Accessing the Impacts of Electricity Pricing on Poverty Reduction in Africa

Introduction

Access to electricity is fundamental to economic and social development. It is a key enabler of economic growth, providing the energy required to power businesses and homes. However, in many African countries, access to electricity remains limited, with millions of people still without access to this essential service. Africa’s lack of electricity access can be attributed to many factors, including high electricity prices, limited infrastructure, and inefficient energy systems.

In African countries, electricity prices are often high due to various factors, including the cost of fuel imports, increased distribution and transmission costs, and inefficiencies in the energy sector. High electricity prices can be a significant financial burden for low-income households, making it difficult to access energy. In addition, high electricity prices can also have a negative impact on businesses and entrepreneurship, limiting economic growth and job opportunities in the region.

Given the critical importance of access to electricity for poverty reduction and economic growth, African governments and policy-makers must take steps to address the challenges faced by the continent in this regard. This article will provide a comprehensive overview of the impacts of electricity pricing on poverty reduction in Africa and make policy recommendations to address these challenges.

Impacts of Electricity Pricing on Poverty Reduction

Electricity pricing affects the lives of low-income earners and rural communities in many ways, including the following:
Increased living expenses: High electricity prices can place a significant financial burden on low-income households, taking away funds that could be used for other necessities like food, clothing, and healthcare. This can lead to increased poverty and decreased quality of life.

Inadequate access to electricity: Low-income communities often lack reliable electricity due to high prices and limited infrastructure. This lack of access can lead to decreased productivity and limited opportunities for economic development.

Poor health and safety: Low-income communities are at increased risk of health problems and safety hazards without electricity access. Some of these risks include indoor air pollution from traditional fuels and fire outbreaks from using open flames for lighting.

Decreased quality of education: Low electricity access caused by high electricity prices can also impact the education of children in low-income communities, as schools may not have access to electricity, and students may struggle to study at night without lighting.

Impacts on business and entrepreneurship: High electricity prices can also make it difficult for small businesses and entrepreneurs in poor communities to operate, limiting economic growth and job opportunities.

Read also: ‘How Middle East Energy can quicken Nigeria’s green transition plan’

Case Studies

In Nigeria, the government has implemented several reforms and projects to improve the electricity sector. Some of these include the power sector privatization in 2013, the Nigeria Electrification Project (NEP), the World Bank’s $500 million support to the federal government to improve the electricity distribution sector, etc. However, these efforts have been hampered by the lack of infrastructure, poor governance, and the high cost of generation, which have contributed to high electricity prices and limited access to power, especially in rural areas.

In Ghana, the government has also attempted to improve the electricity sector, including implementing the Energy Sector Levy in 2015 and the Renewable Energy Act in 2020 (amended). Despite these efforts, the country still struggles with high electricity prices and limited access to power, especially in rural areas. The government’s efforts to improve the electricity sector have been hampered by the high cost of generation, the lack of infrastructure, and the limited availability of renewable energy sources.

Morocco has made significant progress in improving its electricity sector, including developing a renewable energy program and expanding its grid network. They have made considerable progress toward larger energy sector goals such as rural electrification. In 2017, the country reached 99.5 per cent rural electricity access for 2.1 million homes, up from 18 per cent in 1995. The country also has renewable energy, comprising hydro, solar, and wind. These energy sources account for over 2,696MW (34 per cent) of Morocco’s installed generation capacity, which is greater than in several Organisation of Economic Cooperation and Development (OECD) nations. Contrary to what is happening in Europe, where the electricity prices have increased, Morocco has a more stable electricity price due to the set tariff rate and the fact that an inter-ministerial committee regulates the resale price of power. Even though the country suffered inflation in 2022, this had no substantial influence on power pricing.

In Kenya, the government has implemented several reforms to improve the electricity sector. These reforms include the expansion of the country’s grid network, the development of a renewable energy program, and the introduction of a cost-reflective pricing system. The high cost of electricity remains a major concern for consumers, and the lack of adequate infrastructure and the high cost of importing fuel for power generation continue to be obstacles to reducing electricity prices. Despite these challenges, the reforms have laid the foundation for a more efficient, reliable, and accessible electricity sector in Kenya.

Policy Recommendations

There are several policy measures that African governments can take to reduce the impacts of electricity pricing on poverty reduction.

First, governments should work to improve the efficiency and reliability of the electricity sector, including developing modern grid networks. Second, governments should diversify the energy mix by promoting renewable energy sources like wind and solar power. This will help to reduce the reliance on fossil fuels and lower the cost of electricity for consumers. By promoting renewable energy sources, governments can also help address the issue of energy security and reduce the impact of climate change on poor communities.

Third, governments should implement pricing systems considering consumers’ ability to pay. This can be done by providing subsidies to low-income households or implementing a progressive pricing system that charges higher rates to high-income households and lower rates to low-income households. Lastly, governments should improve the governance and transparency of the electricity sector, including regulating prices and monitoring electricity generation and distribution. This can help to ensure that the industry operates efficiently and that prices remain affordable for all consumers.

Conclusion

The impacts of electricity pricing on poverty reduction in Africa are significant and can have far-reaching consequences, especially for low-income communities. Governments must address this issue by improving the efficiency and reliability of the electricity sector, promoting renewable energy sources, implementing cost-reflective pricing systems, and improving the governance and transparency of the industry. By taking these steps, African nations can help to reduce the impact of electricity pricing on poverty reduction. This would ensure everyone can access affordable, reliable electricity, achieving the 1st and 7th Sustainable Development Goals (SDGs).