Understanding the current non-infrastructure barriers to trade in the ECOWAS regional electricity market
This paper explores some of the factors behind current low trade levels and transmission capacity utilization rates in the ECOWAS regional electricity market. These non-infrastructure barriers, generally linked to electricity sector reforms, require policy and regulatory interventions.
The paper investigates non-infrastructure barriers to regional trade, and how to address them. Each of these barriers points to different gaps in the development of the electricity sector, which in turn highlights actions required from regulators and policymakers in the electricity/energy sectors in these countries.
This paper argues that many of these constraints can be addressed through market reforms, especially in countries that still operate state-run monopolies. A renewed focus and emphasis on market liberalisation at the national level, and open access in all countries will free up capacity and demand at the regional level. This will allow the flow of electricity trade and support the current on-grid demand, including suppressed demand.
The Economic Community of West African States (ECOWAS) is one of supported Regional Economic Communities (RECs). According to 2017 figures, 51.3% of the region’s population have access to electricity, meaning that about 170 million people in the region are left without electricity access. Even part of those with access have it intermittently and unreliably. The problem is not only limited to a dearth of connections. Cross-border or regional electricity trade can be part of the solution to providing more electricity in the region. This is why the ECOWAS Regional Electricity Market (EREM) is being developed.
The value of the EREM is well recognised. Energy surpluses and low generation costs in some countries and large deficits and high costs in others make the region an appropriate candidate for regional trade, especially given its substantial renewable energy potential. The World Bank estimates that “the economic benefits of a fully integrated power market are of the order of US$5-8 billion per year for West Africa, with the potential to reduce the cost of electricity services by half in many countries in West Africa”. Additionally, analysis conducted by the Tony Blair Institute, USAID and Power Africa estimates, in the period covering 2020-2030, $30 billion in benefits through mutually beneficial power trade and the potential for large-scale regional solar development. There are significant gains to optimizing the region’s energy resources, given the varying endowments and load profiles in respective countries.
Despite the wide consensus on the benefits of regional electricity trade in the ECOWAS region, the level of cross-border trade is low. In 2018, total electricity traded in the region was 5718 GWh, representing 8.5% of its total electricity production. Of the existing interconnection transmission lines in 2017, only 42% of the line capacity was used. The number drops to 30% if we exclude electricity from Nigeria, whose distribution companies (DisCos) are facing liquidity issues thereby making exports more attractive to power producers. A major driver to the low trade is the distant regional grid connectivity. This means that the infrastructure that will allow electricity to move from one country to another, within the region, is still being built. Indeed, the West African Power Pool (WAPP) currently has 3,916 kilometres of transmission lines under construction, while 4,569 kilometres are under preparation.
While progress is being made in closing the regional transmission gap, there is still some work to be done. Furthermore, the low trade levels and transmission capacity utilization rates suggest the presence of non-infrastructure related barriers to trade in the region. The Tony Blair Institute report suggests the barriers to trade “are largely political, including non-cost reflective country to country trade agreements, non-payment, and development of costly domestic generation plants when cheaper imports are available.”. These barriers are related to soft, but critical issues that need to be addressed by policies and reforms in the sector.
This paper explores some of the factors behind the low trade levels and transmission capacity utilization rates in the ECOWAS regional electricity market today. A few of these factors include technical constraints, supply availability, political willingness driven by energy security concerns, financial constraints, and issues related to transmission pricing. These barriers are generally linked to issues around sector reform, and thus require policy and regulatory interventions. While WAPP and ECOWAS Region Electricity Regulation Authority (ERERA) are making steady progress in infrastructure projects and the development of the regional market, it is important that they also pay close attention to the development of the electricity sectors in member states. The regional market could significantly benefit from WAPP and ERERA strengthening their connections with member states by supporting their regulatory and infrastructure development. This bolsters regional collaboration and cooperation. A lot more strategic capacity building is required. This will strengthen the local capacity of energy actors, helping to reduce or remove the existing barriers to trade in the regional market today.
This paper provides an overview of the regional electricity market and its constituent institutions. It then examines the current electricity trading activities in the region as well as the diverse constraints to cross-border trade. The paper reveals that a major bottleneck to cross-border electricity trade is related to a lack of market reform.
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