Increasing renewable energy access through investment

Under the theme “Delivering on Africa’s Promise”, the 23rd World Economic Forum (WEF) on Africa will provide an important platform for regional and global leaders from business, government and civil society to deepen the continent’s integration agenda and renew commitment to a sustainable path of growth and development.

Investment in sustainable energy products is one promising way to bring energy to the disconnected households and businesses mentioned in Energy access in Africa. Solar home products, LED lights, and rural charging stations can bring small amounts of power to people in remote areas.

Independent power generation from abundant agricultural waste produced by rural estates can also feed into isolated mini-grids and help energise the national grid, while biomass pellets and efficient cookstoves can save lives and prevent deforestation as sustainable alternatives to traditional fuels. Public investment from governments and aid agencies has yielded some progress on bringing sustainable energy to rural Africa in recent years.

Rural renewable energy market fraught with challenges

With limited public resources, however, there is increasing recognition that the private sector will need to play a large role in financing and delivering sustainable energy across Africa. Conditions are improving for companies considering investment in renewable products and services for rural customers, but the market is still fraught with serious challenges.

On the global stage, renewable products are improving, prices are dropping, and choice is increasing thanks to substantial market growth in renewable energy technologies and the number of manufacturers able to supply consumers worldwide. Over the entire life cycle of a solar system, or LED product, the energy produced can be less expensive than the same amount produced by an off-grid fossil fuel alternative.

However, this assumes perfect market conditions. It assumes that the consumer has enough money to purchase equipment upfront and consider savings over several years. It assumes an effective import and distribution system to place that equipment into the hands of the consumer. And it assumes that if that equipment breaks, there will be someone nearby with the tools, knowledge, and spare parts to fix it.

Of course, none of these conditions exist perfectly – or even adequately – in Africa. Global price reductions on renewable products mean little when you add on top transport costs inflated by Africa’s patchy infrastructure. Corruption still makes it difficult to clear goods through the continent’s few seaports.

Tax incentives for renewable imports

Governments have introduced tax incentives for renewable imports, but these schemes are rarely comprehensive enough to make a substantial difference to suppliers. Official feed-in-tariffs are often not attractive enough to make on-grid/mini-grid hybrid projects financially viable, especially when paired with conservative banks that shy away from new energy products they do not understand.

For products that would replace traditional fuels like firewood, companies are asking consumers to give up a free resource for an unfamiliar product that comes at a price. It is in fact quite difficult to distribute renewable products, which are relatively new technologies, to rural consumers who are unfamiliar with them, at an affordable price point.

The risk profile is high while potential profits are low. While more proactive public policy will be necessary to create an enabling environment for this kind of investment, companies must also devise innovative business models that can mitigate these myriad challenges, while securing profits that can grow a business over the long term.

What is your view on renewable energy, and how do you see it playing a role in Africa’s growth?

About Rachel Keeler

Rachel manages impact and innovation matters for the IDAS Africa team. This includes capturing the impact of IDAS programmes, as well as researching best practice, industry innovations and development trends to keep IDAS at the cutting edge of development practice in emerging markets. Rachel has extensive experience in research and analysis of business, finance, investment and private sector-led development in sub-Saharan Africa with a focus on East Africa. She has an academic research background at the graduate level in international political economy and African development. Her analytical and research background also includes international journalism and business analysis. Her skills include quantitative and qualitative research, writing, editing and online publishing. Work experience includes independent consulting for various clients including the International Finance Corporation (IFC), Africa Investor, and the MENA Private Equity Association, as well as stints with the Financial Times and the US State Department, among others.

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