by Mike Scott – 19/01/19

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Gaining access to energy is vital for Africa’s people and national economies so tapping their vast potential for renewables is the obvious solution both for them and the climate. The challenge, as ever, is funding. To solve this, African nations are striking up international partnerships in a bid to unleash the full power of their phenomenal natural assets.

Energy is crucial to lift people out of poverty. The International Energy Agency says the number of people globally without energy fell below 1bn for the first time in 2017 which is great but most of those that still lack it – some 600m – are in sub-Saharan Africa.

The continent needs $60bn-$90bn of investment a year to address its energy shortfall, according to the Economist Intelligence Unit. It also needs to wean itself off fossil fuels and install more renewable capacity (see my article from Jan 18)

Size of the challenge

According to World Bank figures, just 42% of households are electrified, with some countries having less than a tenth of homes connected. It’s even worse outside the cities – while 71% of those living in urban areas are connected only 22% of rural households are.

Even when there is power, it is often unreliable and expensive. One reason for the region’s slow progress in increasing access to electricity is the cost of building the necessary infrastructure – not just power stations but transmission networks and sometimes even roads to places that are often inaccessible.

Size of the opportunity

The African Renewable Energy Initiative, led by institutions including the African Union and the UN Environment Programme, aims to have 300GW of renewable energy capacity installed by 2030. The Initiative says that it “envisions smart, distributed energy systems that can handle a mix of renewable energy generation. This will enable Africa to leapfrog to the energy systems of the future.”

For this target to be met, deployment rates will have to increase almost seven-fold. And for that to happen, there must be effective regulation, sufficient financing and the right business models. That’s the challenge.

The continent has an opportunity to catch up with the rest of the world while avoiding the greenhouse gas emissions that accompanied development in the past.

Solutions – off-grid options make most sense

Hydropower, which represents the largest share of current installed capacity can be vulnerable to the effects of climate change, such as droughts, so it’s important to diversify.

Advances in renewables and storage technology, accompanied by dramatic cost reductions, mean that off-grid projects are more viable and effective than the cost of building out full grid infrastructure. Research group BNEF reports that a ”combination of high electricity tariffs, falling PV prices and a lack of reliability in the grid is spurring sales of on-site solar to business customers in Sub-Saharan Africa”.

On-site solar power is cheaper than the electricity tariffs paid by commercial or industrial clients in seven out of 15 markets in Sub-Saharan Africa that BNEF studied. “While the market is still small, it has great potential,” explained co-author Takehiro Kawahara, lead frontier power analyst at BNEF. “An immense energy deficit and crumbling infrastructure makes Sub-Saharan Africa fertile ground for solar. The most promising markets are Nigeria, Ghana, Kenya, Cameroon, Uganda, Senegal and Rwanda.

Getting the job done: an international affair

In many markets, it remains difficult to finance projects locally, particularly larger-scale schemes. In part, this problem is being addressed by funding from western governments as well as multi-lateral agencies and banks working in partnership with national bodies and energy companies.

Major projects contributing to realisation of 300GW potential

• At the COP24 summit in December, the UK government announced £100m investment to support up to 40 new renewable energy projects in the region over the next 5 years. The new funding could unlock an extra £156m of private finance into renewable energy markets in Africa by 2023, the UK says.
• The US Power Africa Initiative has committed $7bn to provide 30GW of energy capacity in the region, with 9.5GW funded so far, much of it in transmission assets.
• The World Bank’s Multilateral Investment Guarantee Agency (MIGA) has just provided guarantees to EDF International and STOA, a French infrastructure investment vehicle that focuses primarily on Africa, to invest in the Nachtigal Hydropower Company. The International Bank for Reconstruction and Development and the International Finance Corporation also provided support.
• The African Development Bank (AfDB) has just invested $25m in the ARCH Africa Renewable Power Fund, a $250m private equity fund for renewable energy projects across Sub-Saharan Africa, with a view to catalysing a further $60m-$75m in funding.
• A $1bn Renewable Energy Facility for sub-Saharan Africa by the African Trade Insurance and European Investment Bank
• BNEF reports that one of 2018’s biggest solar projects was a $2.4bn 800MW PV and solar thermal portfolio in Morocco
• The 706MW Enel Green Power South Africa portfolio, at an estimated $1.4bn, was one of the biggest onshore wind financings, part of the country’s 40-fold increase in renewable energy investment to $4.2bn

The key to the continent realising its enormous clean energy potential is attracting private capital. And the main factor that will facilitate that is reducing risk for investors. But there are so many risks in Africa – around governance, rule of law, politics, poverty, currency fluctuations, the weakness of many economies and a lack of infrastructure – that many investors are reluctant to get involved. Transaction costs are therefore higher, and projects are consequently smaller. That’s why, according to the International Renewable Energy Agency, the average share of public investment during 2009-2016 in Africa was 56%, much higher than the global average (12-16%).

“Energy investments in Africa are constrained by limited [supply of] well-structured, bankable projects, as well as by unavailability of risk capital. Renewable technologies require additional support to be fully competitive over fossil fuel-based energy generation,” said Amadou Hott, the Bank’s Vice-President for Power, Energy, Climate Change & Green Growth, when he announced the Bank’s $25m ARCH investment.

But, he told CNBC Africa last year, “closing the gap on Africa’s energy challenges presents major opportunities for investors keen on engaging with the continent.”

Bringing projects to fruition means working with companies and banks from around the world. As long as those partnerships are as sustainable as the energy produced, the future looks pretty good.

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