Africa is endowed with abundant renewable energies. The continent has the world’s richest solar resources due to its high irradiation. It also benefits from crucial wind potential – especially in North and East Africa – and hydropower, which currently make up two of its main renewable sources due to its major river basins. Moreover, geothermal resources can be found throughout Africa, although the bulk of the potential is concentrated in the East Africa Rift System.
Overall, according to the International Energy Agency (IEA), Africa’s renewable energy power potential is substantially larger than the current one as well as the projected power consumption for the entire continent.
Such renewable potential could massively help overcome one of Africa’s main socioeconomic development challenges, namely, lack of access to electricity and clean cooking. Today, about 600 million people do not have access to electricity while around 900 million people lack access to clean cooking – almost entirely located in sub-Saharan Africa. These two major constraints have severely hindered the continent’s development. In the past years, some progress has been registered in several countries, including Kenya, Ethiopia, Ghana, Senegal, and Rwanda. However, in the short term, the Covid-19 pandemic has dismantled the steady progress that had been achieved in recent years to increase access to energy. In the longer term, the expected population growth will only exacerbate such challenges, as current and planned efforts to provide access to modern energy services barely outpace population growth.
Despite these challenges, renewable energy sources could help Africa provide modern services to its people both in urban and rural areas, while unleashing its socioeconomic development in a sustainable way. Africa has the possibility of planning the best solution to build new networks that can receive and cope with high shares of variable and decentralized renewable power generation compared to developed countries, which had to integrate renewables in their existing power systems. Furthermore, renewable energy can contribute to electrify Africa’s rural and remote areas, where around three-fifths of the sub-Saharan African population currently live. Indeed, renewable energy provides the possibility to develop small- and off-grid power solutions for power supplies to rural dwellers and economic activities alike.
However, Africa’s renewable energy potential is still largely untapped due to multiple and interlinked challenges and barriers. So far, African states have only installed 5 gigawatts (GW) of solar PV, amounting to less than 1% of the world’s total solar PVs, despite the continent’s extensive solar potential. Other renewable energy sources have experienced similar slow developments. Policy uncertainties, inadequate infrastructure and grids, unstable financial situations, and limited access to private and foreign financing are only some of the main barriers hindering the full exploitation of renewable energy in Africa.
Many African countries have established policies for the promotion of renewable energy sources over the past decade. Forty-five African countries have set targets for — and activities to support — renewable energy expansion under the Nationally Determined Contributions (NDCs) within the Paris Agreement framework. Moreover, many countries – including Morocco, Senegal, Egypt, South Africa and Kenya – are demonstrating encouraging trends around new renewable energy capacity underpinned by increased political commitment and fast-declining prices for renewable energy.
Notwithstanding the positive momentum, the legal and regulatory frameworks often remain patchy and inconsistent. Sound regulatory frameworks play a crucial role in attracting domestic and foreign privateinvestments for renewable energy. Political commitment is not the only prerequisite for a full development of renewable projects. Kenya epitomizes how a solid and well-developed regulatory framework, combined with innovative off-grid solutions, can attract the domestic and foreign private investments necessary for a successful expansion of access to electricity in the country.
As such, financing renewable energy projects is a primary priority and a major challenge. Africa needs to create a more favorable environment to attract private and foreign investments to fully harness its renewable energy potential and provide modern energy services to its people. Historically, a combination of political and governance-related risks — such as corruption and social unrest — and commercial risks — such as the capacity of consumers to pay their bills — has discouraged private and foreign investors. It is worth noting that perceived and actual investment risks are higher in Africa than in developed countries.
Africa needs to scale-up in electricity sector investments for generation and grids, for which it currently ranks among the lowest in the world. The African continent currently accounts for just 4% of global power supply investment despite being home to 17% of the world’s population. Investment for a more reliable power system, specifically regarding transmission and distribution assets, is essential. In other words, African countries need to improve their energy infrastructure maintenance practices in order to curb their losses from the current 16% to a level resembling that of advanced economies (estimated at less than 10%). These factors represent further obstacles to full cost recovery for utilities, raising capital costs, and creating important off-taker risks for independent power producers.
At the domestic level, African countries will be required to reform their power sector to create sufficient opportunities for investments, while strengthening regulatory frameworks. Governments should especially focus their reforming efforts on their power utilities and energy subsidies. Reforms and clear regulation frameworks can improve the financial and operational efficiency of utilities, many of which have been struggling with financial issues and been heavily subsidized by the state. Indeed, the government’s involvement in national utilities has caused high political interference, which has led to poor management and weak financial conditions. Several African countries have begun a liberalization process aimed at improving management standards, securing energy supply, and encouraging investments. However, a liberalized market may encounter some challenges to provide access to modern energy services as most households in Africa, particularly in rural areas, have limited budgets. That would limit energy suppliers’ ability to rely on sales revenues alone. Therefore, it would be essential to reform energy subsidies; after all, governments spend around $20bn each year in inefficient electricity utilities and subsidies for oil-based products. Progressively phasing out fossil fuels subsidies, whilst preserving and protecting lower income classes through reformed and targeted subsidies, could raise financing for renewable energy projects on top of reducing macroeconomic inefficiency. Fossil fuel subsidies are estimated at 5.6% of sub-Saharan African GDP. Furthermore, these decisions would reduce investors’ risk premiums, while increasing its public funding to attract private investments.
At the continent level, higher power sector integration could contribute to the development and use of affordable and reliable renewable energy for the African people. Indeed, it would provide the right condition of economies of scale for large renewable energy projects. However, governments and utilities across the continent need to step up coordination to increase investment in transmission infrastructure, establish regional markets, and improve regulation for cross-border trading (e.g. definition and implementation of regional transmission tariffs).
At the international level, multilateral financial institutions can play an important role in attracting private investments, contributing to de-risking investments in renewable energy in Africa. Multilateral financial institutions and foreign public investors — including the European Union — can increase their efforts to invest and sustain investments in overcoming barriers to the development of both large and decentralized renewable projects.
The experience of millions of people who lack access to energy highlights Africa’s energy paradox: though it has vast energy resources, at the same time, it experiences extensive issues around energy access.
Africa’s ability to exploit its natural resources should not be limited to its political will alone: it ought to set the right conditions to attract private and international investments, which are essential for Africa’s sustainable energy and economic future. The difficulty is to mobilize and attract investment needed to harness these resources, which is strongly related to governance and institution quality. Therefore, Africa needs to address its domestic issues implementing several reforms to enable and incentivize private and international financial support for its quest for access to energy and sustainable development.