By Jeremy Wakeford
Africa desperately needs investment in its energy sector. Modern energy services need to be expanded rapidly to meet the needs of its growing population and economy. This development must, however, be achieved within the global carbon budget. Leapfrogging into clean energy will require innovative financing mechanisms to unlock Africa’s vast renewable energy potential, and thereby boost inclusive and sustainable development on the continent.
Africa is ripe with opportunities for energy investments. Renewable energy resources are largely untapped, and the latent demand for energy is massive. Adding to the appeal, the cost of some renewable technologies – especially solar photovoltaics (PV) and wind turbines – has fallen dramatically in recent years, making them increasingly competitive with conventional power plants. Nevertheless, beyond available energy resources and competitive technologies, the investment community needs enabling policy and regulatory frameworks, public co-investment in transmission and distribution infrastructure, and bankable projects with reliable revenue streams. South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) offers a compelling example of what can be achieved when these conditions are met: it has attracted over $14 billion in financing for more than 6,000 megawatts of renewable capacity.
Yet the greatest need in Africa is to expand access to modern energy in poorer communities currently relying on traditional biomass, the over-use of which is harmful to human health and ecosystems alike. Access to energy can be viewed as a fundamental human right, but it also has a very strong economic rationale. It can boost farmers’ productivity, allow entrepreneurs to create flourishing businesses that generate jobs, and underpin industrial transformation, growth and development.
The significant challenge lies in consumers’ limited ability to pay. The key role for development finance institutions and donors is to bridge the financing gap and help unlock the economic and human potential of the continent so that it can become self-sustaining in the longer term.
Various financing mechanisms are needed to stimulate different types of renewable energy investment. Large-scale power projects may benefit from loan guarantees and other de-risking measures. The large up-front costs for renewables relative to running costs calls for unconventional financial structuring. Public-private partnerships can be implemented to ensure anchor demand from emerging industries. Feed-in tariffs and net metering can kick-start grid-connected rooftop solar PV rollouts, but may initially require cross-subsidies from other energy users. Small-scale off-grid and mini-grid installations, especially in poorer rural and informal urban settlements, require alternative financing instruments such as concessionary microfinance and community savings institutions.
To inform sound policy-making and investment decision-making, in-depth country-level analyses of the unique potentials and challenges in Africa’s clean energy sector are required. Quantum Global Research Lab, whose mandate is to advance innovative thinking to stimulate inclusive and sustainable development in Africa, is well positioned to conduct expert research in support of Africa’s energy transformation.