Energy price modeling in sub-Saharan Africa: a systematic literature review

Abstract

The energy market in Sub-Saharan Africa (SSA) is not meeting the demands of the region’s growing population. Energy access remains a significant challenge, with most people on the continent still reliant on biomass and other traditional forms of energy. Paradoxically, research has found that the African continent has the highest potential for renewable energy generation. For this energy to be commercialized effectively, there is a need to understand energy price modelling in the SSA context. Our initial review of Literature showed that energy price modelling has received little attention in SSA. This paper, therefore, fills this gap by using a systematic literature review to consolidate knowledge on how energy price modelling has been applied in the SSA context. The systematic literature review results reveal four commonly used models: time series, Artificial Neural Network, Hybrid Iterative Reactive Adaptive (HIRA), and Hybrid models. Across the 46 SSA countries, governments have applied these models to price electricity and petroleum at the national level. However, these models have not been applied to renewable energy markets. Neither have they been applied at the household level. In the discussion, we hypothesize that price modelling can be used at the household level to improve energy decision-making. For this to work, price modelling should be simplified, user-friendly, and accessible to households. In conclusion, we recommend that SSA governments develop a more holistic view of energy price modelling to better harness the potential of renewables. They can do this through effective stakeholder engagement that includes the needs of small businesses and households. The main lessons drawn from this review include the possibility of using energy price modelling technology as a pathway to encouraging energy transitions to renewable energy in informal settlements in Africa. Using technology to bring the price modelling closer to the people is also an important element in facilitating effective transition to renewable energy. Finally, including the members of the community in pricing through creation of awareness on the models used and popularizing technology that can help in predictive pricing will help in creating better and faster energy transitions.

Latent demand for electricity in sub-Saharan Africa: a review

“…These sources found that demand for electricity is relatively price inelastic. Given that many households in SSA have use alternative fuels to power activities, such as kerosene lanterns, we hypothesize that electricity would be relatively more price elastic than in other developed nations (Luhangala et al 2022). The reasoning behind this hypothesis is that these alternative fuels may act as substitutes for electricity in these households, making consumers relatively more sensitive to electricity prices.…”

Practical Solutions for Energy Transition Emerging in Sub-Saharan Africa

“…In fact, regarding community buy-in, Luhangala et al present a systematic synthesis of the evidence on energy pricing in Africa in the paper, 'Energy price modelling in sub-Saharan Africa: a systematic literature review' [10]. Energy price modeling-the prediction of spot prices for different forms of energy in a given place-is central to healthy functioning of energy systems, and an essential tool in regulating prices (e.g.…”