06 MARCH 2024

Deregulation: Easing of regulation is driving African innovation across the continent’s energy sector 

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A deregulated power sector is an enormous opportunity for key markets in Africa, as individual countries start to contribute to an efficient, sustainable and competitive renewable energy ecosystem, says Paul van Zijl, Group CEO at Starsight Energy. Here he shares some insight into the potential benefits of deregulation and how these changes can create a ripple effect across the African continent – becoming the blueprints that many African countries will use to overcome their own energy challenges.

The deregulation of the energy sector has massive potential for the continent, but it must be approached in the right way to have a long-term and sustainable impact. Deregulation is already happening in various African countries at differing paces, particularly those in sub-Saharan Africa, as more and more Independent Power Producers (IPPs) collaborate with local regulators and stakeholders to assess and determine the best way to optimise natural resources and harness their limitless potential.

While the application of deregulation in each country is different, the principal benefits remain the same. Each country stands to gain from a revitalised power sector that offers more opportunities to IPPs, attracts more local and international investment into the local energy landscape, and makes electricity and renewable energy more accessible to consumers at competitive prices.

In Nigeria, for example, we are seeing the first exciting steps of deregulation as the Nigerian Electricity Regulatory Commission (NERC) moves towards transforming the sector. A new federal law, the Electricity Act (2023), has been enacted which enables different states to pass their own laws and establish state electricity markets. Once a state establishes its electricity market, the federal government will cease regulation of electricity distribution within that state. This first step is a collaborative effort that will go a long way in creating a sustainable, privatised and deregulated market in Nigeria.

In Kenya, the eagerly anticipated Open Access (wheeling) regulations have also recently been gazetted. The regulator fast-tracked Open Access to the grid, enabling IPPs to supply electricity directly to large customers through the national network, under regulation guidelines from the Energy and Petroleum Regulatory Authority (EPRA). Further impetus will also derive from the recent announcement that the Eastern Africa Power Pool(EAPP) is targeting to go live with a competitive power trading market by the end of December 2024 – taking the region from bilateral trade to trading amongst all countries. This will allow the EAPP’s 13 member countries to sell excess electricity in cross-border transmission projects. Considering that countries in the EAPP are already trading over 3 400 GWh annually, this move is set to transform the region’s interconnectivity even more. Kenya has already reaped the rewards of bilateral trading, including an energy exchange engagement with Uganda and the importation of 200 MW of renewable energy from Ethiopia.

Meanwhile, in South Africa, deregulation has seen the introduction of innovations such as self-generation, electricity wheeling, and energy trading from IPPs. The rising popularity of utility-scale solar farms is a direct result of deregulation, which in turn has been accelerated by local funders deploying funds to grow IPPs. The funders invest in the construction of solar farms, allowing them to meet their mandate to fund the low-carbon transition. At the same time, the IPPs can leverage this financial backing to bring Direct Foreign Investment (DFI) on board to support the project until completion. These initiatives demonstrate the power of collaboration between the private and public sectors.

The positive impact of deregulation on South Africa’s power infrastructure runs even deeper than boosting generation capacity. In some cases, IPPs also provide a main transmission substation (MTS) to the national utility provider, Eskom, as part of their project to bolster connectivity to the transmission network. In other instances, IPPs are installing utility-scale battery storage alongside their farms to store the solar energy that is produced. These installations help the IPPs mitigate their risk to ensure their projects aren’t hampered by the complexities associated with the local grid. Such widespread deregulation is not necessarily to be expected across the continent, but learnings can be taken from South Africa to apply on a country-by-country basis.

Our South African operation, trading as SolarAfrica, is working closely with Eskom to bring projects like these to life in the country, while Starsight Energy and Starsight Premier Energy Group are working with regulators, stakeholders and various industry players in Nigeria and Kenya to see how we can shape each region’s changing energy landscape.

The impact of deregulation has been – and will continue to be – transformative. We look forward to working with the industry and regulators to accelerate the process in our key markets as we ultimately believe a well-considered deregulated market will be to the benefit of the end consumer and allow economies to grow and thrive with the private and public sectors working hand in hand.

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