A Tale of Opportunity
This piece first appeared in the March 2017 issue of ESI Africa and reposted with permission.
Accessible, reliable, affordable electricity – this makes the difference between a prosperous society that is marked by expanding opportunity, and a society where people struggle with poverty and vulnerability.
Africa’s stark reality is that despite hosting 13% of the world’s population, the continent only supplies 4% of the world’s energy. The challenges that arise from energy poverty run the gamut from children struggling with homework under poor lighting, to manufacturers not meeting demand because of power outages. Although there have been significant strides in recent years, 68% of the continent’s population still lacks reliable, continued connection to electricity.
Insufficient energy supply undermines a nation’s ability to unlock the potential it could gain from its human and natural resources. A story that is too familiar in Africa, a continent with a burgeoning population whose growth has outstripped the pace of energy supply.
Yet while this may seem to be a story solely focused on challenges, it is not. Rather it is one of opportunity – for Africa’s 96% energy deficit is one that needs to be filled – there are homes to be electrified, grids to be built, factories to be powered and engineers to be trained.
When Africa’s energy challenges are viewed from this perspective, we instead begin to see there lies the opportunity for innovation, greenfield technology, leapfrogging and climate-smart investments that can solve the energy gap and set new global standards for energy management and production.
Already there is evidence of the power of such a perspective. In March 2017, Morocco opened the world’s largest concentrated solar power plant. Similarly, Kenya’s Olkaria geothermal station hosts the world’s largest single turbine geothermal plant, setting new standards for geothermal energy production while supplying almost 50% of the country’s energy needs.
Financial institutions such as the African Development Bank through its traditional lending and its new infrastructure financing arm Africa50 and the New Deal for Energy are exploring new financing mechanisms to de-risk the cost of large-scale infrastructural projects and accelerate crowding in of additional investment money for energy. Bilateral programs such as Power Africa and the World Bank’s Africa Energy project are also focusing a laser eye on the Africa energy opportunity through billion-dollar investments.
The opportunity doesn’t stop with the large financiers.
Smaller partners are looking at ways to ensure that under-served populations who may still be a long way from a grid connection are connected to electricity through mini-grid production and solar lighting. Tech savviness of companies like the Rocky Mountain Institute which helped build a renewable energy blueprint for Rwanda and D.Light, which enables the purchase of solar lighting units through pay-as-you-go options through mobile money in Kenya, are pushing renewable energy adoption as a first option for many populations.
Africa’s energy gap is providing an unparalleled opportunity for new benchmarks and making giant leaps.
So, what is the last frontier in enabling this opportunity to become connected homes, schools, and manufacturing plants?
The first is modeling and curating the financial case for these opportunities that help define and unlock the energy market in Africa – effective clear investment cases that are quantifiable and attractive for diverse sets of investors, across a variety of countries.
Energy opportunities are seen to be national in nature, and while we often assess Africa challenges at a continental level, the opportunities are often within a country level, policy, and geographical context. But regional initiatives such as the South African Power Pool (SAPP) and the West African Power Pool (WAPP) can drive these opportunities much faster and more efficiently.
At the fore is Africa Green Co (AGC), who have developed an exciting new public-private partnership model to help catalyze more investment in African energy projects, to leverage the existing market opportunity to provide intermediary power offtaker services. Their work has demonstrated how support to utilities and power pools are so critical to energy development and need to be at the center of the conversation.
Their proposed structure has been greeted with general approval from the market, which recognizes that the current model for Africa’s power project delivery is inadequate to address the financing needs of its power sector and a more efficient and innovative approach is required. If such an initiative takes off, it will give more confidence to investors to boost the generation of power on the continent.
Another hurdle to overcome is that of regulatory frameworks that limit market expansion both for producers and consumers. In many African countries, power production and distribution is still a monopoly. Yet independent power producers can accelerate power distribution to underserved and geographically marginalized populations that the national grid may take a long time to reach. And in the not too distant future when the grid does arrive, they can sell additional power to the grid, meaning less need for investment by government to serve new locations.
Overcoming such bottlenecks is instrumental in widening the market, connecting to the consumer base and bringing in new work opportunities for entrepreneurs and engineers.
With the right approaches in boosting energy storage capacities and liberalizing the market through the promotion of distributed networks, the energy sector could become the “new telecommunications” sector, bringing a revolution similar to the one we have seen via mobile phones on the continent over the past 15 years.
Africa’s energy market is ripe and if tailored right, is poised for success that can be transformative for individuals, economies and innovative new practices. Are we ready to turn problems into prospects?