The document proposes four models for reducing electricity costs in West Africa: 1) A total liberalization model that lifts restrictions on private investment in power generation, transmission, and distribution. 2) An energy cooperatives model where communities own power generation plants and distribution networks to access lower cost electricity. 3) A development finance model where development banks provide long-term, low-interest loans to finance power projects through public-private partnerships. 4) A cost domestication model where locally sourcing labor, fuel, and equipment leads to electricity costs being determined by local standards of living. The document also discusses approaches like concentrated solar power for households and technology transfer to reduce costs.

1. By
Abdulsalam Kamara
Oluwatomilola Patrick Akinyemi
University of Ibadan
Models for Reducing
Electricity Cost in
West Africa
Geneva Challenge 2017

2. Table of contents
• Introduction
• Total Liberalization Model
• Energy Cooperatives Model
• Development Finance Model
• Cost Domestication Model
• Household Concentrated Solar Power with Mobile Technology: An Untapped
Potential
• Conclusions and Recommendations
• References

3. Introduction
• Most economic analysts estimate that economic
growth will be higher in most African countries if
there is access to efficient and quality
infrastructure.
• If infrastructure quality in African countries
matched that of the Republic of Korea, per capita
growth in the African region could increase by 2.6
percent point a year (G20 development working
group, 2011).

4. • Electricity producers complain of high cost of rendering
services and frequently demand for tariff increases from
the government.
• This write up proposes four models for reducing the cost of
electricity in West Africa namely:
I. Total liberalization model
II. Energy cooperatives model
III. Development finance model and
IV. Cost domestication model
• This write up also proposes an approach to indigenous
sourcing of electricity equipment and household
concentrated solar-thermal gadgets.

5. • The lack of access to electricity has been
identified as one of the major obstacles to the
rapid industrialization of most West African
countries; estimates show that about 66.9% of
citizens of Sub-Saharan Africa lack access to
electricity.

6. • West African countries have embarked on
privatization programmes but these have not proven
to be a source of solution in sight as tariffs are still
high compared to average family incomes.
• New private owners are reluctant to make new
investments in the new generation and distribution
companies.
• Governments are usually reluctant to approve higher
tariffs because of the political cost associated with
higher tariffs. Now let us discuss the models.

7. Total Liberalization Model
• The concept of liberalization of major sectors of the
economy have proven to be an escape route to most cases
of infrastructural deficits in most developing countries.
• Total liberalization brings about lifting of investment
restrictions and opening up of various power subsectors to
investment opportunities.
• Implementing total liberalization ensures investment in
sectors such as: generation, transmission distribution, spare
parts manufacture, manufacture of metering equipment,
liberalization in terms of size of generation, transmission
and distribution company allowing community power
generation and distribution companies.

8. • Private sector investment is strongly associated
with economic growth through the creation of
profits, jobs, government tax revenues and other
benefits to the society.
• According to one major global survey by the World
Bank, more than 70% of the world‘s poor believe
that the best way to escape poverty is to get a job
(Dalberg, 2010), but jobs in the private sector
would hardly be created if there are investment
barriers in the electric power sector in developing
countries.

9. • Full liberalization of power market has been
widely accepted as a means of translating the
benefits of reliable and affordable electricity into
inclusive economic growth and shared prosperity.
• Therefore, countries like Singapore and Nigeria
have taken drastic steps to transform the sector
into a fully liberalized electricity market and
protect their vulnerable citizens (Bello, 2017).

10. Factors limiting the benefits of liberalization in West
African countries:
• Poor access to finance
• Absence of enabling regulatory and political
environment
• Access to modern technology and market data
• Education training and extensive capacity
development

11. Energy Cooperatives Model
• While there are cooperatives, credit and thrift
societies still surviving in most developing
countries, the role played by cooperative societies
in access to credit, cheaper purchases and in rare
cases production of goods and services cannot be
over emphasized.
• Energy cooperatives are alien to most African
countries, but an introduction to this model could
serve as a solution in ensuring affordable
electricity for most Africans.

12. • The proposed energy cooperatives are to be owned
by communities that contribute certain amount to
set up the generation plant (preferably renewable
sources of energy), get a management firm to do the
operation, servicing, maintenance and collection of
tariffs.
• In the long run it is expected that the cost consumers
pay for electricity will be greatly reduced because the
cooperative society is not intended for profit making,
and the monopoly of distribution (which most
African distribution companies enjoy) will be totally
removed.

13. Hurdles energy cooperatives might face in West
Africa
Cooperative development in Africa can generally be
said to have traversed two main eras: the era of
state control and that of liberalization (Frederick et
al., 2009)
The first era that lasted up to the early 1990s saw
the origin and substantial growth of cooperatives on
the continent under state direction.

14. • With the liberalization of the economy in most
African countries cooperatives started afresh as
they were afforded a beginning to run their affairs
following the limited participation of the state
from the administrative decisions.
• Consistent with the new economic environment
that was sweeping across Africa in the 1990s,
many countries introduced new policies
(Frederick et al., 2009).

15. How energy cooperatives can be introduced into West
African countries.
• Generally a form of awareness programme must be created
through the media on the benefits of forming or being a
member of energy cooperatives in West African countries.
• This should involve very little bureaucratic process and
must be concluded as fast as possible. Government
regulations must only be restrained to ensuring proper
identification of stakeholders, a framework for
administrative structure and prevention of financial fraud.
• In no way should tariff be imposed by the government as
this must be decided by members of the cooperative
society.

16. Introducing renewable energy as a cost reduction
strategy in energy cooperatives.
• Opportunities now exist for individuals to make
financial gains in trading of carbon credits, for this
reason it is important for the expected cooperative
societies in West Africa to favor of renewable energy
as their main source of energy.
• Financing of energy cooperatives could be given a
lifeline through the introduction of carbon credits.
• This will create a system of penalties and rewards for
increasing or reducing carbon emissions in energy
plants respectively. An increment in carbon emissions
will lead to penalties.

17. Energy cooperatives: The German example
• Germany has a long history of different types of
cooperative institutions: cooperative banks,
cooperatives related with the agricultural sector,
small and medium sized enterprises (SME), consumer
cooperatives and building/housing cooperatives.
• Instances of joint operations in German cooperatives
are based on the principles of self-help, self-
administration and self-responsibility and on the
values of democracy, equity and solidarity. In
Germany there are over 800 renewable energy
cooperatives, with about 200,000 people involved.

18. • Although the individual motives to join a
cooperative vary, the reasons to establish a
cooperative clearly show a dedication to support
renewable energy.
• The most important benefits associated with this
organizational form are the positive
environmental impact as well as local value
creation, ownership aspects and the limitation of
the individual liability (Bohnerth, 2015).

19. Awareness of the need
to form and be part of
an energy coopertive
Liberalization
of energy
cooperatives
from
government
control
Introduction of
carbon credits
as a cost
reduction
strategy for
energy
cooperatives
Low cost
energy
available to
West African
consumers

20. Development Finance Model
• Development finance institutions exist all over the world
offering concessionary loans to government, private sector,
financing social infrastructure and offering technical advice
to both the government and the private sector .
• The establishment of indigenous development finance
institutions that specialize in financing power projects will
go a long way in making sure that electricity is made
available to most consumers of African countries.
• Development finance institutions in recent times have
experienced a lot of success in raising capital from financial
markets with a lot of institutional investors from rich
countries pumping millions of idle dollars into bonds being
raised by development finance institutions.

21. Objectives of Development Finance Institutions
• To invest in sustainable private sector projects
• To maximize impacts on development
• To remain financially viable in the long term
• To mobilize private sector capital( Dirk, 2014)
• Many development finance institutions s are
owned by the public sector.
• Though there are some that are own by the
private sector or own by both sectors.

22. Incentivizing private financing of power sector projects
• Private participation in infrastructure continues to
play a critical role in infrastructure investment. It has
reached close to $160 billion per year, growing at an
average of 13 percent per year since the early 1990s
(G20 development working group 2011).
• However, private participation has proved to be
selective by sector and country as investment is
discretional. Because of this, the telecommunication
sector has become the traditional destination of
private investment in most West African countries.

23. • The following forms of DFI financing instruments
are expected to reduce the cost of electricity
projects and tariffs in the long term.
• Low profit partnership with communities in form
of long term-low interest loans.
• DFI-government-community partnership (loans or
counterpart funding)
• Private electricity and DFI partnership.

24. Role of regional integration in financing long term electricity
projects
• The power of regional integration in West African countries
can be used to create a long term financial window in
financing electricity projects.
• In the course of brainstorming there were suggestions of
introducing an Ecowas Bond which will be used solely for
financing infrastructure preferably intra-regional power
projects.
• An electricity/energy development bank jointly owned by
Ecowas member nations should be established to oversee
the financing of such projects.

25. • Figure 2: Cycle showing how DFIs can make
electricity to be provided at very low costs.
Low cost
energy
tariffs
DFI+Community
partnerships
Private sector+DFI
partnership
Regional integration, regional
bonds, regional power projects
DFI+Community
+Government
partnerships

26. Cost Domestication Model
• Cost domestication model assumes that when the inputs
(labour, fuel and equipment) for producing electricity are
locally sourced, the average cost will depend on the
average standard of living of the people.
• What determines the affordability of most goods and
services is the amount of money people are willing to pay
for the goods or services.
• What cost domestication model emphasizes is to ensure
local production of manpower and equipment (if not all) to
service a country’s electricity needs.

27. Role of power sector stakeholders in cost domestication
process
• Procurement of electrical equipment from indigenous
manufacturers and suppliers.
• This will of course encourage indigenous manufacturers at
some major if not all of electrical appliances needed for
generation, transmission and distribution of electricity
while those not locally produced are sourced from
indigenous suppliers.
• This will in turn expose indigenous players to the dire needs
of the power sector in the long run.
• Employment of indigenous staff. The employment of staff
considered indigenous, which could be defined as nationals
of the host country will lead to gaining of additional
knowledge and experience in the long run while
maintaining locally determined wage rates.

28. Constraints to cost domestication model
• Goods and services rendered by domestic corporate
players might be of very low quality.
• Limited access to credit in financing profitable
(contract and business) opportunities in the power
sector.
• Non-availability of adequate and reliable data for
local and indigenous investors
• Ineffective legal, regulatory and institutional
environment.
• Inappropriate skilled manpower, technology and
supportive infrastructure (AfDB, 2015).

29. • Figure 3: Schematic implementation of cost
domestication model
Cost
domestication
leading to
lower cost of
electricity
Institutional, legal
political and
educational
environment
Technology needs
assessment, training
and skills
development
Technology transfer
through imitation
approach, mobility of
labour approach,
backward a linkage
approach

30. Ensuring technology transfer to indigenous power
sector providers
• A more holistic policy approach recognizes that there
are a number of channels through which skills and
technology can be transferred in the power sector.
• The imitation approach, whereby local firms imitate
foreign firms’ technologies or management practices.
This may be achieved by direct copying or using some
equipment e.g. 3-D printers, training programmes
within and outside the country.

31. Conducting technology needs assessment
• A technology needs assessment in the context of power
companies will entail a consultant enquiry into the quality
of skills, type of skills, including type of equipment and
quality of equipment required for improved electricity
supply.
• The consultants should be appointed by the government
and their professional profile should show evidence of
practice in more developed power sector systems.
• A comprehensive report comparing available skills and
required skills should be submitted to the government. In
the electricity sector, 5 percent or more of the electricity
generated is unnecessarily lost for technical reasons.

32. Developing locally made electrical power appliances
(Generation, Transmission and Distribution)
• This could be a very difficult venture but it is a
very possible approach in order to muster
indigenous potentials in producing energy related
appliances and allows some cost reduction
through domestication of inputs by government
agencies and private sectors.

33. • These include:
• Suggestion incentive programmes
• Research contracting
• Marketing research
• Brainstorming
• Delphi technique
• Idea sharing
• Attending exhibitions and fairs
• Product comparison
• Creative thinking
• Customer feedback
• Domestically available skills assessment

34. Household concentrated solar power with mobile
technology: An untapped potential
• Concentrated solar power is often seen as an uncommon
technology which is not yet widely used globally.
• It involves the use of solar concentrators in the form of
series of parabolic mirrors tapping solar energy from the
sun and concentrating them on one central tower that
collects the energy from various parabolic mirrors or
troughs in the form of thermal energy.
• The central tower consists of molten salt that is heated up
to about 1000 ͦ C and pumped to power a steam engine that
produces mechanical energy and converts it to electrical
energy.

35. Concentrated solar power for households
• The proposed concentrated solar power for households is
expected to be cheaper than silicon photovoltaic cells as it
will consists of a set of parabolic mirror, a little reservoir for
molten salt, an efficient steam engine and a mechanical to
electrical energy converter.
• An utility scale concentrated solar power system could be a
better alternative but most West African governments
often take longer years to be able to organize, finance and
complete such projects because of the inexperienced
nature of extant bureaucracies, weak legal, technical and
regulatory environment and domestic politics.

36. Conclusions and recommendations
• The growing need to solve employment problems in West
African cannot be met without holistic approach to make
electricity affordable to most West African citizens, which
must be done beyond mere privatization.
• Total liberalization of generation, transmission and
distribution must be concluded in order to remove the
bottlenecks associated with government retaining
monopoly on some sectors whilst it does not have the
technical and financial capability to manage them.
• Energy cooperatives must be recognized as forms of
business organizations with a view to establishing a little or
no profit system that ensures like minds come together to
serve common interest where profit is not the main
priority.

37. • Cost domestication model for reducing the cost of
electricity is based on the argument that when
most factors of production are locally sourced, the
final cost of production is limited by the average
standards of living of the citizens of the country.
• A combination of one or more of the models will
go a long way in achieving low cost electricity in
West African countries.

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