The Public Utilities Regulatory Commission’s Regulatory Conversations are intended to enhance the quality of national and continental dialogue on regulatory issues, specifically in the areas of electricity, water and natural gas in Ghana. It is aimed at presenting insights and cutting-edge knowledge solutions on contemporary utility regulatory matters to a high-level audience of policy-makers, development partners, other African utility regulators, utility executives, civil society organisations, industry, academia and regulatory staff.
Against this background, the PURC, on the 20th of April, 2023, organised the 2nd regulatory conversation on the topic ‘The Regulator in the Era of Economic Turbulence and the Energy Transition: Lessons from the Past and a Guide for the Future’.
The Guest of Honour and main speaker, Mr. Wale Shonibare, Director – Energy Statistics, Policy & Regulation of the African Development Bank Group, discussed burning issues affecting the energy sector in Africa. On the issue of economic turbulence, Mr. Shonibare noted that: “These are critical times as global macroeconomic conditions have become increasingly uncertain, with the persistence of multiple shocks that make policy-making and investment decisions very challenging. As developed economies tighten monetary policies to tackle inflation, these actions are driving up interest rates and causing capital flight from emerging markets”.
Speaking on Power Sector Reforms, he indicated: “Africa’s power sector has faced numerous interlocking challenges, which include low access rates, low reliability, high costs, lack of maintenance, lack of investment, non-cost reflective tariffs, unaffordable subsidies, and lack of financial sustainability. As a consequence, most of Africa’s public utilities are in financial distress– they struggle to cover their operating costs and cannot finance the required capital expenditure to maintain their operations, thus, forcing them to rely on public subsidies”.
According to Mr. Shonibare, important progress has been made over the past 20 years. However, implementation of these reforms has been patchy in most African countries. He highlighted the creation of independent regulators and the general movement toward a more transparent tariff setting; adoption of cost-reflective tariffs in some countries and increased private sector participation, especially through investment in generation. He added that: “African countries should be thinking of first, integrated least-cost long-term planning: which includes selecting the right energy mix for the country, and making use of the country’s natural endowments while maximising opportunities for regional electricity trade. Second, ensure power system flexibility: to facilitate the integration of Variable Renewable Energy (VRE) solutions, such as solar, wind, battery storage, net metering, etc. Third, ensure investment consistency across the entire power value chain: Energy transition means more electrification – as we move from fossil molecules to electrons”.
Mr. Shonebare advised African governments to take advantage of global climate finance opportunities. He added that whenever possible, African countries must align policy decisions with the objectives of international climate finance and other external sources to unlock potential sources of cheap funding. “The fact of the matter is that we need a blend of external and external capital to achieve our energy transition objectives.” This will also promote sustainable integration of VRE across borders to help shape the energy transition pathways of African countries. The African Continental Free Trade Area (AfCTA) and the African Single Electricity Market (AfSEM), being championed by the AU –with the objective of integrating all regional power markets into a continental one, is a much-welcomed initiative. The speaker noted that “Africa is a minor contributor to global climate change. It accounts for less than 4 percent of global greenhouse gas emissions today and has the lowest emissions per capita in the world. Of the 1.2 gigatonnes (Gt) emitted in 2020, 40 percent came from electricity and heat generation and 25 percent from transport. However, most countries agree that we must phase out coal, and that renewable energy will assume a growing importance in our energy mix. However, we also recognise the very important role that natural gas continues to play as a transition fuel in our drive toward decarbonisation.
Mr. Shonibare emphasised that energy efficiency is a key element of the energy transition. “It is an area that demands more attention in efforts toward the decarbonisation of Africa’s energy systems. Priorities for Africa include (i) moderating electricity demand growth for appliances and buildings in particular, for cooling; (ii) scaling up the adoption of clean cooking solutions; and (iii) reducing the reliance of many African companies on back-up diesel generators”. He further explained that current technological developments in the areas of clean and smart energy systems offer African countries the opportunity to leapfrog other regions by adopting these technologies and developing their energy systems toward a net-zero carbon future. The implementation of smart grids and smart metering should result in more efficient power systems and better collections. In a few years, it will become economically viable to use green hydrogen as an alternative storage option for Variable Renewable Energy (VRE) and as a solution to decarbonising. “Hard to abate” industries – battery storage and battery storage technologies with long duration – will be key for the operation of future power systems.
He said that African countries must develop the capacity to install, operate and maintain these technologies, electromobility (also termed e-mobility). This relates to the use of electric cars, such as e-bikes, electric motorbikes, e-buses and e-trucks. The electric vehicles market is a new developing area with high potential. The question for many African countries will be the practicality of implementing these technologies given the persistent low energy access rates.
On the current state of regulation on the continent, he noted that: “The standard model of the power sector reforms that swept across Africa in the 1990s brought in its wake, the emergence of independent regulators to oversee the envisaged liberalised power sector markets. According to AfDB’s Electricity Regulatory Index, some countries are still battling with regulatory independence, non-cost reflective tariffs and development of regulatory systems – including regulatory accounting framework”. He asked African countries to take the findings and recommendations of the ERI seriously to enhance regulatory competence and credibility.
According to Mr. Shonibare, AfDB places much emphasis with efforts, which should be directed at harnessing the synergies between regulators and policy-makers while safeguarding the decision-making independence of the regulator through appropriate legislation. The sustainable funding source for regulatory activities, such as license fees and regulatory levies, is also fundamental to regulatory independence to ensure that regulators do not have to rely too much on government subvention.
Mr. Shonibare congratulated PURC on their 25th anniversary milestone. He indicated that as one of the oldest regulatory institutions in Africa, PURC has made tremendous progress in the regulatory landscape of Ghana and Africa. The bank is proud to have PURC as one of its key partners and commits to continue collaborating with PURC on regulatory initiatives and dialogue.It is in this light that the the bank, through the Korea-Africa Economic Cooperation (KOAFEC) Trust Fund, supported the PURC in deploying a centralised Database Management System (DBMS) as a one-stop solution to many regulatory bottlenecks. “In fact, we have been following with keen interest, regulatory developments and trends in Ghana and I want to further acknowledge some important initiatives by PURC that are pushing the frontiers of good regulatory practice. These include the recent establishment of the Centre of Excellence for Electricity Regulation in collaboration with the Ghana Institute of Management and Public Administration (GIMPA), the publication of the rationale behind tariff setting, the publication of the utility performance index, and the publication of the PPA register, among others. With the afore-mentioned, it comes as no surprise that Ghana has made significant improvement in the ERI ranking, moving from 7th in Africa in 2021 to 4th in 2022,” He added.
“As already mentioned, the bank in 2021, supported PURC to deploy and operationalise a Database Management System (DBMS) as the first phase of processes to digitalise the regulatory activities of PURC to enhance transparency and stakeholder participation in the regulatory process. We are happy to have obtained funding from the KOAFEC Trust Fund to implement phase 2 of the digitalisation process, which will integrate the digital platforms of regulators and utilities for real-time information exchange. We call on all stakeholders to support the implementation of this initiative once again.”
Mr. Shonibare indicated that “these conversations are vital to elevating the various national and collective continental dialogue around utility regulation. As a key player in Africa’s energy sector, we, at the African Development Bank, remain committed to working with African regulators, partners and stakeholders to ensure the deployment of technical assistance to countries to support reform efforts in addition to mainstreaming regulatory issues through our flagship Electricity Regulatory Index (ERI), published annually since 2018. We remain available to support and collaborate with many of the people and organisations represented here today”.