PAYING THE PRICE FOR UNRELIABLE POWER SUPPLIES: GENERATION OF ELECTRICITY BY PRIVATE FIRMS IN AFRICA does not capture these dynamics. Third, the gains to be had by improving the reliability of power supply may be greater if the effects of unreliable power supply on observed industrial structure and external competitiveness are taken into account. Because energy-intensive industries require more stable power supplies, improving reliability will diversify country’s production base and result in additional economic gains.

# 6   Conclusions and policy implications

This paper aims to deepen our understanding of the widespread phenomenon of own generation of electric power by firms, as well as its relationship to unreliable public power supplies in the African context. It does so by triangulating across a number of different sources of evidence covering more than 26 countries across Africa. First, the UDI World Electric Power Plants database provides a detailed inventory of (at least the largest cases of) own generation at the country level, giving an impression of the overall extent of the own generation phenomenon. Second, the World Bank’s Enterprise Survey Database provides a detailed set of attitudinal and behavioral information about decisions relating to own power generation at the firm level; at least for the case of larger formal sector manufacturing enterprises. Third, both sources are complemented by engineering data from generator manufacturers and other sector sources that help to capture the cost structure of generating power on-site.

Overall, own generation by firms accounts for about 6 percent of installed generation capacity in SubSaharan Africa adding an additional 4,000 MW to the total available plant. However, this share doubles to around 12 percent in the low-income countries, the post-conflict countries, and more generally on the Western side of the continent. Moreover, there emerge around a dozen countries for which own generation represents more than 10 percent of their installed generation capacity, and even more than 20 percent in some cases (DRC, Equatorial Guinea, Mauritania, Nigeria, and Swaziland). Moreover, in these cases the value of the capital stock tied-up in own-generation assets can be as high as 4 percent of one year’s national income or 20 percent of one year’s gross domestic fixed capital formation. Relative to generation plant owned by public utilities, on-site generation tends to be smaller in scale (by as much as an order of magnitude), and much more heavily skewed towards diesel and gas as opposed to coal and hydro. Historic trends suggest that the growth in own generation has been particularly high in recent years.

The decision of a firm to maintain its own-generation capability is driven by a variety of factors. In firm surveys, firms in countries reporting more than 60 days of power outages per year tend to identify power as a major constraint to doing business, and present relatively high rates of generator ownership. However, more rigorous empirical analysis shows that unreliable public power supplies is far from being the only or the largest factor driving generator ownership. Firm characteristics such as size, age, industrial sector and export orientation all have a major influence. In particular, the probability owning a generator doubles in large firms relative to small ones. Moreover, the behavioral model predicts that the percentage of firms owning their own generators would remain high (at around 20 percent) even if power supplies were perfectly reliable, suggesting that other factors such as emergency driven back-up requirements or export driven quality regulations play a critical role in the decision to own a generator.

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