Africas Power Infrastructure 2011

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DIREC TIONS IN DE VELOPMENT

Infrastructure

Africas Power InfrastructureInvestment, Integration, EfficiencyAnton Eberhard Orvika Rosnes Maria Shkaratan Haakon Vennemo

Africas Power Infrastructure

Africas Power InfrastructureInvestment, Integration, EfficiencyAnton Eberhard Orvika Rosnes Maria Shkaratan Haakon Vennemo Vivien Foster and Cecilia Briceo-Garmendia, Series Editors

2011 The International Bank for Reconstruction and Development/The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved 1 2 3 4 14 13 12 11 This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. ISBN: 978-0-8213-8455-8 eISBN: 978-0-8213-8652-1 DOI: 10.1596/978-0-8213-8455-8 Library of Congress Cataloging-in-Publication Data Africas power infrastructure : investment, integration, efficiency / Anton Eberhard ... [et al.]. p. cm. Includes bibliographical references. ISBN 978-0-8213-8455-8 ISBN 978-0-8213-8652-1 (electronic) 1. Rural electrificationGovernment policyAfrica, Sub-Saharan. 2. Energy policySocial aspectsAfrica, Sub-Saharan. 3. Capital investmentsAfrica, Sub-Saharan. I. Eberhard, Anton A. HD9688.S832.A37 2011 333.793'20967dc22 2011002973 Cover photograph: Arne Hoel/The World Bank Cover design: Naylor Design

Contents

About the AICD Series Foreword Acknowledgments Abbreviations Chapter 1 Africa Unplugged The Regions Underdeveloped Energy Resources The Lag in Installed Generation Capacity Stagnant and Inequitable Access to Electricity Services Unreliable Electricity Supply The Prevalence of Backup Generators Increasing Use of Leased Emergency Power A Power Crisis Exacerbated by Drought, Conflict, and High Oil Prices High Power Prices That Generally Do Not Cover Costs Deficient Power Infrastructure Constrains Social and Economic Development Notes References

xvii xix xxi xxvii 1 1 2 5 7 7 10 12 12 16 19 19v

vi

Contents

Chapter 2

The Promise of Regional Power Trade Uneven Distribution and Poor Economies of Scale Despite Power Pools, Low Regional Power Trade The Potential Benefits of Expanded Regional Power Trading What Regional Patterns of Trade Would Emerge? Water Resources Management and Hydropower Development Who Gains Most from Power Trade? How Will Less Hydropower Development Influence Trade Flows? What Are the Environmental Impacts of Trading Power? Technology Choices and the Clean Development Mechanism How Might Climate Change Affect Power Investment Patterns? Meeting the Challenges of Regional Integration of Infrastructure Conclusion Note Bibliography Investment Requirements Modeling Investment Needs Estimating Supply Needs Overall Cost Requirements The SAPP The EAPP/Nile Basin WAPP CAPP Notes Reference Strengthening Sector Reform and Planning Power Sector Reform in Sub-Saharan Africa Private Management Contracts: Winning the Battle, Losing the War Sector Reform, Sector Performance The Search for Effective Hybrid Markets

23 24 26 28 31 33 33 38 39 39 40 40 50 50 50 53 54 55 58 64 67 70 74 77 78 79 80 85 87 88

Chapter 3

Chapter 4

Contents

vii

The Possible Need to Redesign Regulatory Institutions Notes Bibliography Chapter 5 Widening Connectivity and Reducing Inequality Low Electricity Connection Rates Mixed Progress, despite Many Agencies and Funds Inequitable Access to Electricity Affordability of ElectricitySubsidizing the Well-Off Policy Challenges for Accelerating Service Expansion References Recommitting to the Reform of State-Owned Enterprises Hidden Costs in Underperforming State-Owned Enterprises Driving Down Operational Inefficiencies and Hidden Costs Effect of Better Governance on Performance of State-Owned Utilities Making State-Owned Enterprises More Effective Conclusion References Closing Africas Power Funding Gap Existing Spending in the Power Sector How Much More Can Be Done within the Existing Resource Envelope? Increasing Cost Recovery On Budget Spending: Raising Capital Budget Execution Improving Utility Performance Savings from Efficiency-Oriented Reforms Annual Funding Gap How Much Additional Finance Can Be Raised? Costs of Capital from Different Sources

94 100 101 103 104 105 110 112 119 129

Chapter 6

133 134 135 136 137 147 148 149 151 157 158 160 161 162 164 166 178

Chapter 7

viii

Contents

The Most Promising Ways to Increase Funds What Else Can Be Done? Taking More Time Lowering Costs through Regional Integration The Way Forward Note References Appendix 1 Appendix 2 Appendix 3 Appendix 4 Appendix 5 Appendix 6 Africa Unplugged The Promise of Regional Power Trade Investment Requirements Strengthening Sector Reform and Planning Widening Connectivity and Reducing Inequality Recommitting to the Reform of State-Owned Enterprises Closing Africas Power Funding Gap

180 180 180 181 182 183 183 187 199 213 239 267

291 299 305

Appendix 7 Index

Boxes2.1 2.2 2.3 3.1 4.1 4.2 4.3 5.1 5.2 The Difficulties in Forging Political Consensus: The Case of Westcor The West African Power Pool (WAPP) and New Investment Difficulties in Setting Priorities in SAPP Definitions Kenyas Success with Private Sector Participation in Power Cte dIvoires Independent Power Projects Survive Civil War Power Sector Planning Dilemmas in South Africa Ghanas Electrification Program Residential Electricity Tariff Structures in Sub-Saharan Africa 42 45 46 61 83 84 90 106 116

Contents

ix

5.3 6.1 6.2 6.3 7.1

Rural Electrification in Mali Kenyas Success in Driving Down Hidden Costs Botswanas Success with a State-Owned Power Utility The Combination of Governance Reforms That Improved Eskoms Performance Introducing a Country Typology

127 138 139 142 152

Figures1.1 1.2 1.3 1.4 Power Generation Capacity by Region, 19802005 Power Generation Capacity in Sub-Saharan Africa by Country, 2006 Household Electrification Rate in World Regions, 19902005 Per Capita Electricity Consumption and GDP in Selected Countries of Sub-Saharan Africa and World Regions, 2004 Power Outages, Days per Year, 200708 Generator Ownership by Firm Size Own Generation as Share of Total Installed Capacity by Subregion, 2006 Economic Cost of Power Outages as Share of GDP, 2005 Average Residential Electricity Prices in Sub-Saharan Africa and Other Regions, 2005 Average Cost of Grid and Backup Power in Sub-Saharan Africa Average Power Sector Revenue Compared with Costs Contribution of Infrastructure to Total Factor Productivity (TFP) of Firms Profile of Power Generation Capacity in Sub-Saharan Africa Disaggregated Operating Costs for Power Systems in Sub-Saharan Africa, 2005 Electricity Exports and Imports in Sub-Saharan Africa, 2005 Savings Generated by Regional Power Trade among Major Importers under Trade Expansion Scenario Cross-Border Power Trading in Africa in Trade Expansion Scenario (TWh in 2015) Overall Power Spending by Country in Each Region Prevalence of Power Sector Reform in 24 AICD Countries 3 4 5

1.5 1.6 1.7 1.8 1.9 1.10 1.11 1.12 2.1 2.2 2.3 2.4 2.5 3.1 4.1

6 8 9 9 10 13 13 14 17 25 26 27 30 34 63 81

x

Contents

4.2 4.3 4.4 4.5 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 6.1 6.2 6.3 6.4 6.5 7.1

Effect of Management Contracts on Performance in the Power Sector in Sub-Saharan Africa Power Sector Performance in Countries with and without Regulation Coexistence of Various Regulatory Options Choice of Regulatory Model Based on the Country Context Patterns of Electricity Service Coverage in Sub-Saharan Africa Electrification Rates in the Countries of Sub-Saharan Africa, Latest Year Available Rural Electrification Agencies, Funds, and Rates in Sub-Saharan Africa Countries Rural Electrification Rates by Percentage of Urban Population For the Poorest 40 Percent of Households, Coverage of Modern Infrastructure Services Is below 10 Percent Infrastructure Services Absorb More of Household Budgets as Incomes Rise About 40 Percent of Households Connected Do Not Pay Subsistence Consumption Priced at Cost Recovery Levels Ranges from $2 to $8 Electricity Subsidies Do Not Reach the Poor Subsidy Needed to Maintain Affordability of Electricity Prepayment Metering Potential Rural Access: Distribution of Population by Distance from Substation Overall Magnitude of Utility Inefficiencies as a Percentage of Revenue Effect of Utility Inefficiency on Electrification and Suppressed Dem