Southern Africa, like much of the rest of the continent, has long struggled with inadequate electricity supply. Yet, amid the chronic shortages, some countries find themselves sitting on surpluses while their neighbours remain in the dark. This state of affairs led the 12 inland members of the Southern African Development Community (SADC) to flick the switch on a bold idea – the creation of a central electricity trading hub – in March 1995 to take advantage of the surpluses by sharing electricity across the region.

Although it started as a regional cooperation and electricity resource sharing initiative, it later shifted to a more competitive set of wholesale electricity markets, including a short-term energy market, introduced in 2001, and a day-ahead market, which was added in 2009.

As the Southern African Power Pool (SAPP) marks 30 years of existence this month, those behind its creation can look back at its journey with a sense of satisfaction: the amount of electricity traded across its various markets now averages 2 100 GWh a year.

However, this represents a significant reduction compared with five years ago, owing to factors such as shortages of supply in South Africa, the Covid-19 pandemic, which curbed economic growth and, in turn, electricity trade among the region’s countries, SAPP chief planning and operations engineer Alison Chikova tells Engineering News & Mining Weekly, adding that the reduction is also attributable to a severe drought that hit Zambia and Zimbabwe particularly hard during the past three years.

Powering New Connections

Another indicator of the SAPP’s success over its three-decade journey is that only three countries – Angola, Malawi and Tanzania – remain isolated from the interconnected regional grid.

“However, I am happy to announce that Malawi will be interconnected in September this year,” Chikova says.

What’s more, negotiations for funding for an interconnector between Zambia and Tanzania are at an advanced stage, while the SAPP is working with the power utilities of Angola and Namibia to have the former interconnected, with the feasibility studies for the project already completed.

“Angola and Tanzania should be interconnected by 2027, and this [means that] all the 12 inland SADC countries will be interconnected and benefiting from regional integration,” he adds.

As an illustration of the benefit to accrue to the power pool from the upcoming interconnections, Angola has an installed electricity generation capacity of about 6 000 MW and peak demand plus reserves of only about 2 800 MW. This means the excess capacity of about 3 000 MW could be traded on the SAPP markets, benefiting other SAPP member countries facing electricity supply deficits.

For their part, Malawi and Tanzania have installed generation capacities and peak demand plus reserves of 506 MW and 380 MW, and 1 822 MW and 1 612 MW respectively.

A positive recent development for the SAPP is the creation of the Regional Infrastructure Financing Facility (RTIFF), a funding platform that will serve as a new source of debt for utilities across the region for transmission projects. Initially, the facility will aim to provide 25% to 50% of the total financing package for selected transmission projects, with the proportion likely to increase in the long term. “From this perspective, the RTIFF will act primarily as a provider of gap funding in the short term,” Chikova says.

The RTIFF will source funding for up to 50% of the investment capital required for projects – to a maximum of $750-million – from a blend of infrastructure-focused development equity investors and lenders. The former include entities like Africa50, which was created by African governments and the African Development Bank (AfDB) to help bridge the continent’s infrastructure funding gap as part of the African Union’s (AU’s) Agenda 2063; Meridiam, a global investor and asset manager with $20-billion in assets under management; and Gridworks, a development and investment platform primarily targeting equity investments in transmission, distribution and off-grid electricity infrastructure.

The lenders the RTIFF aims to tap include the AfDB, the International Finance Corporation, Netherlands-based development bank FMO, US government-owned development finance institution (DFI) DFC, German DFI DEG, UK government-owned DFI British International Investment, the Emerging Africa & Asia Infrastructure Fund, and Norway’s Norfund.

“The RTIFF may also be able to access climate funding in the form of grants and concessional loans from agencies such as the Green Climate Fund and the Climate Investment Fund,” says Chikova. “The SAPP is now in the process of setting up the facility in Mauritius and has appointed a consultant and the climate fund managers to assist in that regard.”

Perceived Shortcomings

The SAPP may have had a successful run so far, but observers have highlighted several shortcomings. One of these, highlighted in a recent report from the National Renewable Energy Laboratory (NREL), a US entity that undertakes research on the development, commercialisation and deployment of renewable- energy technologies, is that trade through the SAPP is dominated by bilateral contracts between national utilities. These reportedly accounted for 68% to 90% of the total volume traded from 2023 to 2024, potentially putting a damper on the efficiency of electricity trade.

Elucidating, the NREL states that the potential inefficiency is driven by bilateral contracts being treated as firm physical contracts and the dispatch of higher-cost contracted electricity instead of lower-cost options. This, in turn, inefficiently uses the limited transmission capacity available in the region, contributing to the inability to trade potentially lower-cost electricity on matched offers on the competitive SAPP markets.

Chikova’s rejoinder: “Remember, utilities have their own long-term bilateral contracts among themselves; they then use the balance and excess power to sell on the SAPP market. Trading is also limited by transmission bottlenecks between countries and also by internal transmission constrains within some countries. This limits the amount of trading among players. What we need to do as the SAPP is to improve the transmission network by building more transmission lines to allow for more trading.”

Chikova points out that although the national electricity authorities engage in bilateral trade among themselves, they also participate in the SAPP’s competitive markets, alongside five independent power producers, which are designated as market participants. Two of these are in Zambia, and one each is in the Democratic Republic of Congo, Namibia and Zimbabwe.

“There is a greater role and scope for the private sector in the future,” Chikova says.

Responding to concerns over Eskom’s dominance, giving rise to fears about price manipulation – also articulated in the NREL report, but without specific reference to the South African utility – Chikova tells Engineering News & Mining Weekly: “The market share on the SAPP markets depends on competitive prices and willing buyers and sellers. The SAPP, as the market operator, provides a level playing field for all players to sell and buy electricity on the SAPP markets. What you are referring to are results from market players, and this cannot be influenced by individual players.”

Concerns have also been raised about the absence of a regional electricity-sector regulatory authority. The closest thing to such an entity is the Regional Energy Regulatory Association (RERA), which is based in Windhoek, Namibia. However, it can only provide solution options and does not have the authority to enforce electricity regulations.

The NREL’s preference is for a regional body that is empowered to, among other things, develop and, sometimes, enforce regulations to address pricing, cross-border wheeling charges, facilitate non-discriminatory open access, and set technical standards and monitoring requirements. It also wants the regional regulatory authority to be empowered to play an investment facilitation role by supporting regional energy initiatives, encouraging national regulators to harmonise national standards with cross-border standards, and standardising strategic environmental assessment methods. Finally, it wants the regional body’s requirements to be binding on member States.

The RERA may not currently be performing all these functions, but Chikova assures that it will do so in the future. “This organisation is working with countries’ electricity or energy regulators to develop several frameworks, including frameworks for cross-border access. The RERA is working on transforming itself into an authority, and that work is being spearheaded by the SADC.”

Observers have also noted that SAPP membership fees are exorbitant. Coupled with a lack of voting rights and of transparency regarding market rules and market data, the high fees are regarded as deterrents to potential investors. For instance, based on the SAPP’s 2019 financial report, one SAPP market participant was required to pay $20 000 in membership fees, with the amount payable by national utilities being $73 000. This meant the developer of a single, small project of about 5 MW paid a yearly membership fee equivalent to between 27% and 39% of the amount required from a national utility with a national transmission network and multiple other assets.

Moreover, while operating members – with a permanent generation capacity of at least 300 MW – can participate in all SAPP committees and subcommittees and working groups, and national-utility members can chair committees and subcommittees and participate in all meetings, with both these membership categories enjoying full voting rights, new members who enter as market participants are not allowed to vote at the SAPP’s yearly Traders and Controllers’ Forum. Additionally, they may or may not be able to attend other SAPP committee meetings. Consequently, market participants, which operate or contract generation capacity or a load of at least 5 MW, have little to no influence in the pool’s governance processes, according to observers.

Chikova disagrees with the assertion that SAPP membership fees are too high, insisting they are “moderate”. He adds: “The resulting financial benefits that members get when trading on the SAPP markets by far outweigh the SAPP membership fees. Each SAPP membership category has assigned rights and obligations.”

Concerning the perceived lack of transparency around market rules and market data, he says: “The SAPP market data is available on the SAPP Market website, and the SAPP is doing everything in its power to have that available to the public. Of course, the SAPP needs to maintain certain confidentialities in accordance with the SAPP rules.”

Despite the criticisms, the SAPP is recognised by bodies such as the World Bank as one of the most advanced power pools, not only in Africa – where two other initiatives are operational – but also globally. Indeed, it is the only one on the continent running a competitive electricity market. Riding on this success, the SAPP aims to be part of the single electricity market in Africa being spearheaded by the AU.