Regional Power Trading

Sub-Saharan Africa is well endowed with both hydropower and thermal resources – but only a small fraction of its power generation potential has been developed. Of the 48 sub-Saharan countries, 21 have a generation capacity of less than 200MW, well below the minimum efficiency scale, which means they pay a heavy penalty: costs reach US$0.25 per KW, twice the level in the region’s larger power systems.

One reason is that some of the region’s most cost-effective energy resources are too distant from major centres of demand, in countries too poor to raise the billions of dollars needed to develop them. For example, 61% of the region’s hydropower potential is in just two countries – the Democratic Republic of Congo and Ethiopia.

Pooling energy resources through regional power trade promises to reduce power costs. The Southern, West, East, and Central African Power Pools, created mainly to support power trade efforts, are at varying stages of maturity. If pursued to their full economic potential, regional trade could reduce the annual costs of power system operation and development by US$2 billion per year - about 5% of total power system costs.

The savings would come largely from substituting hydropower for thermal power, substantially reducing operating costs, even though it entails higher up-front investment in capital-intensive hydropower and associated cross-border transmission. The returns to cross-border transmission can be as high as 120% for the Southern African Power Pool and more typically 20% to 30% for the other power pools. By increasing the share of hydropower, regional trade would also save 70 million tons of carbon emissions a year.

Under regional power trade, a handful of large exporting countries would serve a substantial number of power importers. The Democratic Republic of Congo, Ethiopia, and Guinea would emerge as the major hydropower exporters. As many as 16 countries would be better-off (from a purely economic standpoint), importing more than 50% of their power needs through regional trade. Savings range from $0.01 to $0.07 per kilowatt-hour. For the smaller nations, without domestic hydropower resources, the cost of building cross-border transmission would be paid back in less than one year, once neighbouring countries have developed adequate generation capacity to support trade.

(Source: AICD)

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