promote disaggregation by sex, age, and socio-economic background • Enhanced profiles and capabilities for Gender Focal Units in the National Energy Ministries • Agency-wide sensitization and adoption of new and gender responsive practices • Strengthening of the feedback mechanisms from a gender-inclusive electorate

• 50% of energy policies by 2020 and 100% by 2030 will be gender-sensitive • 50% of energy projects, programs, and initiatives with government participation will include gender dimensions in planning, implementation, analysis, and evaluation by 2020, rising to 100% in 2030

Strategic objective 3: Increase women’s public • At least 25% of women in the public sector sector participation in energy-related technical energy workforce by 2020 and an equal fields and decision-making positions to a level (50–50) gender balance by 2030 of at least 25% in the medium term and 50% in the long term • Education and training for women in STEM fields • Specific pre-career pathways created at educational institutions, energy ministries, and other public sector agencies • Creating incentives (monetary and programmatic) to increase the number of women pursuing energy-related careers Strategic objective 4: Ensure women and men • At least 25% women participation in have equal access to and opportunities to enter energy-related fields in the private sector by and succeed in energy-related fields in the 2020 and an equal (50–50) gender balance private sector by 2030, as determined through statistically rigorous random sampling • Advertising and promoting business, employment, and contract opportunities for women in the energy sector • Establishing and supporting programs that offer relevant technical/vocational training, entrepreneurship/management training, and gender-aware finance (continued)

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(continued) Strategic objective

Target

Strategic objective 5: Establish and maintain a • 100% compliance by 2017 in the monitoring, comprehensive monitoring and accountability accountability, and review framework framework • Monitoring plans and reporting procedures set out in the accompanying implementation plan and any successor documents • Identification of designated Parties responsible for oversight, distribution of incentives, and administration of sanctions • Establishment of clear gender goals and indicators as part of the monitoring and accountability framework Adapted from the ECOWAS Policy on Gender Mainstreaming in Energy Access

Following the approval of the ECOWAS Policy for Gender Mainstreaming for Energy Access, the ECOWAS Directive on Gender Assessment in Energy Projects was subsequently developed in order to operationalize the Policy and enforce gender responsive energy development projects. The Directive serves as a legal framework to guide ECOWAS member state policy-makers and regulators on the required steps to ensure that energy projects undertaken in the region conform with the objectives of the Gender Mainstreaming Policy. The Directives were validated by the ECOWAS Energy Ministers in September 2017 ECOWAS member states are required to adopt the Directives at the National level and put in place the relevant institutional and legal arrangements for the effective implementation of the Directive. In terms of implementation, none of the targets set by the Policy Document has been met within the ECOWAS region. Indeed, there have been challenges in getting the member states as well as the energy institutions to translate the Policy document into actionable plans on an institution-to-institution basis. The absence of the political will to move the Policy from paper to implementation remains one of the biggest challenges of the Policy that received a number of positive reviews and commendations at the time it was approved.

3 Gender Mainstreaming in Energy Regulation Women participate in the energy sector as energy users, employees, participants in the energy value chain, and as decision-makers and stakeholders. These roles intersect with many areas over which energy regulators have jurisdiction, including tariff-setting, licensing, standards setting, monitoring, procurement, dispute resolution, stakeholder engagement, and internal human resource policies. Regulators

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can use these areas of jurisdiction to empower and support women as employees and policy-makers, consider gender-differentiated impacts of regulatory policy and energy decisions on energy users, and identify ways to minimize negative impacts from infrastructure projects and help direct those projects to improve the livelihoods of vulnerable populations. While progress has been made in terms of gender policies, there still remains a significant gap when it comes to the implementation of gender considerations in energy sector regulation. To a large extent, there still remains limited capacity in terms of how gender mainstreaming can be implemented within the daily operations of regulatory authorities and the fact that most of the regulatory authorities do not have in place any specific gender strategies or gender plans means that gender mainstreaming remains a major challenge in energy sector regulation in Africa. Broadly, gender mainstreaming in regulatory bodies can be tackled in three dimensions as identified below: • Rules and Regulations • Institutional/Employment • Project Development

3.1 Rules and Regulations Energy regulators are generally empowered to regulate the electricity market and to put in place rules and regulations that will promote investments into the sector and the sustainability of the market while ensuring access, reliability affordability, and quality of service. It therefore follows that in enforcing its core regulatory mandate, the regulator is expected to consider all the critical issues required to ensure that its decision-making process is cross-cutting and involves all key stakeholders hence the importance of also considering gender consideration.

3.1.1

Linking Policy to Regulation

Where there is in existence a national or regional policy on gender mainstreaming, it is important the regulator ensures that the policy directive of the government is translated into enforceable rules and regulations to be observed by stakeholders. Integrating gender in energy regulatory policy design can help uncover disparate impacts of policies on men and women and lead to policies that mitigate those impacts. The ECOWAS Directive on Gender Mainstreaming in Energy Projects, for instance, provides that gender assessment must now constitute a part of the Environment and Social Impact Assessment (ESIA) studies for new energy projects. It is therefore expected that national regulators in West Africa who previously do not require applicants for licenses to undertake gender impacts assessment as part of

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ESIA study should now require that ESIA studies contain a dedicated section on gender impact assessments in line with the policy objectives. In the Gambia, their draft Energy Efficiency Bill includes sections on gender mainstreaming to ensure that some of the challenges that women face with regard to the implementation of energy efficiency programs are adequately addressed. This includes considering the need to provide incentives to enable women entrepreneurs to undertake energy efficiency projects as well as designing financing mechanisms that can give women access to finance to procure clean cooking stoves.

3.1.2

Gender Considerations in Tariffs and Incentives

Considering the challenges in terms of access gaps and affordability to energy services between men and women, especially those who live in poor neighborhoods and rural parts of Africa, it is important that these differences are considered while designing pro-poor tariff schemes and subsidies (Pueyo & Maestre, 2019). Where regulators carry out studies prior to the establishment of such tariffs, data ought to be collected in a gender disaggregated manner to enable the regulator to see the trends and understand how decisions to be made with regard to tariff-setting would impact men and women differently. Indeed, the gap in energy access can better be bridged where tariffs are structured in such a manner that takes into consideration the need to empower energy users, especially poorer men and women to be able to afford electricity for productive use which would lead to an overall improvement in the quality of their lives (Maphosa & Mabuza, 2016). In order to encourage an uptake in access to modern clean cooking and in line with the policy objectives of the Government of Uganda, the Electricity Regulatory Authority of Uganda introduced a special tariff category to promote the use of electric stoves by electricity consumers in Uganda. Proactive initiatives such as this are needed by regulators to support access to modern energy and promote social and economic growth.

3.1.3

Collection of Gender Disaggregated Data for the Assessment of Policy and Regulatory Impacts

Where regulatory authorities make the effort to collect gender disaggregated data as part of their regulatory activities, such data could be a good source of information on how its rules and regulations impact different genders. Such data could be in respect of some of the reporting obligations of licensees or may also be industry data generated by the regulatory authority as part of its studies on regulatory impact assessment. In Guatemala, data collected by the Ministry of Energy showed that rural electrification led to a nine (9) percent increase of women in the labor force of a particular community while no similar trend was found from men, suggesting that the rural

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electrification policy and subsequent increase in energy access impacted men and women differently (Köhlin et al., 2011).

3.1.4

Gender and Licensing

Regulators typically have the responsibility of issuing operating licenses to new entrants and service providers in the energy sector. While most licensing regulations often mandate the submission of an approved Environment and Social Impact Assessment Study for new projects, gender impact assessment is not generally mandated as part of the ESIA. This is a key area where it will be necessary for regulators to mandate that gender impact assessments must be part of the ESIA since it gives for a more holistic review of the licensing application considering how gender considerations are assessed and to ensure that such projects are beneficial to all. In countries like Kenya, gender impact assessment is mandated as part of the ESIA but this is not the case in most other countries in Africa hence the need for regulatory intervention to fill the gap where such gap exists.

3.2 Institutional/Employment Concerns One of the main indicators of gender mainstreaming is analyzing gender gaps within the organization in terms of its strategy, human resources, administration, and finance functions to examine how much the institution promotes general equality internally through its internal process and operations. A gender responsive organization is much more likely to undertake its mandate in a gender-sensitive manner than an organization that is gender neutral or gender-insensitive.

3.2.1

Staff Recruitment and Retention

The energy sector remains one of the sectors where the number of male employees is disproportionately higher than that of female employees. This gender gap widens even more when the number of men in decision-making positions in the energy sector is juxtaposed with the number of women in similar positions. In a recent publication undertaken by the World Bank, the percentage of women involved in the energy sector globally is about 22% but this number decreases even more within the Middle East and North African countries where the percentage of female employment in the energy sector is about 15%.5 Organizations that provide inclusive roles for women introduce broader perspectives, solutions, and approaches to their work than organizations employing mainly 5

ESMAP/World Bank (2021) “Towards more and Better Jobs for Women in Energy”.

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men. A gender-diverse workforce pulls from a wider pool of talent and better represents an organization’s customer base.6 According to a recent study carried out by IRENA, the main identified barriers for the low participation of women in the energy sector appear to be the perception of gender roles, cultural and social norms, and prevailing hiring practices. Regulatory Authorities should therefore strive to put in place recruitment policies that actively seek to improve gender diversity in its workforce and may in some cases consider introducing minimum quotas to ensure that more qualified women are given the opportunity to work in the energy sector. While the introduction of quotas is not being advocated as a permanent measure because of the risk of overshadowing the standard merit-based system of recruitment, the use of quotas as an affirmative tool within a specified timeline has proved to serve as a catalyst towards guaranteeing the participation of more women in sectors predominantly dominated by men. It is also important to put in measures that will ensure the tracking of gender disaggregated employment data especially in respect of staff retention and staff exit as this would give a good indication as to if men or women are retained more within the organization.

3.2.2

Implementation of Anti-Discriminatory Practices

Given the relationship between some cultural/social norms that continue to impact negatively on gender equality especially in African countries, it is important that institutions proactively put in place policies and processes that ensure that all forms of discrimination including gender-based discrimination are not tolerated within the organization. Some of these practices may be office traditions that may not obviously appear as discriminatory but may have a negative impact on one gender. In Africa, women whether employed or unemployed are still generally responsible for home making which includes tasks such as taking care of the children and preparing family meals. Where there is an institutional practice of working late in an office, women are more likely to resign from such organizations since they may be unable to cope with long hours at the office coupled with the additional responsibility of home making. The emerging trend of the hybrid work arrangements should enable regulators to provide their staff with some flexibility in combining physical and remote working arrangements subject to ensuring that agreed deliverables and targets are met by the staff concerned. A clear and transparent policy on issues such as sexual harassment is also required to be developed and entrenched. However, beyond putting in place such policies and guidelines, effective implementation is required to give all staff the confidence that the organization is really serious about the enforcement of such policies and is serious about being seen as gender-inclusive and promoting a nurturing work environment.

6

McKinsey & Co 2016: Women Matter-Africa.

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Gender Awareness Training and Capacity Building Enhancement Programs

It is important for regulatory institutions to actively build capacity in the area of gender mainstreaming especially in view of the fact that gender mainstreaming is still a relatively new concept in the energy sector in Africa. It is critical to ensure that gender and inclusion are at the core of planning, implementation, monitoring, and learning within the organization by making sure that regulatory staff and other key stakeholders in the energy sector have the resources, knowledge, competencies, and budgets to meaningfully integrate gender and inclusion in their work. A starting point in ensuring meaningful capacity building and gender awareness is to conduct a capacity gaps assessment to ascertain where the gaps are and to consider proposals and interventions which the regulatory authority would need to implement in order to build the required capacity needed to mainstream gender across, not only the institutional interface, but in all programs and projects undertaken by the regulator. Beyond building the capacity of staff members, the regulator also has an obligation to undertake gender awareness training and workshop with all the key stakeholders in the energy sector. All of these stakeholders have various roles to play in supporting gender mainstreaming in the energy sector and undertaking such awareness programs will equip the stakeholders with the right information and skill sets needed to support the regulatory process and also ensure compliance with relevant rules and regulations which are mandated by the regulator.

3.2.4

Gender Budgeting

According to the European Institute for Gender Equality, the purpose of Gender Budgeting is threefold: to promote accountability and transparency in fiscal planning; to increase gender responsive participation in the budget process, for example by undertaking steps to involve women and men equally in budget preparation; and to advance gender equality and women’s rights.7 Gender Budgeting is an important tool that needs to be established at the institutional level to ensure that adequate resources are provided for the implementation of programs and projects within the organization (Polzer et al., 2023). It also compels staff responsible for budget preparation to proactively consider gender impacts through the budget cycle. ECOWAS in furtherance of the ECOWAS Gender Policy now requires that all ECOWAS institutions and agencies must produce gender responsive budgets as this is one of the indicators provided for in assessing the efficacy of the Gender Mainstreaming Policy.

7

European Institute for Gender Equality: “Gender Budgeting”.

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Gender budgeting is one of the emerging areas that regulators need to ensure that staff capacity is developed so as to enable better and more inclusive fiscal and financial planning within the organization.

3.3 Project Development The gender dimensions in energy project development are multi-dimensional cutting across the project planning and development stage, stakeholder engagement, participation of women entrepreneurs, and decision-making process in project development.

3.3.1

Project Planning

Regarding project planning in energy projects, even though the impacts and risks of energy development should be addressed in the environmental and social impact assessments, mitigation plans are not always funded, monitored, or disaggregated by gender. Moreover, consultations, policy planning, and decision-making in the energy sector do not always consider gender impact and social inclusion issues and stakeholders. Since women and other vulnerable groups are left out of energy plans and surveys, baselines for measuring development benefits usually do not exist.8 It is therefore imperative that regulators fill in this gap by mandating that gender impact assessments be conducted with respect to projects that require the approval or authorization of the regulator before they can start. This includes both smalland large-scale generation projects, using both conventional and renewable energy generation sources, transmission infrastructure, distribution infrastructure, and minigrids. Development of gas and petroleum infrastructure should also require targeted gender impact assessments. The regulator also has a duty to ensure that any mitigation framework that has been established by these studies is monitored through the life cycles of the project. Data generated from these studies will also be useful to the regulator to understand the impact of the various projects on both women and men.

3.3.2

Transparent and Inclusive Stakeholder Engagement

It is important that regulators ensure that the stakeholder consultation process which is required to be undertaken prior to the commencement of energy projects considers a wide range of views including those of women, men, and the youth. Traditionally, especially in the rural parts of Africa, the patriarchal legacy means that decisionmaking at the community level is often made totally by men without any need for 8

ENERGIA, Accelerating SDG 7 achievement policy briefs in support of the first SDG 7 review at the UN high-level political forum 2018.

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the consultation of women. The impact of this is that issues specifically concerning women are not considered when energy projects are being planned, and moreover, women have no opportunity to even make contributions to the kind of projects that could possibly improve their productive use of energy. The consequence of this one-sided consultation process means those negative discriminatory societal norms and community practices that perpetuate inequality continue to stay in place except if proactive actions are taken by regulators and policy-makers to put an end to it. Where stakeholder engagements are mandated, regulators should ensure that the project developers are mandated to specifically invite both men and women to such meetings and also insist on the attendance list being gender disaggregated to emphasize the need for gender inclusiveness.

3.3.3

Hire Women as Employees in Energy Projects

Regulators always have the opportunity of assessing the business plans for energy projects in the course of the application for the grant of a license or authorization to undertake the project. While a number of regulations and policies with regard to the energy sector mandate a certain level of local content based on ensuring that members of the community where the project is situated benefit from employment and the opportunity to offer some limited services to the project, such requirements do not also necessarily mandate gender inclusiveness. Since the energy sector is mostly a male-driven sector, it will be beneficial, where considerations for local content are provided for, to make further provisions that can ensure that women in that community are also taken on board as employees and service providers. Indeed, prescribing specific quotas for employment or capacity enhancing opportunities for women is not out of place and should be considered by the regulator where possible, given the wide gap in the ratio of men to women employed in the energy sector. The advantages and benefits of a more inclusive workforce have already been discussed and there is no doubt that energy sector projects will also reap the positive benefits of a more diversified workforce where they are mandated to give more opportunity to women.

3.3.4

Empower Women Entrepreneurs

Access to finance has been established as one of the main reasons why there are fewer number of women entrepreneurs in the energy sector compared to men. This means that a number of women entrepreneurs who may be qualified to provide energy service may not scale through the procurement process due to challenges of access to finance. In order to encourage the participation of more women entrepreneurs in the energy sector, regulators may consider working with the policy-makers to develop programs specifically targeted at women entrepreneurs as a way of ensuring more inclusiveness

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along the value chain. For example, distribution licensees may be encouraged to develop programs where women entrepreneurs are given the opportunities to vend electricity. Again, there are a number of mini-grid projects where women in the community where the projects are located have been trained as technicians to carry out repairs on faulty home system and have also been able to train other women thereby slowly building up a critical mass of women who enjoy some level of financial freedom and economic empowerment.

3.3.5

Monitoring and Evaluation

Monitoring and evaluation of energy projects provides an opportunity for the regulator to evaluate the eventual outcome of the project benchmarked against the business plan and also enables the regulator to monitor ongoing compliance with license terms and conditions where such projects require a license. It is therefore very important that the monitoring and evaluation framework also considers the gender impact aspects of the project. Typically, the regulator will require the developer to develop a baseline, then monitor and evaluate gender disaggregated impacts of the project on the community. Such monitoring will of necessity utilize gender disaggregated data which will serve the purpose of enabling both the developer and the regulator to empirically access the gender impact of the project and will also serve as a useful tool for similar projects in the future. The regulator should however take the additional step of ensuring the veracity and validity of submitted data to make sure that it is fit for purpose. Undertaking periodic consumer satisfaction surveys may be a useful tool for independently verifying data especially with regard to quality-of-service reports.

3.3.6

Lands Rights and Compensation

Another area in which women in Africa experience gender-based discrimination is with respect to the right to land and compensation for land and other property rights. More often than not, women have very little or no say with regard to land ownership in the rural communities. These entrenched traditional practices mean that women are very often deprived of land which they may have a legitimate claim to as well as any compensation paid by project developers for such land since “tradition” demands that they cannot directly negotiate for land transactions. Regulators should therefore consciously establish a compensation framework that ensures that women are not unduly biased against and should have access to land rights or be paid adequate compensation when they are deprived of such lands.

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4 Key Step to Ensure the Successful Implementation of a Gender Mainstreaming Strategy Even though a number of countries and some regional bodies have been able to put in place Gender Mainstreaming Policies and Gender Strategies to support the energy sector in Africa, so far, the impact has been minimal with countries in East Africa making far more progress in gender mainstreaming than countries in West Africa, despite the existence of an ECOWAS Policy and Directives on Gender Mainstreaming in Energy Access and Projects. In order to fast track the gender mainstreaming agenda in Africa, it is important that regulators, who are yet to do so, undertake some basic steps that will kickstart and accelerate the implementation of gender mainstreaming in their respective institutions. These steps are discussed below.

4.1 Exhibit Strong Political Will The management of Regulatory Authorities should have a good understanding and appreciation of the benefits of institutionalizing a culture of gender mainstreaming. Executive management should take direct responsibility for gender mainstreaming. The commitment to gender mainstreaming should be reflected in all documents and statements of the institution. Leadership should not only be seen to speak about gender mainstreaming but be ready to make sacrifices and commit resources to it. Management should be seen to align with global, international, and national commitments on gender equality and human rights.

4.2 Develop Expertise for Mainstreaming Gender Highly skilled personnel will be needed to conduct gender analytical research including needs assessment in order to be able to guide the NRA in preparing a Gender Strategy and Action Plan as well as other gender responsive policies. There will also be a need to procure experts required for developing staff capacity across the organization for gender mainstreaming. This includes training, retraining, mentoring, etc.

4.3 Establish a Gender Unit/Appoint Gender Focal Person(s) Regulatory Authorities should appoint focal persons in each department and where possible, also establish a gender unit or in the alternative, a gender lead for the

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organization. It is more effective for a senior member of staff to take the lead role as this will make it much easier to liaise adequately with the management of the organization. The person or unit should have Terms of Reference that form the basis of appraisal of performance for gender-related targets. Measure should be put in place to ensure that no policy, guideline, program, project, or plan is developed or rolled out without the input of the Gender unit of gender focal person for the purpose of ensuring that such institutional documents are gender responsive.

4.4 Institute Gender Budgeting Gender Budgeting entails identifying and reflecting needed interventions to address gender gaps in organizational policies, plans, and budgets. Gender budgeting also aims to analyze the gender-differentiated impact of revenue-raising policies and the allocation of domestic resources. This helps to ensure that gender mainstreaming does not remain a desire. A dedicated budget is essential in order to implement gender equality focused program and to ensure that gender concern is integral to all programs and activities.

4.5 Develop a Gender Strategy A Gender Strategy is a document developed to aid the implementation of the Gender Policy at an organizational level. It breaks down the Policy into actionable tasks and provides the timelines as well as the targets for the respective tasks. It typically is developed over a five-year period to align with the institution’s 5 years Strategic Plan. The Gender Strategy will among other issues address all the objectives set out in the Gender Policy and show how the regulator intends to achieve the objectives within a specified timeline. It will also include all resources (human and material) that will be needed to implement the Strategy.

4.6 Establish a Monitoring and Evaluation Framework The Gender Strategy should also have an Action Plan backed up with a monitoring and evaluation framework with gender-sensitive indicators to track performance. The Strategy should have a timeline for implementation and this should be reviewed and performance assessed. Lessons learnt should be used to review and update the document and also be considered in the preparation of the subsequent Gender Action Plan for the institution.

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Carrying out these basic steps and considering the key considerations for gender mainstreaming discussed in Sects. 2 and 3 will serve as a good indication of the commitment of any regulator keen on ensuring the effective implementation of gender mainstreaming within the regulatory authority.

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I. Ikeonu is an Energy Policy, Markets, and Regulation Consultant. She has worked as an advisor on electricity sector reform, access, markets, and regulation across many countries across Africa, particularly West and East Africa. She has also supported various regional power pools and regulators, including the ECOWAS Regional Electricity Regulatory Authority (ERERA) and the Independent Regulatory Board of the East African Power Pool in the development of regulatory frameworks for regional regulation of electricity markets. She holds a Master’s degree in Law as well as an MBA in Sustainable Development. Ifey served as a former Chairperson and Council member of ERERA. Prior for that, she held various management positions at the Nigerian Electricity Regulatory Commission including Head of the Licensing & Enforcement Department, Head of the Strategy and Project Management Office. She also worked for several years as in-house Counsel at the Power Holding Company of Nigeria.

Concluding Chapter

Concluding Thoughts—The Future of Energy Regulation in Africa Charly Gatete, Ishmael Ackah, and Harrison Edifor

1 Background Regulators are advised to keep their eyes on but keep their hands off the activities of utilities.1 They are to advise, develop and implement guidelines, monitor, and enforce to ensure that customers receive quality service and utilities are financially viable.2 Clearly, the work of the regulator is to balance the interest and influence of many stakeholders (Ukponu et al., 2021). Because stakeholders are many with diverse interests and different levels of influence, regulating the energy sector is akin to walking on a rope. However, the effectiveness in balancing these interests and managing such influencers has ultimately defined regulatory outcomes in many countries.3 In addition to this, regulators need to exercise authority and provide a high level of consistency in their decisions and implementation of regulatory directives. Regulations if properly crafted and well-implemented could lead to positive outcomes. 1 Singh and Gomez (2018), The energy industry is changing. Are governments switched on? https:// www.weforum.org/agenda/2018/03/the-world-of-energy-is-changing-are-countries-switched-on/ 2 https://blogs.afdb.org/energy-engine-africas-industrialization. 3 World Bank (2023), How solid are regulatory frameworks for the power sector in developing countries? https://blogs.worldbank.org/energy/how-solid-are-regulatory-frameworks-power-sec tor-developing-countries#:~:text=A%20robust%20regulatory%20regime%20provides,service% 20is%20provided%20to%20customers.

C. Gatete (B) ECOWAS Regional Electricity Regulatory Authority (ERERA), Accra, Ghana e-mail: [email protected] I. Ackah Accra, Ghana H. Edifor Bui Power Authority, Accra, Ghana © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 I. Ackah and C. Gatete (eds.), Energy Regulation in Africa, Advances in African Economic, Social and Political Development, https://doi.org/10.1007/978-3-031-52677-0_28

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For instance, effective regulations can promote investments in the energy sector and boost the confidence of customers and the government in the sector. These issues are compounded by the challenge of marrying emerging technologies with attracting capital to develop Africa’s energy. The continent possesses significant new and renewable energy potential. The IRENA estimates that modern renewable energy potential amounts to 310 gigawatts (GW). This could provide half the continent’s total electricity generation capacity and corresponds to a sevenfold increase from the capacity available in 2017, which was 42 GW. In addition, at the regional level, issues such as climate change and sustainable development have become relevant. In recognition of this, most African countries have signed on to a number of international conventions and protocols. Prominent among these are the Sustainable Development Goals (SDGs), the Paris Agreement, the Africa Union (AU) Agenda 2063, the Africa Clean Energy Corridor, and the ECOWAS Policies on Renewable Energy. The Sustainable Energy Fund for Africa, managed by the AfDB, has been investing in new and renewable energy sources as well. These are meant to achieve sustainable development goals. On the other hand, the continent faces the twin challenges of infrastructure deficits and limited energy access. In dealing with these challenges, it is important to identify and use sustainable pathways. Further, individual countries have started implementing green reforms. In Ghana, a hybrid hydro-solar project has been commissioned by the government. In Morocco, the 510 Megawatts Noor project is estimated to be the largest concentrated solar plant in the World. Senegal in 2018 achieved a bid price of 0.040 Euros per kilowatt hour. Similarly, Zambia achieved 0.04 dollars per kilowatt hour through competitive bidding for a 120-Megawatt solar project. The implication is that, beyond environmental considerations, a business case can be made for the adoption of new and renewable energy technologies in Africa. Despite these regional and country-level initiatives, there are challenges, skepticism, and cautions about stranded assets and debates on alternative sources of revenues beyond oil. These questions require the strong leadership of the regulator. The regulator will play an important role in ensuring sustainable energy access, attracting investments to the energy sector, developing an optimal sustainable energy pathway, and ensuring the productive uses of energy.

2 The Current State of Energy Regulation in Africa Energy regulations in Africa are of paramount importance as the continent undergoes economic growth, urbanization, and increasing energy demands. Access to reliable and sustainable is key to economic development, poverty reduction, and overall human development. The energy landscape in Africa however is characterized by the complex interplay of challenges, including insufficient infrastructure, limited access to electricity in rural areas, and a heavy reliance on traditional biomass for domestic activities. The existing state of energy regulation frameworks in Africa varies from country to country reflecting the diverse socio-economic, political, and

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geographical contexts across the continent. Even though some countries have made significant strides in promoting renewable energy and improving efficiency, others are faced with institutional and governance challenges that hinder effective regulatory implementation. The continent holds immense potential for renewable energy sources, including solar, wind, hydro, and geothermal, which can play a crucial role in meeting the rising energy demand sustainably. Additionally, advancements in digital technologies and innovative financing models offer new avenues for improving energy access and efficiency, but in general, there are several challenges that are common across the continent. 1. Lack of Access to Electricity: Africa has the lowest electrification rate in the world, with over half of the population lacking access to electricity. This is due to limited investment in infrastructure and poor regulation in the energy sector. 2. Weak Regulatory Frameworks: Many African countries have outdated and inadequate regulatory frameworks for energy. There is a lack of clear policies, legislation, and enforcement mechanisms to govern the sector. This leads to inefficiencies, corruption, and uncertainty for investors. 3. Limited Participation of Independent Power Producers (IPPs): The majority of African countries have state-owned utilities dominating the energy sector. This hinders competition, innovation, and efficiency. The lack of participation from IPPs limits investment and hampers the growth of renewable energy sources. 4. Subsidized Fuel and Tariff Issues: Government subsidies for fossil fuel-based energy sources distort the market and make it difficult for renewable energy sources to compete. Additionally, electricity tariffs are often set below cost recovery levels, leading to financial struggles for utilities and limiting their ability to expand access. 5. Regional Integration and Cross-border Trade: Limited cross-border electricity trade and integration between African countries hinder the development of a regional energy market. This undermines the potential for resource sharing, enhanced grid stability, and the scale-up of renewable energy projects. Efforts are being made to address these challenges, and some countries have made significant progress in energy regulation. For example, countries like Kenya and South Africa have implemented robust regulatory frameworks that have attracted private investment in renewable energy. The African Union and regional economic communities are also working to harmonize policies and regulations to promote regional integration and cross-border trade in energy. Overall, there is growing recognition of the importance of energy regulation in Africa’s development and efforts are being made to reform and strengthen the sector.

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2.1 Emerging Trends in Africa’s Energy Sector: Transition, EV, Hydrogen, Electricity Trade. 1. Transition to Renewable Energy: The transition to renewable energy is inevitable. Current trends in Africa have shown the urgent need to use resources we have in abundance through clean technology to generate the needed energy. Africa is blessed with tremendous untapped renewable energy resources hydro, solar, wind, biomass, and geothermal energy to diversify the energy mix and reduce reliance on fossil fuels. The renewable energy revolution in Africa could have substantial benefit in solving the issue of climate change and development policy both locally and globally curbing the problems associated with the use of fossil fuels. Many African countries are recognizing the benefits of transitioning to renewable energy sources. 2. Expansion of Off-Grid Solutions Off-grid solutions, such as mini-grids and standalone solar systems, are gaining popularity in Africa, particularly in rural areas where grid extension is uneconomical. The expansion of off-grid solutions in Africa offers so many benefits to the continent among which is Increased energy access. Off-grid solutions provide electricity access to remote and underserved areas where extending the main grid is uneconomical or challenging. This helps to bridge the energy gap and improves the quality of life for communities, allowing them to engage in activities such as education, healthcare, and income generation. Energy Security and Reliability: Off-grid solutions reduce dependence on a centralized grid, which is often vulnerable to disruptions and outages. By having their own localized energy systems, communities can achieve more reliable and consistent access to electricity, enhancing their resilience and economic productivity. Environmental Sustainability: Off-grid solutions predominantly rely on renewable energy sources like solar or wind power. By using clean and sustainable energy, these solutions contribute to reducing carbon emissions and mitigating climate change. They also help to preserve local ecosystems by avoiding the negative impacts associated with traditional energy sources such as fossil fuels. Cost Savings: In many cases, off-grid solutions can reduce energy costs for households and businesses compared to relying on traditional sources like diesel generators. As renewable energy technologies become more affordable and efficient, the cost of electricity production and maintenance of off-grid systems decreases, making them increasingly cost-effective alternatives. Job Creation and Local Economic Development: The implementation of off-grid solutions can stimulate local economic development. It creates opportunities for local entrepreneurs, technicians, and maintenance workers, fostering job creation and skill development within communities. Additionally, off-grid systems can power small businesses, agricultural activities, and other income-generating ventures, supporting economic growth.

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Scalability and Flexibility: Off-grid solutions have the advantage of being modular and scalable, allowing for easy expansion and adaptation to population growth or changing energy demands. They can be customized to fit the specific energy needs of different communities, making them highly flexible and adaptable solutions. The expansion of off-grid solutions in Africa has the potential to significantly improve energy access, enhance sustainability, and drive socio-economic development. However, challenges such as initial investment costs, policy frameworks, and technical expertise need to be addressed to fully unlock the potential of off-grid solutions. 3. Electric Vehicles (EVs) Although still in the early stages, EV adoption is gradually increasing in major cities across Africa. Governments are implementing policies to encourage EVs, including tax incentives, subsidies, and the establishment of charging infrastructure. This trend is expected to accelerate as the cost of EVs decreases and charging infrastructure improves. The potential benefits Electric vehicles provide are enormous; among which are as follows: Reduced Dependence on Imported Fossil Fuels: Africa heavily relies on imported fossil fuels for transportation, which can strain economies and create vulnerability to global oil price fluctuations. By transitioning to electric vehicles, countries can reduce their dependency on imported fuels and instead utilize renewable energy sources for charging EVs, improving energy security and reducing the trade deficit. Environmental Sustainability: EVs produce zero tailpipe emissions, leading to improved air quality and reduced pollution in urban areas. Africa faces significant challenges in terms of air pollution and its associated health impacts. The shift to electric transportation can help mitigate these issues, contributing to cleaner and healthier cities. Climate Change Mitigation: Africa, like the rest of the world, is grappling with the impacts of climate change. The transportation sector is a major contributor to greenhouse gas emissions. By adopting electric vehicles powered by renewable energy sources, African countries can significantly reduce their carbon footprint and contribute to global efforts to combat climate change. Energy Efficiency: Electric vehicles are more energy-efficient compared to traditional internal combustion engine vehicles. They convert a higher percentage of energy from the grid to power the wheels, resulting in reduced energy consumption and increased overall efficiency. This can help optimize energy usage and achieve energy savings, especially when combined with smart charging and integration with renewable energy systems. Job Creation and Economic Opportunities: The establishment of electric vehicle charging infrastructure can lead to job creation in installation, operation, and maintenance. Furthermore, the manufacturing and assembly of EVs and associated components can create employment opportunities and stimulate local economic growth. Developing a domestic electric vehicle industry can drive technology transfer and innovation and attract investment to the region.

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Enhanced Energy Access: EVs can also serve as portable energy storage devices, leveraging their batteries to provide electricity to homes and communities during power outages or in remote off-grid areas. This feature can enhance energy access in underserved regions, contributing to the achievement of universal energy access goals. However, the adoption of electric vehicles in Africa faces challenges such as high upfront costs, limited charging infrastructure, and the need for supportive policies and regulations. Overcoming these barriers requires comprehensive planning, investment, and collaboration between governments, private sector actors, and international organizations to unlock the full potential of electric vehicles in Africa. 4. Renewable Energy for Industrial Applications There is a growing recognition of the potential of renewable energy for industrial applications. Large-scale renewable energy projects, like wind farms and solar parks, are being developed to power industries and reduce reliance on fossil fuels. 5. Focus on Hydrogen Energy Hydrogen is gaining attention as a potential clean energy source in Africa. Pilot projects and research initiatives are exploring the production, storage, and utilization of hydrogen, particularly in sectors such as transportation and energy storage. Hydrogen energy offers several potential benefits to Africa: Energy Storage: Hydrogen can be used as a means of energy storage, providing stability and resilience to Africa’s energy grid. As renewable energy sources like wind and solar become more prevalent in the continent, hydrogen can be produced through electrolysis during periods of excess renewable energy generation. This hydrogen can then be stored and used later when renewable generation is low or to meet peak energy demands. Decentralized Energy Generation: Hydrogen can facilitate decentralized energy generation in Africa. It can be produced locally, allowing communities to generate their own clean energy and reduce reliance on centralized fossil fuel-based power plants. This can enhance energy access in remote or rural areas that are not connected to the main electricity grid. Carbon Neutrality: When used in fuel cells, hydrogen produces only water and does not release any greenhouse gas emissions or air pollutants. Transitioning to hydrogen-based energy systems can contribute to Africa’s efforts in mitigating climate change and improving air quality, which are crucial considerations in the face of rapid urbanization. Transportation: Hydrogen fuel cell vehicles (HFCVs) offer an alternative to electric vehicles and internal combustion engine vehicles. HFCVs possess longer driving ranges and faster refueling times compared to battery electric vehicles. This technology can be particularly beneficial for long-haul transportation, goods delivery, and heavy-duty applications such as buses and trucks, supporting Africa’s growing transportation needs. Job Creation and Economic Development: Establishing a hydrogen economy can generate employment opportunities and stimulate economic growth in Africa. The

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development and implementation of hydrogen production, storage, distribution, and utilization infrastructure can create jobs in manufacturing, construction, engineering, and maintenance. African countries can also attract investment in hydrogen-related industries and technologies, fostering local innovation and knowledge transfer. Diversification of Energy Sources: Hydrogen presents an opportunity to diversify Africa’s energy sources beyond fossil fuels. By embracing hydrogen, countries can reduce their dependence on imported fossil fuels, enhance energy security, and tap into the continent’s abundant renewable energy resources. However, challenges such as high initial costs, limited infrastructure, and technology readiness need to be addressed for the widespread adoption of hydrogen energy in Africa. Collaboration between governments, private sector entities, and international institutions is crucial to foster the necessary investment, research, and development to unlock the potential benefits of hydrogen in Africa. 6. Regional Electricity Trade African countries are increasingly exploring opportunities for cross-border electricity trade. Initiatives like the African Continental Free Trade Area (AfCFTA) aim to facilitate regional trade in electricity, enabling surplus energy to be transferred to neighboring countries and improving energy security. 7. Energy Efficiency and Conservation Recognizing the importance of energy efficiency, African countries are implementing policies and programs to promote energy conservation. This includes initiatives like energy labeling, building codes, and public awareness campaigns to encourage efficient energy use. These emerging trends reflect the continent’s increasing focus on sustainable and clean energy solutions to address the challenges of access, reliability, and environmental concerns. However, implementation and scaling up of these trends are still at various stages across different countries in Africa.

3 African Regulators and the Energy Transition: Flexible Regulations for Energy Transition Africa, like other continents, is facing the challenges of climate change. Despite its low contribution to greenhouse gas emissions, it remains one of the the most vulnerable continents to climate change impacts under all climate scenarios above 1.5 degrees Celsius. The Intergovernmental Panel on Climate Change (IPCC) report 2018 highlighted the severe consequences of a temperature increase above 1.5 °C, especially for Africa. According to IPCC, sudden climate change in Africa is a source of many disasters such as floods, drought peaks and forest fires, deforestation, and health consequences on health.

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Fig. 1 Installed power generation capacity by source in the African energy transition scenarios. Source International Energy Agency (2022)

Since the Paris Agreement in 2015, African countries, like the rest of the world, have been committed to promoting policies, strategies, and actions to transform their economies toward a less carbon-intensive and more sustainable economy. They have defined their Nationally Determined Contributions (NDCs) and are committed to an energy transition by promoting renewable energy and energy efficiency. The energy transition required of states is defined by the transformation of the energy sectors with a greater integration of renewable energy sources (RES) into the national energy mix. Africa’s energy mix has changed dramatically. According to the (International Energy Agency, 2022), solar PV, hydropower, and wind capacity surpass that of coal and oil this decade, while the dominant position of natural gas will be overturned in the 2030s (Fig. 1). Among all the RES, Tagwi and Chipfupa (2022) show that the most used RE is hydropower (81%), followed by wind energy and solar (5%) in 2022. On the one hand, the need for the energy transition requires the definition of policy and regulatory frameworks conducive to integrating ERs into electricity systems and national electricity markets and, secondly, promoting innovations that promote clean energy consumption. Indeed, Africa’s energy transition depends first and foremost on political will, the definition of the political framework, and a vision for this transition. Where does Africa want to go? What ambition at the continental and national level do we want regarding clean energy use? What strategies and voices do we use to get there? What assets and how can we take advantage of the enormous renewable resources with which Africa is endowed to establish sustainable development—and fair development for all? These are some questions that frame and contribute to building the vision and strategy to make the energy transition a positive approach to Africa’s economic, technological, and industrial transformation. Medinilla and Sergejeff (2023), Pedersen et al. (2021), Johnson et al. (2019), Baker et al. (2014), and Prasad (2008) noted that the energy transition is an opportunity for

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Africa. An opportunity as a provider or source of jobs in the RE sector, especially for youth. A source of employment and promotion/achievement of women and gender through the creation of income-generating activities from ER sources, the opportunity to take advantage of technological gains in ER-related growth and development, etc. Through the economic benefits mentioned above, the energy transition promotes economic transformation and can be a source of sustainable development (Arndt et al., 2017; Byiers et al., 2023). Technology is driving the energy transition. Technological innovation through developing new techniques, making existing technologies cheaper (Bogdanov et al., 2021), and developing clean energy protection processes increase clean energy consumption and ensure energy efficiency (Pasman et al., 2023). The technological evolution of solar panels has made the technology more accessible to consumers over the years. Clean energy technology costs have fallen significantly in recent years and are likely to continue falling, indicating the potential ahead of a fast transition to clean energy. According to RES4Africa Foundation (2023), in the last decade, the global weighted average Levelized Cost of Electricity (LCOE) of newly commissioned utility-scale solar PV projects declined by 88%, onshore wind fell by 68%, CSP by 68%, and offshore wind by 60%. So, this decline in the costs of clean technologies observed concomitantly with the evolution of integration confirms, as (Bogdanov et al., 2021) noted, that this reduction is a stimulator/driver of the energy transition. This decrease also varies depending on the technology and is essential to consider (Fig. 2). Best-in-class solar PV and wind projects are already cheaper than new gas and coal plants in most parts of Africa and become even more competitive by 2030. The evolution of technologies relating to solar batteries but also to electric batteries capable of storing more and more energy, less heavy and bulky but also more affordable, have made it possible, on the one hand, to accelerate the use of storage systems

Fig. 2 Levelized cost of electricity for selected sources in the African energy transition scenarios. Sources Bogdanov et al. (2021)

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in association with solar PV plants and, on the other hand, to promote the use of electric vehicles. The technological boom and the rapid technological development and uses or applications in the energy sector need to be framed by regulatory frameworks. National political authorities and regulators are called upon to play this crucial role as initiators and facilitators of technological development and its use in the service of the energy transition. Regulators are thus invited to contribute to the energy transition by defining green regulations and regulations favorable to promoting and integrating clean technologies and RES in the energy sector in general and in electricity markets in particular (Daszkiewicz, 2020). Regulators can define but are not limited to the most appropriate technology and regulations that affect all aspects of energy regulation. In general, regulations on the promotion of renewable energy sources should address the following aspects: • • • • • •

Rules on Connection and dispatch Mandates and obligations Standards Labels Standard Portfolios Regulatory environment not prohibiting or permitting corporate PPAs

The following table summarizes some considerations for regulators to consider when defining flexible regulations for the energy transition (Table 1): Geothermal Geothermal energy is not sufficiently exploited in Africa despite the potential of the underground or groundwater. Elbarbary et al. (2022) identified 14 African regions with high potential, with a particular focus on the Rift Valley. Except for East African countries engaged in developing geothermal energy, only some countries have embarked on exploring and developing geothermal projects. Policies and regulations will accelerate geothermal energy development and its contribution to the energy transition. These Regulations should ensure a level playing field for all players, provide an enabling investment environment, and determine the generation sequencing and the manner of final electricity dispatch. Green hydrogen Concerning Green Hydrogen, Africa has the potential to produce green hydrogen at a competitive price and export it to other countries, providing a new economic opportunity. There are a few green hydrogen projects in Africa to unlock this potential, mainly targeting the export market. The launch of the African Green Hydrogen Alliance4 (AGHA) in May 2022, with the main aim of developing green hydrogen projects

4

Founding members are Egypt, Kenya, Mauritania, Morocco, Namibia, and South Africa.

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Table 1 Aspects to consider when defining regulations for the energy transition Technology

Type of regulations

Possible content

Hydrogen

Green hydrogen

• Production • Guarantee of origin and additionality certification • Condition for trade

Solar systems, including battery storage

• Regulations on offshore and • Generation onshore solar power plant • Connection into the grid • IPP and sustainability (to • On Green mini-grid avoid missing money and • The technical aspect of battery missing market) storage • Incentives to generation: green certificates, RE Auction, Incentives to consumption: green electricity, green hours, etc • Need for flexibility because of intermittence

Electric vehicle (electric battery)

Regulation on EV battery

Grants, subsidies Technical Charging stations

Wind

Regulation on offshore and onshore wind power plant

Exploration, pre-feasibility

Regulation on clean cooking

• • • • • •

Geothermal

• Development and • Utilization, including Direct use application • Funding/attracting investors geothermal PPP

Choice of technology between: ICS LPG (& bioLPG) Electricity Biogas Ethanol 1. Process and technologies which should cover: 2. Exploration 3. Recognition 4. Pre-feasibility 5. Exploratory 6. Drilling (3) 7. Environmental impacts and Social Safeguards evaluation

ICS = the use of solid biomass in intermediate and advanced biomass cookstoves LPG = liquefied petroleum gas. Access rate is defined as the share of the population with cooking gas connections

in the region and generating the income needed for economic development (International Energy Agency, 2022). Participating countries in this initiative are planning green hydrogen projects and developing policy and regulatory frameworks, which are critical for achieving the alliance’s aim. Apart from this initiative, few countries except West African countries have committed to green hydrogen. Indeed, the Economic Community of West African States (ECOWAS) is the first Regional

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Economic Community (REC) to launch a green hydrogen program. In March 2023, ECOWAS also adopted the ECOWAS Green Hydrogen Policy, which aims in 3 phases to produce around 35% of the total hydrogen production potential at less than USD 1.5 per kg of hydrogen (Economic Community of West African States (ECOWAS), Economic Community of West African States (ECOWAS), 2023). The development of green hydrogen in Africa requires the implementation of various accompanying regulations relating to the use, safety, and handling of hydrogen. The regulator needs to develop specific regulations to differentiate green hydrogen from hydrogen and control its production, such as regulations for guaranteeing origin certification that will assess the sustainability of the hydrogen production and transport process (emission rate). In addition to developing pilot projects and a certification mechanism by internationally acceptable standards with stakeholders (utilities, researchers, producers), regulators are also required to establish regional and national standards for use, storage, and transport by established international standards. Electrical Vehicle The penetration of electric vehicles in the last decade resulted from the technology innovation worldwide. In Africa, this development has been slower, and the use of electric vehicles is minimal, mainly because of the acquisition cost. However, it must be recognized that electric vehicles (EVs) have seen greater penetration in recent years in sub-Saharan Africa and require regulators to implement rules and measures capable of accelerating its penetration and adapting national power systems and stakeholders to the requirements and need for flexibility related to EVs. Indeed, EVs, particularly their charging stations, pose challenges to DSOs in managing their grids. The impact varies depending on the type of charger considered and the conditions of the local grid. Principal challenges are voltage stability, harmonic distortion, and peak load. Regulators should ensure that DSOs have all the provisions and legal rights to find out these issues for the interest of consumers. Even though EVs present the above challenges for the distribution grid, some software solutions applications to EVs, such as intelligent charging and vehicle-to-grid (V2G), can deliver flexibility to distribution grids. Regulators shall anticipate these challenges by developing regulations allowing the development and implementation of such solutions. In addition to the significant role to be played by regulators in the implementation of regulations that promote the adoption of technological innovations, the digital transformation observed in Africa brings challenges and opportunities to regulators to enhance energy access (International Energy Agency, 2022).

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4 Regulators and Digitization: New Challenges and New Regulations With the increasing use of information and communication technologies, the digital revolution has brought a revival in the energy sector and, more specifically, in the way we consume. Consumption habits have changed drastically with ICTs, as has the digitization of several tasks/processes related to the operation of electricity systems and the functioning of markets. Regulators are faced with the challenge of the need to define or redefine regulations that are in line with digital changes and that integrate them into them for more flexibility and better management of electricity systems and the consideration of changes in consumer demand. Digitalization in Africa brings many changes that regulators must consider and respond to appropriately. The following changes can be considered: The Development of Smart Meters Indeed, new technologies in the field of metering, such as smart meters, have profoundly changed the consumption and management patterns of electricity networks by making them more adjustable, more acute to consumption habits, and more flexible by using real-time data. Smart metering brings several benefits: – Consumers such as those providing more detailed and timely information on energy consumption and the possibility to respond with adjustments in consumption, providing more accurate billing and possibly saving time in the correction of billing errors, benefit from a range of different time-of-use tariffs and other services enabled by smart meters, reduce the number of blackouts possible; – For suppliers: Simplify operational procedures related to metering and reduce errors in metering; – Enable the pre-payment of power consumed by end-users, implement time-ofuse tariffs and align power procurement, optimize portfolio of assets for power production and, in principle, reduce the need for new generation assets, reduce capital expenses, and improve overall higher efficiency of their operations; – For power systems: Support the development of smart grids, reduce GHG emissions by reducing the number of power plants needed, and improve the overall efficiency of operation of existing ones. However, smart meters also generate several challenges, mainly for utilities such as the following: Customer management in the process of substituting traditional meters, adjusting internal business processes to the data from smart meters, and making long-term financial commitments on the ownership of the data deriving from smart meters and smart equipment, creating data management and security management facilities and procedures for the metering data.

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Regulators need to develop regulations to fix these challenges. Smart meter implementation requires specific regulatory intervention in order to materialize the benefits of smart meters, which can generally include several steps: 1. Mandated smart meter roll-out: Requirement on energy suppliers to prepare plans for smart meter roll-outs with specific time frames, including exceptions and time-limited derogations as needed, including installations code-of-practice to ensure seamless customer experience; 2. Provision of in-home display: Suppliers to provide customers with in-home display reporting consumption data from the smart meter, as well as the supplier’s duty to maintain such displays; 3. Smart meter reporting: Suppliers to provide reports on smart meter installations and operation; 4. Annual milestones: Suppliers should achieve certain milestones for smart meter installation; 5. Security requirement: Suppliers are to keep smart meters secured, particularly about customers’ data and related software; 6. Acquisition and use of data: Provision on the acquisition and use of consumption data under specific time frames. Rule on the consent to the use of data and acquisition, as well as ensuring that such consumption data is available to customers; 7. Procedures in case of charge in a supplier: Regulation should specify the procedures for change in the reading of the smart meters and agreements between suppliers and competent meter providers. The objective should be to ensure “portability” of smart meters from one supplier to another; 8. Billing based on meter readings: Provision to reflect the actual consumption data in bills; 9. Tariffs and metering date: Provision for the time-of-use or dynamic tariffs should reflect the link with the consumption data reported on bills and related energy prices per time of day. For example, Off-peak/peak hour tariff. Regulators should design and tailor smart meter regulation to the local legislation framework, consider data protection and other provisions applicable to suppliers, and be designed in a compatible manner with such provisions. Virtual Power Purchase Agreements (PPAs) and Virtual Power Plants (VPPs) A Virtual Power Plant (VPP) is a software and hardware tool and network connecting decentralized power generating or consumption units of different kinds to dispatch them via a central control while leaving the units independent in their ownership and partially in their physical operation. This digitalization of systems and market operations opens the way to new business models and needs specific regulatory measures. The development of electricity markets in Africa will see the introduction of VPPs in addition to the actual physical PPA. Noting that Virtual PPAs are financial agreements where no power is physically traded, they will require more appropriate regulations and more precise supervision, such as the following:

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– How do we monitor physical power and financial settlement transactions and share responsibilities between the SMO and the regulator? – How do you secure transactions and attract investments? – How will the renewable energy certificates (RECs) be issued directly to the consumer in a VPPA transaction? – How will arbitration in case conflicts arise due to physical or financial power transactions? The digitalization of regulatory procedures Regulators’ administrative and regulatory procedures are evolving and must also adapt to the issue of digitalization. Regulators must digitize and automate many internal procedures and procedures related to regulatory measures. Many African regulators have initiated this digitalization process, which involves the following: – The digitalization of the procedures for managing disputes by consumers, in particular with the filing of complaints online through a dedicated platform in which the consumer can follow the evolution of his complaint until its conclusion; – Digitalization of procedures for admission and granting of licenses/authorizations to trade in the market; – Digitalization of the entire administrative process and administrative and financial management, including training and capacity building for regulatory staff. This digitalization of regulatory processes and the operation of energy markets is a source of opportunities to gain efficiency in terms of regulation, but it is also a source of risks related to IT and data security. Information security against cyberattacks As part of the implementation of the digitalization of the processes for operating and regulating the energy markets, stakeholders and, more particularly, the regulator and the OSM must get involved and take measures to secure data, in particular sensitive data related to the operation of systems, to secure platforms and market data, in particular against computer attacks and factors that may bias the proper functioning of the system, market and impact fairness. The digital surveillance of actors is a new dimension on which regulators must be trained and prepared. Faced with these challenges, regulators must also develop systems for data backups or corrective measures when there is a failure of digital systems that creates power market situations or affects market rules.

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5 The Regulator, Stakeholders, and the Future Stakeholder management is an activity of the regulator in its own right. Indeed, the consultation of stakeholders in the definition of regulations, on the one hand, and awareness-creation/information sharing and training activities for stakeholders on the regulations are very central to the work of the regulator.. Consumers, utilities and other stakeholders are becoming more complex, enlightened and sophiscated. Consumers want value for money, reliable and quality service at competitive prices. Utilities want a decent return on their investments, a regular paying customer and a stable regulatory regime. In the context of these expectations, regulatory languages are become vital for the effectiveness of the regulation. How the regulator communicates, the communication tools, and the content affect the acceptance and understanding of the rules and regulations by stakeholders. In recognition of these technologies, digitization and stakeholder dynamics, it is important to strategize to turn Africa’s renewable energy potentials into generation, strengthen research and advocacy, and deal with energy-related challenges sustainably. The African regulator must invest in capacity development, research, innovation and robust stakeholder management systems to provide leadership in Africa’s energy sector.

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C. Gatete is a seasoned energy economist, holds a PhD in Energy Economics from the University of Paris Sarclay (France) and another in Energy from 2iE (Burkina Faso). He is an economist expert at ECOWAS Regional Electricity Regulatory Authority (ERERA), contributing to economic regulation ECOWAS’s Regional Electricity Market. Previously, he managed some renewable energy projects in Africa, was an energy expert for UNDP, UNITAR and assistant professor and researcher at Thomas Sankara University, 2iE and CIRAD. I. Ackah is the Executive Secretary of Ghana’s Public Utilities Regulatory Commission (PURC). He chairs the Legal and Regulatory Committee of the Electricity Market Oversight Panel. He worked with the United States Agency for International Development (USAID) West Africa Energy Program, Deloitte, the Energy Commission, Ghana and the Africa Centre for Energy Policy. He’s an Adjunct Lecturer at University of Ghana Law School, GIMPA and University of Cape Coast. As a researcher, he has consulted for the AfDB, NRGI, SNV, UN, DFID/GOGIG, Energy for Growth Hub among others. He holds a PhD in Energy Economics from the University of Portsmouth-UK, an MSc. From University of Surrey, UK, and a Bachelors from University of Professional Studies, Ghana. H. Edifor is a Chartered Accountant (ACCA) with over 17 years’ experience in the area of Accounting and Finance. He specializes in corporate and financial planning in commercial operations. Harrison holds an MBA in Accounting and Finance from the University of Professional Studies (UPSA) and Msc. Energy Economics from Ghana Institute of Management and Public Administration (GIMPA- Pending Graduation). Harrison currently works with Bui Power Authority as the Senior Manager, Treasury. He previously works as Finance Manger (Voltic Gh. Ltd), Finance Manager at Waterhealth Ghana Ltd and Financial Accountant at Dangote Cements Gh. Ltd. He also had experience in marketing communications and serves in the Capacity as Financial Accountant at Unicorn Group Ltd (Origin8 Saatchi & Saatchi, Imprint Ltd, Adspace as well as Genisys Solutions).