African energy market overview


Metering & Smart Energy International spoke with Neeraj Sanjay Mense, industry analyst for Energy and Environment at Frost & Sullivan, about the current state of the African energy market and examines the increase of renewable and distributed energy in this traditional market.

This article first appeared in Metering & Smart Energy International issue 2-2018. Read the full digital magazine here or subscribe here to receive a print copy.

Can you give an analysis of the energy market in Africa?

The current energy market in Africa is heavily reliant on biomass and kerosene to meet daily energy requirements. Access to electricity and natural gas is limited and largely restricted to the urban population.

Rural electrification rates across subSaharan Africa are low, with over 600 million people lacking access to basic electricity requirements.

The situation is currently undergoing a change as organisations with expertise in off-grid electrification are providing access to electricity through renewable energy resources, such as solar PV. Governments in countries like Kenya are supporting programmes and projects that aim to improve access to electricity for rural areas with a view to meeting overall electrification targets and uplifting the economy.

What are the core challenges currently being faced by utilities in the region and how are they impacting on utility?

Inadequate infrastructure remains a core challenge for African power utilities, especially in sub-Saharan Africa where development in power generation and transmission capabilities is unable to keep pace with the growing demand. One reason for this is the lack of investment and financial creditworthiness of power utilities to maintain operations, as well as to invest in upgrading infrastructure.

Inefficiencies in the value chain are considerable with utilities not realising the true value of generated power.

Additionally, with the declining cost of solar and wind technologies, utilities face stiff competition from IPPs which now offer competitive prices – even challenging base load coal generation.

Developmental and donor organisations are now beginning to support projects that impact a larger percentage of the population in rural areas with smaller lead times and capital investment, favouring distributed generation over the costly alternative of grid expansion and upgrading in order to reach remote locations. More than before, utilities face the challenge of continued business sustainability and revenue creation.

How are utilities addressing the challenges and are they doing enough?

The cost of electricity is becoming exorbitant. Utilities are realising this and are working towards integrating resources and policies that provide consumers with more competitively priced electricity. Wind, solar and geothermal reserves, along with natural gas, are also being explored in order to reduce the demand supply deficit through investment in the latest generation technologies.

Grid defection is a real challenge, as is the need to incorporate renewable generation at a central and distributed level. Energy is becoming more customer-centric with new business models being implemented to address customer needs for energy management, cost optimisation, distributed generation and storage, as well as the rollout of microgrids.

What measures can be implemented to address constraints within the market?

1. Encouraging private sector participation in the power business, especially generation and distribution
2. Creating transparency in processes to create investor confidence
3. Unbundling of utility operations to encourage competition that ultimately benefits consumers
4. Creating a system operator that is mandated to procure power from all resources depending on pricing based business models. Promotion of wholesale electricity markets, power pools, time ahead markets, and so on
5. Regulations and incentives that promote the uptake of locally available resources, as well as renewable technologies etc. As an example, distributed generation coupled with storage should be allowed grid interconnections. The resources not only benefit the customer but also provide the utility with means to manage peak loads and defer investments in costly peaking power plants

What role have innovative technologies played in the African energy landscape? To what extent can we say utilities in the region have fairly invested in new technologies?

Capital investments are minimal; and consumers pay depending on usage through simplified mobile payment options.

Investment by utilities in new technologies is still in the nascent stages. There are examples in South Africa and Kenya where respective utilities are now testing battery technologies for renewable energy integration and providing grid ancillary services; but these are still in the very early stages and there is no clear roadmap as yet as to how such technologies will fit into the future energy landscape.

Smart metering and intelligent grids are still some time away from implementation.

Can we say Africa is lagging behind in terms of adopting new technologies? Is the rate at which new technologies are being adopted in line with the phase in which the region’s energy market is in?

To an extent, yes, the adoption of technologies and best practices has been slow. However, Africa has an opportunity to leapfrog and adopt the latest technologies without being majorly impacted by the cost of the new technologies, in the same way the continent adopted mobile phones in order to bypass fixed line connections.

Where do you see the African energy market heading technology-wise? Is the market ready to embrace new technologies?

There has always been a market for new technology and innovations. The market in Africa is highly price sensitive and as such there is a need to develop technologies that can provide value while matching the per capita income levels in the region. This is already taking place where electricity is being provided through distributed networks with services offered according to customer affordability. African markets will witness significant innovation when it comes to rural electrification, distributed generation, renewable energy and energy storage. Changes will not only be restricted to rural areas, but will also impact urban areas which have higher income levels.

The population in urban localities will move towards shielding themselves from high electricity prices and erratic supply through solar and storage systems, along with emphasis on load and demand management. Grid defection will be a major challenge if utilities do not address the changing demands.

Are governments and regional boards doing enough to help meet the current demands of the region’s market? How can governments help improve markets to line them up with international standards?

Efforts are taking place, although currently only in limited areas. For example, in 2015 Kenya granted permission for Africa’s first privately operated utility. The country has also split its generation and transmission and distribution businesses, resulting in increased competition from private players.

The South African power utility, Eskom, is also testing battery storage technologies for grid integration but these are only minor steps. There still remains a lot to be achieved when compared to the global energy industry which is undergoing disruption with the ousting of coal and nuclear, increased contribution of renewable energy, penetration of e-mobility, smart energy solutions and much more.

Regulations need to be implemented that will encourage a shift towards adoption of the above mentioned technologies.

Unfortunately, major economies in Africa still have redundant regulations that support a more centralised monopolistic electricity industry. This diminishes investor confidence and subsequently, competition from new technologies and innovations. MI