Alternatives for the Power Market Structure

Stakeholders in the power market have various alternatives with regards to which frameworks to adopt with regards to the power market. In recent times, the reliability and affordability of electricity have become essential for consumers. Governments in Africa are eager to increase the accessibility of electricity in various jurisdictions to drive economic growth, reduce poverty, and facilitate socio-economic development in developing economies. The electricity value chain comprises three sectors; These include Generators, representing all companies that operate electric generation equipment that feed into the transmission network before distribution companies’ transit to consumers, and these processes may affect the quality of electricity services to the end users.

The rapid population growth and high demand for electric power with its high tariff, have compelled governments to opt for restructuring the power sector to meet the needs of consumers, by providing a sustainable and affordable power supply. There are three main structures for the power market. These are fully integrated utility, unbundled utility, and pool markets.

Fully Integrated utility:  Under this structure, the utility provider is responsible for all the sectors of the electricity value chain. That is, from generating electric power to the transmission and the distribution of power to the end users, resulting in a monopoly status. The advantage of this model is that policymakers can direct the utility company through a regulatory mechanism to achieve the state’s policy goals and the system provides an effective avenue to safeguard consumer’s interests. The challenge is that there is no flexibility, and is highly risky.

Unbundled utility: This model separates the energy supply and generation from the operation of transmission networks. The unbundled structure ensures better electricity supply and reduction of costs through improved management and competition. The two types of unbundled utility are Vertical unbundling, in which responsibilities for electricity generation, transmission, and distribution are allocated to distinct entities, which operate independently, and Horizontal unbundling, where multiple entities may have responsibility for providing services in the same sector. The advantages are cost savings and competition drives down

the cost of operations. The demerit of this model is that competition may breed low-quality of services.

Pool Plant: When a power utility connects and joins a coalition of other power generation facilities. The cooperation of the power pools improves electricity generation capacity and transmission infrastructure resulting in greater cross-border trade in electric power to guarantee reliability and a reduction of cost within the region’s power pool. The continent has five regional power pools; the Eastern Africa Power Pool (EAPP), Southern Africa Power Pool (SAPP), West African Power Pool (WAPP), Central Africa Power Pool (CAPP), and Comité Maghrébin de l’Electricité (COMELEC).

There are two types of power pools which are Tight pools where specific agreements between all members to use the lowest cost power more often and Loose pools are generally only an exchange of energy between two members of the group when necessary. The members are largely independent, with some common projects. The advantages are significant savings in capital and operating costs due to shared infrastructure and natural incentives and improved utility operational performance.

The demerit of this model is the liberalization of the power market, which would allow Independent Power Producers to directly trade with customers.

Governments should have a clear and realistic strategy to achieve the desired benefits for its citizens. These benefits include improved socio-economic development, electricity accessibility, support of environmental goals, affordability, and poverty reduction.