African cities embrace independent power grids

From the newsletter

Cape Town has made strides in establishing its first city-owned solar power plant, with about 20% of the solar panels now installed. The city aims to build more such plants to prevent future power cuts without relying on the national grid. Other African cities are looking into having own power plants to meet their demand, and some are exploring decentralised grids.

• Cape Town city has been at the forefront of establishing an independent grid, becoming the first municipality in South Africa last month to open its network for electricity trading. 

• African cities lead their countries' economies, host major industries and offices, and are the most affected by blackouts. Having independent grids will create resilience and boost productivity.

More details

• Cape Town's new solar plant is set to begin with a 7 MW capacity, with completion expected by the end of the year. The city plans to expand this to 10 MW and add 8 MW of battery storage. By 2030, Cape Town aims for alternative energy sources to cover 35% of its total demand. A larger 60 MW solar plant is also planned, which should offer protection from one stage of Eskom's load shedding.

• Earlier this year, the city secured a $150.2 million loan from German development bank KfW to upgrade its electricity grid. This funding will back its three-year "Building For Jobs" project, a significant initiative investing over $220 million in grid improvements and upkeep. With the industrial sector consuming over 70% of its more than 10,000 MWh of electricity, Cape Town faces growing demand. The city's energy strategy focuses on preventing future power cuts by boosting generation capacity, largely through private-sector partnerships.

• A few African countries are making progress to decentralise their power grids, aiming to free major cities from frequent power cuts and ensure their economies operate with fewer disruptions. Some nations are establishing power plants via Independent Power Producers (IPPs) to provide stable urban electricity, while others are unbundling the market to enable independent regional power grids.

• South Africa is one of the first countries to unbundle its power grid. Once severely affected by load shedding, the nation's Electricity Act 2023 ended Eskom's century-old monopoly, allowing municipalities to generate, transmit, distribute, and trade power. This change aims to empower municipalities to secure enough power for their immediate needs, cushioning them from Eskom's failures.

• Similarly, Nigeria's Electricity Act 2023 authorises its 36 states to independently generate, transmit, and distribute electricity within their borders. Lagos State, a key economic hub, has rapidly moved forward by enacting its own Electricity Law in 2024 and setting up a dedicated Lagos Electricity Regulatory Commission (LERC). Abia State has also seen regulatory oversight formally transferred from the national body to its state authority, setting a precedent for other regions.

• Ethiopia and Egypt have utilised a different approach. They have set up power plants near their cities to prioritise the cities' demand. Ethiopia, for instance, has established the Reppie Waste-to-Energy Plant in its major city, Addis Ababa, with plans to meet 30% of the city's household energy needs. Egypt has focused on strengthening its grid by establishing major plants near its cities; however, these have primarily been fossil fuel-based. While renewables are emerging, they are often located at some distance from urban areas due to land availability.

Our take

• Decentralising grids lets cities better plan energy demands. With their high-paying industrial and commercial clients, cities can generate good revenue streams, which can be reinvested in local grid upgrades and maintenance, creating a self-sustaining improvement cycle.

• However, there is a significant risk to this model: regions with low energy consumption will likely face considerable challenges in independently maintaining their grid networks. The high per-connection costs of extending infrastructure to underserved areas could make universal access difficult and financially unviable without external support.

• To mitigate disparities, regions with abundant renewable resources can partner with the private sector to develop generation facilities. They can then sell surplus power to high-demand regions lacking space. This extra revenue can be injected into bettering services.