Overcoming Africa’s Transmission Bottleneck

The most intractable obstacle that an African energy stakeholder must negotiate is not unique to them. In the United States for example, it was estimated as of early 2024 that there was more electrical generation waiting in the queue for interconnection to the grid than all existing connected power plants combined. The problem is known as the “transmission bottleneck”.

The transmission bottleneck in the U.S. stymies renewable generation integration with the grid, which would drive costs lower for consumers. In Africa, it is much more consequential as this problem is likely the difference between a citizen having access to electricity, or the country attracting foreign direct investment which would create jobs and boost tax receipts.

While private companies known as independent power providers are willing to build generation assets in Africa because they can charge the utility for electricity over time, it is harder to monetize transmission and distribution infrastructure. Similarly, it is considerably easier to secure debt financing for generation construction for the same reason. And yet, no revenue from the generation can be made to pay for the transmission without the infrastructure itself.

Examples abound of this phenomenon across Africa. Two such tangible examples are the Julius Nyerere Hydropower Project (“JNHPP”) in Tanzania and the Nachtigal Hydropower Project in Cameroon. In both instances, the final turbines should be coming online by the end of 2024 or early in 2025, but the transmission lines to evacuate the power to targeted consumers are lacking. Discussions of curtailment are ongoing in both countries due to this issue, even though these projects would increase the generation of electricity by 30% in Cameroon and 100% in Tanzania.

This will be a continuous issue for countries that require gigawatts of electricity before they reach their electrification goal. By the time a transmission bottleneck for one generation asset is resolved, the utility will be well on its way to creating another, if they’re doing their job well. The issue should theoretically become less of a problem over time, as more generation assets are connected to the national grid unless another planning factor gets out of balance: debt.

As discussed regarding state-level loans or PPAs with IPPs, those deals can create compounding debt that can snowball without careful planning. Take for instance Pakistan which aggressively built out numerous generation projects concurrently, paying for the deals with long duration “take or pay” deals denominated in U.S. Dollars. When they later discovered there wasn’t enough demand it was too late, and the utility was forced to pass the bill to their customers. Retail tariffs reached as high as $0.20/kWh, a cost made more painful for customers and the utility alike after the Rupee was devalued in 2017.

In effect, solving the transmission bottleneck is an exercise in planning. Along with predicting currency conversation and interest rates, the pace of the buildout is most important. Overly aggressive development without identified demand can create a debt spiral, but the penalty for insufficient expansion is an unquantifiable opportunity cost of national productivity growth.