energy trading
Dam Oudtshoorn, Karoo Western Cape, South Africa

There are huge opportunities to optimise sub-Saharan Africa’s diverse and abundant renewable energy resources through an interconnected power system and cross-border electricity trade. Energy and Economic Growth programme director Simon Trace explains more about the benefits of regional power trade while being cognisant of the challenges.

This article first appeared in ESI Africa Issue 3-2020.
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Despite COVID-19 affecting energy demand (global energy demand is projected to fall 6% in 2020 – seven times the decline after the 2008 global financial crisis), sub-Saharan Africa’s electricity needs are growing. In its Africa Energy Outlook 2019, the International Energy Agency (IEA) says rapid economic and population growth in Africa, particularly in the continent’s burgeoning cities, will have profound implications for the energy sector, both regionally and globally, with energy demand projected to rise by 60%.

However, it’s thought that current policy and investment plans in African countries will not meet energy needs, and the region continues to suffer from a lack of access to modern energy services. Close to 600 million people are still living without electricity, and fewer than half (43%) of Africans have a reliable supply.

In 2011, the World Bank estimated that sub-Saharan Africa (SSA) must add 8GW of generation capacity annually through 2015, but in the last decade, the region averaged only 1-2GW. Chronic loadshedding has ensued, constraining economic growth. The IEA projects that total generation in the region must more than double by 2030 to meet demand. Outside of South Africa, it must triple.

The cost of renewable power has declined dramatically in recent years – aside from hydropower, an already advanced technology – and the cost of non-hydro renewables is projected to continue to fall. However, as yet, SSA’s renewable resources remain largely untapped— where hydropower accounts for 22% of SSA’s electricity, wind, solar, biomass and geothermal collectively contribute only 1% (IEA 2014, Africa Energy Outlook: A Focus on Energy Prospects in SSA).

Integrating renewables and the role of cross-border ‘green’ grids

While the potential is clear, integrating electricity generated from renewable sources into conventional power grids at scale is technologically challenging. Weather-dependent renewable sources, especially wind and solar, are inherently intermittent, uncertain and uncontrollable (for example, it might be windy or sunny one day, but not the next). High rates of renewable generation therefore place additional demands on the grid to ensure a constant, reliable supply.

The construction of large-scale, cross-border regional and international ‘green’ grids – which connect areas that are rich in renewable energy resources and have high renewable energy generating capacity with areas of high demand – can address variability and grid stability issues by helping to balance supply and demand.

It’s a compelling technological proposition; long-distance, high voltage direct current (HVDC) cross-border transmission lines (a mature technology) can carry energy over long distances with little loss. While digitised power management systems can help to remotely manage the variety of inputs and outputs. A comparable equivalent is the Information Technology (IT) sector, where inter-regional fibre optic connections transformed the industry.

Linking resources together would enable renewable energy trading between SSA countries, and could create a reliable supply of affordable, clean, secure energy across large areas of the continent. The economic case for interconnected grids lies in the benefits of trading the cheapest source of electricity at any particular point in time with the centres of greatest demand.

Challenges

There is significant interest among multilateral and international organisations in supporting cross-border grids. However, there are major challenges, including the politics of international cooperation, a lack of information and research, infrastructure and harmonisation issues, and financing.

Politics of international cooperation

The most debated and cited barrier to regional electricity cooperation is political will. Essentially this often boils down to differing views of energy security. It may well be cheaper to provide electricity through a regional grid because it then becomes possible to tap a wider pool of different renewable resources that helps even out some of the variability of supply issues associated with renewables.

So, for example, while the wind may not be blowing in country X, country Y at the same time could have an excess of wind generation, with surplus to export. In this manner, a regionally connected grid should be able to provide the same guaranteed level of power availability with less installed generating capacity than a series of independent grids, and so provides cheaper electricity.

However, country X may not have good relationships with country Y, or even if it does, things may change in the future. Viewed from this perspective, questions can arise about the security of supply that impact on political decision making.

Internally too, there may also be concerns in some developing countries over the political advisability of being seen to sell electricity to other countries while their domestic populations still lack access to energy, even if that meant in the long-term access could be extended more cheaply to all.

The economic case for interconnected grids lies in the benefits of trading the cheapest source of electricity at any particular point in time with the centres of greatest demand.

Furthermore, while a number of international bilateral electricity trade agreements are currently operational, the expansion of renewables at scale will require cooperation on a much larger scale, posing geopolitical challenges (it is however thought that regional electricity trade could help to strengthen cooperation among countries).

There is a serious lack of champion projects or examples of electricity cooperation, making it difficult to illustrate the benefits and provide positive signals to the market to build confidence. Visible socioeconomic benefits from pioneer interconnection projects* could increase the political will that is currently lacking.

Information and research

There is also a lack of in-depth research evaluating the benefits and costs of regional power trade. Studies by reputed and neutral organisations on the economic and technical benefits and requirements of green grids, especially in specific sub-regional contexts, would help to attract the attention of policy makers (and investors).

More frequent dialogues and knowledge exchanges between researchers, industry and policy experts are required to keep policy makers abreast of the latest findings and techno-economic developments.

Lessons and best practice can be drawn from more mature regional power markets, such as those in Europe and the Association of Southeast Asian Nations (ASEAN). Building on existing frameworks and institutions, for example the South Asian Association for Regional Cooperation (SAARC), could also help in accelerating initial discussions.

India’s ambitious Green Energy Corridors (GEC) programme, which envisages high-capacity connections to Bangladesh, Bhutan, Nepal, Myanmar and Sri Lanka, also provides a good example of what could potentially happen in every world region. In addition, pilot projects and model regional grids at much smaller scales could serve to demonstrate feasibility and benefits, and could highlight the challenges and steps needed to scale up.

Infrastructure and harmonisation

Inadequate cross-border transmission capacities and domestic infrastructure issues will hinder large-scale electricity trade. Furthermore, the harmonisation of technical specifications (known as ‘grid codes’), operating procedures and standards, and legal and regulatory frameworks are key requirements for the safe and reliable operation of grids in cross-border power trade, but this will involve different countries and will take time.

There is a serious lack of champion projects of electricity cooperation, making it difficult to illustrate the benefits to build confidence.

Finance

One of the biggest challenges can be mobilising affordable financing for projects of this scale, which will in some cases be perceived as a high-risk investment. Installed capacity in the region must also be scaled up, but this will require substantial financial resources.

A stable policy framework and long-term commitment is a prerequisite for the widescale participation of the private sector and investors**. Understanding these challenges in depth is crucial to unlocking the existing potential. EEG has therefore been supporting roundtable events that focus on ways to overcome barriers and increase opportunities for cross-border electricity interconnections and the trading of renewable energy.

Green Grid Initiative roundtables

The Green Grid Initiative was convened by the Climate Parliament, a global network of legislators promoting renewable energy.

The initiative is a global leadership forum that seeks to enable informal collaboration between governments, parliaments and companies on building the new green grids that are needed for the global transition to renewable energy. So far, 29 energy or environment ministers have committed to support the initiative.

EEG has co-funded and contributed to two Green Grid Initiative roundtables*** organised by the Climate Parliament and Wilton Park (an executive agency of the UK’s Foreign and Commonwealth Office). The first, ‘Green grids: connecting Asia’, was held at Wilton Park and discussed the specific challenges, opportunities and next steps associated with grid interconnections in South Asia.

The second – ‘Energy futures: Green grids, electric cooking and the global energy transition’ – was held in Abu Dhabi in January 2020, before the Legislators Forum and the Annual Assembly of the International Renewable Energy Agency (IRENA). One major theme was to examine the potential for two key transmission routes within Africa: a clean energy corridor running down the eastern side of Africa from Ethiopia to South Africa, and grids linking the nations along the West African coast.

EEG is also funding a research project on the implications of the declining costs of solar, wind and storage technologies on regional power trade in South Asia – a particularly significant research gap. The project is being carried out by the Integrated Research and Action for Development (IRADe) in New Delhi and the findings will be useful on a global scale.

Cross-border grids and electricity trading can help to bring about a transition to clean, renewable energy, and can address both climate change and electricity access issues. There is widespread agreement that it presents great opportunities – but there is an acute need for research, evidence and discussions to build further consensus and cooperation, and to advance ideas and proposals. ESI

Discussion notes

*For example, researchers have shown that the North East Asian grid, when implemented, could lead to annual savings of $24 billion, with an additional 65GW of renewable energy generation capacity leading to an annual greenhouse gas emission reduction of 9%.

**In the example of India’s GEC, more than $1 billion of investment was attracted only after the Government of India announced its commitment to a long-term investment incentive framework.

***Due to COVID-19 travel restrictions, further Green Grid Initiative events that had been planned have been replaced with a series of virtual roundtables (approximately 40 in total) that will take place throughout 2020. In addition to green grids and largescale renewables, the roundtables will also cover sustainable transport and mini-grids.

About the organisation

The Energy and Economic Growth (EEG) programme, funded by the UK’s Department for International Development (DFID), is contributing to several roundtable events on regional power trade in association with the Green Grid Initiative. Convened by the Climate Parliament, the initiative is a global leadership forum designed to advance discussions on grid interconnection in critical regions and accelerate the global transition to renewable energy.

www.energyeconomicgrowth.org