The importance of electricity infrastructure for economic development is well-reflected in African policy ambitions embodied by Agenda 2063 and the Sustainable Development Goals, particularly SDG7. However, achieving the goals set by these agendas requires substantial investments.
Thus far, African governments have shouldered an almost exclusive responsibility to finance energy infrastructure development through public resources and bilateral and multilateral financial arrangements with development partners. With rising debt-to-GDP ratios, low tax-to-GDP ratios and narrowing scope for public spending, complementary financial models are essential to sustain progress. Crowding-in private sector investment offers an opportunity to bridge the financing gap.
Nonetheless, private sector financing still represents a marginal share of annual investments in electricity infrastructure in Africa. A major deterrent to private investment is the high-risk perception associated with many African markets. Perceived risks linked to the policy and regulatory framework represent one of the most significant barriers to private investment in African energy markets. Understanding how to mitigate policy and regulatory risks is therefore crucial for Africa’s electricity sector development.
Moved by this ambition, RES4Africa Foundation launched its Missing Link Initiative, supported by Enel Foundation, to support the progress of Africa’s electricity sector reform agenda. RES4Africa joined forces with the United Nations Economic Commission for Africa (UNECA) to facilitate investment in African electricity markets by improving the preparedness of policy and regulatory frameworks to crowd-in private-led investments.
Working with international and African experts, as well as investors and members of the electricity industry, RES4Africa and UNECA established an innovative and comprehensive analytical framework to investigate the ability of national electricity policy and regulatory frameworks in Africa to crowd-in private investment in electricity infrastructure. While there is no silver bullet for policy and regulatory reform, RES4Africa and UNECA’s work posits that, in order to create a conducive environment for private sector participation, policy and regulatory frameworks must ensure appropriate market openness, attractiveness and readiness.
Open electricity markets are characterized by a competitive environment where market participants benefit from certainty regarding the future direction of the sector, clarity about the requirements for operating within the market, as well as independency and transparency of market governance and surveillance, fairness of rules for accessing the market and diversity of business models and routes-to-market.
Attractive markets are defined by certainty regarding contracts administration and the definition of their essential elements, confidence about the ability to recover all costs incurred and a fair level of profit, accessibility to incentives and investment support mechanisms, accessibility to credit enhancement mechanisms, as well as mitigation and/or compensation of market failures.
Ready markets demonstrate preparedness to integrate new infrastructure and ensure safe project implementation by offering certainty regarding network development needs and system operation rules, clarity on requirements and conditions for grid access, transparency on energy security and reliability requirements, accessibility to data and efficiency of data management and sharing, certainty about investment process requirements and procedures.
To support African countries’ efforts to achieve SDG7, RES4Africa and UNECA collected and analysed data on 16 African countries’ electricity policy and regulatory environments to assess their ability to ensure appropriate market openness, attractiveness, and readiness and provide recommendations for possible pathways of reform.
The main findings of these studies could be found at: