Electricity Price Dynamics in Sub-Saharan Africa: Uganda and Malawi

Electricity Price

Electricity Price Dynamics in Sub-Saharan Africa: Uganda and Malawi

Uganda and Malawi are both countries in Sub-Saharan Africa with distinct opportunities and risks associated with their energy infrastructure. 

Uganda is located in East Africa and known for its diverse landscapes, which include the Rwenzori Mountains and Lake Victoria, one of the African Great Lakes.

Malawi, situated in the southeastern part of the continent, is characterised by its highlands, expansive Lake Malawi, and a predominantly agrarian economy. Malawi has a mixed economy, with major exports being tobacco (47%), oils, grains, and fruits (11%), vegetables, and roots (10%) (Trading Economics, 2024). 

In 2019, 42% of Ugandans lived at or below $2.15 per day—the World Bank poverty line—versus Malawians at 70% (World Bank, 2019).

Electrification Rates

Uganda has made substantial progress in electrification, with about 47% of its population having access to electricity. Despite this progress, high tariffs remain a challenge for many Ugandans, particularly in rural areas. 

Malawi faces a much lower rate with only 14% of its population having access to electricity. (World Bank, 2022)

Uganda has a 47% electrification rate (World Bank, 2022) Credits: Omar Lopez

Role of Tariffs

Energy tariffs play a key role for developers in financing power plants and define the cost of electricity for consumers, necessary for improving living standards for the wider population. 

We compare the significant factors influencing tariff price dynamics between Uganda and Malawi, focusing on the factors that influence electricity prices in both countries and the implications for affordability and energy access.

The energy challenges faced by numerous nations in Sub-Saharan Africa are pressing. Approximately 80% of the region’s population lacks reliable electricity access (IEA 2024). 

Rural electrification programs are building energy access in Sub-Saharan Africa. Credits: Omar Lopez

Uganda and Malawi are great examples of how energy infrastructure status is effecting tariffs and can contribute positively to socioeconomic development in emerging markets.

Overview of Energy Infrastructure in Uganda and Malawi

Energy infrastructure is crucial for economic development and ensuring access to electricity. In both Uganda and Malawi, hydropower projects play a major role in meeting energy needs.

Uganda’s Energy Landscape

Hydropower Dominance

About 80% of Uganda’s electricity comes from hydropower. Key projects include the Bujagali Hydropower Station and the Karuma Hydropower Project.

Infrastructure Development

The Ugandan government has made energy infrastructure investments a priority to increase capacity and stabilise prices. One such development includes the 1,445km oil pipeline from Hoima in Uganda (UIA, 2024). 

Public-Private Partnerships

Uganda has encouraged private sector involvement through various incentives, fostering innovation and efficiency within the energy market. About 32.8% of government budget is spent on infrastructure (UIA, 2024).

More than 80% of on-grid electricity in Uganda and 88% in Malawi comes from hydropower. Credits: Collab Media

Malawi’s Energy Landscape

Vulnerability to Climate Variability

Malawi’s dependence on hydropower – 88% of electricity on-grid (IHA, 2024) – makes its energy infrastructure sensitive to climate changes. Droughts have a significant impact on electricity generation from reservoirs, resulting in unreliable power supply and fluctuating tariffs.

Forest Dependence and Depletion

Biomass still represents around 86% of all energy consumed in Malawi, with the majority of households using firewood and charcoal to cook on a daily basis. From 2001 – 2023, Malawi has lost over 247,000 hectares of forest – more than twice the size of Iceland (Global Forest Watch, 2024). 

Investment Challenges

Economic limitations, such as high inflation rates, make it difficult to make necessary improvements to infrastructure through tariff adjustments. Despite these challenges, initiatives like the $100 million Malawi Energy Access project supported by the World Bank are crucial for making progress.

More than 80% of Malawians still use charcoal and firewood to cook daily. Credits: Omar Lopez

Both countries have their own unique obstacles when it comes to their energy infrastructure, but their reliance on hydropower and economic challenges are common factors that affect tariff levels.

Investment Strategies – Public and Private Sector Participation

Investment in energy infrastructure is vital for stable and affordable electricity supply. In Uganda and Malawi, the public and private sectors play distinct yet complementary roles in financing and developing energy projects.

Uganda has seen significant public investment in hydropower projects, such as the Bujagali Hydropower Project. Uganda also benefits from a mix of public and private investments which helps maintain stable electricity prices. The government implemented the Investment Code Act in 2019 to help facilitate Foreign Direct Investment (FDI) and in 2022 FDI rose to 6.5% of GDP in Uganda. Comparatively, it was 1.3% of GDP in Malawi (Trading Economics, 2022).

Bujagali Hydropower Project in Uganda. Credits: Scatec.com

Malawi faces challenges due to its reliance on hydroelectric power, leading to inconsistent supply amid climatic fluctuations. The government has initiated partnerships with private firms to diversify energy sources, promoting off-grid solutions like solar mini grids, and economic challenges in Malawi contribute to higher electricity tariffs. Consistent inflation rates above 30% and high devaluation of the kwacha has made CAPEX investment in the grid increasingly expensive.

The interplay between these sectors influences tariff pricing structures. Both countries are increasingly acknowledging the importance of engaging stakeholders across both sectors to attract investment that will bolster their energy infrastructure.

Options for Creating Sustainable Tariff Structures and Universal Energy Access

Achieving sustainable energy tariff structures while facilitating universal access in Uganda, Malawi, and similar contexts may require targeted policy reforms and strategic investments. Some actions that can help to build sustainable tariff market may include:

Diversification of Energy Sources

Both countries can prioritise investments in renewable energy sources such as solar, wind, and biomass. This diversification can reduce reliance on hydropower, enhancing resilience against climatic variations. This aligns with the objectives outlined in the World Energy Transitions Outlook (IRENA, 2023), which emphasises the need for transitioning towards sustainable energy systems.

Reinforcing the Framework

Establish a robust regulatory framework that promotes transparency and competition within the energy sector. This can attract private investments and drive efficiency. Reports like the Net Zero by 2050 from the International Energy Agency provide insights into effective regulatory strategies for achieving sustainable energy transitions.

Malawi Energy Regulation Authority (MERA). Credits: mera.mw

Investment in Grid Infrastructure

Enhance grid infrastructure to minimise transmission losses and improve service delivery. Investments can also focus on off-grid solutions to reach remote communities, as emphasised by initiatives like the WEF Fostering Effective Energy Transition 2023. Private investment can help these micro-grids evolve into macro-grids over time.

Stakeholder Engagement

Involve private sponsors and international organisations in the decision-making process to ensure that policies are responsive to the needs of all stakeholders. Managing these relationships can help encourage a capital inflow for constructing a sustainable energy landscape that supports economic growth while ensuring affordability and accessibility for all citizens.

International Support in Driving Energy Development Efforts

International organisations play a key role in building the environment and market frameworks that foster energy infrastructure development, particularly in countries like Uganda and Malawi.

The World Bank has been running the Malawi Electricity Access Project since 2019. Credits: World Bank, Shutterstock

In Uganda, World Bank-backed initiatives have focused on hydropower development and enhancing grid connectivity, while in Malawi, the emphasis has been placed on diversifying energy sources and implementing off-grid solutions. These efforts not only aim to alleviate immediate electricity shortages but also contribute to long-term economic growth by reducing poverty levels.

As both countries navigate their unique energy challenges, international support remains vital for achieving universal electricity access and driving the energy market to equilibrium – where households can both access and afford to pay for electricity.

References

  1. Global Forest Watch. (2023). Malawi Deforestation Rates & Statistics | GFW.
  2. IEA. (2024). Access to electricity – SDG7: Data and Projections – Analysis – IEA.
  3. IRENA. (2023a). Malawi Energy Profile.
  4. IRENA. (2023b). World Energy Transitions Outlook 2023.
  5. Sikandar Abdul Qadir, Hessah Al-Motairi, Tahir, F., & Luluwah Al-Fagih. (2021). Incentives and strategies for financing the renewable energy transition: A review. Energy Reports, 7, 3590–3606.
  6. Trading Economics. (2024). Malawi.
  7. Uganda Investment Authority. (2020, January 19). Infrastructure – Uganda Investment Authority.
  8. World Bank. (2024). Poverty and Inequality Platform. Worldbank.org.
  9. World Economic Forum. (2023). Fostering Effective Energy Transition 2023 Edition.

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