Kearney unpacks the decentralised power transition in Africa

11th October 2021 By: Marleny Arnoldi - Deputy Editor Online

Kearney unpacks the decentralised power transition in Africa

Africa is on the cusp of a transition into a new energy paradigm, one in which technological and commercial innovation is delivering increasingly decentralised power to the continent in new ways, says consultancy Kearney.

Kearney has outlined in a White Paper, the overarching strategic considerations for African utilities to forge a path to sustainability against the backdrop of this global paradigm shift.

The paper, titled ‘A New Energy Path to Viability for African Utilities’, unpacks the broader macroeconomic trends that are shaping the transition.

Kearney partner Igor Hulak says African energy utilities are essential drivers of economic growth and social development through the provision of sufficient and affordable power.

“Adequate electricity supply prefigures a nation’s overall economic development, while, conversely, insufficient availability of power is a key obstacle for business activity,” he states.

The paper explains the three key drivers behind the transition to a new energy world in Africa as being decarbonisation, decentralisation, and digitalisation.

“In most African States, liberalisation has not yet begun in earnest and integrated State-controlled monopolistic vertically integrated utilities (VUIs) are still responsible for all of the sector’s main functions – generation, transmission and distribution, or sales.

“Some States, such as South Africa, Nigeria, Kenya, Ghana and Egypt, are in the initial phase of liberalisation and have seen the emergence of independent power producers (IPPs) whose power and capacity is being sold to the VUI under long-term power purchase agreements,” Kearney notes.

African leaders are strategically planning for the natural transition into the more organic market of the next liberalisation stage over the coming years, in which parastatal VUIs are legally and functionally unbundled into separate entities for generation, transmission and sales.

“While European utilities unbundled largely from a position of strength, Africa’s embattled utilities face a very different reality. The many challenges in commercialising operations and managing an unbundled power network are daunting and complex.

“Unbundling will not be an easy road, but we need to face the obstacles head-on if we want to ensure a sustainable African power sector,” says Hulak.

He explains that unbundling contributes to transparency, competition and the potential for private sector participation. The increased competition drives production efficiencies, as well as services and collection.

In the later phases, VUIs are fully unbundled and there is a vivid environment of private sector participation in both distribution and sales, giving rise to a healthy competitive wholesale market.

These hybrid business models have already been implemented in much of Europe, Asia and the Americas.

Because of the historical timing of liberalisation in Africa, African States stand to benefit from the advent of cost-competitive renewables and are embracing decarbonisation as they embark on their journeys toward liberalisation, Kearney reports.

“African utilities now have the chance to leapfrog over many of the steps taken by other nations on the path towards liberalised energy supply.

“Technological breakthroughs, economies of scale, State-incentivised decarbonisation and a culture of innovation are seeing African power producers leverage the continent’s abundant wind and solar resources.

“Renewables are fast becoming a prime contributor to Africa’s energy mix,” Hulak points out.


Kearney’s paper delves into pertinent African utility case studies on South Africa and Ghana and looks at the lessons that can be drawn from their efforts so far.

It notes that several African VIUs, including Eskom, are beset with myriad difficulties arising from inadequate infrastructure maintenance. In monopolistic models, the lack of competition means there is little incentive to improve efficiencies.

“Many monopolistic VUIs in Africa are now commencing unbundling from a compromised position of over-reliance on government subsidies. In this archaic model, State-run VUIs are heavily subsidised with funds drawn from other more profitable economic sectors.

“The artificially reduced household tariffs yielded by such systems bridge the affordability gap but, ultimately, these models are unsustainable and usually result in the utility’s indebtedness, especially when subsidies fluctuate with shifting government priorities,” Hulak highlights.

Several years ahead of most African States in the modernisation and development of their energy market and lauded as a power sector leader on the continent, Ghana has pioneered a path that other African VIUs can learn from as they modernise and develop their energy markets.

Like several other African VIUs, Ghana also started unbundling from a weak position, amid a challenging socioeconomic context.

Initially, the sector was unbundled into separate generation and transmission utilities, with regulatory bodies created in parallel for technical regulation and licensing, as well as for economic regulation and tariff setting.

This unbundling was an initial step for the later introduction of IPPs to the national energy mix and the establishment of the wholesale electricity market for bulk customers.

Ever since, Ghana has continued the path of reform and innovation in the power sector, including the introduction of private-sector participation in electricity distribution.

Even though this initiative has not yet succeeded, it does not undermine the “fundamental directional rightness of the course the country is pursuing”, states Kearney.

Hulak emphasises that Africa’s traditional VIUs have the opportunity to embrace the new energy world rather than fight it – by leveraging their already existing expertise and resources to expand their product and service portfolio in a customer-centric way.

“Africa’s power sector can be fast-tracked into the new energy transition, with insights gleaned from other places where unbundling has already begun in earnest.

“The strategic dilemma for African governments now is whether to focus on imported technologies for decentralised solutions or to develop integrated networks. The latter path requires more time and investment, but would boost local economies,” he concludes.