How can trade help solve the West African power issues?

How can trade help solve the West African power issues?

How can trade help solve the West African power issues?

Commentary

5 min read

If you have ever lived in a West African city you must have accumulated some knowledge of electro-technique and theory of power systems… No, well, you do not need an engineering degree to encounter multiple issues while trying to watch a football game during the Total Africa Cup of Nations or the World Cup. If you’re not an electrician, you’ll soon have to become one!

In fact, a lack of affordable and reliable electricity is a major issue in almost all the 14 Economic Community of West African States (ECOWAS) countries and a lot of literature has been produced on the main reasons of this issue. The result is disturbing: roughly half of the population of West Africa has no access to electricity. The rural areas are lagging further behind, with almost 9 people out of 10 lacking access to electricity. This translates into a loss of competitiveness for industries and labour productivity, resulting in a high unemployment rate of the region and therefore its persisting poverty.

But not all countries face the same issues: energy resources are not evenly distributed. Certain countries have discovered gas reserves, allowing them to produce cheap and flexible electricity. Some countries have important solar potential and others hydrogeological resources that can be used to produce clean power 24 hours a day. Finally, there are those countries which do not have any particular advantage and are required to build thermal power plants and import expensive liquid fuels, such as heavy fuel oil (HFO), gas or oil.

The most efficient way to overcome this issue is to create a common energy market, where generation capacity is built in areas of the cheapest sources of production and transported to the different consumption centres in the region. The West Africa Power Trade Outlook, published by the Tony Blair Institute for Global Change, examines the benefits that an integrated West African power market would bring to all countries involved, in terms of financial savings for importing countries and additional revenues for power selling countries, as opposed to a baseline scenario where each country continues to develop its own energy sector in isolation based on the principle of “security of supply”.

According to the Trade Outlook, effective trade within the region would reduce energy costs by around $32 billion or 15% of total production costs during the next decade. From an environmental perspective effective, trade could save around 23 million tonnes of fuel oil over the next decade, which is equivalent to the annual consumption of diesel vehicles in the UK.

Figure 1 – Cumulative benefits of trades for the overall West African Power Pool (WAPP) region, 2020

As shown below in Figure 2, on aggregate, current Governments’ plans should be to build sufficient capacity to meet demand without the need for liquid fuels, such as Diesel of HFO, at least until 2029.

Figure 2 – Predicted installed capacity and demand in West Africa, 2019-2030 (regional aggregation)

However, if trade does not take place, much of this new capacity will be underutilised, whilst other countries will be reliant on costly liquid fuels.

Every country in the region will likely benefit from trade. Exporters, such as Ghana, Côte d’Ivoire, Guinea and Nigeria, will be able to collect revenue from otherwise idle generation plant, whilst importers, like Burkina Faso, will afford to replace costly liquid fuels with cheaper (and cleaner) imports (Figure 3).

Figure 3 – Cumulative financial benefits and savings from trade for the overall WAPP region, 2020-25

Our trade model allows for visualisation of the positioning of each country and their potential for trade.  Figure 4 illustrates the example for 2022, the first year where we assume that the market will be ready to allow for significant trading, mostly due to the commissioning of a number of interconnections (such as the Organisation de Mise en Valeur du Fleuve Gambia (OMVG) or the Côte d'Ivoire-Liberia-Sierra Leone-Guinea (CLSG) interconnections). In Figure 5, the market evolution in 2025 is exhibited. For each country1In order to provide a better understanding of the wider West African region, Mauritania and Cameroon have also been included in the map. Cameroon’s power market was divided into two separate zones: north and south., the surplus or deficit of supply and the average pre-trading cost of production is estimated, to identify the most promising transactions that could result in huge financial benefits.

 

Figure 4 - Positioning of the different countries in 2022, with potential export flow

In the calculation of surplus and deficit we deliberately do not consider HFO/Diesel capacity, as the main objective of promoting trading is to phase out as much as possible these expensive and polluting sources of power.

Figure 5 – Positioning of the different countries in 2025, with potential export flow

By 2022, only two ECOWAS countries are expected to have the potential to be significant year-round exporters of power: Côte d’Ivoire and Ghana2Including Mauritania which, however, is not member of the West African Power Pool (WAPP)., each of whom will be reliant on natural gas. In contrast, Guinea’s power supply and demand balance will be dependent on seasonal variations due to heavy reliance on hydro projects. Guinea is expected to generate a deficit during the dry season from January to June and a surplus during the wet season from July to December. Nigeria, under the baseline scenario, will likely continue to suffer from transmission issues, affecting domestic power and gas transit, which will translate into underutilised generation capacity. All other countries exhibited are potential importers of power, with the three largest markets being those without access to the sea and thus limited to fuel import prospects: Mali, Burkina Faso and Niger.

The regional trade outlook for 2025 is more difficult to predict with uncertainty around demand, resource availability, and the generation capacity additions that will have taken place by 2025. Aside from generation investments, the most significant change we assume is that Nigeria will have addressed its gas availability issues by 2025 and will pivot to become a major potential exporter of power.

The Trade Outlook also explores the four necessary conditions for the expected trade benefits to materialise: political will, development of the physical infrastructure, availability of gas and harmonization of the regulation and operational procedures.

In conclusion, the report suggests a way forward to ensure that the regional vision of trade is internalised and reflected in national regulations. The proposed approach is twofold:

  • Top-down, with the creation of a “Market Delivery Unit” with strong political weight. The “Market Delivery Unit” will not seek  to replace or duplicate the efforts of existing institutions, but to boost their technical and regulatory effectiveness with increased political support.
  • Bottom-up, by facilitating “pilot transactions” that are aligned with a trade-based view of the West African Power Pool (WAPP), and consequently, by introducing positive innovation in the regulation and refining the commercial and operational framework. This transactional bottom-up approach could be adopted as a model and replicated elsewhere in the region.

Based on the analysis in the Trade Outlook, we have identified the OMVG interconnection project as a first pilot transaction which could be facilitated in the region. The Institute’s Energy Practice and in-country teams are supporting the OMVG secretariat in its effort to facilitate negotiations between Guinea, Senegal, Gambia and Guinea-Bissau, as a first concrete step towards the creation of a regional integrated market in West Africa.

4,000 Jobs Created as President Koroma Secures $400 Million Bio-fuel Investment for Sierra Leone

Energy

Find out more
institute.global

Join us

Be the first to know what we’re doing – and how you can get more involved.