Economics of electricity export: Is it wishful thinking?

It has been reported that Tanzania plans to export electricity by 2015! This follows the signing of the agreement between Tanesco and China Power Investment Corporation Ltd (CPI).

CPI will construct a 600MW gas-power plant at Kinyerezi that will make it possible for the production of at least 1,500MW.

The reported plan to export electricity from Tanzania seems to be too good to be true for an economy that has struggled for years with inadequate quantity and quality as well as reliable electricity.

In this article, some economic perspectives of exporting electricity from Tanzania are outlined with a view to establishing whether the plan is a wishful thinking or something possible.

Electricity deficit

What strikes one’s eyes and ears may not be the plans for Tanzania to export electricity, but the plan to do so given the past and present electricity deficit in the country.

Memories of power connection challenges, power blues, shortages and rationing in Tanzania are still fresh in many minds for one to believe that there will be excess enough for the export market.

This is the case for households as well as for captains and titans of the industry. In almost all investment and business environment reports covering Tanzania, inadequate quantity and quality of electricity is among the problems.

The latest such report is the Business Leaders Perception report launched by the Tanzania Private Sector Foundation in the second week of July 2013.

From deficit to surplus

For the country to be able to export electrity it has to produce beyond the equilibrium point in the context of domestic electricity supply and demand.

According to the reports released when Tanesco and CPI inked the agreement, there will be a surplus of 500MW when the Kinyerezi II plant is commissioned.

One expects that dynamic models that capture rapidly increasing electricity demand at all levels were used to arrive at the surplus figure.

Short of that, there may be scenarios in which the demand side of electricity increases at rates above increases in the supply side of the same.

Production economics

Whereas the said 500MW surplus may be attained, sceptics and Thomases may doubt whether the export volume will be available by 2015 let alone 2014.

From production economics perspectives, the construction of the infrastructure that will make it possible to produce extra units and then export the same is at least a medium and not short-term undertaking.

The Kinyerezi plant is dependent on the accomplishment of the 530km-Mtwara-Dar es Salaam pipeline.

Then, there should be adequate quantity and quality of infrastructure to supply the produced electricity to all with effective demand for electrity in the country. This is because it will make no sense to export electricity amidst domestic shortages.

Assuming that the domestic market will be covered and saturated, then there should be adequate quantity and quality of infrastructure to make export possible.

The process of investing in such infrastructure for the firm that has not been investing in development for ages is a long-term undertaking.

Besides, for one to be able to export electricity, the assumption is that there is demand in that export market. This may not automatically be the case as those export markets may also be increasing their outputs.

Power Africa factor

President Obama’s Power Africa Initiative that aims at doubling electricity availability in the involved African countries may work for or against the planned electrity export. From the supply-side economics perspective, the Power Africa Initiative is an opportunity and enabler in Tanzania’s ambitious bid to export electrity.

This is because it will contribute to increasing the electricity supply in the country. This will help cover the existing elecricity deficit, move and cross the point of equilibrium and even help a movement towards the surplus territory that will make electricity export meaningful and possible.

Challenges from Power Africa

It is important to have realistic expectations and think outside the box. The Power Africa Initiative is not a monopoly of Tanzania.

There are about six other African countries, including Kenya that are lined up for $7 billion public funds and $9 billion dollar private sector funds for the initiative.

This implies that the initiative will increase electricity supply not only in Tanzania, but also in other countries including those that Tanzania might be targeting as export markets.

These countries may have enough electricity thereby making it unnecessary to import from Tanzania. They may also increase competition to Tanzania by exporting their surplus to the same market that Tanzania targets.

Whereas producing the surplus and exporting it is possible, it seems to be a much too tall order to be attained in the announced timeframe.

It will be interesting to re-visit this article by the end of 2015 and see whether the dream will have come true!
Source: The Citizen, reported by senior economics lecturer Dr Honest Ngowi of Mzumbe University's Dar es Salaam School, Tanzania
Share on Google Plus

About Abduel Elinaza

This is a short description in the author block about the author. You edit it by entering text in the "Biographical Info" field in the user admin panel.