Africa must step up investment in energy to power real growth

Sosian Energy at Menengai crater in Nakuru county on June 8, 2023. [Kipsang Joseph,Standard]

Africa remains severely under-electrified, particularly across most of sub-Saharan Africa. According to the World Health Organisation, over 700 million people across the globe have no access to electricity and nearly eight out of ten of those live in Africa.

If you exclude South Africa, with its higher level of installed (albeit regularly stressed) capacity, one billion people living across 48 African countries have roughly the same access to installed electricity capacity as Germany’s population of 83 million, states the International Energy Agency (IEA).

The figures are in stark contrast to other regions. The IEA notes that access to power in the Middle East and North Africa region stands at 97 per cent, in Latin America and the Caribbean it is over 98 per cent, and in South Asia nearly 96 per cent – all far ahead of the 50 per cent in parts of Africa.

It will take huge investment to keep up with population growth on the continent, now the fastest growing in the world, and to connect those that remain unable to reliably access energy.

Studies show improving access to power will accelerate development, speed up economic growth and help lift people out of poverty. Increasingly, access to energy is considered a human right and universal access to energy is enshrined in the UN’s Sustainable Development Goals.

Africa has no option but to set ambitious targets and to follow them through. There is a wide spectrum of access to energy, both within and between countries.

Some countries have been incredibly successful in attracting investment through Independent Power Producers (IPPs) to add large amounts of new capacity from different generating sources – to the point where some countries, like Ghana, have surplus capacity. 

In addition, the size of renewable projects being developed is growing. Where once they rarely reached triple-digit megawatt capacity, they have now multiplied in size – this includes the development of whole complexes of solar plants rather than individual facilities, following a trend that we have long seen in the Middle East.

However, other nations are still struggling to add capacity and get the IPP model off the ground. So, in effect, there are many different Africas, with different countries on different parts of the spectrum.

There has recently been a shift in focus from merely investing in generating capacity to also investing in transmission and distribution grids and in managing energy supplies more efficiently.

Countries are considering how best to leverage private capital to invest in transmission and distribution, with some governments looking at whole or part privatisation of their grid systems to improve both access and reliability.

One of the interesting trends is the way construction of mini-grid or other off-grid solutions has taken off, particularly in remote, rural regions far from the main electricity network.

Nigeria, Ethiopia, Zambia and Kenya are at the forefront of this trend. The World Bank calculates that the number of mini-grids across sub-Saharan Africa has risen from 500 in 2010 to more than 3,000 today, with a further 9,000 planned over the next few years.

The cost of producing electricity from solar mini-grids could fall to as low as USD0.20/kWh by 2030. That would make it the least costly solution for much of the population, easily out-competing wind and gas.

Meanwhile, the private capital and international investment needed on the continent continues to elude it.

In 2021, investment in renewables across Africa accounted for just 0.6 per cent of global investment in solar and other clean energies, marking its lowest level for ten years, according to BloombergNEF.

The concern centres on whether the offtakers from these projects – national utilities and public authorities – are creditworthy and will remain so over the project’s lifetime.

Historically, these offtakers have operated at a loss due to a variety of factors, including transmission and distribution-related losses and under-pricing of electricity.

After the economic turmoil of recent years, particularly the impact of the Covid-19 pandemic, the Ukraine war and supply chain disruptions, public finances have been strained even further.

This remains an issue even in countries that have been successful at expanding their generating capacity and energy access, because they end up selling more electricity at an even bigger loss.

Multilateral agencies can do more to build capacity and resourcing to help these entities operate more efficiently and cover the cost of operations.

Given the increasing role of intermittent, renewable electricity, their assistance with capacity management practices and technologies will be key to ensuring countries make the most of what they have.

Such agencies also provide credit support, effectively acting as a backer of last resort and helping other private investors look beyond the offtaker’s credit risk to provide capital.

In global terms, the challenge, though great, is not insurmountable. The IEA estimates that annual investment of USD25 billion would allow Africa achieve universal energy access by end of the decade – this amounts to only about 1 per cent of global energy investment.

By harnessing the unique African creativity together with global investment and expertise, this goal could be well within our reach.

The writer is a Senior Associate in Allen & Overy’s Projects, Energy, Natural Resources and Infrastructure practice based in London