SADC’S INFRASTRUCTURE: A REGIONAL PERSPECTIVE Deepening regional power trade would bring substantial economic benefits to the region by reducing the long-run marginal cost of power. Given that power is a key production input to the economy, any reduction in the reference level of power costs spurs productivity and competitiveness. For the SAPP as a whole, trade expansion would reduce the long-run marginal cost of power from $0.07 to $0.06 per kilowatt-hour or by 5 percent overall. It should be noted that even without trade, the economic cost of power in southern Africa is the lowest on the continent (table 3.6).

The largest benefits are felt by small countries with thermal-based systems, which could save as much as $0.05 per kilowatt hour or more than 40 percent of power costs overall. The magnitude of power cost savings varies hugely across individual countries in the SAPP area (table 3.6). Countries that have traditionally relied on very expensive, oil-based generation have the most to gain from switching to hydropower imports from the Democratic Republic of Congo. Angola has by far the largest potential gain, at $0.05 cents per kilowatt-hour. South Africa would save $0.01 kilowatt-hour, which seems modest, but considering the large volumes of power involved, amounts to a sizable financial gain. Finally, the Democratic Republic of Congo, the major power exporter under the trade expansion scenario, would not see any reduction in the long-run marginal costs of power. This is due both to its great power

**Table 3.6 Long-run marginal costs of power in the SAPP and island states**

|(U.S.<br>cents/kWh)|Trade<br>expansion|Trade<br>stagnation|Difference|
|---|---|---|---|
|CAPP|7|9|–2|
|EAPP|12|12|0|
|**SAPP**|**6**|**7**|**–1**|
|WAPP|18|19|–1|
|Angola|6|11|–5|
|Botswana|6|6|0|
|Congo, Dem.<br>Rep. of|4|4|0|
|Lesotho|6|7|–1|
|Malawi|5|5|0|
|Mozambique|4|6|–2|
|Namibia|11|12|–1|
|**South**<br>**Africa**|**6**|**7**|**–1**|
|Zambia|8|8|0|
|Zimbabwe|8|9|0|
|_Madagascar*_|_14_|_14_|_0_|
|_Mauritius*_|_18_|_18_|_0_|

_Source:_ Rosnes and Vennemo 2009. _Note:_ * Island-state members of the SADC; not a part of the SAPP. CAPP = Central Africa Power Pool; SAPP = Southern African Power Pool; WAPP = West African Power Pool; EAPP = East African Power Pool; kWh = kilowatt-hour.

demand and the expense of investing in schemes more ambitious than needed to meet domestic demand alone. The long-run marginal costs in the island states are relatively high: $0.14 per kilowatt-hour in Madagascar and $0.18 per kilowatt-hour in Mauritius.

One can think of regional power trade as a project entailing additional investments and delivering reduced operating costs. On this basis, a rate of return for regional power trade can be estimated at 167 percent for the SAPP region. Essentially, the additional investments associated with trade expansion are paid back in less than a year and individual countries stand to make higher returns.

For power importers, the decision to trade can be thought of as an investment in cross-border interconnection that yields an annual return in terms of access to lower-cost power. On this basis it is possible to calculate returns on trade for individual importers. South Africa, Zimbabwe, and Angola stand to make exceptionally high returns: 319, 51, and 45 percent per year, respectively. Nambia’s rate of return, at 14 percent, is more modest. Angola benefits significantly because trade provides the country with access to cheap hydropower from the Democratic Republic of Congo. A one-time investment of $870 million saves Angola $0.05 per kilowatt-hour and yields a return of 45 percent annually. For a 47