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09 Oct 2023

Renewable Energy Investment in Africa Could Slash Poverty

Tags
Africa; energy; renewable energy, finance, investment
Author
Saul Gunn
Renewable Energy

The United Nations Conference on Trade and Development (UNCTAD) estimated that, in 2021, 490 million people in Africa lived in extreme poverty, surviving on less than $1.90 per day. Furthermore, according to a 2019 publication by the International Renewable Energy Agency (IRENA), around 600 million Africans (over 40% of the population) lack access to electricity. Yet, Africa currently attracts less than 5% of global energy investment despite accounting for around 17.5% of the world’s population — 1.4 billion people. Exacerbating the issue, this already small amount of energy investment in Africa is unevenly spread across the continent, with just 10 nations making up 90%, and South Africa alone accounting for nearly 40%. Over the last decade, South Africa has consistently achieved a rate of access to electricity of around 85%, over double that of the 40% experienced across the rest of Africa.

Implications of Energy Poverty

As Marine Cornelis, executive director of Next Energy Consumer, highlights in an interview with The Borgen Project, the implications of unreliable access to energy can be severe. For instance, in health care, this could mean that health facilities without reliable electricity cannot keep life-saving temperature-sensitive medications in cold storage.

While the crippling energy poverty in Africa has restrained the continent’s overall progress in combating poverty, it does point to a potential solution — a continent-wide effort for renewable energy investment in Africa, including both power-generation plants and, crucially, a transmission network.

Benefits

With support from aid programs and via official channels, renewable energy investment in Africa could bring several benefits: The creation of formal sector jobs that boost employment and reduce poverty. Renewable energy investment could also ignite GDP growth, initiating an economic process that would see increased domestic demand, including for energy as production capabilities rise, thus providing increased supply with demand to support it.

Detailed reports from IEA’s Africa Energy Outlook 2022 suggest that an optimal scenario with extensive renewable energy investment in Africa could bring around 4 million additional energy-related jobs to the continent by 2030. More than half of these jobs will relate to operations and maintenance, meaning that much of this employment should remain after the construction is complete.

Furthermore, electrification and enhanced access to energy should reduce energy poverty for households which should drastically alleviate poverty but also stimulate economic activity in several industries economy-wide. For example, better access to electricity can increase the productivity of businesses or enable them to stay open for more hours.

As Les Mood, CEO of GreenTech Network highlights in an interview with The Borgen Project, “We are going to see small businesses and startups be able to leverage energy to make business happen that did not happen before.” In this way, the positive economic results are difficult to quantify but would almost certainly be large and far-reaching.

Renewable Energy Infrastructure in Africa

Most researchers tend to agree that microgrids are the way forward for African energy, that is, energy systems on a more local level serving small communities, rather than the main grid, which can provide energy for cities and urban centers. Among several benefits of microgrids is that microgrids enable communities to be independent, and in control of their own energy, protecting them from blackouts on the main grid.

There are several instances of microgrids already operating or under construction in Africa. The Kenyan village Entesopia is one example, where an 8.5 kW modular solar microgrid provides electricity to more than 60 households and businesses, allowing the local community to flourish. Vulcan Philanthropy, which built a number of microgrids in Kenya, is responsible for the microgrid in Entesopia.

Kenya has attracted significant microgrid investment to date, reportedly possessing over 40% of operational microgrids in Africa, a report by TFE Energy says. Significantly, in the same report, TFE stated that the medium-term growth potential for the microgrid market in not just Kenya, but the rest of Africa too, is high.

The Independence and Democratization of Energy

Mood says microgrids allow for the independence and democratization of energy as the grids enable “the greatest shift of power and freedom” for individual communities. These microgrids are particularly important in rural areas, currently most vulnerable to energy poverty and consequently economic poverty. Indeed, the global poverty rate in rural areas is three times that in urban areas, and sub-Saharan Africa is experiencing more than 75% of global rural poverty.

The Borgen Project also spoke with Clinton Yorke, U.K. operations manager for Soundon New Energy, about what a renewable energy infrastructure in Africa might look like. Yorke concurred with the focus on microgrids, saying it would enable Africa to “reduce the dependence on poorly implemented long-distance transmission lines and centralized power plants.” Indeed, Africa’s grids experienced extremely high network losses, averaging 15% in 2020, compared to the global average of 8%, according to IEA’s Africa Energy Outlook 2022.

Yorke stresses that microgrids in Africa should aim to achieve a minimum per dwelling of 3kW increasing to 6kWh as the system expands.  However, “these systems should still be engaged with the grid” so that excesses in generation can be “sold back to the grid,” enabling communities to grow. This could be achieved “with additional transformers, switches, inverters and protection devices that link into the microgrid system,” and “a standardized specification and method for the Main Grid, Micro Grid/Off Grid System to integrate including payment structure,” Yorke says.

Finance and Stimulating the Private Sector

Access to finance is a crucial factor in securing investment and making renewable energy affordable in developed nations. Mood estimates that the price of solar in his home state of California has fallen 75% over the course of his career, with finance playing a key role.

However, in our discussion with Yorke, who has been a part of an energy project with the government of Nigeria since its early stages, he highlights that it can be extremely difficult for companies to get financing on African projects due to numerous and complicated requirements from banks including the World Bank, therefore deterring private investment.

According to IEA’s Africa Energy Outlook 2022, public sector investment is currently hindered by high debt levels, exacerbated by the COVID-19 pandemic, which means that stimulating the private sector is still the only realistic means to achieve adequate renewable energy investment in Africa. This will require increased financial flows from multilateral banks to Africa, and concessional finance will need a more strategical leverage for private capital. For this increased private investment, commercial banks which have historically had trouble assessing loan risk and navigating the financial regulation described by Yorke may require help from international finance institutions.

African Continental Free Trade Area (AfCFTA), which has been operational since 2021 and creates a common African market to trade within, could also boost private sector participation. Though there is much work to do, the AfCFTA envisions increased intra-African trade and significant upgrades to infrastructure to support this. Within this program is the Africa Single Electricity Market, which aims to facilitate sustainable development of the African electricity sector and targets the energy sector specifically. How effective these initiatives can become will have a large influence on sourcing the finance and building infrastructure.

Working with the Local Population

Cornelis stresses to The Borgen Project the need for a more in-depth and personalized approach to energy projects as opposed to one-shot solutions. Cornelis states that it is essential to spend time understanding the mindset of local communities and working with them as to what the best solution could be to support their needs, as often what the West deems as superior solutions, may not be suitable for a small African village.

To achieve this there is a need for intermediaries, not just engineers, to engage with local leaders and provide full education and training to local populations to ensure they can operate new equipment in the best ways possible and develop new skills in the long run. Cornelis emphasizes, “It is really about putting people at the center, not only as consumers, like real receivers of a solution… empowering people as citizens with rights.”

Indeed, Africa is a continent endowed with immense potential in renewable energy resources that is largely untapped as of yet. In fact, Africa is home to 60% of the best solar resources globally, yet only 1% of installed solar PV capacity, IEA’s Africa Energy Outlook 2022 reports. By changing these stats, Africa could see prosperity and poverty reduction on a continental scale.

This blog is authored by Saul Gunn. It is originally published by Borgen Magazine

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