Sub-Saharan Africa’s growing Commercial and Industrial electricity market

Nigeria, South Africa, Ghana and Kenya account for 20.12% of the continent's 245 GW total installed electricity capacity. 

Reliable electricity is a vital driver of the commercial and industrial (C&I) sectors. A key sector like manufacturing is crucial across all four countries, contributing an average of 11.32% to their GDP. 

Moreover, their growing urban populations and an emerging middle-income class fuel rapid expansion in the construction, real estate and service sectors such as banking and insurance. 

However, these countries struggle with insufficient power generation, transmission and distribution capacity to meet growing demand. In 2023, South Africa experienced only 33 days of uninterrupted electricity supply due to worsening load shedding. Similarly, Kenya suffered three nationwide blackouts and over 115 hours without power due to a poor grid network, disrupting critical C&I activities. In Nigeria, frequent blackouts are the norm; 68% of customers receive only 1-9 hours of electricity. C&I customers, therefore,

Kenya: High grid tariffs and a growing number of C&I customers 

Kenya Power, the country’s electricity utility, has two classifications of commercial and industrial customers. The small commercial customers largely comprise small retail shops and hotels, consuming below 15,000 kWh monthly and are supplied with electricity at lower voltages of 240V or 415V. On the other hand, large C&I customers in Kenya consume over 15,000 kWh of electricity monthly and are connected to high-voltage power lines of 415V and above. Currently, 4,136 large C&I customers are connected to the Kenyan electricity grid, compared to over 400,000 small commercial customers. However, large C&I consume 4x more electricity than small commercial, despite roughly 384 large C&I that have embraced captive solar PV to supplement their grid consumption. 

Given their relatively lower electricity consumption and the fact that small commercial customers often lack the financial resources to finance captive power generation projects, the market for companies providing captive power to C&I customers is limited to the large C&I customer group. Despite these challenges, specific consumers, like high-end lodges, represent a potential target market for captive solar PV generation, even with their relatively low energy consumption. 

In contrast to the smaller commercial customer group, large C&I customers usually have enough equity or can easily access third-party financing to finance their energy projects. Their high energy consumption makes self-generation even more attractive due to the cost savings. Kenya Power's 2023 data shows that large C&I customers consumed 5,137 GWh in 2023, 53.87% of the country's total electricity consumption. They also generated the highest revenue, contributing about KES 97,596,000 ($697,960), roughly 47.97% of Kenya Power's 2023 annual revenue. 

However, large C&I customers face the challenge of high electricity tariffs, which have increased from KES 16.24 ($0.122) per kWh in 2018 to KES 21.99 ($0.165) per kWh in April 2024 for the commercial 1 category – a 35.4% increase in just five years. Projections indicate tariffs will continue increasing as generation costs rise from KES 10.35($0.077) per kWh in 2023 to KES 10.83(0.081) per kWh in 2024. Long-term Stears’ FX forecasts project an exchange rate of KES 153.4/$ by 2028 from the current KES 133.04/$. Given that tariffs depend on exchange rates due to Kenya Power’s reliance on thermal power for its base load, this indicates higher tariffs in the medium-to-long term and a bigger incentive for C&I customers to find off-grid electricity providers.

In addition to poorer quality of service, due to the increased frequency of outages from Kenya Power, higher grid tariffs mean that the market for off-grid C&I electricity service providers is becoming more attractive and solar companies such as Crossboundary Energy and Momnai Limited are providing financing for captive solar power generation.

This market is highly concentrated in urban areas, with Nairobi and coastal regions like Mombasa representing 70% of the total electricity consumed by large C&I customers. These cities are experiencing faster urbanisation and increased demand for electricity, which will likely strain the grid further. 

C&I customers increasingly opt for self-generation to meet their electricity needs reliably and affordably. This trend is evidenced by the installed captive power capacity reaching 449.5 MW by the end of 2023, representing 12.18% of the country's installed capacity.

This growth was led by solar PV, with 196.2 MW installed in 2023 alone. This growth trend is expected to continue due to supportive government policies such as VAT removal for solar panels and declining prices.

South Africa: Persistent load-shedding issues slow down the growth of C&I customers 

South Africa classifies commercial and industrial customers by sector: agriculture, commercial, industrial, and mining. The industrial and mining sectors lead in energy consumption despite having a smaller population of customers. 

However, the total number of C&I customers connected to the grid has declined by 3,225 (2.35%) in the last five years due to persistent load-shedding that has plagued the country since 2007. Currently, the market population connected to the grid stands at 133,955, with several C&I consumers adopting captive solar PV solutions, including large commercial stores like Shoprite, mining companies like Rio Tinto, manufacturing industries like Tiger Brands, and agricultural companies like Eden Fruit. 

The reduced number of C&I customers directly impacts electricity consumption. Over the last five years, C&I electricity consumption has decreased by 8.8%. Additionally, electricity consumption in the mining and agriculture sectors has declined by 6.15% within the same period.

But beyond load shedding, miners have an added incentive to switch to renewable energy sources. Mining is a high-emitting, energy-intensive sector with significant negative environmental implications. With mounting pressure to diversify from coal and the risk of exposure to global supply chain shortfalls, South African miners increasingly turn to renewable energy sources to reduce emissions, diversify energy supply risk, and save costs. 

Although electricity consumption is steadily declining, the electricity consumption potential of South Africa’s C&I industry is immense. The industry accounts for 26.65% of the country’s electricity consumption. Most C&I customers are located in Gauteng, Mpumalanga and Kwazulu Natal provinces, which account for 58.81% of the country’s electricity consumption. 

These three provinces have the highest contribution from manufacturing to GDP, contributing 15.87% and mining and quarrying at 8.83% on average.

Despite this decline in electricity consumption, revenue generated from the C&I sector has continued to increase due to higher tariffs. In 2023, C&I customers generated R122,509,000 ($6,634,909) in revenue, 46.05% of the total revenue generated by the utility Eskom. 

At the same time, the electricity tariff increased from R0.96 ($0.0518) per kWh in 2018 to R1.53 ($0.0826) per kWh in 2023—a 60% average increase in the last five years, despite poorer quality of service due to load shedding. According to the Boston Consulting Group (BCG), South Africa’s electricity is among the costliest of its peer group of mining countries, and tariffs will keep rising as Eskom’s financial and debt burdens continue to mount.

With GDP projections indicating positive growth of 1.1% in 2024 and 1.6% in 2025 and persistent load-shedding, C&I customers will keep switching to captive solar and wind power generation, as wind and solar resources are abundant in SA, to cut production costs and tap into the growing market.

In addition, South Africa implemented a critical regulatory change in 2023 by lifting the renewable energy project cap from 1 MW to 100 MW, meaning energy consumers can now set up plants up to 100 MW. This move can potentially expand the captive power generation market significantly, and South Africa's financial institutions are backing these projects. According to Absa Bank, captive power projects are experiencing rapid growth in the country. The bank is currently financing power projects of over  2,000 MW and has R45 billion ($2.43 billion) in new power projects in the pipeline. Other banks, like Standard Bank, offer loans between R10 000($540) and R10 million($540,000) to businesses to finance their energy projects with 12 to 60-month repayment periods. Pan African Resources has also signed a Power Purchase Agreement (PPA) with Sturdee Energy to wheel 40 MW over the grid while exploring a 10 MW solar plant and additional wind, hydro and battery storage solutions.

Although South Africa's electricity supply has improved in recent months, high tariffs are still a deterrent for C&I customers, which informs our positive outlook of the country's captive electricity market.

Ghana: Higher electricity tariffs drive C&I captive growth 

Ghana categorises its industrial customers under the Special Load Tariff (SLT), which is further broken down into three categories based on voltage: low (400V), medium (11kV), and high-voltage (33kV)  industries like those in steel and mining. Over the last five years, SLT customers have grown by 36.8%, reaching 2,113 in 2022. The non-residential category includes large and small commercial customers, essentially all non-industrial and non-residential electricity consumers. This group consists of 778,554 customers.

While large industrial customers, the SLT customers, represent only 0.037% of Ghana's total customer base, they are substantial energy consumers and primarily concentrated in the Tema region of the country. In 2022, they utilised 7,428 GWh of electricity, accounting for 54.57% of Ghana's total electricity consumption. 

However, these consumers face the challenge of rising electricity bills, with tariffs increasing from an average of Ghc1.3292 ($0.0956) per kWh in January 2020 to Ghc 2.4778 ($0.178) per kWh in March 2024.

Ghana’s rising electricity tariffs are a key driver of solar adoption. 65% of the country’s electricity is generated from thermal sources, and tariffs are influenced by factors such as inflation, gas prices, and the exchange rate, three metrics that have been volatile in recent years. Stears’ FX Forecast projects an increase from Ghc 14.44/$ to Ghc 16.33/$ by 2028. Unsurprisingly, Ghana’s electricity tariffs will keep rising, with industrial customers bearing the brunt of the price hike. 

The lack of an uninterrupted power supply for customers is a key motivator for solar adoption, albeit less urgent than the high grid costs. Over 47 hours of outages in 2022 and the high cost of diesel following the Russia-Ukraine crisis means that solar is a cheaper backup electricity source. According to GiZ, as of 2021, 14.35 MW of captive solar PV had been installed, and the potential market size is 690 MW. Several solar companies, such as Berkely Energy, Daystar and Crossboundary, are financing and operating in Ghana’s captive solar PV market. 

We expect the market for captive electricity to keep growing in Ghana. Continuous tariff increases will likely push many C&I customers toward captive solar PV power generation, a solution that guarantees cost savings.

Nigeria: A history of epileptic power supply gives way to a viable C&I captive market 

Nigeria's commercial and industrial electricity consumers are called Maximum Demand (MD) 1 and Maximum Demand (MD) 2. MD1 customers, mostly large commercial and small industries, are those supplied with electricity at medium voltage (11kV), while MD2 customers, primarily large industries, are supplied at a high voltage (33kV). These customers have grown to 81,937 as of September 2023, representing only 0.9% of Nigeria's total customer base.

In 2023, these customers accounted for 18% of Nigeria's electricity consumption. Nigeria presents an interesting case compared to other countries where C&I customers account for a more significant share of electricity consumed. This can be explained by Nigeria's poor pace of industrialisation, primarily driven by the country’s historically poor electricity supply. 

Furthermore, using backup generators is a part of Nigeria’s electricity supply culture, where residential, commercial and industrial customers across the country own one or more backup generators. A 2019 report from the African Development Bank revealed that Nigerians spend up to $14 billion annually on petrol and diesel electricity supply.

As a result, while C&I customers in other African countries are just beginning to explore alternative options due to higher tariffs and poor electricity supply, Nigerian companies have been off-grid for a while, which explains the low population and consumption of grid electricity by this customer class. This makes Nigeria a more mature market, with many companies already providing captive power from diesel, solar, and gas sources. These include companies like Cummins, Daystar, Blue Camel, and Genesis Power.

Similar to other countries, Nigerian C&I customers contribute a more significant share to payments than their electricity consumption would suggest. The poor payment efficiency from non-maximum demand customers can explain this. In 2022, only 58% of non-MD bills were paid, compared to 92% and 91% from MD1 and MD2 customers. This highlights the relative attractiveness of the C&I market compared to the residential market. 

C&I customers are also charged relatively higher tariffs. However, tariffs vary by hours of electricity supply in Nigeria. For customers in Band A who receive up to 20 hours of electricity, their tariff is non-subsidised at ₦206/kWh ($0.145). However, Band B to E customers, who receive between 18 and a meagre 4 hours of electricity per day, pay a tariff that ranges from ₦66/kWh ($0.047) to ₦46/kWh ($0.0325). C&I customers in these lower bands will spend more of their revenue on diesel and other backup generators. Conversely, Band A customers, currently billed at ₦206/kWh ($0.145), are increasingly exploring solar PV electricity alternatives. Certain suppliers offer flexible tariff structures, allowing customers to pay per unit at lower rates than the Band A grid tariffs.

Further, like other countries in this report, with over 70% of Nigeria's electricity derived from thermal plants, the tariff depends on macro indicators like inflation and the exchange rate. Stears’ FX forecast predicts the naira will hit ₦1,541/$ by Q4 2028 compared to ₦1,416.57/$ today. This means higher tariffs in the long term, making Nigeria’s C&I industry a viable market for captive solar.