Africa’s power sector is facing many challenges, mainly due to insufficient generation capacity which has limited electricity supply, resulting in low access. The main obstacle to the increase in electricity generation capacity is the high cost of producing electricity, forcing governments to subsidize consumption. In 2010, the average effective electricity tariff in Africa was US $0.14 per kilowatt-hour (kWh) against an average of US $0.18 per kWh in production costs. Consumption is effectively subsidized, but with significant disparities among African countries.

Over the past decade, global use of renewable energy sources (solar, wind, hydropower, geothermal, biomass, and biofuel) for generation of electricity has grown significantly, reaching 19% of total power generation in 2010 compared with 14% in 2002. The rise in the use of renewable energy has mainly been driven by increased awareness of effects of climate change and governments’ incentive programs aimed at enhancing the development and the use of green energy.

Over the course of 2011, some African countries took steps to drawdown on expensive and unsustainable fuel subsidy programs. Recently, Nigeria joined the ranks of Ghana and Guinea by slashing fuel subsidies to align domestic fuel prices with international prices.

The argument for the removal of fuel subsidies is based on the notion that poorly targeted consumption subsidies deprive the country of scarce resources critical to other priority sectors. Globally, fuel subsidies amounted to USD 410 billion in 2010 as energy prices rebounded strongly. In 2011, fuel consumption subsidies in Nigeria, Cameroon and Ghana cost USD 7.5 billion, USD 600 million, and USD 276 million, respectively. The fuel subsidy was the equivalent of 30% of total federal government expenditure in Nigeria, and approximately 12% and 3% of federal government budget in Cameroon and Ghana, respectively. This sharply contrasts with the proportion of public spending on health in those countries.