ELECTRICITY MARKET LIBERALISATION AND THE SECTOR’S PERFORMANCE IN SUB-SAHARAN AFRICA

Abstract

Sub-Saharan Africa (SSA) countries suffer severe electricity crisis despite over two decades of on-going Electricity Market Liberalisation (EML). Electricity access has been consistently low, averaging 26.0%, 31.0% and 44.1% in year 2000, 2010 and 2017, respectively. While existing studies had investigated the determinants and magnitude of EML in SSA, little attention was devoted to estimating the effect of this reform on the sector’s outcomes. This study, therefore, was designed to investigate the effects of EML on Electricity Sector Performance (ESP) in 30 SSA countries between 1990 and 2017. The New Institutional Economic theory provided the framework. A model which captured the dynamic effects of EML and other determinants of ESP (population growth, corruption, political stability, government effectiveness, GDP per capita and net development assistance) was explored. Three measures of ESP namely, electricity generation per capita, installed capacity per capita and electricity consumption per capita were considered. The EML was measured by four indices namely, ownership structure index, vertical unbundling index, effectiveness of regulatory agency index and overall market liberalisation index. The aggregated and disaggregated models were estimated. Disaggregation was into moderate and low electricity liberalised countries, and middle and low income countries to account for heterogeneity in ESP. The System Generalised Method of Moments estimation technique that took cognisance of feedback mechanism and controlled for the joint endogeneity of EML and other determinants of ESP in the presence of country-specific effects was adopted. Diagnostic tests (Hansen and Serial Correlation tests) were used to determine robustness of parameter estimates. Data were sourced from the World Development Indicators, Worldwide Governance Indicators, World Bank Electricity Regulatory Database and country’s utilities reports. All estimates were validated at α0.05. The EML had diverse effects on ESP in all the model. In the aggregate, both electricity generation per capita (1.20%) and installed capacity per capita (0.06%) improved as a result of a unit increase in overall market liberalisation index. When private ownership increased by 1.0 unit, electricity generation per capita improved by 2.30% and worsened installed capacity per capita by 0.03%. The dynamic effect of a unit increase in vertical unbundling, increased both electricity generation per capita (0.34%) and consumption per capita (2.37%), while installed capacity per capita dropped by 0.05%. Similarly, population growth and corruption deteriorated electricity generation and consumption per capita by 2.04% and 0.12%, respectively. A unit increase in overall market liberalisation index had positive impact on electricity generation per capita in moderate electricity liberalised and middle income countries by 2.10% and 0.04%, respectively. The effect of a unit increase in private ownership, increased electricity consumption per capita in low income (0.02%) and moderate liberalised countries (2.31%). Similarly, a unit increase in vertical unbundling, improved installed capacity per capita in middle income (0.10%) and moderate liberalised countries (0.01%). The effects of electricity market liberalisation on the sector’s performance were generally positive but varied in Sub-Saharan Africa. Therefore, effective regulatory policies should be designed to further strengthen electricity market liberalisation in the region