Gridworks' Impact: Developing and investing in transmission and distribution
A desire to create lasting impact is what underpins our focus on the financial viability of insolvent utilities; on identifying replicable business models; and on mobilising private capital.
Over the past two decades, the African power generation sector has seen significant growth in investment. This investment has gone primarily to grid scale power plants. However, to create truly sustainable, efficient power sectors, areas beyond power generation require similar investment. Once generated, electricity still needs to reliably reach its intended users in a practical and efficient way.
Investment in transmission will alleviate the burden of oversupply in some countries and provide under-supplied regions with much-needed electricity. Investing in existing electricity networks can help them operate more effectively, increasing the quality of electricity that users receive, and ultimately helping to reduce greenhouse gas emissions.
What’s the challenge facing Africa?
Despite recent investment and improvements in electricity generation, the lack of progress in developing transmission and distribution infrastructure is a significant bottleneck to economic development across Africa.
This underinvestment is largely a result of unsustainable and loss-making business models which are unattractive to public or private capital and create ever increasing financial burdens on governments. The hundreds of billions of dollars of capital needed for electrify networks to absorb current and planned generation far surpasses the investment available from African governments and foreign donors.
With African economies expected to grow at an average of 4% per year between now and 2040, governments, multilaterals, and private investors all have a role to play in funding the network improvements needed to support economic development. These improvements are also vital to integrate renewable resources and energy storage, helping Africa countries reach their climate change commitments.
Why is investment needed?
Without reliable and well-run power infrastructure, companies don’t invest and grow, and economies fail to reach their potential.
Low rates of electrification in many African countries have been identified as the most pressing obstacle to economic growth, more important than access to finance, red tape, or corruption.
In Africa today, almost 600m people have no access to electricity. For those that do have a connection, their consumption is only 20% of the global average. Improving the quantity and quality of power in Africa has the potential to alleviate poverty, promote industrialisation and improve gender equality.
How do we measure
For every business we finance, we assess our development impact before investment and measure that impact during and after the life of the investment. Several bespoke metrics are tracked for each investment and could include:
- Network loss reduction (both technical and commercial)
- Number of new connections
- CO2 emissions saved
- Power traded
- Job creation, specifically induced and indirect jobs
- New renewables capacity added to the grid
Evidence on Impact: How electricity supports economic growth and changes lives
There is widespread evidence demonstrating the link between economic growth and access to high quality, reliable power. Increasing generation and transport of energy has a powerful impact on economic output, especially in sectors highly dependent on reliable power supply, notably manufacturing, trade, transport, and services:
- A recent study conducted by CDC and Steward Requeen highlighted the impact of additional power on an economy. The study showed how a 2.6% increase in GDP in Uganda over 2011-2014 came about as a result of the construction of the 250MW Bujagali power plant, which enabled the national utility Umeme to improve its operations. This, in turn, led to reduced load shedding and the creation of more than 200,000 jobs nationwide. In Senegal, almost 70,000 jobs were estimated to be created or induced by the development of 90 MW of added capacity on the grid (Steward Requeen 2017).
- Research by the International Growth Centre in Ghana in 2019 shows the link between unreliable power supply and non-payment of tariffs. It finds that unreliable power supply exacerbates non-payment, creating a “revenue trap” for the utilities supplying electricity. The report estimates that intermittent power leads to a loss of productivity and economic growth in the order of $320- $924 million per year, or 2-6% of GDP.
- A study by Anton Eberhard and Gabrielle Dyson from the Power Futures Lab at the University of Cape Town explored the evidence linking new or improved access to energy in low and lower-middle income countries to impacts on people, businesses and the environment. The study found evidence of positive impacts across a wide range of pathways, although the strength and quantity of evidence varied.
- Unreliable electricity access can negatively impact healthcare. A recent study of 11 major sub-Saharan African countries found that roughly 1 in 4 health facilities had no access to electricity, and only about one-third of hospitals had reliable electricity access. (Adair-Rohani et al, 2014).
The contribution of energy infrastructure to climate change mitigation
Improvement in energy infrastructure can contribute to climate change mitigation by:
- Reducing the extent of losses on the network
- Enabling grid connections for firms and households that currently use kerosene
- Building transmission lines that share electricity more efficiently within and between countries
- Establishing trading mechanisms to share electricity efficiently across the continent
- Improving the stability of grids, enabling more renewable energy generation
Targeting the SDGs
Gridworks’ mandate to invest in power transmission and distribution will specifically target three of the UN’s Sustainable Development Goals.