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The Factors Driving Africa’s Utilities to Bankruptcy

Many utilities in Africa—which have long been strapped for cash regardless—are close to financial collapse, according to a research paper by Energy for Growth Hub, a Washington think tank. In addition to the risk of blackouts and crippling public debt, the crisis is impeding climate action. “You’re seeing a massive intensification of the pressure on utilities,” said Katie Auth, the think tank’s policy director and a former senior energy official at the US Agency for International Development. It’s a death spiral, and the biggest barrier to clean energy deployment at scale in these markets.” Trade disruptions related to the war in Ukraine and pandemic lockdowns in China have pushed up the cost of construction materials like steel, copper, and battery minerals, and lengthened delivery times by months. Many utilities are stuck with power purchase contracts they can’t afford. Those that produce their own power often sell it at a predetermined rate, meaning their margins get squeezed when the cost of fossil fuels rises. In 2018, the most recent year with consistent data, one-third of utilities in Africa were unable to break even. That gap is widening. General economic turmoil and bad balance sheets have pushed up the risk rating for many African countries, making it more expensive to borrow. All the factors above drain government coffers, too, so there’s little appetite to implement clean energy tax breaks, sign new purchase agreements, or invest in major infrastructure like transmission lines.

SOURCE: QUARTZ AFRICA