The role of regulatory, market and governance risk for electricity access investment in sub-Saharan Africa

Abstract

Achieving universal electricity access in sub-Saharan Africa – a milestone of SDG 7 – requires about $30bn annually until 2030 on the top of baseline investment. The private sector plays a key role in supplying these investment flows, given the governmental budgetary constraints. Yet, private players face numerous sources of risk in their infrastructure investment decisions. This risk is usually factored in using a discount rate. To allow for a more realistic evaluation of the role of the investment environment in financing energy access, here we introduce the Electricity Access Governance Index (EAGI), a composite index of energy sector regulatory quality, energy sector governance, and market risk. The index is implemented through a discount rate conversion into a bottom-up integrated electricity planning model (IMAGE-TIMER) to evaluate the role of different sources of risk for electrification investment dynamics. Our results show that the adoption of decentralised systems for achieving universal energy access requires governance and institutional reform to lower discount rates faced by companies and households and mobilise private finance. Failure to reform investment environments will likely hamper the uptake of decentralised systems even in areas where they would be the techno-economically least-cost electrification option, and thus likely leave many without electricity.