Promoting better economics, renewables and CO2 reduction through trade: A case study for the Eastern Africa Power Pool

Abstract

Cross-border power trade in the Eastern Africa Power Pool (EAPP) has been very low for nearly 15 years since its inception in 2005. This analysis uses a least-cost generation and transmission capacity expansion model to assess economic and CO2 emissions reduction benefits from different levels of integration. These benefits are assessed for several policy scenarios around renewable energy, national energy security and CO2 emission reduction targets. In addition, we have explored if major drought events may significantly alter the benefits of trade. The World Bank Electricity Planning Model (EPM) is used to represent 11 countries in the EAPP, Eritrea, South Sudan (and SAPP as an external system) for 2020–2030 including all existing, committed and planned generation and interconnectors. Our analysis shows encouraging prospects for EAPP to potentially gain $7.6 billion from a “Shallow” level of integration wherein countries retain their national plans and interconnections are limited to existing and already committed transmission links. A “Tight” integration that requires generation and (new) interconnection plans to be optimized at a regional level, would increase benefits to $18.6 billion. Tight integration would be most efficient in meeting a 30% CO2 emission reduction target by 2030 retaining $11.8 billion of benefits. This CO2 target can be met at 3.8 times lower cost of $6.6 billion compared to the $25.7 billion needed to meet the target in the Business-as-usual (BAU) scenario of very low trade. We find that imposing a 20% upper limit on imports would still retain 80% of the benefits that allays a large part of the concerns around national energy security. We have also simulated extreme droughts that may reduce benefits of trade due to 20%–30% lower hydro availability from hydro dominated systems like Ethiopia. This indeed affects the benefits of a Shallow integration although more than 60% of base case benefits are still retained. Higher flexibility of a Tight integration, on the other hand, allows for a benefit retention of 89% or more, by adjusting flow volumes and directions of trade. A Tight integration renders a greater ability to the system to reduce the impact of major droughts and meet policy constraints including CO2 emission and import restrictions at a lower cost, due to the intrinsic flexibility of a stronger and wider network. Since all these issues are very realistic, the additional investments in major cross-border links and institutional challenges should be addressed to achieve significant benefits over the medium term. Overall, our exploration of the key facets of trade in EAPP suggests an overwhelmingly positive case for trade pointing to a rapid increase in trade volume by an order of magnitude over the next decade.