Pandemic and Ukraine war are pushing Africa’s power companies to the brink
The COVID-19 pandemic and the ongoing war in Ukraine have been pushing many electric grid utilities in Africa — which have long been strapped for cash — close to financial collapse, whereby this situation is in turn also slowing down the continent’s clean energy transition.
Ghana’s electric grid is in dire straits. In the mid-2010s, fuel supply shortages and drought, compounded by population growth, led to a severe deficit of electricity and frequent blackouts. But after a series of government’s incentives, the problem has now swung the other way: Ghana has too much electricity, but the state-owned utility is locked into contracts with the government it no longer needs or wants, and runs at an annual deficit of $1 billion.
But now the pandemic and the war in Ukraine have only made the matter worse by pushing many utilities in Africa close to financial collapse, according to a research paper by Energy for Growth Hub, a Washington think tank. In addition to the risk of blackouts and crippling public debt, the crisis is impeding climate action: Many utilities lack the means to build sorely needed transmission lines and integrate renewable energy, even when doing so would lower long-term costs for the utilities and their customers.
The study identifies four factors pushing Africa’s utilities to the brink, namely broken supply chains, being trapped in power purchase contracts they can’t afford, the soaring cost of capital and low public investment. To tackle these challenges, first of all, governments may need to relax trade barriers that make it harder for private foreign investors to invest in things like mineral extraction and battery factories, and tighten oversight of labor abuses in that sector. The World Bank and other multilateral institutions could also expand loan guarantees on clean energy projects, and should prioritize utilities in their allocation of development aid and climate finance, the research paper concludes.