Mobilisation of private finance key to closing Africa’s $2.6tr energy gap

8th November 2019 By: Terence Creamer - Creamer Media Editor

Mobilisation of private finance key to closing Africa’s $2.6tr energy gap

Photo by: Creamer Media

State budgets and development finance will not be sufficient to fund the investments required to meet Africa’s growing power demands to 2040, a new International Energy Agency (IEA) report warns.

Titled ‘Africa Energy Outlook 2019’, the report states that cumulative investments of $2.6-trillion, or 2.4% of gross domestic product (GDP), will be needed between 2019 and 2040 to meet growing demand and improve access to modern energy services.

The IEA calculates that a fourfold increase in power sector investment will be required to meet the target, which would translate into yearly investments of $120-billion into mostly low-carbon generation technologies and transmission networks.

Such investment levels represent a material scale-up relative to the continent’s current investment trajectory, which implies cumulative investments of $1.4-trillion over the period, or only 1.6% of GDP. Under such a trajectory, 530-million people on the continent will remain without access to electricity in 2030, falling well short of the universal-access development goal.

To improve energy access in a continent that will house two-billion people by 2040 – making it larger by that date than either India or China – private capital will have to be catalysed, as has been done in several countries in Asia in recent years. Today, 600-million people in Africa do not have access to electricity and 900-million lack access to clean cooking facilities.

“Mobilising private capital requires concerted efforts from both African governments and international development finance institutions (DFIs),” the report argues.

It notes that 16 out of 43 sub-Saharan African (SSA) countries still do not allow private participation in both generation and electricity networks. This despite that fact that 19 out of 39 utilities in SSA are not able to recover enough cash to cover operational expenses.

Between 2013 and the first half of 2018, power sector investments based on private participation in infrastructure models in SSA amounted to about $4.5-billion a year, with South Africa accounting for more than half of that figure.

“Outside South Africa, each dollar of public funding (from DFIs and State Budgets) attracted $0.6 of private capital either directly (via equity and direct loan) or indirectly (via guarantees) – the figure is $0.4 for renewables. This compares unfavourably with $0.9 for Southeast Asia and more than $4 for South Africa.”

The IEA acknowledges that mobilising the levels of investment outlined in its report will be a significant undertaking, but also insists that it is achievable if concerted efforts are made by African governments and the global community.

“There are some precedents. India, for example, has invested the equivalent of 2.6% of GDP in the power sector since 2000 and China has invested 1.9% of GDP over the same period.”

With the right policies, the IEA argued, Africa could achieve universal access, while also becoming the first continent to develop its economy mainly through the use of modern, low-carbon energy sources. For instance, solar photovoltaic technology could become the continent’s largest electricity source in terms of installed capacity by 2040, while the continents vaste resources of natural gas, could drive industrial growth and provide the flexible generation capacity that complements renewables.

“Drawing on rich natural resources and advances in technology, the continent could by 2040 meet the energy demands of an economy four times larger than today’s with only 50% more energy,” the report concludes.