Continuing technology advances, falling prices and new financing models means renewable energy projects have become increasingly practical in sub-Saharan Africa.
But while the sharply falling price of renewable technologies means projects are less dependent on subsidies, policy and regulatory uncertainty in some key African markets is driving a slowdown in renewable energy investment, according to a number of recent reports.
“The policies in a large portion of African countries are either non-existent or very vague,” Derek Campbell, Bloomberg New Energy Finance analyst for sub-Saharan Africa told AFKInsider.
”The trends are, if you look at the regional level, as ambiguous in Africa as they are anywhere else,” Alexander Ochs, director of the Climate and Energy Program at Worldwatch Institute told AFKInsider.
The International Energy Agency’s IEA ‘Africa Energy Outlook’ report released Oct. 13 estimates “the sub-Saharan economy quadruples in size by 2040, the population nearly doubles (to over 1.75 billion) and energy demand grows by around 80 percent. Power generation capacity also quadruples: renewables grow strongly to account for nearly 45 percent of total sub-Saharan capacity, varying in scale from large hydropower dams to smaller mini- and off-grid solutions.”
But the report warns that this growth “must be accompanied by broad governance reforms that include transparent management of energy resources and revenues if they are to put sub-Saharan Africa on a more rapid path to a modern, integrated energy system for all.”
“Governance indicators are generally weak in sub-Saharan Africa, compared with other parts of the world (although stronger in some southern parts of the region, notably Botswana, Namibia and South Africa), implying substantial risks arising from policy and regulatory uncertainty, inadequate protection of contracts and property rights, poor-quality administration and the actions of governments that are only weakly accountable to their citizens,” states the report.
More renewable-energy projects will be commissioned this year in sub-Saharan Africa than were added from 2000 through 2013, according to an August 21 report from London-based research firm Bloomberg New Energy Finance.
According to Bloomberg, renewable energy investments – not counting utility-scale hydropower – in the region is estimated to hit $5.9 billion this year and $7.7 billion in 2016. That’s compared to an average annual investment of $1 billion from 2006 through 2011.
“In Sub-Saharan Africa there are some good examples of strong policies and long-term power purchase agreements and these are the countries attracting the majority of clean energy investment,” Bloomberg’s Derek Campbell told AFKInsider.
While sub-Saharan Africa is one of the best new markets for onshore wind, small-scale and utility-scale solar, and geothermal power, the Bloomberg report noted that the investments are predominantly expected in South Africa, Kenya and Ethiopia.
“The three largest markets for utility-scale renewable power over the 2014-16 period are forecast to be South Africa with 3.9 gigawatts likely to be installed, the largest part of which will be wind, followed by solar PV with a smaller amount of solar thermal; Kenya with 1.4 gigawatts, mainly geothermal and wind; and Ethiopia with nearly 570MW, largely wind with some geothermal,” states the report
The annual market rankings of the world’s 100 most attractive power markets from London-based analysis firm Precergy, shows only four sub-Saharan countries in the top 50, with even South Africa only ranking 42nd. According to the report, though sub-Saharan Africa is an increasingly attractive investment option, there are many reasons for the overall low scores, “not least the greater levels of political risk and increased difficulty in doing business.”
South Africa and Kenya also ranked high in Ernst & Young‘s Renewable Energy Country Attractiveness Index released in September.“The opening of Round 4 of South Africa’s renewable energy procurement program sees a further 1.10 gigawatts of capacity up for grabs, with preferred bidders expected to be announced in late October, notes the report. “The removal of import duties on solar PV equipment in Kenya, though sparking outrage from domestic manufacturers, is likely to improve deployment prospects by pushing down project costs and offering developers greater flexibility.”
”There are countries that have become very, very serious about sustainable energy solutions, including renewables,” Worldwatch Institute’s Ochs told AFKInsider, citing Kenya, Tanzania, South Africa and Ethiopia. ”And then you have countries where the situation is a lot more difficult like Nigeria and many other countries throughout the continent where there are no commitments in place yet, or where earlier commitments have been somewhat weakened.”
Nigeria is left out of these rankings because even though Nigeria has seen ambitious plans for large renewable power projects mooted over the years, they “have yet to put in place the stable policy regime to reassure investors,” according to Ernst & Young.
“While Nigeria has introduced an attractive feed-in tariff (FiT) and ambitious renewable energy targets in their Nigeria Renewable Energy Master Plan we feel there are still some outlying issues that need to be addressed,” Bloomberg’s Campbell told AFKInsider.
Bloomberg’s concern is the FiTs multi-year tariff order (MYTO) where it’s reviewed every five years and so will impact existing power purchasing agreements.
“The MYTO only runs till 2023 and for developers who for a utility scale project will generally seek project finance with a tenor of 15-20 years the risks are just too high and lending institutions would more than likely not borrow to developers.” Campbell told AFKInsider.
Solar could be the world’s largest source of electricity by 2050, outpacing fossil fuels, wind, hydro and nuclear power, according to two International Energy Agency technology roadmaps released in September estimates that solar photovoltaic systems would account for 16 percent, while solar thermal electricity could provide an additional 11 percent.
The renewable energy industry accounted for 22 percent of total global power generation in 2013, according to the June REN21 2014 Global Status Report, with renewables accounting for 56 percent of all net additions to global capacity. According to an Oct. 2 Bloomberg New Energy Finance report, “$175 billion was spent globally on renewable energy projects during the first three quarters [of this year], up 16 percent from the same period last year.”
But while the African solar PV market has now reached 11 gigawatts, “Growth constraints for PV across Africa include weak energy infrastructure, corruption, and political and social instability,” according to a September market report from NPD Solarbuzz which tracks 29 African countries.
The central message of these reports is the need for clear policies which can lower risks and inspire confidence for investors. According to the International Energy Agency, where there is policy incoherence or confusion – dubbed “stop-and-go policy cycles,” investors pay more, consumers have higher energy costs, and many projects simply fail to materialize.
“Many countries have announced plans for creating feed-in tariffs or renewable energy targets, but at the moment this is not enough,” Bloomberg’s Derek Campbell told AFKInsider. “Tax-based mechanisms are the most prevalent, but these are for import duties and VAT (Value Added Tax) exemptions which any sector can apply for,” said Campbell.
But policy mechanisms did evolve a bit in 2013, according to REN21’s 2014 report, including an increasing differentiation by technology and an increase in competitive bidding. The report also notes that a growing number of countries are developing targeted strategies to transition to renewable energy. Djibouti and Ghana are targeting 100 percent electricity from renewables by 2020. For Madagascar the target is 75 percent by 2020; Gabon is 70 percent by 2020; Uganda is 61 percent by 2017; and Cape Verde targets 50 percent by 2020, according to REN21.
“We’ve looked more into the countries on the western side of the continent with a new report that we’re coming out with soon where ECOWAS (Economic Community of West African States) is now aiming at providing guidance based on a regional policy for haw national policy and implementation plans would look like,” Worldwatch Institute’s Ochs told AFKInsider.
The Oct. 13 Africa Energy Outlook report notes that three actions “could boost the sub-Saharan economy by a further 30 percent in 2040, including an additional $450 billion in power sector investment, deeper cross-border cooperation on large-scale generation and transmission projects, and more transparent policies and governance of energy projects.
“Tackling these (governance) weaknesses will require actions across a broad front; particularly important elements from an energy perspective are investment in the skills and knowledge required for a modernizing energy economy and the transparency and consultation on energy policies that is essential to winning public consent,” notes the Africa Energy Outlook report.
”More and more countries are becoming very serious in terms of policy commitment and we’re seeing results now coming in,” Ochs told AFKInsider. “I think overall, most countries have a commitment in place, but the difference is how far a long they are in terms of redesigning the concrete policies and plans.”
“What we really need to see is policy certainty and renewable energy specific policies and not general policies,” Bloomberg’s Campbell told AFKInsider.