East Africa’s Regional Power Pool to Reduce Electricity Costs

The integration of the electricity market in East Africa has the potential to increase efficiency, production and cross-border trade, as well as significantly increase revenue for member countries.

Currently, the electricity markets of East Africa Community member countries are hardly integrated, even though some countries have bilateral arrangements that facilitate the sale of electricity between them. Harmonizing the design of electricity trade between member countries, Kenya, Uganda, Tanzania, Burundi and Rwanda could open exciting new opportunities within the community. The International Journal of Energy Economics and Policy (IJEEP) in its 2023 research identified the integration of the EAC’s electricity market as a huge opportunity to increase efficiency, competition and collapse high cost of electricity in some parts of the region. “Electricity market integration maximizes the utilisation of interconnector capacities between countries; hence electricity flows and elimination of arbitrage are feasible under a novel auction mechanism. The simulation of two cases of EAC market, the unintegrated case, which is based on the current state of the power markets and case two, which tends to introduce full-market integration under modal pricing reveal a potential increase of total economic welfare in these countries,” said IJEEP. The current net benefit for unintegrated electricity market is 2.2 million$/h, but net gain for full integration is 4.8 million$/h. If the electricity market are coupled; the welfare gain could rise by $2.6 million/h. The uptake in revenue by introducing full integration at the EAC’ markets proves that introducing locational pricing and integrating these markets is fundamental, the journal added. The research showed that under limited integration actual nodal prices are higher as opposed to nodal pricing with full integration in place. The Kenya power system, comprising Coastal, Nairobi, Western, seven folks, and Eastern systems reflect 108$/ MWh, 112$/MWh, 124$/ MWh 292$/MWh and 178$/ MWh (respectively), under an unintegrated system. The Tanzania power system has the highest modal prices, especially at the Western system (440$/ MWh) and Dodoma node (438$/ MWh, whereas the Burundi system has the lowest nodal price among the five countries (Bujumbura 7$/MWh and Rwegura 6$/MWh. Rwanda also has low nodal prices in both the Northern and Eastern areas. In the event the five countries are integrated, “If the transmission capacity is unconstrained, the nodal price in the five countries could be uniform with a value of $67/MWh. Uniform price in the region implies sufficient transmission network. However, upon constraining the power system nodal prices rise. A comparison between unintegrated and full integration reveals that the nodal price drops by an average of 79% in the Kenya system, with the most significant drop being experienced on the Western system. On average Kenya’s nodal prices drop by an average of $34/MWh,” the energy journal stated. A considerable drop will be recorded in the Nalubale system in Uganda, whilst Kampala system’s nodal price increased by 69%. The average price drop in Tanzania electricity nodes is $125/MWh (the highest reduction among the five countries). Under the current arrangement, the Burundi and Rwanda nodes showed low nodal prices, but with full integration price in Burundi will increase by 35$/MWh. In contrast, Rwanda will experience a marginal price drop of $12/MWh. The rise in the average price in Burundi could profit the producers in the short the term, whilst consumers make up for the loss in benefits. The nodes with high prices benefit from nodes with low nodal prices. This means that the consumers at high-cost nodes benefit from the interconnection. On the contrary, the producers in low-cost nodes benefit from selling to higher-cost nodes. Thus the resultant economic welfare is increased. Kenya generates 37% of the total electricity consumed in the region, while Uganda generates 24%. Burundi and Rwanda generate 34% and 12% respectively. Tanzania generates the least at 5% and is the highest electricity importer among the five countries. The total generation in Uganda is 1900MW, comprising the Kampala system that generates 45% of the total local generation. The Karuma system generates 47%, while the Nalubale system generates 5%. This indicates that most generating facilities are attached on the Karuma and Nalubale system. In Tanzania each of the four systems generate 25% of national output. However, the power flow from the nodes in Kenya and Burundi make up for the remaining local demand. Burundi generates 76% more than local demand. This excess supply benefits high-cost nodes in Tanzania, while the rest is utilized locally. Rwanda generates 48% more than the electricity demand locally and the excess is utilized in Uganda