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When it rains, it pours! The global economic and energy crises linked to the lingering effects of the Covid-19 pandemic and Russian-Ukrainian war have created an era of economic turbulence which questions the feasibility of a just energy transition in Africa. Despite developed economies driving up interest rates, increasing debt service costs and capital flight from emerging African markets, the energy sectors have displayed steadfast commitment to lighting and powering up Africa through renewable energy. Two of the many examples of African countries' commitment to energy transition include South Africa's Just Energy Transition Investment Plan to gradually phase-out of coal and Ghana’s National Energy Transition Framework . But what role can the regulator play in the era of economic turbulence and energy transition? Could the regulator be a giant umbrella shielding the energy sector from storms, or can it be the compass guiding the energy sector through turbulence and transition?

A Brief History of the African Energy Regulator.

The standard model of power sector reforms that swept across Africa in the 1990’s brought in its wake, the emergence of independent regulators to oversee the envisaged liberalized power sector markets. According to AfDB data, operational regulatory institutions in Africa increased from 15 in 2003 to 45 in 2022, spread across 44 countries on the continent.

Other important progress was the general movement towards more transparent tariff setting through the adoption of more cost-reflective tariffs, and growth of private sector participation - especially through investment in Independent Power Producers (IPPs). According to IRENA, IPPs are now present in about 30 countries, and represent more than 20 GW of installed capacity and USD 45.5 billion of total investments.

  Recognizing the important role that regulators play in the energy transition discourse of regional member countries, the African Development Bank in 2018, launched its flagship Electricity Regulatory Index for Africa (ERI). The ERI measures the level of development of electricity sector regulatory frameworks in African countries and the capacity of regulatory authorities to effectively carry out their relevant functions and duties. The index also recommends appropriate solutions to improve the regulatory environment and performance of regulators. After all, empowered regulators play a pivotal role in setting a competitive conducive environment that attracts private investment for energy transition projects.

 Thanks to ERI guidance, 30 out of 43 African countries surveyed in the ERI 2022 either amended their regulatory laws and instruments or enacted new ones to address weaknesses that were identified through the previous editions of ERI. The African regulatory landscape and frameworks are evolving over time with the power sector adapting to meet new challenges, emerging technologies, and trends. Regulators will still have to respond with appropriate nimbleness and innovation to stay responsive to a fast changing technological environment, and address a broad range of issues such as energy sector liberalization, regional trade, introduction of new VRE technologies and disruptive business models.

     AfDB technical assistance has helped increase regulators capacity and capabilities. For example, the Bank, through the Korea-Africa Economic Cooperation (KOAFEC) trust fund, supported Ghana’s Public Utilities Regulatory Commission (PURC) in deploying a centralized Database Management System (DBMS) as a one-stop solution to many regulatory bottlenecks. This digital solution has since gained significant traction and there are similar on-going initiatives funded by AfDB for regulators in Uganda, Tanzania, Nigeria, Guinea, and Liberia.  At the regional level, the Bank is providing technical assistance to regional regulatory bodies in SADC, COMESA, ECCAS and ECOWAS to harmonize the regulatory frameworks of their member countries. This will go a long way in ensuring that regional energy transition is achieved with no country left behind.

The Role of the Regulator in the Era of Economic Turbulence and Energy Transition

During economic and energy crises, the regulator plays a critical role in maintaining stability and confidence in the energy sector. This includes overseeing fair competition, preventing market manipulation, and ensuring the security of energy supply. Other potential roles include:

1. Assisting in Policy Development and Implementation: Harnessing the synergies between regulators and executive policy makers, regulators can contribute to the setting of renewable energy targets and emission reduction goals. If regulators are to champion the building of resilience in the energy sector to withstand shocks, they need to take charge of the energy transition agenda and go beyond setting clear guidelines and implementing regulations.
2. Leveling the Playing Field: This involves monitoring energy markets, developing regulations and market mechanisms that incentivize innovation, and the entry of private capital. This also includes developing and implementing Regulatory Accounting Frameworks to guide utilities in tariff data collection and application. Implementing tariff reviews in accordance with the approved tariff methodologies and schedules is also important.  Tariffs should engender efficiency and innovation and not be too restrictive to the point of discouraging the adoption of new business models and technologies.
3. Grid Management and Infrastructure Development: As the energy mix shifts towards renewable sources, regulators can oversee the planning, development, and management of the grid infrastructure. They can establish rules and standards for grid integration of renewable energy sources, facilitate the deployment of energy storage technologies, and promote the development of smart grids. The implementation of smart grids and smart metering may enable African countries to leapfrog traditional power systems development to attain more optimal results. Given that battery storage technologies with long duration will be key for the operation of future power systems, African countries should develop the capacity to install, operate and maintain these technologies. Regulators also need to prepare their countries for decentralized electricity generation (mini-grid or off-grid solutions), and hydrogen. In a few years it will become economically viable to use Green hydrogen as an alternative storage option for Variable Renewable Energy (VRE) and as a solution to decarbonizing “hard to abate” industries. By actively engaging with researchers and innovators, regulators can stay abreast of emerging trends and ensure that regulations keep pace with technological advancements.
4. Prioritizing Consumer Protection: Regulators should ensure a just energy transition by protecting consumers' interests. This includes establishing regulations to ensure the affordability of energy, promoting energy efficiency, overseeing the quality of energy services, and encouraging the adoption of technologies that empower consumers, such as smart meters. Developing and implementing supply-side and demand-side energy efficiency policies, regulations and action plans for the 30% of countries that currently do not have them, will help reduce technical and non-technical losses in the electricity sector.
5. Facilitate International Cooperation: Energy transition pathways are country specific and should be driven by country specific policy and regulatory interventions. However, regulators can collaborate with their counterparts in other countries to share best practices, harmonize regulations, and address cross-border challenges. Cooperation at the international level is important for regional electricity trade and the African Single Electricity Market (AfSEM) championed by the African Union. 

In times of economic turbulence and energy transition, regulators play a critical role in providing stability, ensuring fair competition, promoting innovation, protecting consumers, and guiding the energy sector towards a sustainable future. African regulators need to decide whether to take the back bench approach and act as giant umbrellas shielding the energy sector from storms, or  lead from the front by serving as  compasses that guide the energy sector through turbulence and transition.

The Regulator in the Era of Economic Turbulence and the Energy Transition

When it rains, it pours! The global economic and energy crises linked to the lingering effects of the Covid-19 pandemic and Russian-Ukrainian war have created an era of economic turbulence which questions the feasibility of a just energy transition in Africa. Despite developed economies driving up interest rates, increasing debt service costs and capital flight from emerging African markets, the energy sectors have displayed steadfast commitment to lighting and powering up Africa through renewable energy. Two of the many examples of African countries' commitment to energy transition include South Africa's Just Energy Transition Investment Plan to gradually phase-out of coal and Ghana’s National Energy Transition Framework . But what role can the regulator play in the era of economic turbulence and energy transition? Could the regulator be a giant umbrella shielding the energy sector from storms, or can it be the compass guiding the energy sector through turbulence and transition?

A Brief History of the African Energy Regulator.

The standard model of power sector reforms that swept across Africa in the 1990’s brought in its wake, the emergence of independent regulators to oversee the envisaged liberalized power sector markets. According to AfDB data, operational regulatory institutions in Africa increased from 15 in 2003 to 45 in 2022, spread across 44 countries on the continent.

Other important progress was the general movement towards more transparent tariff setting through the adoption of more cost-reflective tariffs, and growth of private sector participation - especially through investment in Independent Power Producers (IPPs). According to IRENA, IPPs are now present in about 30 countries, and represent more than 20 GW of installed capacity and USD 45.5 billion of total investments.

  Recognizing the important role that regulators play in the energy transition discourse of regional member countries, the African Development Bank in 2018, launched its flagship Electricity Regulatory Index for Africa (ERI). The ERI measures the level of development of electricity sector regulatory frameworks in African countries and the capacity of regulatory authorities to effectively carry out their relevant functions and duties. The index also recommends appropriate solutions to improve the regulatory environment and performance of regulators. After all, empowered regulators play a pivotal role in setting a competitive conducive environment that attracts private investment for energy transition projects.

 Thanks to ERI guidance, 30 out of 43 African countries surveyed in the ERI 2022 either amended their regulatory laws and instruments or enacted new ones to address weaknesses that were identified through the previous editions of ERI. The African regulatory landscape and frameworks are evolving over time with the power sector adapting to meet new challenges, emerging technologies, and trends. Regulators will still have to respond with appropriate nimbleness and innovation to stay responsive to a fast changing technological environment, and address a broad range of issues such as energy sector liberalization, regional trade, introduction of new VRE technologies and disruptive business models.

     AfDB technical assistance has helped increase regulators capacity and capabilities. For example, the Bank, through the Korea-Africa Economic Cooperation (KOAFEC) trust fund, supported Ghana’s Public Utilities Regulatory Commission (PURC) in deploying a centralized Database Management System (DBMS) as a one-stop solution to many regulatory bottlenecks. This digital solution has since gained significant traction and there are similar on-going initiatives funded by AfDB for regulators in Uganda, Tanzania, Nigeria, Guinea, and Liberia.  At the regional level, the Bank is providing technical assistance to regional regulatory bodies in SADC, COMESA, ECCAS and ECOWAS to harmonize the regulatory frameworks of their member countries. This will go a long way in ensuring that regional energy transition is achieved with no country left behind.

The Role of the Regulator in the Era of Economic Turbulence and Energy Transition

During economic and energy crises, the regulator plays a critical role in maintaining stability and confidence in the energy sector. This includes overseeing fair competition, preventing market manipulation, and ensuring the security of energy supply. Other potential roles include:

1. Assisting in Policy Development and Implementation: Harnessing the synergies between regulators and executive policy makers, regulators can contribute to the setting of renewable energy targets and emission reduction goals. If regulators are to champion the building of resilience in the energy sector to withstand shocks, they need to take charge of the energy transition agenda and go beyond setting clear guidelines and implementing regulations.
2. Leveling the Playing Field: This involves monitoring energy markets, developing regulations and market mechanisms that incentivize innovation, and the entry of private capital. This also includes developing and implementing Regulatory Accounting Frameworks to guide utilities in tariff data collection and application. Implementing tariff reviews in accordance with the approved tariff methodologies and schedules is also important.  Tariffs should engender efficiency and innovation and not be too restrictive to the point of discouraging the adoption of new business models and technologies.
3. Grid Management and Infrastructure Development: As the energy mix shifts towards renewable sources, regulators can oversee the planning, development, and management of the grid infrastructure. They can establish rules and standards for grid integration of renewable energy sources, facilitate the deployment of energy storage technologies, and promote the development of smart grids. The implementation of smart grids and smart metering may enable African countries to leapfrog traditional power systems development to attain more optimal results. Given that battery storage technologies with long duration will be key for the operation of future power systems, African countries should develop the capacity to install, operate and maintain these technologies. Regulators also need to prepare their countries for decentralized electricity generation (mini-grid or off-grid solutions), and hydrogen. In a few years it will become economically viable to use Green hydrogen as an alternative storage option for Variable Renewable Energy (VRE) and as a solution to decarbonizing “hard to abate” industries. By actively engaging with researchers and innovators, regulators can stay abreast of emerging trends and ensure that regulations keep pace with technological advancements.
4. Prioritizing Consumer Protection: Regulators should ensure a just energy transition by protecting consumers' interests. This includes establishing regulations to ensure the affordability of energy, promoting energy efficiency, overseeing the quality of energy services, and encouraging the adoption of technologies that empower consumers, such as smart meters. Developing and implementing supply-side and demand-side energy efficiency policies, regulations and action plans for the 30% of countries that currently do not have them, will help reduce technical and non-technical losses in the electricity sector.
5. Facilitate International Cooperation: Energy transition pathways are country specific and should be driven by country specific policy and regulatory interventions. However, regulators can collaborate with their counterparts in other countries to share best practices, harmonize regulations, and address cross-border challenges. Cooperation at the international level is important for regional electricity trade and the African Single Electricity Market (AfSEM) championed by the African Union. 

In times of economic turbulence and energy transition, regulators play a critical role in providing stability, ensuring fair competition, promoting innovation, protecting consumers, and guiding the energy sector towards a sustainable future. African regulators need to decide whether to take the back bench approach and act as giant umbrellas shielding the energy sector from storms, or  lead from the front by serving as  compasses that guide the energy sector through turbulence and transition.