How can Independent Power Transmission work in Africa
The Independent Power Transmission Model (IPT) in Africa
Despite the available ample natural resources, Africa currently faces the challenge of shortage of electric power supply, as a vast proportion of the population in the Continent is without access to electricity.
Many areas that can boast this access and grid connectivity still face shortages and rolling blackouts due to lack of capacity, resilient power infrastructures, and international investment, as well as poor regulatory frameworks, hampering growth, human capital, and economic development.
The lack of reliable and affordable electricity in Africa has also severely limited the adoption of emerging technologies in top sectors such as education, banking, agriculture, and finance, all of which could otherwise curb some of the core challenges facing Africans, low productive job opportunities and limited healthcare inclusive.
Premised on the foregoing, it is evident that the importance of building and improving Africa’s power sector cannot be overemphasized, and hence raises the need for Africa’s power sector leaders to devise new mechanisms to realize this objective.
As a way forward to alleviating Africa’s power shortage challenge, energy experts suggest that, with the introduction of the Independent Power Transmission Model (IPT), it is possible for the private sector to finance, build and maintain Africa’s electricity transmission infrastructure and help expand electricity coverage in the region.
This article by Brickstone, reviews some institutional reports and publications on the Independent Power Transmission Model (IPT), particularly how it can work in Africa.
The need for Independent Power Transmission Model (IPT) in Africa
According to the African Development Bank Group, over 640 million Africans have no access to energy, corresponding to an electricity access rate for African countries at just over 40 percent, which amounts to the lowest in the world. This shortage in access hinders the attainment of health, education, agriculture, and economic outcomes in Africa.
Expanding the Electricity sector by increasing regional integration, building more transmission lines and upgrading transmission capacity, is a key solution to addressing this challenge. This can lower the average cost of supply through economies of scale, and also promote diversification of electricity sources, including renewables, enhancing system reliability and grid stability.
However, effecting this solution will require significant investment in a stable and interconnected transmission network as expanding the transmission network, according to the World Bank, requires between $3.2 billion and $4.3 billion every year until 2040.
As a result, more investment in the sector is urgent. The private sector is key to bridging this finance gap.
The Independent Power Transmission model (IPT), amongst other possible models for private investment in transmission infrastructure in Africa, is like the independent power producer (IPP) model, where a private player develops, finances, builds, and operates a single transmission network asset under a tendered contract.
The IPT (independent power transmission) model, which has been identified by the World Bank as the business model best suited to the conditions in Africa, can assist in bringing additional private investment to Africa, and has performed well in other developing countries like Brazil, India, Peru, and several countries in Latin America.
For example, IPTs have brought over 30% savings in costs in Peru and constructed over 21,000 km of transmission lines in India.
Advantages of the Independent Power Transmission
Aside from the statistics representing the obvious benefits of the Independent Power Transmission model in developing countries, the model is regarded as the most best suited model to the conditions in Africa because it offers several advantages.
In a paper published by Gridworks, the following are some of the principal advantages of the Independent Power Transmission model:
- It is more practical to raise capital for ITPs using project finance techniques than it is to raise capital for whole network concessions using project finance.
- Independent transmission projects allow countries to conduct competitive tenders in relation to discrete projects as the need for those projects arises.
- It helps in avoiding key risks related to network concessions such as economic regulation and buy-out payments.
How can the Independent Power Transmission work in Africa
Africa, like other countries, could acquire similar benefits accruing from the introduction of Independent Power Transmission (IPT) models for electricity transmission. This can be realized where there’s a favourable and enabling environment for such, the right mix of scale and regulations.
A report by the World Bank Group- Linking Up : Public-Private Partnerships in Power Transmission in Africa- provides detailed information on the steps that African governments must take to make it attractive for the private sector to invest in the region’s electricity transmission infrastructure.
These steps include:
- Develop policies that support IPTs
- Develop legal and regulatory frameworks to support IPTs
- Conduct trials of IPTs alongside existing business models of transmission
- Introduce new models for concessional finance
- Identify the stage at which to tender transmission projects
- Determine payments to IPTs based on transmission availability
- Ensure adequate revenue flow and credit enhancement for projects
- Tailor IPT projects to attract international investors
- Prepare to implement IPT transactions, and
- Run competitive tenders for IPTs
Download the full report here.
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