The existing capacity levels for electricity generation and transmission in Sub-Saharan Africa will not be able to meet future demand. Governments of countries in this region realise that, to encourage private sector participation within the electricity industry, electricity prices need to be increased.
New analysis from Frost & Sullivan (energy.frost.com), Sub-Saharan Africa Electricity Pricing Analysis 2009, finds that the general perception among the few existing and potential private sector participants is that legislation and policy regarding electricity pricing is either too stringent or ambiguous.
"Most Sub-Saharan African countries have multi year tariff orders that determine electricity prices for several years," notes Frost & Sullivan's Energy and Power Industry Analyst Vincent Maposa. "The major inefficiency of this system stems from economic regulator's inability to make adjustments to tariff setting variables, such as inflation, in a timely and progressive manner."
Regulators and governments alike realise that, in order to improve the profitability of state-owned power utilities and encourage private sector participation, electricity prices have to increase significantly.
Increasing electricity demand, and a lack of timely investment into new-generation capacity, has led to countries developing ambitious capacity expansion plans that need to be funded or paid off by consumers through higher tariffs.
Stakeholders such as energy-intensive user groups (EIUGs), and domestic end users, have the right to make representations to regulators and government before tariffs are increased. Stakeholder consultations usually delay the tariff setting process and, in most cases, result in concessionary adjustments that delay capacity expansion.
"Stakeholder consultations, which are indeed necessary, have, however, often resulted in price adjustments that affect capacity expansion," explains Maposa. "Tariff setting mechanisms for countries, such as Ghana, have not evolved to the extent of creating price differentials (feed in tariffs), and this curtails private sector investment."
Countries with relatively high electricity prices are viewed as attractive by private sector participants. Other factors, such as security of supply and macroeconomic stability, also contribute to the overall attractiveness of a region as an investment destination.
"Creation of independent systems and markets operators (ISMOs), regional grid integration, and power pooling will also lead to uniformity and sufficiency of electricity prices," remarks Maposa. "Growth in regional trade in electricity will lead to significant increases in electricity prices".
If you are interested in more information on this study, please send an email with your contact details to Samantha James, Corporate Communications, at samantha.james[.]frost.com.
Sub-Saharan Africa Electricity Pricing Analysis 2009 is part of the Energy & Power Growth Partnership Service programme, which also includes research in the following markets: The 2010 Updated Overview of the Nigerian Electricity Industry, East African IPPs, Analysing Financiers Requirements for Investing into IPP Projects in Sub-Saharan Africa and The Sub Saharan Africa Power Pools. All research included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants.
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Sub-Saharan Africa Electricity Pricing Analysis 2009 / M5C4