First tripartite power transfer goes live in EA

From the newsletter

Tanzania has commenced trial runs for evacuating 50 MW of electricity from Ethiopia via Kenya's network, opening up the wheeling market, which could potentially connect to the southern African power pool. Tanzania now joins Kenya, Sudan and Djibouti in importing hydropower electricity from Ethiopia and targets 200 MW by 2027 for energy security needs.

• The deal marks the first trilateral arrangement in the East African region where power has not previously been transmitted via a third country. This could accelerate creating an East Africa Power Pool (EAPP) market transmission pricing methodology. 

• Ethiopia's hydro-dams make it a regional power hub. It exports 200 MW to Kenya and 254 MW to Sudan and Djibouti, earning it about $140 million last year.

More details

• The duration of the power deal is not known. Kenya Electricity Transmission Company Limited (Ketraco) will utilise its recently commissioned 500 kV Ethiopia-Kenya line and the 400 kV Kenya-Tanzania line to facilitate this trade. Kenya stands to earn an estimated $6.2 million annually from wheeling charges and associated fees for transmitting electricity from Ethiopia to Tanzania.

• This deal opens Ethiopia's power sector to export markets, enabling it to target the Southern African Power Pool, which is one of the largest electricity markets in Africa. However, it will currently face grid capacity constraints as the existing infrastructure lacks the capacity for large amounts of electricity transfer. The Zambia-Tanzania interconnector, with a 400 MW capacity and currently under construction, offers better hope for connecting to the southern market.

• The East African region is endowed with many large rivers that favour hydropower generation. Already, significant projects within the region have been earmarked for development, including the 40,000 MW Grand Inga Dam in DR Congo, with an initial 11,000 MW capacity expected to be developed. Ethiopia has several rivers, including the Nile, which could generate more than 45,000 MW.

• Electricity export markets are becoming lucrative as countries seek cheap and dependable power to support growing economies. Angola and DR Congo are the latest to have signed an agreement to develop a 1,150 km line for power transfer between the two countries. South Africa and Nigeria are planning to import electricity from the Congo, and plans for transmission lines are currently under consideration.

• African countries are increasingly building their power lines with regional interconnection in mind. In North Africa, Morocco is connecting with Mauritania, while Ghana and the Ivory Coast in West Africa plan to increase capacity. Southern Africa is already connected with their operational regional market, and East Africa is building its network, with plans to operationalise its regional market for electricity trading before the end of the year.

• The thing with inter-country electricity trading is that it opens up the market for competition and energy security. Countries primarily target importing baseload power from hydropower, which provides stability affordably. For instance, Ethiopia's hydropower makes it the cheapest in Africa, with a unit cost of just $0.019/kWh for businesses, which is five times cheaper than in South Africa.

Our take

• These power agreements open the market for Tanzania and other countries in the southern region to source cheap and reliable electricity from Ethiopia, and potentially from East Africa and Northern Africa regions. This will open competition and drive power costs down.

• Such deals open up grid networks to power wheeling opportunities, which can be leveraged to generate much-needed revenue in foreign currency. This, in turn, significantly boosts the accounts of the many cash-strapped utility companies.

• African countries need to build grid infrastructure with regional interconnection in mind to ensure they don't operate in silos but benefit from each other's excesses and strengths.