Harnessing Africa’s Renewable Energy Potential to Drive a Net-Zero Transition
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Harnessing Africa’s Renewable Energy Potential to Drive a Net-Zero Transition
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By, Martin Nkonge, Botho Researcher
June 1, 2023
Africa’s renewable energy potential is enormous, though still largely unfulfilled. According to the International Energy Agency (IEA), 60% of the world’s best solar power resources are in Africa, although only 1% of that capacity has been actualized. Similarly, Africa accounts for less than 1% of the wind global capacity despite having a wind energy potential of 180,000 terawatt hours (TWh) annually.
African countries are keen to tap into the global green hydrogen value chains, with the potential to meet 5-10% of global green hydrogen demand by 2050. Further, in an effort to reduce the global carbon footprint, the continent is accelerating its transition from fossil fuels to renewable energy. Both objectives are reliant on the progressive nature of a renewable energy sector that has largely remained under-developed due to multiple and interlinked barriers.
Considering the existing hurdles, harnessing the power of regional projects, developing targeted de-risking mechanisms and embracing innovative technologies will be important in realizing Africa’s renewable energy potential and achieving a Green Hydrogen Transition.
Power Pools will drive utility performance and bridge regional power gaps
Unlocking the potential of a regional energy market in Africa will require the pooling of regional resources and national grids in an effort to improve the reliability of energy and lower the costs of production. Africa already has five regional power pools, but these have not been as effective in bridging the gap between supply and demand.
For instance, the amount of power utilities that cross borders among member states of the West African Power Pool (WAPP) is only 3% of the total power generation. Creating liberalized power markets or bundled utility markets within the current power pools in Africa will be necessary in abating the single-buyer problem that currently ails these existing power pools. Streamlining regional power trading will not only improve utility operational performance, it will also enhance the bankability of new renewable energy projects in the region and create reliable transmission corridors across the continent. The regional cooperation that comes with power pooling would be a welcome remedy to tackle the disjointed technical and economic aspects of the renewable energy sector in Africa.
Financial de-risking as a potent tool to drive renewable energy investments
The African renewable energy market has significant potential for improvement, although it is disadvantaged by current financial practices. Private sector investments in the renewable energy sector in Africa are relatively rare, partly due to institutional weaknesses coupled with political instability in some regions. Only a few countries in Africa have attempted to mitigate the off-taker risk by adopting viable de-risking tools.
Kenya, for instance, acquired the World Bank Partial Risk Guarantee (PRG) to attract investors in the country. Angola implemented the Multilateral Investment Guarantee Agency (MIGA) political risk insurance to cover for any off-taker risks and reduce the overall cost of producing energy. To achieve parity, more African nations have to explore the various mechanisms to de-risk renewable energy projects for increased private capital. Besides well-designed financial incentives and financial de-risking instruments, policy de-risking mechanisms such as strong and independent regulatory bodies will pave the way for increased private participation, thus boosting the growth of the renewable energy sector in Africa.
Modernizing the grid and localizing technology as alternative approaches
Technology is a key element of the renewable energy sector in Africa, although it still remains underdeveloped, as many countries continue to rely mostly on imports. For this reason, the increasing energy demand in the continent will soon stress the few companies that are focusing on the domestic production of renewable energy. With limited manufacturing expertise, Africa will need to scale up the skills, design capability, manufacturing process, as well as the engineering management of the renewable energy sector to unlock its full potential.
The African Union is committed to supporting the renewable energy sector and enhancing energy efficiency through the Just Transition programs, although greater synergies with stakeholders in terms of skills, knowledge, and resources are necessary to localize energy technologies in the region. African-led pathways will also promote this localization pioneered by the government sector through phased approaches, and fostering both local and international partnerships.
Martin Nkonge is a Researcher at Botho Emerging Markets Group