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Carbon pricing and system reliability impacts on pathways to universal electricity access in Africa

©Matthias Heyde auf Unsplash

The most appropriate technology to enable electricity access— grid extension, standalone systems, or mini-grids serving clusters of customers—varies with the context. Demand, population density, and distance to existing grid infrastructure are crucial factors influencing the cost competitiveness of different solutions.

Treating technology options with diverse levels of reliability as equalwithin electricity access plans is shortsighted. An urgent focus on the reliability of supply received by newly connected consumers is needed so they can move up the energy ladder and experience the economic benefits of electricity access. Accounting for the financial costs to households of poor service levels, extending a highly unreliable grid at a lower infrastructure cost than an off-grid solution with higher reliability may actually result in higher overall costs. Alternatively, sizing off-grid systems to meet the same service levels as rural national grids makes them more cost-competitive with national grid extension in some regions. When a cost for units of unmet demand is included in least-cost pathways, shares of access modes deployed change: at Tier 3, for example, applying a $0.50/kWh unmet penalty sees almost 80 million more people gaining access from off-grid PV. The impacts of such a policy intervention vary greatly depending on the electricity demand level and the level of penalty applied. There is also a high degree of spatial heterogeneity when observing whether there are changes in access technologies. A crucial observation is that there are areas with a high density of population needing access where applying a very low penalty for unmet demand sees uptake of off-grid technologies instead of grid connections. In practice, implementing a financial penalty for poor reliability, as is done in some high-income countries such as Norway, the Netherlands, and the UK, may not be feasible or desirable in countries where electricity supply companies are in a state of financial stress. Instead, offering an incentive scheme such as a performance-based subsidy for supply companies offering households a higher level of reliability may be a viable alternative. This has been demonstrated in Nigeria, where some mini-grid developers are paid a subsidy per connection provided a minimum level of reliability is met. Policymakers should seek to design mechanisms that can ensure reliable electricity access options are implemented and thus reduce the negative impacts felt by households from unreliable electricity grids in many SSA countries.

In this paper, we present a high-resolution geospatial analysis that explores carbon pricing impacts on pathways to universal household electricity access. Our modelling suggests that carbon prices may have a significant impact on the uptake of low-carbon off-grid technologies; however, it depends on the electricity demand level at the location being considered. At Tier 2, 140 million people switch to off-grid PV under the central carbon price scenario considered here, with a 50 million increase at Tier 3 demand levels. Whilst there is broadly a decline in the effectiveness of carbon price signals as electricity demand levels increase, there is significant variation in impacts spatially. Crucially, there are countries, e.g., Angola and Ethiopia, where relatively low carbon price signals lead to a movement to loweremissions alternatives. This quantification of the spatial variation in the effectiveness of carbon price signals has implications for policymakers and stakeholders wishing to tailor policy interventions to specific countries or regions. As carbon markets become more prevalent globally, they may have a positive influence on the cost competitiveness of low-carbon electricity access solutions such as PV-based minigrids. Except for South Africa, countries in SSA presently do not have formal carbon taxation systems. However, other governments in SSA, such as Côte d’Ivoire, Botswana and Senegal are considering implementing schemes. An additional consideration is the voluntary carbon market. There are already examples where low-carbon off-grid electricity access projects are being developed with the help of financing from carbon credits. Schemes such as the Carbon Initiative for Development (Ci-Dev) and the D-REC initiative are facilitating carbon finance support for low-carbon electricity access projects. Whilst not directly translatable from this analysis due to the complexities in carbon crediting schemes, our analysis points to the impact carbon credits may have, depending on the price level and where they are implemented. To maintain effective carbon markets and realise their possible benefits for energy access, countries in sub-Saharan Africa need to work to build regulatory, monitoring and verification systems37. If these can be implemented, our analysis highlights where schemes might be most effective for supporting lower-carbon electricity access.

The results in this paper emphasise the need for further regional and national-level studies. Addressing the lack of high-resolution spatial data regarding both the reliability of the grid and off-grid technologies would allow a more detailed comparison of supply options. In addition, expansion to non-residential demands would strengthen the analysis as electricity demand goes beyond households. Nevertheless, this study highlights the importance of considering reliability and carbon pricing when considering the role offgrid PV may play in developing pathways to SDG7

 

Excerpt of : “Carbon pricing and system reliability impacts on pathways to universal electricity access in Africa”, nature communications, 2024

 

Download the full study here

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