Energy Sector

Africa has abundant energy resources—oil, coal, hydroelectricity, natural gas, biomass and other renewable energy sources. These resources, however, are unevenly distributed and often located far from demand centres. Africa’s commercial energy resources are still underdeveloped, and its commercial energy infrastructure—gas pipelines and electricity transmission and distribution networks—is unable to provide reliable and cost-effective services to consumers. The potential for energy exchange across Africa is key to guaran-teeing a sufficient, sustainable supply of commercial energy and ensuring efficient use of Africa’s energy resources (UNECA, 2003).

Even though the SADC region is well endowed with both renewable and non-renewable energy resources, energy demand still outstrips supply. Underutilized energy resources in the SADC region include solar, wind and hydro power, with some priority projects identified as far back as the 1980s still unimplemented. Currently, the region’s electricity generation mix is as follows: thermal 74.3 per cent, hydro 20.1 per cent, nuclear 4 per cent and gas/diesel 1.6 per cent. Country contributions to the generation mix consists of 80.4 per cent South Africa, 5.0 per cent Mozambique, 4.1 per cent Zimbabwe, 3.6 per cent Zambia, 2.6 per cent DRC and 4.4 per cent the rest¹⁶.

5.1.1 Southern African Regional Energy Instruments

The principal regional energy document is the SADC Energy Protocol that outlines the region’s energy objectives as follows:

i. Harmonization of national and regional energy policies, strategies and programmes on matters of common interest based on equity, balance and mutual benefit;

v. Promotion of joint development of human resources and organizational capacity building in the energy sector;

vi. Cooperation in the research, development, adaptation, dissemination and transfer of low-cost energy technologies; and

vii. Striving to achieve standardization in appropriate energy development and application, including the use of common methods and other techniques.

Other instruments include the SADC Energy Cooperation Policy and Strategy, SADC Energy Sector Activity Plan, SADC Energy Policy and SADC Energy Access Strategy and Action Plan. These instruments provide a broad framework for the development of the enabling environment for trans-boundary projects to be created. However, most of the SADC Energy Sector Action Plan initiatives have not been implemented due to a wide range of factors, including the reform and transition processes in the region’s energy sector. There have been calls by SADC Energy Ministers to review and rationalize these instruments.

The Regional Indicative Strategic Development Plan (RISDP 2008) provided a strategic direction with respect to SADC programmes and activities, and aligned the strategic ob-jectives and priorities of SADC with the policies and strategies for achieving its long-term goals. The RISDP merely outlines the necessary conditions that should be established towards achieving those goals and, hence, making them indicative in nature.

5.1.2 Current Southern African Regional Energy Projects

Regional energy projects are either of generation or of transmission in nature. The South-ern African Power Pool (SAPP) defines a generation project as one that should be able to add reserve margin to the SAPP grid and reduce the diminished surplus capacity of the region. A transmission project is defined as one that should be able to interconnect two or more countries and either reduce congestion on the SAPP grid or increase trade between north and south. Some internal country transmission projects are also considered region-al when they reduce congestion on the SAPP grid and promote trade between member States, for example the proposed reinforcements of the Zimbabwe transmission networks.

(i) The Southern Africa Power Pool (SAPP)

The SAAP was established within the framework of the SADC Energy Protocol. The power pool was created in 1995 and has 12 member States represented by their respec-tive national power companies, with each having equal rights and obligations. The SAPP underlying objectives are: to (i) provide a forum for the development of a world class, robust, safe, efficient, reliable and stable interconnected electrical system in the Southern African subregion; (ii) coordinate and enforce common regional standards of quality of supply; (iii) measure and monitor systems performance; (iv) harmonize relationships be-tween member utilities; (v) facilitate the development of regional expertise through train-ing programmes and research; (vi) increase power accessibility in rural communities; and (vii) implement strategies in support of sustainable development priorities.

(ii) Challenges faced by the Southern Africa Power Pool (SAPP)

The predominant challenges in the power utilities include non-cost reflective tariffs (low and unsustainable), high technical losses, lack of maintenance of existing infrastructure, managerial weaknesses and illegal electricity connections. These challenges often make it difficult for power utilities to mobilize resources and implement projects, consequently affecting the performance of the power pools. Non-cost reflective tariffs in particular make it difficult to attract Independent Power producers (IPPs). In addition, the SADC Infrastructure Report 2009 notes the following challenges and threats to regional power integration:

• Dilapidated power generation and transmission equipment which is in dire need of rehabilitation and/or replacement;

• Slow pace of implementation of power projects chiefly due to the inadequate project packaging capacity among member States and relevant institutions to match bankable projects with appropriate financing;

• Over -dependence on ESKOM of South Africa to sign Power Purchase Agreements to secure project funding;

• Single buyer model that discourages other creditworthy customers from participating in PPAs; and

• Complex project financing deals driven by lenders.

The growth in power demand, global financial crisis resulting in reduction in FDIs, politi-cal instability in resource areas, climate change and member States prioritizing national against regional projects are also some of the threats facing the SAPP.

(iii) SADC Transmission Projects

The Energy protocol provides agreements between two or more member States and non-member States, for utilities to develop specific electricity projects and trade. Many of the transmission projects are facing challenges, and progress in their implementation is stalled.

• Zambia

Tanzania- Kenya Interconnection: There has been little progress on the project due to coordination challenges and the need to identify the power purchase agreements (PPAs) to drive the project.

• Mozambique- Malawi Interconnection Project: The work was expected to

Democratic Republic of Congo (DRC), Namibia and South Africa.  The project was aimed at harnessing the large water resources of the  Congo River  at Inga, to produce and supply electric power to the participating countries, and other countries through the SAPP. The project faced a number of challenges including policy inconsistencies which forestalled the resource mobilization and project implementation. Unfortunately, the project was derailed in 2007-2008 and, currently, is in the process of being dissolved.

5.1.3 Developmental challenges of regional power infrastructure

The key regional challenges in the development of the SADC power infrastructure include the following:

• Lack of an enabling environment for other players to participate;

• Differences in policies and legislation in different countries cause delays in concluding Power Purchase Agreements (PPAs) & Wheeling Agreements (WAs);

• Need for government support for PPAs and/or wheeling agreements to underpin investment projects;

• Project Coordination Aspects, including the need for a dedicated Project Coordinator and the need for Project Development Agreements;

• Impact of government internal costs on the cost of the project: fees for EIA report reviews and approvals, VAT duties and taxes; and

• Non-cost reflective tariffs.

5.1.4 Achievements and Opportunities

There have been notable achievements towards regional power infrastructure integration in the SADC region in the form of:

• The development of the Pool plan;

• The completion of the Tariff report;

• Legal and institutional frameworks are already in place;

• Diagnostic Statistical Manual (DSM) measures under -implementation; and

• Some utilities moving to cost -reflective tariffs.

• A successful SAPP Roundtable Investment conference held in Livingstone, Zambia, in July 2009, which saw investors pledging financial support to ten presented bankable projects;

• Regulatory oversight strengthened with more national regulators established in member States and harmonization of regional regulatory oversight under the regional body RERA, was implemented comprehensively.

Box 6: Key Policy Issues for the Energy Sector

• Reviewing and rationalizing of energy instruments is essential for them to be relevant in addressing the current challenges in the sector.

• Rehabilitating and expanding the cross-border transmission infrastructure to increase the potential for trade.

• Harmonizing regulations and system operating agreements to ensure smooth implementation of projects (World Bank, 2009).

• Formulating market trading mechanisms so that additional energy generated from large projects can be priced and allocated efficiently and fairly.

• Need to speed up tariff reforms in member States yet to do so, for viability of utilities.

• Strengthening of institutional reforms for improvement of utilities performance.