Numerous studies of the African electricity subsector have noted that its poor performance has been due to high levels of state intervention. As such, the bulk of literature on reform in this subsector often equates power sector reform with drastic reduction of government participation. The need to embark on power sector reforms therefore arose from two major concerns among other reasons. First: was the dissatisfaction over the poor financial, technical, and managerial performance of state-owned electricity utilities? And second: the inability of utilities and the government to mobilize sufficient investment capital for the electricity subsector’s expansion and development. The five major reform options widely implemented in Africa and which seem to have the most significant impact on renewable energy and energy efficiency in the region include: Unbundling, also referred to as restructuring, Management contracts (a common feature in Western Africa), Corporatization/commercialization; Independent power producers (IPPs), and electricity law amendment.
However, it is imperative to note that none of these reform efforts in the sector were explicitly designed to increase use of renewable energy and energy efficiency options nor did they specifically mention improving electricity access, especially among the poor. The sub-Saharan region in Africa appears to be the slowest to implement power sector reforms when compared to the rest of the world. In this region, trends in the reform process indicate the most common privatization path of state-owned entities undertaken by a majority of countries has been the corporatization, commercialization, issuing of management contracts and stopping at allowing the entry of independent power producers (IPPs) to offset the generation shortfall. For IPPs, the reforms favour large and centralized power projects (save for in Mauritius) precluding small and medium-scale renewable energy technologies (such as minigrids, cogeneration, small hydro, geothermal and wind) in spite of the significant potential. Also, local private sector participation in IPPs development has been limited.
But not all countries have strictly followed the path nor have they adopted all reform options. In Kenya, like many other African countries, a lot more privatization has been undertaken than unbundling. Kenya has opted to only unbundle the generation segment while others such as Uganda and Zimbabwe have completely unbundled the entire formerly integrated utility into separate generation, transmission and distribution entities. All too often, unbundling is implemented well after the advent of privatization. There is also a long time lag between commercialization and the amendment of the Electricity Act but as soon as the latter happens, the new electricity regulatory agency and IPPs are established in the same year as the Act. The time lag between privatization and unbundling has been occasioned by legal changes to the utility that are required, such as including asset transfers procedures as well as appointment procedures for the newly established institutions.
Another important aspect of power sector reform in Africa to note is that full privatization of generation and distribution has not yet taken place. This implies that all generation and distribution entities in the country are not wholly owned by the public or private sector. The slow progress with respect to minimizing or withdrawing government control of the power sector means privatization of generation and distribution has mainly taken the form of partial private ownership of utility assets through equity, the awarding of concessions and management contracts. Establishment of independent regulatory agencies and the amendment of the electricity law have also been adversely affected. In extreme cases such as in Senegal and Mali, states have reverted to state ownership from fully privatized electricity utilities.
We have already seen that so far, reforms in Africa’s power sector (especially IPPs development) has tended to favour large scale and centralized investments thereby excluding local private stakeholders’ involvement. This may incentivize in the future reversing of the positive gains made so far in that politically, having the industry almost exclusively ran by non-national operators with no significant local stakeholder group is an unsustainable arrangement. Local investors are dissuaded by the generally high-tech, capital-intensive endeavours that are required by heavy capital investments. On the other hand, small hydro and cogeneration plants’ technology can easily be locally managed meaning it makes sense to take into consideration local groups’ participation in the reform process through appropriate policy and financial incentives. Also, the capital requirements of these small and medium-scale renewables are modest and can be sourced locally.
The challenge, therefore, is to put into place a stable and attractive policy environment in order to attract private sector capital and investment for sustainable energy development. Even though rural electrification has reached hundreds of communities through national grid extensions, geography and technology dictate economic limits of further extending the power networks (and also in view of the available alternatives). Technological advancements have made isolated networks, or mini-grids, one such viable alternative but there has so far been very few mini-grids deployed successfully here in Africa. Thus, providing the required policy conditions will be a prerequisite in accelerating mini-grid deployment which can play an important role for meeting the ever growing energy needs of the continent.
Despite limited experience in terms of technical skills which has resulted in poorly designed, implemented, operated and maintained systems, mini-grid technologies themselves have a sufficient track record to merit them being the future electrification method. This is especially so in sparsely populated areas with weak demand potential and not yet reached by the slow (due to high cost and limited utility/state budgets for electrification) grid extension. Power sector reforms in the continent therefore need to consider the present major hurdles facing mini-grid implementation and operation including those related to socio-economic, policy, regulatory, economics and financing issues.