Energy for Growth Hub
Op-Eds Jul 21, 2020

SE4All: A post-COVID agenda for a ‘zombie-free’ recovery of Africa’s power markets

Originally appeared in a Sustainable Energy for All (SE4All) post, July 21, 2020 COVID-19 and the global recession…

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Shaping Energy Transitions

Originally appeared in a Sustainable Energy for All (SE4All) post, July 21, 2020

COVID-19 and the global recession are a gut-punch to Africa’s battle against energy poverty. Even before the pandemic, 548 million people on the continent were still living without any electricity, while Africans lucky to have a connection usually pay high prices for power and suffer regular outages — more than one per day on average in Nigeria. Now financial shocks are squeezing power sectors across the continent, making the goal of sufficient electricity for homes, jobs, and industry even farther away. The continent desperately needs a new approach — one that puts abundant, affordable, reliable electricity for all Africans and African businesses as the linchpin of economic recovery and a rebound of incomes.

The immediate response to the pandemic has been a long-overdue rush to electrify health centres. But that rush won’t address the broader structural problems facing Africa’s power future, which are likely to get worse as the pandemic continues. Nearly every power utility on the continent is a “zombie” — operating at a loss, but cannot be killed — and the demand shock is exacerbating their stress. Industrial demand for electricity is way down in Kenya, creating every day like a Sunday. The off-grid sector, which primarily supplies small-scale solar lighting systems to households, is also reporting a demand cliff.

Private capital to emerging markets also looks jittery, with concerns about rising debt, project delays, and a steep decline in investment. Hopes for a second wave stimulus package for Africa, beyond the announced hiatus on debt service, are likely to be modest. And, even if greater public funds do become available, the energy sector will be in a precarious zero-sum battle with healthcare and other social services for the pandemic’s duration.

It’s a grim immediate picture. Yet solving it is unavoidable: no energy, no recovery. What might be a forward-looking agenda that responds to the new realities but accelerates progress toward the ultimate goals of ending energy poverty and creating the energy systems needed for economic opportunity for all Africans?

First, energy is at the heart of an inclusive global recovery. African governments need to stop siloing energy apart from economic planning and instead integrate energy investments and targets into long-term employment and growth goals. The ambition cannot not be just to reach a minimal amount of energy for Africans but rather sufficient energy for development. Governments must prioritize high-impact sectors where energy can be most productive such as manufacturing, agriculture, and powering the digital economy. In many countries, this may mean a difficult choice of shifting from last-mile rural grid extension to attracting anchor industrial customers who can provide a foundation for a sustainable energy system. Such a change will require switching from providing access at any price to a focus on improving electricity cost and reliability.

Second, putting energy at the center of Africa’s recovery requires a far clearer division of labor for reaching universal access. To bring zombie utilities back to financial life means stemming the losses and narrowing their remit. Sustainable recovery requires that most utilities focus principally on cities and industrial areas, which also means ceding, at least for the medium term, rural electrification and remote areas to private off-grid and other distributed energy players which can deliver initial access to some populations more quickly and inexpensively. Fortunately, satellite imagery and big data can help identify where the national grid should go and where other approaches are more cost effective. This would provide greater security to the off-grid providers while allowing utilities to focus on rebuilding their core business.

Third, technology also enables governments to build smarter energy infrastructure. Utility bailouts must be leveraged to reform and rebuild, not just restore the zombie status quo. To take advantage of super-cheap solar and other exciting new energy sources, the next generation African utility must upgrade system operations for smarter grids, exploit any stimulus funds to build lots of new transmission and distribution infrastructure, and revisit sector governance.

Fourth, greater transparency can fuel competition and drive down costs. Openness is the norm for sovereign debt and oil revenue, but electricity contracts remain shrouded in unnecessary secrecy. Brazil has used competitive bidding, contract disclosure, and a data-rich ecosystem to build a diverse power sector. South Africa’s procurement system publicly releases pricing data to help cut prices for renewable energy and diversify away from coal. The rest of Africa too can harness simple steps toward transparency, like publishing contract details, to attract investment and boost performance.

Finally, the international community has a vital supportive role to play. Donors, development finance institutions, and the big multilateral banks are all involved in Africa’s energy sector. Each can do far more, both by directly investing and crowding in private capital. But they also need to shift their strategies from input preferences to delivering outcomes aligned with each country’s own development objectives. Instead of donors picking their favorite technology or pushing through individual projects, they should help African partners match their available endowments to their vast energy needs — and work together to build a sustainable energy system.

If Africa reverts to pre-COVID energy approaches, it won’t have an inclusive recovery and it will become even less economically competitive with the rest of the world. The pandemic has thrown a harsh light on energy inequality. Rich people living in countries with stable and affordable electricity can telework, stream Netflix, and enjoy air conditioning. Meanwhile, billions of people cope without these new necessities. To survive this crisis and build resilience for the future, Africa needs more than a few lights per household and walking dead utilities. The continent must use this moment to build robust energy systems that can deliver low cost and reliable power to its homes, offices, and industries, finally launching Africa into the prosperous high-energy future it needs and deserves.