Liquid electricity trading markets in Africa can attract private sector investment and support the UN’s goal of access to affordable energy for all.


February marked the completion of the Suswa substation in Kenya. It has been designed to accommodate transmission capacity of 2,000MW and is one of the final key parts of the Ethiopia-Kenya interconnector project to be put in place, as well as being a key component in the cross-border transmission of power around East Africa. Alongside this, regional states are consistently vocal about plans to export surplus power to neighbouring jurisdictions.

Getting a liquid power trading market in place is not just about interconnectors and single bilateral power trades. In order to have a fully liquid power trading market there has to be systematic and enabling evolution of electricity sectors, with the establishment and empowerment of institutions; uniform and strengthened regulation, rules, codes and procedures; investment in cross-border infrastructure; and a sufficient number of players authorised to trade in power. Mechanisms must be put in place to handle settlements, wheeling and energy imbalances.

The frontrunner for power trading in Africa is the Southern African Power Pool (SAPP). SAPP established a day-ahead market in 2009, followed by an intra-day and forward market in 2015, with balancing and ancillary services markets under development. SAPP’s market participant category enables licensed entities other than utilities to participate, including independent power producers (IPPs) and other service providers. Historically, SAPP has been dominated by long-term bilateral trades, which still pervade the platform, but it is increasingly being used for competitive trading, which now constitutes approximately a quarter of trades. Challenges within SAPP include increasing trading volumes, reducing bottlenecks caused by transmission constraints, and improving reliability and redundancy. Increasing SAPP’s power trading volumes is one of the objectives of Africa GreenCo which—initially through its Zambian subsidiary but subsequently more widely in the Southern African Development Community region—is seeking to become established as a creditworthy intermediary offtaker and service provider—effectively an intermediary renewables trading company. The GreenCo business model is a first of a kind for the region, and GreenCo is running a tender process for a 10-40MW solar photovoltaic pilot ‘pathfinder’ project—one of the first on-grid power projects to be tendered by an entity other than a state utility in sub-Saharan Africa. GreenCo is enabled by changes in Zambian electricity legislation enacted in 2020 providing for the licensing of traders and an open-access grid regime. GreenCo’s business model involves purchasing power from renewable IPPs and selling it on to state utilities and private sector customers, and on the SAPP power markets. In doing so it promotes cross-border power transactions and a more dynamic and liquid short-term power market with multiple buyers. Against the backdrop of the significant financial challenges faced by many state utilities and sovereigns, GreenCo is seeking to represent a viable alternative for IPPs to secure a long-term power-purchase agreement (PPA). A further byproduct of GreenCo’s business model is that, by addressing the key roadblock of the single offtaker and stranded asset revenue risk conundrum, it enhances the bankability of regional IPPs and, in so doing, accelerates private sector capital investment in the regional electricity sectors. GreenCo is not just passively feeding green power into the SAPP—instead it is setting up bespoke forecasting and market analytics capabilities to manage the intermittency of IPPs within its portfolio and to effectively harness the opportunities in the market. Improved market efficiency should provide long-term benefits and optimise resource allocation, reducing average cost of power across the region. The entry of GreenCo into regional power trading is fully aligned with broader regulatory developments in sub-Saharan Africa which recognise the increasing role the private sector can play in meeting energy demand and achieving the Nationally Determined Contributions under the Paris Agreement necessary for the world’s net-zero goal. Zambia’s introduction of open access followed Namibia’s launch of a new market framework that permits generators to sell via traders or direct to certain customers. South Africa is also broadening the scope of permitted direct power sales, including corporate PPAs. This is all against the backdrop of the regulatory harmonisation work being undertaken by the Regional Electricity Regulators Association of Southern Africa and the drive of the African Union to promote regional integration. Further afield, the West African Power Pool is also launching a regional market, facilitated by recent improvements in interconnector capacity across the region.

Sovereign risk

What is clear is that the current model of long-term bilateral PPAs where the entire output of a plant is sold to a national utility over a 20-25 year period, backed by a sovereign guarantee which is in turn backed by a multilateral guarantee, needs to be reconsidered. In addition to the extensive time required to mitigate all risks and get projects on grid, sovereign balance sheets simply cannot accumulate the scale of contingent liabilities this would entail in the context of the huge gap that remains to achieving the UN’s Sustainable Development Goal 7 (access to affordable, reliable, sustainable and modern energy for all) in sub-Saharan Africa.

The regional power pools are open, or opening, for business, and business models such as GreenCo may be the answer to sustainably scaling new generation capacity concurrently with creating or enhancing a power trading market. However, this requires a mental shift in attitudes to and perception of risk, both within the private sector developer and lender community, and within the international development community. By focusing on supporting the creditworthiness of intermediaries, development funds can be efficiently leveraged without any risk of crowding out the private sector while also demonstrating concrete support for the bold regulatory changes being introduced in many low-energy-access countries. Liquid trading markets require adequate transmission and interconnection infrastructure, creditworthy market participants and a diverse portfolio of players. The potential existence of a liquid trading market also provides a viable business case for private sector participation in transmission and interconnection projects as well as IPPs, and enables the transmission network service provider to be operated sustainably through the revenue streams provided by third-party participants in the electricity sector. Addressing this through business models such as GreenCo will help support a transition to long-term financially sustainable utilities and a healthy, active and efficient power sector to deliver clean, affordable energy to all.

Cathy Oxby is co-author of this article. She is chief commercial officer at Africa GreenCo.



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