Sub-Saharan Africa is in the process of an energy revolution, with the rise of renewable energy spreading across the continent. This transition has been supported from a multitude of initiatives and mechanisms in an attempt to overcome the challenges present in this evolving market. Emerging markets witnessed 107GW of clean energy capacity additions in 2018, for which only 870MW (440MW of Solar PV excluding South Africa) commissioned in Sub-Saharan Africa, which is surprising given the energy potential of the continent.
Renewable Transition in Sub-Saharan Africa
The backing for renewable energy in Sub-Saharan Africa has been accelerated through a fall in the cost of technologies such a PV Solar & Wind. This supported by some successful utility scale tenders and progressive policies facilitating the sector to flourish. It has all come at a time where the world is witnessing an increased escalation with regards to climate change initiatives, investment support and demand on sustainability-linked instruments.
The cost and adaptability of Solar PV technology has been a large catalyst to this transition, lending itself well to a dislocated energy market seen across the African continent. The cost of Solar PV modules has fallen from c.$2.27/W (2009) to c.$0.27/W (2018). Some geographies in Sub-Saharan Africa still suffer from other inefficiencies (administrative, logistical and project risks) that ultimately drive Capex costs north of $1.5m/MW. Mechanisms have been increasingly developed to lower these costs and thereby de-risk parts of the supply chain, allowing for developers to deploy cost-effective solar solutions despite the risk associated to some markets. Domestic efforts to drive competition in the market has also started to take hold, driving costs lower in some countries such as Ivory Coast, Nigeria and Zimbabwe – to name a few.
International and domestic supported policy initiatives have furthered uptake of renewable energy in the continent. The emergence of blended finance initiatives, bringing together public and private sector financing, has begun for some exciting financing initiatives to become mainstream. Multilateral backed auction programs have also proved successful as the market becomes increasingly standardised. Feed-in tariffs (REFIT & GET FiT programs) have been scarce in Sub-Saharan Africa with only select “market-ready” countries launching such programs (Uganda & Zambia – to name some), although this has achieved some of the primary goals in driving down power generation costs, opening the renewables market and ultimately mobilising private and public investments through renewables capacity additions.
A review of local legislations and regulation, many of which are still outdated to support a renewable energy transition, has begun to allow for more standardised processes for licensing and construction of both small scale (captive, off grid etc) and large scale (utility) solutions. The transparency added through these changes gives more visibility on permits and construction, increasing bankability of projects for investors. Further, delivering power policies allowing for the periodic institutional reform of utilities will help tackle one of the long term challenges across most of the countries.
These changes in the dynamics of Sub-Saharan Africa’s renewables market have allowed investment flows totalling $620m in 2018. Renewable capacity amounting to 310GW could provide half the continents electricity generation capacity. A transformation of this scale by 2030 would require annual investment of $70bn into the African renewables sector. A gap that primarily has been backed by development banks over the past decade and a trend which is likely to be continued. Although more recently being increasingly backed by private and impact investors.
Rise of Commercial & Industrial Renewables Solutions
There has been a multitude of challenges facing C&I operators in Sub-Saharan Africa, one of which is access to reliable and consistent power pricing. Witnessed in many emerging markets and highly prevalent in Sub-Saharan Africa, grid reliability is often poor with load shedding becoming necessary to manage the demand for electricity. This is coupled with Sub-Saharan countries relying on either fossil fuels, which are exposed to varying commodity prices, or Hydroelectric power which can be swiftly disrupted by a lack of rainfall. The costs can be very severe if businesses cannot operate at full capacity, and punitive costs for backup generation often hampering the small and medium enterprises.
A solution for C&I businesses that have high electricity consumption presents itself as on-site Solar PV, usually installed on rooftops and/or nearby land (and in rare cases on water reservoirs). This has become an increasingly adopted solution for many companies due to electricity supply being consistent and reliable at an agreed price through a Power Purchase Agreement (PPA). Various domestic (and regionally minded) groups have recently emerged with a view to capitalise on this fragmented market through scalable fully-financed business models primarily focused on “energy as a service”.
In 2018, the total installed C&I capacity stood at 74MW in Sub-Saharan Africa (excluding South Africa), with only 35MW of capacity additions being made in the year. Unfortunately, Covid-19 will also likely hamper the uptake of C&I Solar this year, however, if the C&I market continues to follow its early-stage trends, it could become an impressive growth story.
Challenges are Prevalent in the African Energy Transition Story
Challenges are still largely prevalent with poor infrastructure, project risk, currency risk, default risk and lack of access to local financing. These challenges continue to act as a bottleneck on the transition to a cleaner and reliable energy future for the continent, albeit now extrapolated through the difficulties caused through Covid-19.
Current infrastructure in many Sub-Saharan African countries has battled to integrate large volumes of variable solar and wind power into their grids. A lack of investment into the interconnection and transmission infrastructure, makes it difficult for generated power to be input into the grid. This has been coupled with a large reliance on hydro generated electricity, which has mostly been successful, but yet largely susceptible to droughts. Resulting in varied challenging effects on the countries that rely on such power, as prices increase and rolling black outs take their toll. With over 80% of African Hydro projects planned to be built on the Zambezi, the International Panel on Climate Change predict the Zambezi will most likely be the most negatively affected by climate change.
Development challenges are also noticeable. Long term fossil fuel PPAs hinder governments to review their energy capacity for long periods, making it difficult for the regulatory and policy environment necessary to allow for renewable energy to prosper. Investor confidence can be knocked by government renegotiations on PPA contracts and offtaker risk being prevalent (recent examples Ghana and Kenya). Utilities have been struggling to keep a strong financial track record and as seen in many other parts of the world, it is politically unpopular to raise retail rates, and often challenging to structurally improve the existing model for the utilities. Thus, making utilities even more vulnerable to unexpected shocks and not allowing a conducive environment for bankable renewables projects.
Impact of Covid-19
The reported spread of coronavirus is lower than in other continents. However, the pandemic has heavily affected the Sub-Saharan African economy, with expected African GDP growth cut in half from 3.2% to 1.8%. The electricity energy access movement in Africa was fundamental to the continent’s development, being the foothold for basic needs and services. The disruption caused by the virus in both social and commercial progression, has pushed back the progress made in recent years in increasing access to electricity, further affecting the already present challenges.
Project progression has already seen hinderance as logistics, financing and travel stagnated. Given how globalized the renewables market is, infrastructure projects have seen significant delays as panel manufacturers to solar project developers overcome the hurdles that continue to be present.
More than half of the Sub-Saharan African countries have set national renewable energy targets. The aims can vary from targeting a share of renewables capacity to targeting a specific amount of installed capacity. Historically energy policies and targets in the region have had varying success. Targets can create dazzling headlines for green credentials, but with absent policy and state support, the uptake required to transition these countries is rendered meaningless. These bottlenecks limit scaling of foreign investment in the region, aside from the infrequent, large scale projects in attempts to make good on objectives. There is hope in the off-grid energy solutions which have begun to tackle this issue, through solar home systems, C&I captive solutions and rural mini grids to open the market for further initiatives to prosper. Easing the burden on the grid and providing electricity to those in rural communities.
It is fundamental to Sub-Saharan Africa’s transition that assistance with top level policy through to investment is driven forward. Allowing expansion of renewable technologies to be the main source in powering the 600 million+ people in Sub-Saharan Africa currently without it.
Sources and Further Reading
8. Chart Sources: BNEF