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Fact Sheet: The World Bank and Energy in Africa

Fact Sheet: The World Bank and Agriculture in Africa

Background

More than a century after the light bulb was invented most of the African continent is still in the dark after nightfall. School children often cannot read after dusk, businesses cannot grow, and clinics cannot refrigerate medicine or vaccines, and industries are idled hampering economic growth, jobs, and livelihoods.

Today some 25 countries in sub-Saharan Africa are facing a crisis evidenced by rolling blackouts. Although the African continent is well endowed both with fossil fuels and renewable resources, these are not evenly distributed, creating windfall profits for some countries and exacerbating the crisis in others.

Since the mid-1990s, external finance to Africa’s power sector has averaged only around US$600 million per year of public assistance, plus a similar volume of private finance. More recently, Chinese, Indian and Arab sources have also emerged as significant energy financiers. Nonetheless, it is estimated that doubling current levels of energy access by the year 2030 will require sustained investment at much higher levels.

Key Issues in Africa’s Energy Sector

  • Low access and insufficient capacity - Some 24 percent of the population of sub-Saharan Africa has access to electricity versus 40 percent in other low income countries. Excluding South Africa, the entire installed generation capacity of sub-Saharan Africa is only 28 Gigawatts, equivalent to that of Argentina.
  • Poor reliability - African manufacturing enterprises experience power outages on average 56 days per year. As a result, firms lose 6 percent of sales revenues in the informal sector. Where back-up generation is limited, losses can be as high as 20 percent.
  • High costs - Power tariffs in most parts of the developing world fall in the range of US$0.04 to US$0.08 per kilowatt-hour. However, in Sub-Saharan Africa, the average tariff is US$0.13 per kilowatt-hour. In countries dependent on diesel-based systems, tariffs are higher still. Given poor reliability, many firms operate their own diesel generators at two to three times the cost with attendant environmental costs.

Shortcomings in the power sector threaten Africa’s long term economic growth and competitiveness.  The cost to the economy of load-shedding is equivalent to 2.1 percent of GDP on average.

World Bank in Africa

The World Bank’s Africa Energy project portfolio currently carries 48 projects totaling US$3 billion.  These projects range in objectives from increasing people’s access to electricity, to rehabilitation of war-torn, dilapidated power grids, to ensuring international environmental and social safeguard policies are adhered to during the development of energy projects.

The Bank’s strategy to support energy development in Africa is three-fold:

  • Support for scaling-up of generation capacity via transformative regional projects;
  • Improving the effectiveness and governance of state-owned utilities, in the context of hybrid electricity markets; and
  • A new commitment to rolling out energy access programs via sector-wide engagement.

In the short-term, the challenge is to stabilize power systems across the continent through interventions that reduce the demand for power and enhance system reliability in a cost-effective manner. To this extent, the Bank is recommending improved energy efficiency through use of Compact Fluorescent Bulbs (CFLs) which can rapidly reduce demand. Demand-side management techniques, such as tariff adjustments that incentivize consumers to reduce power demand at peak times also have an important role to play.

In the longer-term, the African power sector faces several strategic shortcomings. The strategic responses supported by the Bank are expected to lead to more power being produced and distributed in a commercially-viable fashion, yet simultaneously ensure that the benefits of energy access are shared more broadly. A sustained increase in external investment will be a critical enabler. Significant progress has been made in the formation of regional power pools, and power trading is already taking place in western and southern Africa. Power pool architecture in other regions is less well-developed, and in all regions investments in regional interconnections and the new generation are needed before the benefits of trade can be fully realized.

World Bank Lending and other activities

Lending to align with strategic themes - International Development Association commitments to the energy sector have accelerated in recent years. From a low base of US$260 million in Fiscal Year 2003, new lending rapidly increased at an average annual rate of 31 percent per year, reaching over $750 million in Fiscal Year 2007. The stage is set for further rapid growth in energy investments as the Bank starts accessing funds from the 15th replenishment of the International Development Association (IDA).

The World Bank’s financial commitments to energy projects in Africa will increasingly align with the strategic themes set out — with a focus on priority transformative generation and transmission investments that will drive regional power trade, as well as committing significant resources to boost household electricity access rates via programmatic sector-wide approaches (e.g. in Kenya and Rwanda).  In addition, opportunities to provide IBRD financing for export driven projects in IDA countries as well as for our middle income clients, such as Botswana and Gabon, are being developed.

Catalyzing investmenst & focusing on quality - The Bank is rising to the challenges in the power sector in two additional ways. First, it is playing a catalytic role that both ‘crowds in’ private sector investment via public-private partnerships and provides a framework for other donors’ co-financing. And second, it is enhancing the capacity of key institutions – power utilities, regulators and power pool operators – to effectively utilize these funds.




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