- Stephen Nash
The importance of electricity trading to driving green growth in Africa
According to the latest Tracking SDG 7 data from SE4All, we still live in a world where only 44% of people across sub-Saharan Africa (SSA) have access to electricity. In rural areas this share drops further, to 22%. SDG 7 sets the ambitious goal of achieving universal access to energy by 2030. In parallel, countries across SSA have signed up to the Paris Climate Change Agreement. Many have adopted ambitious Nationally Determined Contributions (NDCs) towards the objectives of the Paris Agreement.
Together, these policy objectives represent a huge challenge for the continent, both in terms of technical implementation and in terms of the financing requirements. Recent analysis published by the African Development Bank (AfDB) suggests that achieving universal access will require investment of 230-310 $bn (this figure is based on a 2025 date for universal access). Much of this investment will need to be in renewable generation technologies and in network infrastructure to facilitate the integration of these technologies.
Many power markets in Africa are very small in size; sometimes with only a few hundred or even a few tens of MW of installed capacity. For these small systems the capacity credit (i.e. the security of supply contribution) of a unit of wind or solar capacity can be lower than it would be in a larger market. The graph below illustrates this impact for wind capacity. One of the factors that can improve the security of supply contribution from wind projects can be effective interconnection with neighbouring markets. When the wind resource is low in one location, being able to reliably draw on energy generation resources from neighbouring markets can reduce the need for carbon-intensive back-up generation in each individual market.
The figure below presents a very simple schematic example to illustrate the value that can be delivered by improved interconnection between small markets. The example takes two countries, Country A and Country B. A period of windy weather passes through Country A, and then moves through to Country B, as shown in the top part of the figure. In the absence of interconnection, the costs of running the electricity system in each country are low when the wind resource is high, but costs rise as the wind resource drops and more expensive peak generation capacity is utilised.
The lower part of the figure illustrates the impact of interconnection. During the period with high wind resource in Country A, electricity is exported to Country B; as the windy weather passes through into Country B, this situation is reversed. This trading of electricity has a knock-on impact on electricity system costs. In this example, the overall cost of running the combined system is reduced and the variability or volatility of system costs is also reduced.
As the role of intermittent renewable energy technologies grows across SSA, the importance of being able to trade power across regions will only grow. This will need much more investment in physical network infrastructure. In the past investment in transmission and distribution has often been neglected in favour of installed generation capacity. But network infrastructure by itself is not enough. Effective commercial arrangements are also required so that Country A and Country B in our example can trade electricity so that they reduce system costs in the way shown.
Regional power pools across Africa are making progress, but more needs to be done to facilitate the successful integration of more renewable energy. Liquid short-term electricity markets are needed, so that utilities and system operators can trade power when there are sudden changes in the availability of electricity from wind farms or solar parks. Most electricity trading that takes place across Africa today is under long-term bilateral contracts. Depending on the exact terms of those contracts, this can reduce the extent to which interconnectors can operate flexibly to facilitate renewables integration.
So, what is needed to unlock the potential benefits from improved interconnection in driving green growth across Africa? Three of the priorities that we have identified are as follows:
Building modelling and commercial capacity in national utilities and in power pools so that opportunities to save system costs can be identified and business cases can be articulated.
Regulatory and commercial mechanisms are needed to determine fair cost sharing for interconnector projects between beneficiary countries, reducing the scope for political disagreements acting as a barrier to much needed investment.
Commercial frameworks and electricity markets are needed to facilitate the short-term trading that will unlock the potential for regional trading to bring down the cost of renewables integration.