New report reflects on electricity market regulatory assessment in Africa

New report reflects on electricity market regulatory assessment in Africa

A High-Level Dialogue on Energy (HLDE) held last week on the sidelines of the 76th UN General Assembly, released a report that aims to support the implementation of recommendations by the HLDE on regulation and scaled private sector investment.

It addresses issues relating to the openness, attractiveness, and readiness of Africa’s regulatory environment for private sector scaled investment participation across the electricity value chain.

The HLDE calls for a robust private sector participation in energy infrastructure investment across the value chain by addressing uncertainties in policy and regulatory environments. In this regard, the HLDE endorses numerous recommendations, including the de-risking of projects and fixing regulatory barriers to ensure market openness, attractiveness, and readiness for private-sector finance.

It is against this backdrop that the Economic Commission for Africa (ECA), through its SDG7 Finance initiative pillar area on energy sector governance, jointly and in partnership with the RES4Africa Foundation through its Missing Links initiative, developed a methodology to support member States to undertake assessment of their electricity market regulation.

This is in line with the key recommendation of the HLDE under the thematic area of Finance and Investment. ECA and RES4Africa have engaged 17 African countries towards assessment of the regulatory environment to support improvements and reform.

In the remaining years of the Decade of Action, member States are urged to accelerate action to meet SDG7 goals and enable a just energy transition to a clean and sustainable energy future for all.

As African countries pursue greater openness, attractiveness and readiness of their electricity markets for greater investment, it is expected that this regulatory review methodology will offer useful guide in identifying areas of strength and regulatory gaps to be addressed towards a conducive environment for accelerated action to meet SDG7 goals.

In the global context of $1.9 trillion energy sector investments, of which emerging and developing countries attracted 1/5th of this investment, and even a fraction in Africa, it is crucial to address private sector investment participation barriers by addressing key regulatory challenges.

In the context of Africa – with 590 million people without access to electricity, 13 million more losing access in 2019-2020 due to the effects of COVID, 24 countries having access levels below 50%, and 31% of primary schools and comparable level of health facilities lacking access – accelerating private sector investment remains crucial.

The HLDE considered recommendations under key thematic areas of Energy Access, Energy Transition, Enabling SDGs through Inclusive and Just Energy Transition, Innovation, Technology and Data and on Finance and Investment.

The Dialogue was held under the theme “accelerating action to achieve SDG7 in support of the 2030 Agenda and the Paris Agreement,” and served as platform for Heads of State and government to launch compacts and actions for clean and affordable energy for all within the Decade of Action.

The ROAR (regulatory review of the openness, attractiveness, and readiness of electricity markets) methodology is designed to assess national electricity market policies and regulations along three broader areas of assessment.

The first relates to the degree of openness to private sector investment from generation assets to networks and off-grid market segments (related to sector strategy, market organization, and governance). The second relates to the attractiveness of the electricity market (sector economics, including tariffing and incentives), which determines the degree of private sector investment interest. The third is the readiness of the market (related to the necessary codes, rules, and system operation).

These three broader areas of regulatory and policy assessment are undertaken by evaluating a series of topics, indicators and key performance indicators based on validated data in member States. The framework offers quantitative and measurable picture of the regulatory and policy environment related to its ability to crowd in private sector investors across the electricity value chain.

It also helps member States evaluate the progress they are making over time related to the electricity market regulatory environment across the value chain to scale-up much needed investment from the private sector. Moreover, it offers an opportunity for peer-learning of regulatory best practices by cross-comparing performance in key areas of regulatory interest for member States.