It is an exciting time to be part of the ongoing energy revolution in Africa. For many decades, our energy mix has been dominated by conventional power systems characterised by reliability and expansion challenges. As a result, energy poverty and local economic stagnation have been rife for far too long.
Now, we are seeing clean energy technologies such as solar power being adopted by several African countries to diversify power generation and, more importantly, provide electricity to the most vulnerable and neglected communities, right at the point of need.
As with many infrastructural development drives, funding is always key. Access to finance for renewable energy projects can be very difficult especially in new and emerging terrains such as Africa’s renewable energy market. For many years, it seemed like there had been a hinged cover- a lid, restricting the advancement of renewable energy in the most electricity-deprived continent.
Fortunately, with renewable energy technologies like solar power, developers are able to scale deployment to relatively cost-effective installation sizes. These are tailored to meet the needs of power consumers without the need to build several spans of power lines, substations or several high voltage transformers to step down voltages to usable levels, thousands of kilometres away from generation stations. For the first time ever, some towns and villages across Africa which lacked access to electricity are now being connected through solar power micro- and mini-grids.
With these developments, I perceive hopefulness, sanguinity and brighter days in the not too distant future. However, in the presence of my justified optimism, access to finance still potentially holds a major key to unlocking the barriers to access to energy for the millions of African households without electricity.
“600 million Africans don’t have access to electricity — that’s got to be the biggest market opportunity in the world. There are opportunities right across the spectrum; from solar home systems in rural areas to mini-grids and commercial and industrial installations.” These were the words of Geoff Sinclair when asked about Clean Energy Financing in Africa. Geoff is a Leader at Renewable Energy Performance Platform (REPP).
According to the International Renewable Energy Agency (IRENA), Africa has the least proportion of its people with access to reliable electricity. Surprisingly (or not- depending on your viewpoint on global issues), IRENA also confirmed that between 2015–2016, on average, Africa received the least worldwide flow of finance from governments, public and private financial intermediaries, private firms and investors compared to other continents. $4.8 billion out of $296.6 billion. That’s 1.6%!
However, since then, African governments, the World Bank, Africa Development Bank (AfDB) and investors (local and foreign) have shown progressive interests to address this lop-sided finance flow by developing favourable regulations, providing funds and engaging developers in the frontline trenches of the battle against energy poverty.
Since 2013, the AfDB has issued a total of about $1.5 billion dollars in green bonds. Nigeria alone issued $29.7million dollars bond for solar power and forestry projects in 2017. Other pan-African big players are also expected to follow suit.
Earlier this year, the world-renowned credit rating agency, Moody’s predicted that the green bonds market will grow by 20% to $200 billion dollars in 2019. A relatively significant chunk of this is expected to flow Africa’s way.
Moody’s report recognises the alignment of long-term financial commitments with the use of the United Nation’s Sustainability Development Goals as an opportunity to expand the conduit of sustainable investment instruments to achieve infrastructural, environmental and social objectives, not only in Africa but worldwide.
Organisations like Renewable Energy Performance Platform (REPP) work to accelerate the growth of sub-Saharan Africa’s renewable energy sector by helping developers overcome barriers to finance. Geoff Sinclair explained that the organisation does this by working to mobilise private sector development activity — and investment — in small to medium-sized renewable energy projects, typically up to 25MW. Their programme is supported with £148m funding from the UK’s International Climate. Geoff adds that “what is needed are risk-tolerant financiers that are willing to work with developers and help build a strong renewable energy development and financing ecosystem in the region”.
All On is another good example of such “risk-tolerant financiers”. The company has “made (at least) 12 impact investments, invested in two financing facilities, and awarded 7 grants to clean energy firms recently. This includes the Bank of Industry and All On’s N1 billion ($2.8 million) Niger Delta Off-Grid Energy Fund for Nigerian companies.
In East Africa, the Development Bank of Ethiopia created a $20 million fund with Lighting Africa/ the World Bank. In the first 18 months of operation, about 1 million Ethiopians benefitted with access to portable solar home lighting power systems and other power products. As a result, the fund was subsequently granted an additional $20 million in financing.
With accessible and innovative funds as these, Africa’s renewable energy market is gradually lifting the hinged cover- the lid which has throttled its growth and development. Pay-As-You-Go payment arrangements, leasing and structured financing models are also now being provided as options to domestic and commercial clean energy customers to ease payment constrains.
As more rural households, farmers and businesses are alleviated from energy poverty, we can expect a significant boost to the standards of living of millions and the local economies of thousands of communities.
By Lanre Okanlawon