The Hidden Costs Behind Africa’s Failing Utilities: Diesel Dependence and Lost Revenues

Sub-Saharan Africa’s power utilities remain in deep financial distress due to extraordinarily high operating costs, heavy reliance on expensive diesel generation, and severe revenue losses from inefficiencies and poor bill collection. The study warns that without structural reforms, cheaper renewable investments, and stronger governance, utilities will remain unable to deliver reliable electricity or expand access.

Research by the World Bank’s Development Research Group, drawing on data from the International Energy Agency and the U.S. Energy Information Administration, delivers a stark diagnosis of Sub-Saharan Africa’s electricity crisis. Electric utilities across 47 countries, 67 in total, remain financially fragile despite decades of reforms and subsidies. Nearly 600 million Africans lack electricity, and those connected endure routine outages and load-shedding. The study attributes poor supply quality to utilities’ persistent inability to operate infrastructure efficiently or expand capacity, a failure rooted in steep operational costs, revenue leakages, and structural inefficiencies.

Widespread Financial Freefall

Vertically integrated utilities dominate the region, yet half cannot cover operating costs, and when debt repayments are included, even more fall into deficit. Distribution utilities fare just as poorly, with only five out of nineteen able to meet both operating and debt obligations. Transmission utilities show slightly better health due to lower cost structures, but subsidies across all utility types have done little to close the gap. Out of forty loss-making utilities, only eight would be solvent even with government subsidies, demonstrating the magnitude of systemic financial shortfalls.

The High-Cost Trap

Much of the financial pressure originates on the cost side. Operating costs for vertically integrated utilities span from US$70 to a staggering US$671 per MWh, far above levels in Southeast Asia, the Middle East, or Latin America. A major culprit is the region’s heavy reliance on oil-fired generation, particularly diesel, which dominates the power mix in 13 countries. Diesel is both costly and inefficient, saddling utilities with high fuel bills and low thermal performance. Countries powered mainly by hydropower or domestic natural gas have significantly lower operating costs, but many others remain locked into expensive fuel systems.

Technical inefficiencies amplify these problems. Utilities with low capacity factors, due to seasonal hydropower variabilities or sharply spiking evening demand, face higher per-unit production costs. Capital productivity is also weak: the study shows that utilities with lower electricity output relative to their asset base consistently face higher operating and debt service costs. Labor productivity varies dramatically, with South Africa’s Eskom generating over 5 GWh per employee, while several smaller utilities produce less than 0.5 GWh per worker, indicating overstaffing or inefficient deployment.

Tariffs Are High, But Revenues Are Not

Contrary to the assumption that African utilities fail because tariffs are too low, the study finds the opposite. Electricity prices in Sub-Saharan Africa average US$151 per MWh, higher than in many non-OECD and even some OECD countries, despite dramatically lower incomes. The deeper problem lies in revenue leakages. Technical and non-technical transmission and distribution losses exceed 30% in many countries, with Cameroon and Chad approaching 40%. Electricity theft, aging infrastructure, and weak monitoring systems fuel these losses.

Even more damaging is poor bill collection. Many vertically integrated utilities collect less than 90% of bills, and several collect barely half. Among distribution utilities and mixed-responsibility companies, fourteen of twenty-six lose more than 10% of revenue to nonpayment, and eight lose over 40%. These gaps erode financial stability far more than tariff levels.

The study estimates that reducing system losses to South Africa’s rate of 11.8% would improve revenues significantly, raising them by as much as 36% for some utilities, yet only a few would become solvent. Eliminating collection losses would rescue four more utilities, while combining both interventions could help nine of the fifteen loss-making vertically integrated utilities break even. Still, a large number would remain in deficit, signaling structural problems deeper than technical fixes alone can solve.

Searching for a Sustainable Way Forward

The study argues that countries must shift from expensive fossil-fuel-based generation to cheaper renewable options, particularly solar photovoltaics. With capital costs falling rapidly and levelized costs as low as US$22 per MWh in high-irradiance regions, solar offers a competitive alternative to diesel generation, which can cost more than US$600 per MWh. Solar’s short construction timeline also avoids prolonged interest payments, accelerating access to reliable power.

Alongside cleaner generation, utilities must enhance capital and labor productivity, streamline asset management, and curb misuse of vehicles and facilities. Deeper institutional reforms are essential: transparent procurement, stronger regulatory oversight, smarter contract management, and reduced political interference.

Without comprehensive reforms across cost, revenue, and governance structures, the report warns, Sub-Saharan utilities will remain locked in a cycle of high expenses and weak income, unable to deliver reliable power or support the region’s broader development ambitions.