Making electricity affordable for the poor

Currently, only one in three Africans has access to electricity and for those who do, power outages can be common as cash-strapped utilities struggle to maintain steady, reliable supply because of lack of investment in their aging infrastructure, according to a new study by the World Bank, published in October 2016.

The study entitled “Making Power Affordable for Africa and Viable for Its Utilities” looked at utility financial statements in 39 African countries, spending data in 22 household surveys, and power tariffs in another 39 countries.

While connecting to the grid is a solution for all urban Africans and many rural ones, the study also
acknowledges that rural electrification is essential. Mini and off-grid electricity, especially from sources like solar, offer increasing potential to electrify homes in many rural areas of sub-Saharan Africa.

Recovering the cost of supply and making electricity affordable

The first priority in increasing access to electricity is, according to the authors, to make the initial connection affordable to the poor. One option is to share the costs across all electricity users, including large- and medium-size firms.

Another option would be to reduce combined transmission, distribution and bill collection losses. If utilities could reduce these costs to 10 per cent of transmitted electricity, deficits could disappear in one third of the countries.

In the remaining two-thirds of the countries studied, the funding gap cannot be bridged solely by eliminating operational inefficiencies. Tariff increases are likely needed. Small and frequent tariff increases may find wider acceptance, as long as electricity access is reliable.

Balking at the high, upfront cost of connection, poor households tend to share one electricity meter. That often makes them ineligible for subsidised rates. Individual meters in poor households can help utilities target subsidies better.

For low-income households, the ability to pay in small increments helps align electricity payments with income flows, while utilities are guaranteed payments upfront.

More information and download study

(World Bank/ile)