The Factors Driving African Utilities to Bankruptcy
According to a research paper by Energy for Growth Hub, a Washington-based think tank, many utilities in Africa that have long been cash-strapped are near financial collapse. In addition to the risk of blackouts and crushing public debt, the crisis is hampering climate action. “You’re seeing a massive escalation of pressure on public services,” said Katie Auth, the think tank’s policy director and former energy chief at the US Agency for International Development. It’s a death spiral and the biggest hurdle to deploying clean energy at scale in these markets. Trade disruptions from the war in Ukraine and pandemic shutdowns in China have driven up the cost of construction materials like steel, copper and battery minerals, and extended delivery times by months. Many utilities are stuck with power purchase agreements they can’t afford. Those who generate their own electricity often sell it at a pre-determined rate, which means their margins are squeezed when the cost of fossil fuels rises. In 2018, the most recent year with consistent data, a third of utilities in Africa were unable to break even. This gap is widening. General economic turmoil and poor balance sheets have pushed up the risk ratings of many African countries, making borrowing more expensive. All of the above factors are also draining government coffers, so there is little incentive to implement clean energy tax breaks, sign new power purchase agreements, or invest in major infrastructure such as transmission lines.
THE SOURCE: QUARTZ AFRICA