Africa Power Reform and Prices

Transcription

1 Africa Power Reform and Prices Tjaarda P. Storm Van Leeuwen, AFTEG Vivien Foster, AFTSN Maria Shkaratan, AFTSN Energy Week, March 31-April 2, 2009 Word Bank Washington, DC

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3 Africa Infrastructure Country Diagnostic: a multi-stakeholder effort

4 Africa s chronic power problems Generation capacity inadequate and has been stagnant for 20 years Low generation accompanied by low electrification Less than 40 percent of countries will have universal access by 2050 (current trends) Consumption small and falling Power shortages high: expensive (emergency power cost) negatively affect growth (loss of output)

5 Capacity, consumption and coverage low Generation capacity (MW per million population) Electricity consumption (kwh per capita per year) SSA South Asia East Asia SSA South Asia East Asia

6 Anatomy of Africa s power supply crisis Main Cause or Trigger Natural Causes (Droughts) Oil Price Shock System Disrupted by Conflict High Growth, Low Investment/Structural Issues

7 Huge power investment backlog Annual spending needs: US$40.8 bln Annual actual spending: US$11.3 bln Annual financing gap: US$29.5 bln Global financial crisis could reduce power spending needs by 20%, with minor effect on GDP shares Most of private sector finance relates to Independent Power Producers Potential efficiency gains large in absolute terms, but not sufficient to reduce financing gap

8 Power sector spending needs equal 6.4% of total SSA GDP US$ billion per year Share of GDP, % Capital expenditure Operation & maintenance Total spending Capital expenditure Operation and maintenance Total spending SSA LIC Fragile LIC Non Fragile MIC Resource Rich

9 Closing the power gap, US$ bln per year Financing gap Reduce operating inefficiencies Improve cost recovery Remaining gap SSA LIC Fragile LIC Non Fragile MIC Resource Rich

10 The promise of regional power trade Regional benefits: annual cost savings of US$2 bln annual emission reduction of 70 mln ton Patterns of trade: exports dominated by DRC, Ethiopia and Guinea imports to cover > 50% of power needs in 16 countries Level of savings in most salient cases: US$ 0.03 to US$ 0.07 per kwh or over 1% of GDP IRR on inter-connections >100% pays back in <1 year

11 Improving utility performance through institutional reform Cost of SSA power utility operational inefficiencies US$3.2 billion per year or 0.5% of GDP Operational inefficiencies hold back electrification Institutional reforms impact utility performance Application of management contracts complex: unrealistic expectations don t address broader sector challenges Most SSA power utilities state-owned and operated, need to improve utility management and operational framework

12 Inefficiencies average 0.5% of GDP 5 Percentage of GDP LIC Non Fragile LIC Fragile MIC Resource Rich SSA Collection Inefficiencies Unaccounted losses

13 Good institutional frameworks pay off lowering power sector inefficiency annualized increase in access to power, % 2.0% 1.0% 0.0% Low hidden cost High hidden cost supressed demand as % of generation 20% 10% 0% Low hidden cost High hidden cost Source: Preliminary results AICD 2008

14 Reform measures have a material impact on hidden costs average cost of system losses and collection losses as % of billings Performance contracts with incentives present Management contract or concession High governance High regulation High reform yes no

15 Taking stock of PPI experience Extent of PPI Experience Prospects Generation 34 IPPs invest US$2.5bn to install 3,000MW of capacity Frequent renegotiations, costly to utilities Likely to continue given huge capacity needs Distribution 16 concessions and 17 mgt or lease contracts One quarter of contracts prematurely cancelled Movement towards hybrid models with local firms

16 The challenge of cost recovery Under-pricing of power at US$2.2 bln per year Plus ad hoc subsidies to large industrial customers Power prices rising, but not at par with costs Most countries achieve only operating cost recovery With existing costs and access patterns, cost recovery tariffs unaffordable in LIC with thermal systems, but affordable elsewhere With efficient LRMC, cost recovery tariffs will be affordable for many countries (except West Africa) Existing tariffs often high enough to cover LRMC of efficient systems with full revenue collection

17 Under-pricing average 0.36% of GDP or US$ 2.3 bln LIC SSA Oil Exporting MIC Percentage of GDP

18 Africa s infrastructure services several times more expensive than elsewhere: effective power tariffs in SSA US cents 5 0 Chad Cape Verde Madagascar Uganda Burkina Faso Senegal Kenya Rwanda Cameroon Niger Benin Côte d'ivoire Namibia Ghana Lesotho South Africa Mozambique Tanzania Ethiopia Congo Malawi Nigeria Zambia Power tariffs in other developing countries: lower bound Power tariffs in other developing countries: upper bound

19 High power cost driven by small scale of production and inefficient technology US$ per kwh Small Medium Large US$ per kwh Diesel Hydro

20 Power prices increased substantially in recent years, but not on par with costs 0.30 Average operating cost Average revenue from tariffs P redo minantly diesel P redo minantly hydro Overall Predominantly diesel Predominantly hydro Overall

21 The longer term cost recovery situation is more hopeful Average revenues against average operating costs Average effective tariff against average incremental cost Average revenue (us$/kwh) Average effective tariff (US$/kWh) Average operating cost (US$/kWh) Average incremental cost (US$/kWh)

22 Long-run marginal costs of power US$ / kwh Trade expansion Trade stagnation CAPP EAPP SAPP WAPP

23 Affordability of monthly bill at cost recovery prices: US$ per month, consumption 50 kwh/month, affordability threshold 5% of household budget Historic LRMC costs Trade expansion Trade stagnation CAPP EAPP SAPP WAPP Green affordable Red unaffordable Yellow on the border of affordability

24 Electricity access in SSA, by urban-rural and by quintile 80% 70% 60% 50% 40% 30% 20% 10% 0% National Rural Urban Q1 Q2 Q3 Q4 Q5

25 Relative level of effective tariffs for different customer groups 80% percentage of countries 70% 60% 50% 40% 30% 20% 10% 0% commercial prices higher than residential and industrial residential prices higher than commercial and indistrial industrial prices higher than commercial and residential

26 Policy Challenges Strengthening sector planning Accelerating electrification Adapting to hybrid markets Recommitting to SOE reform Increasing cost recovery (establishing creditworthiness) Expanding regional trade in power Closing the financing gap