By Anders Lorenzen
The poorest continent on Earth, Africa, has so far struggled to join fully the clean energy race due to a lack of financing options. But a new report has found that Sub-Saharan countries saw a record spike in renewables investments in 2018.
The report by Blomberg New Energy Finance (BNEF) found that, excluding South Africa, Sub-Saharan countries are likely to install 1.2 gigawatts (GW) of renewables capacity by 2021 as a result of 2018 investments. In 2018 $2.8 billion was spent on renewables projects, a regional record and an increase of $600 million more than 2017 according to research by BNEF. The report said that more renewables investment flowing to the area than ever before is a testament to how cheaper technology, investor familiarity and subsidy schemes are helping clean energy spread across the continent.
South Africa is seen as the biggest clean energy market amongst sub-Saharan African countries. But this research shows that clean energy investments are now spreading to many more countries. Many utility-scale solar projects are being developed in countries that have not built much renewables infrastructure to date. Some 1.2GW of PV is expected to come online in 2021 outside of South Africa – that is more than twice the amount commissioned in 2018.
Part of this shift is due to incentives backed by assistance from multilaterals who are a key source of finance and has helped to roll out renewable energy auction programs. For instance, The World Bank’s Scaling Solar program awarded just under 400MW of PV capacity over 2015-18, equivalent to 39% of the total installed outside of South Africa over the same period. Such auctions have yielded some of the world’s lowest bid prices for solar power – several projects have won capacity at prices under $0.04/kWh.
Hurdles on the horizon
However, despite this, some hurdles remain. On the one hand, such auctions help prove that large-scale renewables can be procured throughout the region and help develop local familiarity with clean energy. Many are bundled with features designed to reduce project costs and risk, such as pre-secured sites.
But a BNEF analyst, Antoine Vagneur-Jones, highlights some warning signals: “…. that helps lower prices, but can also lead to government expecting to procure power at the same rates for projects that are not backed by such frameworks.” In addition, several sub-Saharan African countries see an apparent surplus in installed power generation capacity. Taken at face value, this can weaken the case for adding renewables. But plant availability issues and transmission constraints mean that the gap between supply and demand is often less clear than it would seem.
There is also the issue of take-or-pay contracts which means that producers are remunerated for power that is not consumed either by attempting to terminate or renegotiate contracts. Governments are striving to reduce their obligations in countries such as Ghana, Kenya and South Africa. The authors of the report argue that it will be vital to sign procurement agreements if clean energy is to grow at scale.
The report further sets out that the recurrent shortages of hydropower combined with a shift away from financing by such key players as the African Development Bank are increasing the attractiveness of clean energy. However, it is argued that the establishment of regional power markets will be crucial in making sure that countries move away from poor bilateral agreements. They also point to the worry caused by lack of private investments in transmission infrastructure, concentrated power markets, and small generation fleets which could hinder their growth. In addition, developers having access to guarantees and hard currency lowers barriers to investment, but risk perceptions are such that access to local financing for large-scale renewables remains a distant prospect.
Many regions in Africa, especially rural communities, lack access to electricity due to non-existent infrastructure. Many have argued that renewables are perfectly positioned to fill the gap as communities can be electrified without adding electricity infrastructure such as power lines.
The report was produced with support from the UK governments, Department for International Development (DFID) and can be found here.