COVID-19 crisis: Analyzing free electricity as a social relief measure in Sub-Saharan Africa
A brief overview of the free electricity social relief measure in African countries
By mid-April 2020, African countries that had announced free electricity as part of their Covid-19 crisis response included Burkina Faso, Chad, Congo Brazzaville, Democratic Republic of Congo (DRC), Gabon, Ghana, Guinea Conakry, Ivory Coast, Mali, Mauritania, Niger, Senegal and Togo. These countries are all geographically located in West and Central Africa. So far, similar steps have not been taken or implemented in any of the East or Southern African countries. It should be noted that South Africa has an existing programme called Free Basic Electricity (FBE) that provides limited (50 kWh/month of) free electricity to poor and vulnerable households.
The recently announced measures for free electricity in the above-mentioned countries are almost the same, with some variations. For all these countries, free electricity is offered to the utility lifeline or social tariff category, as well as to lowest-consuming households, for a period of 2 to 3 months. Only Burkina Faso, DRC, and Ghana have extended free or discounted electricity to other categories of customers. However, the level of consumption and technical criteria for the social category differ from country to country. In most of these countries, the thresholds range from 40kWh to 150kWh per month. The number of beneficiaries represents 30% to 60% of all electricity utility customers. It is important to mention that the implementing entities are government-owned utilities with a stressful financial situation; very few are fully corporatized or privately managed. Some governments announced the budget or cost of the electricity relief measure (between $5.0 million USD and $172.5 million USD) while others stayed silent. Importantly, the timing of disbursement to the utilities remains a pending question while liquidity is a critical need to keep the lights on.
Social justice issues
Although free electricity is intended to help the poor or most vulnerable households, it fails to cover a large proportion of this population in the listed countries. In Sub-Saharan Africa, including the above countries, people without access to electricity represent 30% to 85% of the population, and access rates among the poor are especially low. If during the period of school closures due to the COVID-19 pandemic, courses are offered by radio, TV, or the internet, then the non-connected poor will suffer the most, missing the opportunity due to lack of electricity.
Alternative energy sources for the non-connected are costly, and many of them have negative health effects. A 2016 Overseas Development Institute (ODI) report estimates that rural families across Africa spend 10% of household income for 4 hours of light at night using kerosene, torches and candles, whereas electricity represents, on average, 5% of connected households’ income. Kerosene, the dominant energy source for lighting in rural Africa, costs around $1-1.3 USD per liter. Sometimes the price is higher in rural than in urban areas. UNEP statistics show that households consume around 9.5 liters of kerosene per month. Similarly, according to a 2016 AfDB study report, ten candles — equivalent to 1 kWh — in Togo cost five times the price of electricity.
Nigeria, the largest and richest West African country, as of early May had not taken a decision on supplying free electricity, arguably for the above equity and social justice reasons, in addition to the potentially negative economic effects on the power market structure. When some voices claimed two months free electricity for households, the Minister in charge of energy mentioned in a media interview that it would be for the most privileged rather than the most vulnerable, adding that “there are only 80 (out of 200) millions of Nigerians with access to electricity”. The initiative would also have cost a minimum of 100 billion nairas ($256 million USD).
Further, the measures in the above-listed countries, except Burkina Faso, are designed for grid electricity consumers only and do not include off-grid solar customers, particularly Solar Home Systems (SHS) users. Although exact numbers are not known — around 3% of households according to experts — these systems are expanding in Africa, with suppliers offering flexible payment facilities such as Pay-As-You-Go (PAYGo). Lighting Global’s 2020 Off-Grid Solar Trends Report highlights that West Africa has seen the fastest increase in PAYGo unit sales in the last year, reaching 47 percent of all unit sales and 92 percent of market value in West African solar in H1 2019. In 2016 the World Bank stated that one-quarter of all rural households in Mali reported relying on solar energy for lighting. In Togo, since off-grid solar users were not covered by the Government bonus, the two local suppliers/operators Soleva and BBOX took their own initiative to offer 1-month free electricity credits to their customers, estimated at around 10,000 and 30,000 respectively.
The implementation of the electricity relief measure may face technological, technical, and management challenges. For example, utilities employ differing postpaid and prepaid metering technologies and associated management software. Prepaid meters have been deployed massively in Africa during the last 20 years, assisting both utilities (in loss reduction and revenue collection) and customers (in financial convenience and utility relations). Whereas utilities’ postpaid customers are billed on a monthly or 2-monthly basis with 30 days standard free penalty payment, prepaid customers must pay upfront small or larger amounts based on their cash or revenue flows. They receive kWh credits in the form of an alphanumeric code to be punched into their meter keypad for their future electricity consumption. These credits are purchased via the internet, mobile phones, or franchised retail outlets.
The granting of free electricity to prepaid customers might first be challenged by their estimates of average consumption. Second, some utilities own or master their management software while others rely on remote suppliers for customization, parameter updates, and maintenance. Two utilities, CIE in Ivory Coast and Senelec in Senegal, quickly provided an access telephone code with instructions for receiving the credits for a fixed number of kWh, which is an easy and safe method. In other countries such as Chad and DRC, people were requested to go to customer service centers to collect their credit tokens. In addition to transport expenses, it created fresh contagion risks during the lockdown period as people rushed and crowded the outlets. The utility SNE in Chad had to suspend this activity for a few days to reorganize. Further, in several countries, a significant number of households use a shared or secondary connection through one meter to avoid prohibitively high connection fees. These connections are often made without safety measures and appropriate standards. They are viewed in the utility database as a single “big/large” consumer charged at a higher tariff, hence not eligible for the free electricity supply, even though composed of small poor households which are the targeted beneficiaries. In Benin, a GiZ study in 2010 revealed that each existing connection was shared by 2.5 households and that 95% of non-electrified households were willing to share a connection. The Togo utility, CEET, has for the last four years engaged in adjusting those connections, commonly called “toiles d’araignées” in French, to clean up neighborhood grids and secure consumers. In 2017 that exercise updated more than 13,000 connections. In some countries, there are still non-metered customers billed on a rarely updated lump-sum basis. In DRC these consumers will be granted the free electricity bonus based on the ministerial decree of 7th March 2009. In general, the non-metered customers tend to consume more kilowatt-hours than estimated by the utility, and the free electricity supply measure may accentuate this behavior.
The Guinea utility EDG faces a combination of these metering challenges. Out of approximately 500,000 utility customers, 20% have a meter and only 1% with a prepaid technology convertible to postpaid. This means that around 400,000 unmetered customers are billed on a lump-sum basis, 95,000 receive a proper bill based on their real consumption, and 5,000 purchase electricity in advance. Even with prepaid meters, some customers manage to be converted to postpaid with the “help” of technical staff. One month after the granting of the free electricity bonus, EDG has not yet implemented it for prepaid customers. The complaints remain under control only because of the small number of such customers. Reports say that the problem is disagreement on the proper basis (6 or 12 months) for calculating average monthly consumption.
On the management side, the absence of adequate commercial and technical information on each customer is another challenge, making it difficult to categorize customers and offer services accordingly. In theory, each electrical connection should be characterized by a “triangle” of information from three key elements: the customer, the property, and the meter. The reality is that only meter information is generally available in the utility’s database. Customer details and property characteristics are very limited or absent. Further, information about the feeder supplying the connection is unknown; hence it is impossible to draw up load profiles. These factors have resulted in a large proportion of households (60%–90%) benefitting from the gratuity, as the “social” category combines consumers from both the formal and informal sectors, different levels of income and vulnerable households, and those impacted by the crisis and those not. Also, few customers have their phone numbers registered with the utility, something which would have facilitated the transmission of prepaid kWh credits.
Finally, considering all the above, the cost figures provided during the announcements will need to be verified. In Ghana, energy think tanks have already expressed their doubts, estimating the subsidy to be three times higher than what the government has budgeted for(about Ghana cedis 1 billion or $172.5 million USD). In Guinea, on the other hand, figures were revised downward, almost four times lower from an initial GNF 456 billion ($48 million USD) to GNF 126 billion ($13.5 million USD).
Benchmarking free electricity as a COVID-19 social relief measure elsewhere (in non-African countries)
Social relief measures for electricity consumers have also been implemented elsewhere (outside Africa). Data analyzed are from five countries on other continents — Canada (British Columbia), France, Indonesia, United Kingdom and Western Australia — where such relief measures have been put in place.
In developing countries outside Africa, only Indonesia offered a 3month free and discounted electricity as a social relief measure respectively to 450-volt ampere (VA) category (24 million) and 900 VA category (7 million) consumers. The cost is estimated at about Rp 1 trillion rupiahs (around $200 million USD). The contrast with African countries is that Indonesia’s electricity access rate is almost 100%, i.e. 98.1% in 2017 according to the World Bank SE4ALL Database. Although the measure doesn’t create social justice issues, it is expected to complicate the difficult financial situation of the state-owned utility PLN, already sustained by annual subsidies from the Government.
In developed economies, most electricity utility companies have assured service continuity to all customers and allowed a postponement of bill payments without any late fees, since they have a strong liquidity position and good inventory levels. It is important to mention that mechanisms generally exist for vulnerable households to benefit from financial support for electricity needs. As examples, there are the “Energy Assistance Payment” (EAP) and the “Energy Cheque” respectively in West Australia and France. The free electricity social relief measures are additional and “targeted to COVID-19 affected/impacted” electricity consumers — households and businesses — who will have to justify their situation to be eligible. In these cases, criteria and processes have been established and agreed upon between governments and utilities. For example, an agreement between the Department for Business, Energy and Industrial Strategy (BEIS) and the domestic energy supply companies in the UK emphasizes “identifying and prioritizing customers at risk ... and impacted financially as a direct or indirect result of COVID-19”. The support will consist of either a discretionary credit or reducing or pausing payments. In France, the utility ENGIE provided a 2-months free fixed charge (not consumption) to approximately 600,000 household customers already under the government support scheme, for an estimated cost of €12 million euros ($13 million USD). British Columbia (Canada) set a budget of $80–$90 million CAD ($57-$64 million USD) for a 3-months supply of free electricity to households in which one of the spouses has lost employment as well as to closed businesses. Finally, the Western Australia Government extended the support until June 2021, and to about 95,000 impacted small and medium businesses consuming less than 50-megawatt hours (MWh) per annum.
Free electricity supplied as a social relief measure during the (COVID-19) crisis has been highly welcomed by its beneficiaries in the thirteen African countries. However, this measure raises issues of equity or social justice, since it is a relief intended to utility customers only. There is still a large population without electricity in Africa, mostly poor, which struggles to afford either off-grid solutions or costly and polluting household fuels. Social relief measures should aim to be either (a) broad and inclusive or (b) targeted to identifiable people impacted by a specific crisis or event. Crisis interventions should also be made in addition to existing mechanisms designed to help vulnerable households with essential needs, including electricity. Implementing a free electricity supply is also a major challenge for the concerned power utilities in sub-Saharan Africa, due to prevailing technical and management issues. But the COVID-19 crisis may also represent an opportunity to identify shortcomings and draw lessons for improvements and upgrades. For instance, efforts should be made to conduct a customer census — to be replicated and updated regularly at a small scale, per region or location — and to install adequate metering in all customer premises as well as into distribution feeders while linking this information in the utility’s database. Not only would utilities better serve their varied customers, reduce losses, and improve their revenues, such action could ultimately facilitate policy decision-making.
*Yves Muyange, Director of Power Markets and Regulation at Tetra Tech; Executive Master in Energy Management alumnus.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the position of ESCP Business School.