African power pools gain momentum, raising the prospects for more dynamic investment
African Energy
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By Marc Howard
Significant progress on linking grids and developing market mechanisms is reported by the West African Power Pool (Wapp) and Eastern Africa Power Pool (Eapp). This augurs well for increased regional power trading, which many stakeholders see as essential if African electricity supply industries (ESIs) are to draw from the much deeper well of investment that is needed if the continent is to overcome huge constraints on access and economic development.
Major developments that might eventually scale up essential developments notably include the African Union’s Continental Master Plan (CMP) – whose third development phase is under way – and the AU Development Agency (Auda-Nepad)’s work with the continent’s five power pools on a $1.3trn least-cost development plan.
African Energy last year observed that progress on these initiatives could mean that African “power markets are on the threshold of genuine reform” (AE 498).
AU Commission energy director Kamugisha Kazaura told a high-level CMP meeting, held in Addis Ababa on 30 June-1 July, that the “institutional and operational foundation has been laid” for what would become the African Single Electricity Market (Afsem).
Auda-Nepad’s Tichakunda (‘Titch’) Simbini cited the example of the 400kV Zambia-Tanzania-Kenya (ZTK) interconnector as “proof that Afsem and CMP are goals we’ll see realised in our lifetime”.
ZTK – which will interconnect Eapp and the Southern African Power Pool (Sapp) by 2027 – has progressed swiftly in recent years, with Tanzania and Kenya already interconnected (AE 529, 518).
As Simbini implied, the laudable – but lofty – goal of interconnecting all African countries remains some years away. But, crucially, important technical and regulatory work is now in motion, for instance on aligning grid codes and harmonising regulations.
Launching day-ahead markets
Both the Eapp and Wapp pools are moving towards the launch of day-ahead market trading this year, firming up operational procedures and regulatory rules in anticipation of going live.
Wapp’s Cotonou-based Information and Co-ordination Centre (ICC), inaugurated in 2023, is set to be unbundled and become the independent system operator (SO) – which is vital for market viability (AE 529, 496).
Likewise, ministers from Eapp countries met in Cape Town on the sidelines of the 17-20 June African Energy Forum (AEF); they agreed to expedite a technical report to operationalise the day-ahead market this September, while member states also look set to confirm Addis Ababa as the location of Eapp’s SO (AE 529).
In this respect, both Eapp and Wapp are following a path trodden by Harare-based Sapp. Founded in 1996, Sapp has facilitated day-ahead market trading since 2009 (AE 278).
Thus far Sapp volumes have remained relatively small, dominated by exports from Mozambique, notably its 2.1GW Hidroeléctrica de Cahora Bassa hydroelectric power (HEP) plant. An African Development Bank official told African Energy that Maputo already earns some $200m/yr from Sapp trading, while Mozambique alone accounts for around 60% of Sapp’s sales.
More work is needed to realise Sapp intra-day and futures trading markets, which have been discussed for years and are essential to increasing trading volumes. Increasingly, it is private firms, like Sapp member Lusaka-headquartered Africa GreenCo, that are paving the way (AE 504).
Nonetheless, even in its bilateral trading form, Sapp is already becoming ever more vital to backers of independent power producers (IPPs), especially large-scale renewable energy (RE) plants.
A fast emerging market is represented by power-hungry mining offtakers in the Copperbelt, where investors are backing a new generation of independent transmission projects (ITPs) to wheel electricity via Sapp (AE 524).
Power pools offer bankable offtakers for RE projects – offtakers that are often willing to pay a premium for RE so as to displace costly and polluting liquid fuel generation.
Nowhere is this trend clearer than ITPs looking to route surplus HEP from northern Angola via the Sapp to Copperbelt offtakers. In addition to three extant such ITP developments, in June US developer Hydro-Link signed a memorandum of understanding with Luanda to develop a $1.5bn ITP that would route power from the Laúca and Caculo Cabaça HEP plants to DRC’s Kolwezi mining area (AE 529, 521).
These agreements are a welcome sign that governments and private investors are forging ahead with capital-intensive and often difficult-to-develop transmission projects. The ITP model remains nascent but it is one of the only ways to raise the cash needed to develop sufficient high-voltage infrastructure to realise what Simbini called the “the dream of Afsem”.
Public/private partnerships (PPPs) will also be essential – especially to supply regions with less bankable offtakers – although there is still only a finite amount of capital available to back them.
It is incumbent on energy ministries, regulators, utilities and investors to make ITPs work as a model for drawing in investment and delivering electrons.
And although the ideal virtuous cycle, of private capital making a fair return by providing public goods, is easier said than done, it is possible. ESIs in other parts of the world have demonstrated this, as in India, where ITPs were crucial in expanding access.
In this respect, the progress of Eapp and Wapp is highly encouraging. Fully-fledged private trading with intra-day and futures markets remains years away. But the launch of day-ahead markets is a first step towards liquid, regional power trading markets that would draw in many more much-needed ITP and IPP investors than is now the case in industries dominated by old nation-state models and often insolvent state utilities.