FEATURE STORY April 20, 2018

Regional Power Trade in West Africa Offers Promise of Affordable, Reliable Electricity

The World Bank estimates that integrated power trade in West Africa could lead to cost savings of US$5-8 billion per year by enabling countries to import cheaper sources of electricity; it will improve increase access to affordable, reliable and modern energy, and reduce CO2 emission intensity.

World Bank Group


STORY HIGHLIGHTS

  • Access to energy remains a challenge in West Africa where many countries are dependent on expensive fossil fuels
  • The World Bank estimates that integrated power trade in the region could lead to cost savings of US$5-8 billion per year by enabling countries to import cheaper sources of electricity; it will increase access to affordable, reliable and modern energy, and reduce CO2 emission intensity
  • The World Bank has dedicated US$750 million in IDA funding to support the West Africa Power Pool (WAPP) and intends to further step-up its support

Access to electricity in West Africa is at 52 percent, with shortages of up to 80 hours per month, and yet electricity there remains among the costliest in the world, at $0.25 per kilowatt-hour, more than twice the global average.

Domestic demand in West African countries is often too low to attract investments in large projects that benefit from economies of scale. Instead, these countries rely on small-scale, expensive oil-fired power generation. Lack of planning has led to reliance on emergency rental plants, which further inflates costs.

Improving electricity access and reliability in West Africa requires close collaboration among neighboring countries. The West Africa Power Pool (WAPP) is a cooperation of 14 countries–Benin, Burkina Faso, Cote d’Ivoire, the Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo– with 27 national electricity utilities, working towards an integrated regional power market.

Making the connection

Currently WAPP is completing the physical interconnections to send power across borders. About 7 percent of the region’s electricity is already traded among the 10 already connected countries. It is anticipated that by early 2020s the most critical cross-border links will be in place, making it possible for electricity to flow throughout West Africa from countries with cheaper, cleaner and more abundant energy resources to those lacking them.

The World Bank estimates the economic benefits of a regional power market in West Africa at US$5-8 billion a year. These benefits come from lower costs of operation which, in turn, reduce generation costs.

Integration of electricity grids will improve overall reliability and make electricity more affordable simply by allowing all countries to benefit from least-costly resources available in the region. It will also make power generation more sustainable by displacing baseload oil-fired power generation with cleaner sources of electricity such as natural gas, solar, and hydropower. The power system will also become more resilient by more easily balancing unexpected energy shortages. The sizable market created by integrating these fourteen countries will be more attractive to private sector investment in power generation.

‘Establishing a robust power trading system in West Africa is a historic opportunity for the region to significantly cut the average cost of power generation and improve access to cleaner and more reliable energy,’ said Makhtar Diop, Vice President for the Africa Region at the World Bank.  ‘The World Bank very much shares West Africa’s vision of a modern energy sector capable of meeting the needs of the region’s growing population and economies and we are committed to support our clients in realizing the promise of the regional market.’

The World Bank, along with a number of development partners, has supported WAPP in its efforts to improve the physical connectivity and integration of electricity grids. The World Bank has been a longstanding partner for the power sector in West Africa, and has supported WAPP since 2005. Through the International Development Association (IDA), $750 million of current World Bank support is directed toward completing primary interconnections. There are currently 4,000 kilometers of transmission lines under development, all coming to completion in the early 2020s.

Technical and payment challenges

The complexity of the WAPP power market creates new political and technical challenges that will need to be addressed. A well-functioning regional power market requires not only the right infrastructure, but also strong collaboration among policy makers, regulators, and utilities, at the national and regional level. It also calls for simultaneous policy, regulatory, and institutional steps. Trading institutions and stronger commercial arrangements will need to be developed further.

The payment record of trading partners in the region is uneven. In 2016, arrears reached such a level that WAPP formed a Task Force on Cross-Border Payments for Power Trade to recommend solutions to this problem. To ensure that West African countries realize regional power integration to its fullest potential, the Task Force recommends a series of actions to improve confidence in the regional power market.  These include improving sector creditworthiness, strengthening contracts, providing guarantees and involving regional institutions.

A key focus of future World Bank engagement will be strengthening the performance of power utilities as a foundation for improved service and growing regional exchange.


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