I am starting a new series of several posts commenting on the supply and retail of electricity across Africa. This week’s post focuses on electricity access, with two future posts on the efficiency of electricity distribution and the structure of the sector across countries.
As of 2009, c.1, 317 million people (almost 20%) of the world’s population had no access to electricity. A significant proportion – 587 million lived in the African continent.
The chart below shows electricity access rates by country. The average rate for Sub Saharan Africa stood at 30.5% as opposed to 99% in North Africa. Uganda, Malawi, DR Congo, Mozambique, Tanzania, Burkina Faso and Lesotho had particularly low rates of approximately 10% with rural access below 5%.
Electricity access rates by country as of 2009
Source: IEA 2011 World Energy Outlook, see http://www.worldenergyoutlook.org/resources/energydevelopment/accesstoelectricity/
There are several reasons for the low access rates (See for instance World Bank Group Energy Sector Strategy, Addressing the Electricity Access Gap, June 2010). These include, in no order:
High costs of supply – most African countries have low urbanization rates with large rural and peri-urban populations with low population densities. This makes the cost of extending the distribution and transmission network and the cost of connection especially expensive. According to the Rural Electrification Authority, it costs an average of $10,000/km to develop a medium voltage overhead line in Kenya. Moreover, this hard-to-reach population is often the poorest. As the chart below which maps electricity access and urbanization rates across countries shows, there is a moderate correlation between urbanization rates and electricity access. Uganda, Malawi, Kenya, Ethiopia are not only the least urbanized states in the continent, but also have the lowest electricity access rates as well. Conversely, Ghana, South Africa, Tunisia, Libya, Algeria are all relatively urbanized and have high access rates.
Relationship between urbanization and electricity access
Source: Urbanization rates as of 2013 – World Bank Indicators; Access rates as of 2009, see IEA 2011 World Energy Outlook, http://www.worldenergyoutlook.org/resources/energydevelopment/accesstoelectricity/
Lack of appropriate incentives – the high cost of supplying rural areas coupled with limited capacity to pay for supplies makes it difficult for electricity companies to connect more households. High upfront costs of connection (wiring costs and connection costs) remain a barrier absent subsidies and tariff structures that are appropriately designed to recover the significant costs of connecting rural populations (see discussion of connection charges below).
Weak implementing capacity – successful rural electrification programs require political commitment, adequate resources both internally or in tandem with external partners and strong project management – not exactly the types of competences most state owned organizations are renowned for in Africa. It is instructive to note that countries which have reformed their electricity markets and/or privatized electricity supply companies have seen significant improvements in access rates (see examples of Uganda and Kenya below).
Shortage of generation capacity – most countries suffer from near permanent load shedding – and do not have even enough capacity to meet the existing already connected demand, this means that new (often loss making) rural connections are always a second order business. One tried mechanism for solving this (and lack of capacity) is to hive off responsibility for rural connections to an independent organization which can prioritize this (countries with a Rural Electrification agency include – Uganda, Zambia and Kenya).
There has been some progress in the worst performing countries over the last decade. There are many reasons for this – including increased investment (across energy and transport infrastructure in general) and political prioritization at local and international levels. However, electricity sector reform that is ongoing (as shown in the examples of Uganda and Kenya in this section) has also contributed.
As noted above, Uganda and Kenya have some of the lowest access rates in the continent. Both countries have enacted significant sector reforms which have led to improvements in the electricity sector. Since mid-2000s, power generation increased steadily, distribution losses declined, and the number of customers served by grid-supplied power increased substantially.
Electricity sector market reform in Uganda began with the passage of the Electricity Act (1999); the establishment of a regulatory agency (2000); and the unbundling of the power utility (2001) and concessioning of its parts (2003–05). In 2006, power tariffs were almost doubled, raising the average effective tariff to US$.018 per kWh to reflect long-run marginal costs of power (See Trevor Alleyne, et al, Energy Subsidy Reform in Sub-Saharan Africa Experiences and Lessons, IMF, 2013).
In Kenya, reform efforts culminated in a new energy policy in 2004, substantial increase in power tariffs in 2005 to reflect long-run marginal costs, introduction of an automatic pass-through mechanism to adjust tariffs for changes in fuel costs, and reconstitution of the Electricity Regulatory Commission (See Trevor Alleyne, et al, Energy Subsidy Reform in Sub-Saharan Africa Experiences and Lessons, IMF, 2013).
In future posts discussing distribution efficiency and losses, and the role of the private sector we will revisit these and other countries. However, in terms of access, after limited progress early on, the number of customers with access to grid-supplied power in Uganda doubled between 2005 and 2013 while in Kenya it nearly tripled during the same period.
Connections growth in low access countries – Uganda and Kenya
Sources: Uganda - Annual report and IPO Prospectus for Umeme Ltd; Kenya – Annual Reports, Kenya Power; Ferdsult Engineering Ltd http://www.ferdsult.net/concession.html; West Nile Rural Electrification Co.Ltd, see http://edoc.hu-berlin.de/series/sle/245/PDF/245.pdf; Kilembe Investments Ltd, see http://kilembeinvestments.com/index.php/about-kil/background
Despite the examples highlighted above, challenges remain. It is possible to write several blog posts on each of the remaining challenges, however, in this post, I will zero in on connection charges as an impediment to increasing access.
Of the lowest access countries, Kenya has seen significant improvements. ‘Access’ – defined as households living within 1.2km of Medium Voltage (MV) / Low Voltage (LV) line has improved considerably, rising from approximately 10% to over 80% over the last decade. Connectivity, however, defined as actual connection to electricity has barely improved as shown. This is because each household has to pay a connection charge of Sh32,480 ($400) for a single phase connection or Sh44,080 ($540) for a three phase connection.
The table below provides a snapshot of the minimum connection charges paid by households for electricity connection in Tanzania, Uganda and Kenya (see EED Advisory, Energy Access Review, June 2014). The per capita income across all three countries is fairly low - $572-994 as shown below, meaning to connect requires almost 40% of income in Kenya. So long as these charges remain, it will be difficult to increase connection substantively.
Minimum domestic connection charges in US$
Sources: EED Advisory, Energy Access Review, June 2014; GDP per capita (current US$), 2013, World Bank Indicators
The result of these charges is that although access has improved significantly, connectivity remains challenging – and may stall (Kenya Power has recently threatened to stop rural connections in favor of urban connections because of costs). For a detailed analysis see Kenneth Lee, Eric Brewer, Carson Christiano, Francis Meyo, Edward Miguel, Matthew Podolsky, Javier Rosa, and Catherine Wolfram, Barriers to Electrification for “Under Grid” Households in Rural Kenya, NBER Working Paper No. 20327, July 2014.
Access vs. connectivity – the long term challenge of improving access
Sources: Access -% of population living 1.2km near a line based on REA press releases,
Connections based on KPLC Annual Reports – calculated as domestic connections x average household size / population; population data - http://data.worldbank.org/country/kenya; average household size - Urban Poverty and Vulnerability
In Kenya, Background analysis for the preparation of an Oxfam GB Urban Programme focused on Nairobi, Sept 2009. For methodology see Catherine Wolfram, Power Africa: Observations from Kenya, July 15, 2013 at
http://energyathaas.wordpress.com/2013/07/15/power-africa-observations-from-kenya/
There are several ways of dealing with high connections charges. The simplest is by providing a one-time connection subsidy to poor households who can afford to pay for internal wiring of the house and the energy consumption costs once connected (tried in Uganda and elsewhere).
Loans are also a solution. In Côte d’Ivoire a revolving fund allows potential users to borrow interest free loans for up to 2 years to finance a maximum of 90% of the cost of connection. Botswana has a similar program where the government offers loans of up to 95% of the cost, payable over 15 years at prime interest. Loan schemes can also be operated by local banks and electricity supply companies. Kenya Power for instance operates several loan schemes. In partnership with Equity Bank (one of the largest financial institutions in the country) it offers those living within 600 m of a transformer an option of paying 30% upfront with the balance as a loan repayable over three years at an annual interest rate of 15% (extremely high – but comparable with commercial non-secured loans in the market) (see Raluca Golumbeanu and Douglas Barnes, Connection Charges and Electricity Access
in Sub-Saharan Africa, World Bank Policy Research Working Paper 6511, June 2013).
Senegal’s approach probably makes the most sense (and it’s a puzzle why other markets haven't at least tried it) – the local supplier provides financing for connections and wiring at a regulated interest rate which is then recovered in form of higher bills.
Universal access to electricity would have significant, social, and economic impact on those currently without access. Despite the low rates of access across the continent (and particularly East Africa), the picture is looking brighter than it seems – in countries that have made a concerted effort, access rates have improved significantly over the last decade, which makes me hopeful that the universal access rate by 2030 may just yet be met.
As of 2009, c.1, 317 million people (almost 20%) of the world’s population had no access to electricity. A significant proportion – 587 million lived in the African continent.
The chart below shows electricity access rates by country. The average rate for Sub Saharan Africa stood at 30.5% as opposed to 99% in North Africa. Uganda, Malawi, DR Congo, Mozambique, Tanzania, Burkina Faso and Lesotho had particularly low rates of approximately 10% with rural access below 5%.
Electricity access rates by country as of 2009
Some explanation for the low access seen…
There are several reasons for the low access rates (See for instance World Bank Group Energy Sector Strategy, Addressing the Electricity Access Gap, June 2010). These include, in no order:
High costs of supply – most African countries have low urbanization rates with large rural and peri-urban populations with low population densities. This makes the cost of extending the distribution and transmission network and the cost of connection especially expensive. According to the Rural Electrification Authority, it costs an average of $10,000/km to develop a medium voltage overhead line in Kenya. Moreover, this hard-to-reach population is often the poorest. As the chart below which maps electricity access and urbanization rates across countries shows, there is a moderate correlation between urbanization rates and electricity access. Uganda, Malawi, Kenya, Ethiopia are not only the least urbanized states in the continent, but also have the lowest electricity access rates as well. Conversely, Ghana, South Africa, Tunisia, Libya, Algeria are all relatively urbanized and have high access rates.
Relationship between urbanization and electricity access
Lack of appropriate incentives – the high cost of supplying rural areas coupled with limited capacity to pay for supplies makes it difficult for electricity companies to connect more households. High upfront costs of connection (wiring costs and connection costs) remain a barrier absent subsidies and tariff structures that are appropriately designed to recover the significant costs of connecting rural populations (see discussion of connection charges below).
Weak implementing capacity – successful rural electrification programs require political commitment, adequate resources both internally or in tandem with external partners and strong project management – not exactly the types of competences most state owned organizations are renowned for in Africa. It is instructive to note that countries which have reformed their electricity markets and/or privatized electricity supply companies have seen significant improvements in access rates (see examples of Uganda and Kenya below).
Shortage of generation capacity – most countries suffer from near permanent load shedding – and do not have even enough capacity to meet the existing already connected demand, this means that new (often loss making) rural connections are always a second order business. One tried mechanism for solving this (and lack of capacity) is to hive off responsibility for rural connections to an independent organization which can prioritize this (countries with a Rural Electrification agency include – Uganda, Zambia and Kenya).
Increasing access – impact of electricity sector reforms
There has been some progress in the worst performing countries over the last decade. There are many reasons for this – including increased investment (across energy and transport infrastructure in general) and political prioritization at local and international levels. However, electricity sector reform that is ongoing (as shown in the examples of Uganda and Kenya in this section) has also contributed.
As noted above, Uganda and Kenya have some of the lowest access rates in the continent. Both countries have enacted significant sector reforms which have led to improvements in the electricity sector. Since mid-2000s, power generation increased steadily, distribution losses declined, and the number of customers served by grid-supplied power increased substantially.
Electricity sector market reform in Uganda began with the passage of the Electricity Act (1999); the establishment of a regulatory agency (2000); and the unbundling of the power utility (2001) and concessioning of its parts (2003–05). In 2006, power tariffs were almost doubled, raising the average effective tariff to US$.018 per kWh to reflect long-run marginal costs of power (See Trevor Alleyne, et al, Energy Subsidy Reform in Sub-Saharan Africa Experiences and Lessons, IMF, 2013).
In Kenya, reform efforts culminated in a new energy policy in 2004, substantial increase in power tariffs in 2005 to reflect long-run marginal costs, introduction of an automatic pass-through mechanism to adjust tariffs for changes in fuel costs, and reconstitution of the Electricity Regulatory Commission (See Trevor Alleyne, et al, Energy Subsidy Reform in Sub-Saharan Africa Experiences and Lessons, IMF, 2013).
In future posts discussing distribution efficiency and losses, and the role of the private sector we will revisit these and other countries. However, in terms of access, after limited progress early on, the number of customers with access to grid-supplied power in Uganda doubled between 2005 and 2013 while in Kenya it nearly tripled during the same period.
Connections growth in low access countries – Uganda and Kenya
Sources: Uganda - Annual report and IPO Prospectus for Umeme Ltd; Kenya – Annual Reports, Kenya Power; Ferdsult Engineering Ltd http://www.ferdsult.net/concession.html; West Nile Rural Electrification Co.Ltd, see http://edoc.hu-berlin.de/series/sle/245/PDF/245.pdf; Kilembe Investments Ltd, see http://kilembeinvestments.com/index.php/about-kil/background
Connection charges…
Despite the examples highlighted above, challenges remain. It is possible to write several blog posts on each of the remaining challenges, however, in this post, I will zero in on connection charges as an impediment to increasing access.
Of the lowest access countries, Kenya has seen significant improvements. ‘Access’ – defined as households living within 1.2km of Medium Voltage (MV) / Low Voltage (LV) line has improved considerably, rising from approximately 10% to over 80% over the last decade. Connectivity, however, defined as actual connection to electricity has barely improved as shown. This is because each household has to pay a connection charge of Sh32,480 ($400) for a single phase connection or Sh44,080 ($540) for a three phase connection.
The table below provides a snapshot of the minimum connection charges paid by households for electricity connection in Tanzania, Uganda and Kenya (see EED Advisory, Energy Access Review, June 2014). The per capita income across all three countries is fairly low - $572-994 as shown below, meaning to connect requires almost 40% of income in Kenya. So long as these charges remain, it will be difficult to increase connection substantively.
Minimum domestic connection charges in US$
Sources: EED Advisory, Energy Access Review, June 2014; GDP per capita (current US$), 2013, World Bank Indicators
The result of these charges is that although access has improved significantly, connectivity remains challenging – and may stall (Kenya Power has recently threatened to stop rural connections in favor of urban connections because of costs). For a detailed analysis see Kenneth Lee, Eric Brewer, Carson Christiano, Francis Meyo, Edward Miguel, Matthew Podolsky, Javier Rosa, and Catherine Wolfram, Barriers to Electrification for “Under Grid” Households in Rural Kenya, NBER Working Paper No. 20327, July 2014.
Access vs. connectivity – the long term challenge of improving access
Connections based on KPLC Annual Reports – calculated as domestic connections x average household size / population; population data - http://data.worldbank.org/country/kenya; average household size - Urban Poverty and Vulnerability
In Kenya, Background analysis for the preparation of an Oxfam GB Urban Programme focused on Nairobi, Sept 2009. For methodology see Catherine Wolfram, Power Africa: Observations from Kenya, July 15, 2013 at
http://energyathaas.wordpress.com/2013/07/15/power-africa-observations-from-kenya/
There are several ways of dealing with high connections charges. The simplest is by providing a one-time connection subsidy to poor households who can afford to pay for internal wiring of the house and the energy consumption costs once connected (tried in Uganda and elsewhere).
Loans are also a solution. In Côte d’Ivoire a revolving fund allows potential users to borrow interest free loans for up to 2 years to finance a maximum of 90% of the cost of connection. Botswana has a similar program where the government offers loans of up to 95% of the cost, payable over 15 years at prime interest. Loan schemes can also be operated by local banks and electricity supply companies. Kenya Power for instance operates several loan schemes. In partnership with Equity Bank (one of the largest financial institutions in the country) it offers those living within 600 m of a transformer an option of paying 30% upfront with the balance as a loan repayable over three years at an annual interest rate of 15% (extremely high – but comparable with commercial non-secured loans in the market) (see Raluca Golumbeanu and Douglas Barnes, Connection Charges and Electricity Access
in Sub-Saharan Africa, World Bank Policy Research Working Paper 6511, June 2013).
Senegal’s approach probably makes the most sense (and it’s a puzzle why other markets haven't at least tried it) – the local supplier provides financing for connections and wiring at a regulated interest rate which is then recovered in form of higher bills.
Conclusions:
Universal access to electricity would have significant, social, and economic impact on those currently without access. Despite the low rates of access across the continent (and particularly East Africa), the picture is looking brighter than it seems – in countries that have made a concerted effort, access rates have improved significantly over the last decade, which makes me hopeful that the universal access rate by 2030 may just yet be met.
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