East African Transmission and Distribution Industry Grows Steadily

Despite various challenges, East Africa’s transmission and distribution industry is filled with potential and is ripe for investment.
Published: Mon 08 Sep 2014

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East Africa's power sector is highly underdeveloped and has the lowest electricity access rate on the continent. This is a major problem since Africa has one of the fastest-growing economies in the world, and East Africa represents the second-fastest growing region within the continent.

Electricity demand is expected to grow faster than the expected expansion rate of the transmission and distribution (T&D) networks in the region. Other key challenges include unreliable and weak infrastructure, inadequate project funding, non-cost-reflective tariffs, and a critical skills shortage.

East Africa’s transmission and distribution industry’s potential

Nevertheless, the T&D industry in Kenya, Tanzania and Uganda carries high potential due to the solid macro- and socio-economic policies that have led to increased investment.

A recent analysis from Frost & Sullivan, East African Transmission and Distribution Industry, reports that as members of the East African Power Pool (EAPP), Kenya, Tanzania and Uganda have embarked on regional interconnection projects in order to enhance the T&D industry and develop cooperation and economic growth. There are several major projects underway including the US$1.26 billion, 1,045km Eastern Electricity Highway between Kenya and Ethiopia; and the US$1.12 billion, 1,600km Zambia-Tanzania-Kenya Interconnector. [Engerati-Ethiopia: Kenya Interconnector Cross Border Energy Trading].

"This type of integration benefits all the member states because it allows countries with a power deficit to easily import power. It also allows countries with a surplus power production to export the surplus power and generate income," said Frost & Sullivan Energy and Power Systems Research Associate, Thembie Chehore. "EAPP projects require huge investments, but at the same time, they present an opportunity for all T&D industry participants." [Engerati-Network Interconnection in Africa is Critical to Transmission Development.]

Key growth drivers for transmission and distribution

Among the key growth drivers for the T&D industry in the region is the steady growth of the industrial sector in Kenya, Tanzania and Uganda. The increased demand for power has a direct effect on the T&D sector.

The aforementioned countries are currently attracting foreign direct investment (FDI). Power sector-specific programs, such as the Power Africa Initiative announced by Barack Obama in June 2013, will also drive FDI into the East African T&D industry and the region's power sector as a whole. [Engerati-Africa Needs Long-Term Solutions] and [Engerati-Africa’s Smaller Power Projects Are Growing in Volume.]

Another major growth factor for the T&D industry, although indirect, is the discovery of oil and gas in the region. "Significant oil and gas discoveries in the region will increase interest and investment," explained Chehore. "The oil and gas industry is dependent on the power sector and, as a result, this presents a huge opportunity for investors and the governments involved."

Despite the challenges, the Frost and Sullivan report points out that Kenya, Tanzania and Uganda have a T&D industry filled with potential, and that it is an industry ripe for investment.

Market liberalization

"Recent political developments in some of the countries have led to fears within the international investor community," says Chehore. "However, sound policy implementation and further industry liberalization will result in strong socio-economic gains for the countries, and financial gains for investors that are swift and knowledgeable enough to invest in the region."

Sliman Abu Amara, Business Development Director Africa, DNV GL says that East Africa should continue to invest in its energy sector, while prioritizing further market liberalization, boosting grid stability and grid connection, and accelerating renewables integration as it facilitates regional trade through expanded grid-interconnection. He adds that energy insecurity poses risk to economic growth in East Africa – but it can be mitigated with proper regional energy risk management.

A very robust and holistic risk management approach can mitigate risk and increase resilience, which can in turn lower cost and accelerate progress.