Renewable Energy in Sub-Saharan Africa: A Cost-Benefit Analysis

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Introduction

Renewable energy’s untapped potential on the African continent brings a crucial solution to its energy and development hitches, as it can broaden electricity access, increase investment and allow African countries to become climate leaders through a participatory and people-centred approach.

Despite collective efforts to improve electricity access and supply shortfalls through inclusive and cost-reflective energy avenues, Africa, especially its Sub-Saharan countries, continues to witness an alarming electricity access gap. An electricity supply gap exists when there is a discrepancy between available electricity supply and electricity demand from customers. Several studies predict that in ten years – by 2030 – there will be over 600 million people still without access to electricity. It is estimated that ninety per cent (482 million) of these people will be in the rural parts of Sub-Saharan Africa.[

Renewable Energy in Sub-Saharan Africa: A Cost-Benefit Analysis
Renewable Energy in Sub-Saharan Africa: A Cost-Benefit Analysis – www.brandspurng.com

With the urban population alone expected to triple over the next 40 years in Sub-Saharan Africa, electricity demand is projected to be on the rise in tune with the increasing population. This increase magnifies the need for accelerated efforts by all stakeholders to deploy scalable, sustainable power systems across the African continent.

Context of the problem

Electricity generated through conventional sources (fossil fuels) has, in the past, been the only source of electrification in Africa – absent hydropower generation sources. However, there is an urgent need to mitigate climate change; this mitigation for Africa nations means an increase in investments for clean technology.

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A vast number of these technologies in Africa must be consolidated through the reduction in the costs of renewable energy equipment. In recent years, a quantum leap has encouraged the influence of environmental movements as well as increasing pressure by Civil Society Organisations (CSOs) on political authorities to plug the energy access gap have led to a surge in demand for renewable energy systems. This leap creates an opportunity to light up Africa without relying on the limited fossil fuel resource. Energy transition describes the step back from fossil fuels and push towards renewable energy.

The 2015 Paris Climate Change Agreement, as a collective international obligation, mandates about 190 signatory countries to commit to the reduction of greenhouse gases through an energy transition away from toxic fossil fuel. The Paris Agreement favours the use of sustainable, clean energy to drive the energy transition that will help decarbonise the global economy via massive deployment and diffusion of renewable energy systems. Reliance on renewable energy resources for clean energy would allow African countries to kill the proverbial two birds with one stone.

African nations can meet their global commitments to climate change mitigation encapsulated in the Paris Agreement and mark the Sustainable Development Goals (SDGs) through closing the electricity access gap that is ramping up poverty and economic inequity in Africa.

Economic inequality stems through to end-user affordability. Naturally, access to electricity generated, transmitted, supplied, and delivered to the end-user as a product comes at a cost. This cost has become a big issue, especially in a continent that relies heavily on importation of electricity generation, transmission, and distribution equipment –and their spare parts –from the global West and South. It is no surprise that there is a significant amount of importation of renewable energy products from counterparts in Asia, Europe, and the Americas into the continent.

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For the much-anticipated energy transition to truly benefit the continent, African countries need to brace up to confront the reality of creating efficient renewable energy technologies through digitisation. The International Energy Agency estimates that digitalisation could save around US$ 80 billion per year – 5% of total annual power generation costs – locally to meet the deficient access while taking advantage of the manifold environmental, economic, and social benefits of renewable energy.

Mainstreaming renewable energy into the energy mix of African countries requires target-specific investment, dedicated capacity building, and an enabling business environment promoted by national governments in Africa. In developing countries, the mainstreaming of renewable technology systems must first address the existing liquidity, transparency, and service delivery crisis in the sector. Where an economy is not prepared to address these technicalities towards a path to sustainable and customer-centric clean power systems, it is almost impossible to reap the fruit of their investments.

One of these technicalities in the face of low manufacturing capacity in Africa is that products deployed are heavily reliant on imports, especially from South-East Asia. Currently, Nigeria -Africa’s largest solar market- has a subsisting import duty and Value Added Tax (VAT) of 5% (up to a maximum of 7.5%) on the most tangible renewable energy system component, solar panels. Kenya and other African countries have worked hard and smart to reduce limitations and eliminate disincentives against the massive deployment of renewable energy in the continent.

In 2014, the Kenyan Government lifted a 16% VAT charge on imported solar products marking import duty for solar products in Kenya at 0%. Mali has also demonstrated focus on renewables as its government removed all import duties and taxes on renewable energy components. A similar transition is occurring in Senegal under its One Roof, One Panel programme. The tax duty lifts are attempts at making renewable energy as a source of electricity accessible and affordable.

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The medium to long term manifold benefits of producing renewable energy technologies in Africa will not come at a low price. However, the countries that actively harness local content and resources to develop renewable energy solutions locally stand to reap huge rewards from renewable energy at a possibly lower cost, thereby ensuring energy security.

The recent global COVID-19 pandemic exposed the inefficiencies inherent in dependence on renewable energy imports, which has inevitably led to a compromise of the energy security of African countries. In hindsight, if there ever was a time to break the cycle of dependence on importation of renewable energy equipment via local manufacture of sustainable energy alternatives, that time is now. African governments must begin to seek ways to ensure the local renewable energy markets can function optimally.

Solution
The proposition of the solution

The cost of renewable energy lies in the availability of technology and the benefit in the abundance of constant elements needed to fuel the technology. Solar, hydro, wind and biomass identify as the constants for renewable energy technology for Africa across all routes, all with the capacity to generate energy with minimum running costs, mainly due to maintenance.

On a cost-benefit scale, the net benefits of renewable energy can only outweigh the net costs when the energy “trilemma” – affordability, availability, and accessibility – has been sufficiently addressed.  National governments in Africa need to be proactive with innovative policy, regulatory, and legislative interventions if Africa would be able to surmount the energy trilemma. This can be achieved by reducing external constraints such as importation duties in the short term.

A medium to long term solution lies in stimulating and incentivising African clean technology innovators to invest in local manufacturing, starting with local assembly of renewable energy equipment. This start primarily involves designing, manufacturing, and distributing these systems for the domestic market by the local cleantech entrepreneurs.

Realistically, African governments should be influenced to provide support via investments in emerging clean technology hubs as a veritable platform to local capacity development of a renewable energy workforce. Of recent in Nigeria, such an investment to boost the renewable energy sector in Nigeria includes a $1.5 million deal with Auxano Solar to assemble solar panels in Nigeria over five years.

With a larger investment capacity, in 2018, technology giant Seraphim, through a joint venture worth $14 million in South Africa, set up for module assembly of solar products. The continent, through investments like these, can benefit from fully automated production technology. However, this is not close to sufficient as the Sub-Saharan African population is expected to increase by roughly 50% over the next 18 years.

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The rationale of the solution

There is no one-answer-fits-all solution on the journey to overcome Africa’s energy trilemma. While renewable energy alternatives alone cannot meet and close the entire energy gap of the continent, African governments can seek to prioritise access to energy by meeting the requirements necessary for cost-reflective renewable electricity. This prioritisation for improving access to energy is especially for low-income earners, and rural inhabitants with renewable energy solutions as economic activities within rural areas are chiefly small and medium scale, therefore, do not require high energy demands.

Taking a chunk of the demand off the national grid by diffusing renewable energy into rural Africa makes for “developmental common sense” necessary for powering rural economies, leading to economic equity and inclusion of the rural economy into the fast-emerging circular economy. This diffusion enables the “main grid” focus supply on other critical sectors of the economy that can foster economic and social development, such as commercial hubs and industrial parks.

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Challenges

The number one challenge slowing the massive deployment and diffusion of renewable energy across Africa is access to funding. From anecdotal evidence occasioned by the high cost of doing business in most of the African countries, the African renewable energy developers are saddled with the responsibility to provide initial funding for renewable energy projects.

Financial institutions, especially in Sub-Saharan Africa, are still refining the need to encourage alternative energy businesses. It is estimated that USD 2.8 billion will be spent on renewables projects in Sub-Saharan Africa (excluding South Africa) by 2020 as projects become more complex, local, and risky.

There is also the challenge of the circulation of sub-standard renewable energy equipment in many African countries due to lax enforcement of standards regulation and porous borders that have turned these African countries into “global landfill” of substandard alternative energy products.

Stimulating local manufacturing of renewable energy systems in Sub-Saharan Africa presents another challenge, considering the low investment in research and development by both the government and the private sector. Low capacity building in the sector places a burden on governments to incentivise the African renewable energy business environment with grants. These grants will de-risk renewable energy investment to encourage more investors from within and outside the continent to pull in resources for renewable energy project development.

Another challenge working against local renewable energy equipment manufacturing in Sub-Saharan Africa is the lack of technical capacity.  Technical capacity includes training of workforce and availability of skilled, experienced workers who understand the intricacies involved in the planning, execution, and maintenance of renewable energy projects. Adequate capacity for a thriving local renewable energy manufacturing ecosystem in Africa should be all-encompassing, spanning the legal, regulatory, and technical infrastructure spectrum.

Working around the solution

Given the general African market dynamics, especially those manifesting in the renewable energy sector, any solution that balances the costs-benefits equation should be embraced as the sustainable option.  As the struggle towards surmounting the African energy trilemma exists as a collective challenge, sub-Saharan African countries can leverage enhanced regional collaboration for Africa’s industrial development.  It is possible to harness the net benefits despite the financial cost of renewable energy via optimisation of the development of renewable energy resources and manufacturing capacities across African countries.

An inclusive approach should be flexible enough to be driven by each African country based on their strengths or weaknesses. This approach should also be tailored towards addressing the challenges of in-country manufacture of renewable energy systems with the ultimate goal of thereby making the venture cost-efficient in the medium to long term.

The manifold benefits of a continent-wide collaborative framework for renewable energy development would allow countries facing similar challenges to save on the cost of tackling those challenges individually, leveraging economies of scale. This is already happening with the African Renewable Energy Initiative (AREI).

The AREI is emerging as one of the political solutions to support and expedite Africa’s transformation of its energy systems, riding the crest of the global energy transition anchored on renewable energy. The AREI is an African-owned and African-led initiative that aims to foster sustainable development on the continent by providing universal access to clean energy for the millions of people who are in most need of it. The initiative recognises that the scale of African energy challenges is enormous, but so are the opportunities.

Transformational change is both needed, possible, and must be stimulated by truly collaborative international efforts and goodwill. By fostering partnerships, bringing together existing initiatives, and mobilising new international support for secure, distributed, and people-oriented energy systems of the future, the initiative will help African countries gain access to cleaner energy to drive their development and prosperity. The AREI objectives seem primed to be boosted by cross-border trade (through regional governance and trade like AfCFTA) as well as emerging research and development collaborations such as those encapsulated in the African Development Bank’s New Deal on Energy for Africa.

This deal is built on five inter-related and mutually reinforcing principles: (i) raising aspirations to solve Africa’s energy challenges; ii) establishing a Transformative Partnership on Energy for Africa; (iii) mobilising domestic and international capital for innovative financing in Africa’s energy sector; (iv) supporting African governments in strengthening energy policy, regulation and sector governance; and (v) increasing African Development Bank’s investments in energy and climate financing.

Conclusion

This opinion piece concludes with the President of African Development Bank (AfDB) Dr Akinwumi Adesina’s outcry that “Africa is simply tired of being in the dark. It is time to take decisive action and turn around this narrative: to light up and power Africa – and accelerate the pace of economic transformation, unlock the potential of businesses, and drive much-needed industrialisation to create jobs”.

This could explain Dr Adesina’s commitment to the Light Up and Power Africa as the core of the New Deal On Energy for Africa with an aspirational goal of assisting the energy-starved African continent in achieving universal electricity access by 2025, and a strong focus on encouraging clean and renewable energy solutions.

It will require providing 160 GW of new capacity, 130 million new on-grid connections, 75 million new off-grid connections, and delivering 150 million households with access to clean cooking solutions. To achieve these goals, the estimate of the investment will range between USD 60 billion and USD 90 billion per year.

Akinwumi’s AfDB has committed to investing USD 12 billion of its resources in the energy sector over half a decade. Sub-Sahara Africa presents a unique case of a benefit in an abundance of resources. Still, there needs to be a resolution of the challenge of the initial high cost of the systems required to generate electricity.

There is also an urgent need for an intra-Africa tech-industrial revolution on the continent to lower renewable energy utilisation costs for residential and small-scale enterprises buckling under the weight of time-consuming and high importation costs.  The prioritisation of local manufacturing is hoped to act as interventions of AREI and AfDB, thereby sufficiently enabling Africa in harnessing its abundant renewable energy sources to enthrone the manifold advantages of cost-efficiency of renewable energy.

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Renewable Energy in Sub-Saharan Africa: A Cost-Benefit Analysis - Brand SpurRenewable Energy in Sub-Saharan Africa: A Cost-Benefit Analysis - Brand Spur

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