Solving Africa’s Power Problem

Over two-thirds of Africa’s people lack access to electricity. Approximately 68pc of the continent – over 800 million people – lacks access to electricity. This not only leaves them behind in terms of access to lighting, heating and cooking, but also cuts them off from the opportunities electrification brings in areas such as education, entrepreneurship and health care. Where electricity is available, it is often prohibitively expensive. Sub-Saharan Africa has some of the highest electricity tariffs in the world – in other countries, for example, residential tariffs are more than double those in the United States.

Africa’s economic growth will be dependent on the continent’s capacity to efficiently sustain its industrialization projects. Africa’s continued economic transformation is changing the socio-economic landscape of the continent evidenced by rapid urbanization. According to the Study on Programme for Infrastructure Development in Africa (PIDA)’s Africa Energy Sector Outlook-2040, Africa’s per capita energy needs are projected to increase by 4pc per annum due to socio-economic progress. Overall, energy demand in Africa will increase by an average of 5.7pc per annum by the year 2040.

The African Development Bank (AfDB) estimates energy deficit costs in Africa to be, on average, 2-4pc GDP of annually. In order to optimize Africa’s growth, this deficit needs to be urgently and consistently addressed. Boosting generation has been a focus of solving this challenge in many countries, but transmission remains a binding constraint. Investment in energy generation has accelerated over the past twenty years – grid-connected capacity grew by 23pc between 1990 and 2013, with 90pc of the additions made after 2000 – and is expected to continue growing. As capacity increases, the continent will increasingly look to cleaner energy sources.

Currently, 45pc of Africa’s electricity is generated through coal; by 2040, gas and renewables are expected to account for 25pc and 15pc respectively. This is encouraging, as demand far outstrips supply: AfDB estimates that approximately 30 billion dollars of additional annual investment in power generation will be required to meet the continent’s energy needs by 2040. However, this must be accompanied by investments in improving and maintaining transmission and distribution.

Losses related to transmission and distribution average 18pc across the continent if South Africa is excluded – double the global average. This not only reduces the energy available for use but also increases its already exorbitant price tag. Unbundling transmission and distribution from generation and encouraging private sector involvement may help to focus scarce resources, improve management and reduce these losses – in 2014, 21 of the 48 Sub-Saharan African countries had vertically integrated utilities with no private sector involvement.

Africa needs innovative, collaborative and diversified approaches to energy. Public-Private partnerships, increased private sector involvement and increased government capacity will enable energy sector players to: Collaborate on new technologies to scale up energy access through grid and off-grid alternatives; harness cross-sector cooperation necessary for efficient energy generation, transmission and consumption; share information, statistics, projections and outlook necessary to inform energy policy in Africa.

According to PIDA’s Africa Energy Sector Outlook-2040, energy efficiency policies could save Africa 16.7pc generation capacity and 16.6pc of the energy produced; enhance institutional cooperation to drive solutions and financing for energy sufficiency in Africa, including ensuring that available renewable energy sources are optimally used to avoid energy waste. Off-grid energy is an increasingly important complement to grid electrification but requires additional financing and regulatory support. The grid will not reach everyone. Modular off-grid alternatives will serve as critical complements to grid electrification. Tens of millions of people on the continent make use of solar lanterns, mini-grids, and solar home systems.

New ‘pay-as-you-go’ payment models – such as those offered by M-KOPA, Mobisol and Off-Grid Electric – have dramatically increased the accessibility and affordability of solar home systems, in particular; these devices now reach 450,000 households or 2.25 million people. Meanwhile, mini grids are expected to provide access to electricity to 140 million people by 2040.

However, currently, off-grid enterprises face a number of hurdles to establishment and scale, including out of date regulation (particularly for mini grids), difficulties accessing rural areas and finding skilled human resources, and financing challenges. Certain off-grid alternative providers have now incorporated training and human resource development as part of their business models, serving the energy and skill needs of their employees and local partners.

Finance is perhaps the most pressing challenge facing off-grid enterprises. Additional working capital is required to expand operations and provide consumer finance – a critical enabler of demand – but commercial providers remain skeptical of even the most successful providers and are reluctant to provide the necessary finance. There is a need to find innovative ways of addressing the financing gap if the promise offered by off-grid technologies is to be fulfilled.

New and existing partnerships between Governments, the private sector and regional development institutions such AfDB are fundamental in solving this financing challenge. AfDB’s New Deal on Energy for Africa and the Transformative Partnership on Energy is one such approach. As Africa looks to further electrify through aggressive expansion of its grid, it must not forget that it now has many more options open to it than were available even five or ten years ago. Grid expansion must be accompanied by creativity in off-grid solutions, as well as a diligent and realistic account of what it will take to create not just a far-reaching grid, but one that is lasting and functional.

Ambassador Amina Mohamed is a Cabinet Secretary for Foreign Affairs of Kenya and Kenya's candidate for the position of chairperson of the African Union Commission (AU). This piece is the fourth and last op-ed series provided exclusively to Fortune.

Published on Jan 17,2017 [ Vol 17 ,No 872]



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