Private project to join Africa’s largest power market

From the newsletter

The Southern African Power Pool (SAPP), Africa's largest operational electricity market, is expanding by 25 MW of solar following the financial close of Zambia's Ilute solar project. The plant, which is now moving to construction, will be one of the first privately developed energy projects to connect to the SAPP through its competitive and open-access market.

• The SAPP is seeing exorbitant electricity demand but insufficient supply. The deficit is largely due to dysfunction in South Africa's energy sector. This prompted it to reduce supply and backfill domestic gaps.

• Private power generators have recently been attracted to Zambia after it streamlined project approval procedures, now taking less than two days.

More details

• The project will be developed by Serengeti Energy and Kwama Energy. GreenCo's a renewable energy buyer and traderwill purchase electricity from the project under a 25-year Power Purchase Agreement (PPA), selling the energy into the SAPP Day-Ahead Market (DAM).

• Prices within the SAPP Day-Ahead Market are set through a competitive bidding process, where both buyers and sellers submit offers for electricity. The market-clearing price is established based on the intersection of supply and demand curves. Any imbalance in supply and demand directly impacts prices; for example, excess demand will drive prices higher. Though not always dependent on market forces, but rather on other factors affecting generation cost, like hydrology and sun hours.

• The SAPP market is the most advanced and fully operational power market in Africa. It has twelve countries in the southern region signed up, including the DR Congo and Tanzania, which also belong to the East African Power Pool market. These multiple memberships could serve as points of interconnection for broader continental grid integration. In essence, Africa could connect its regional power pools to form a unified African power market.

• But this has not yet been fully realised. However, significant developments are underway, such as the construction of the Zambia-Tanzania interconnector and the operational Kenya-Tanzania interconnector, which are linking the Northern, Eastern, and Southern African power markets. Ethiopia, with its abundant and cheap hydropower resources, has several bilateral electricity agreements with Kenya, South Sudan, and plans to have one with Tanzania. Interconnecting the electricity markets positions it to supply excess power to the regional markets.

• However, full participation in an open market, especially for power projects led by governments, will be difficult. This is because they already have long-standing bilateral agreements for electricity supply. Opening up the electricity market for more private players could be a key solution. Some countries, such as South Africa and Zambia, have liberalised their markets, allowing the private sector to participate in electricity generation, transmission, distribution, and trading.

• Much focus should be directed towards transmission lines, as some countries already possess surplus electricity or the potential to generate more. For instance, the DR Congo could generate over 50,000 MW, with the Grand Inga Dam alone potentially contributing 40,000 MW from hydropower. This significantly exceeds its domestic needs. South Africa, Nigeria, and Angola have all expressed interest in sourcing electricity from the Congo. However, a major obstacle to enabling this is the current lack of adequate transmission infrastructure.

Our take

• To promote cross-border electricity trading, African countries must significantly invest in grid infrastructure. Current grid limitations are severely impacting the amount of power that can be traded. It's also crucial to implement smart grids to allow for real-time management of electricity demand and supply.

• The widespread use of long-term bilateral contracts can restrict competitive market pricing. Policy changes should address this by opening up the electricity market to the private sector. This way, new projects could target export markets.

• Countries need to focus on renewable power generation to avoid the pitfalls of volatile fossil fuel prices. Tapping into a combination of hydropower and other intermittent renewables could provide the needed balance and price stability.