Africa’s transition to renewable energy: why is it a pressing need?

Green finance for a net-zero energy system
Alexander Ayertey ODONKOR

Africa’s population is growing faster than any other region; this is making it increasingly difficult for governments and energy companies to meet the continent’s energy demand. A report (2019) from the Population Division of the Department of Economic and Social Affairs of the United Nations suggest that out of the projected 2 billion people that could be added to the world’s total population between 2019 and 2050, sub-Saharan Africa (SSA) will account for 1.05 billion of this additional population, representing 52 percent. Although population growth in North Africa is comparatively slower than in SSA, the region is also expected to add 237 million people between 2019 and 2050, and an additional 170 million people between 2050 and 2100.

High population growth rate in Africa is exacerbating the challenges associated with energy supply as the installed energy generation capacity in the region does not meet the region’s current energy demand. An article (2020) published by the Finance and Development (F&D), the flagship magazine of the International Monetary Fund (IMF), indicates that almost 50 percent of SSA’s population do not have access to electricity. Economic loss attributed to power shortages in Africa every year is about 2 to 4 percent of gross domestic product (GDP). In most African countries, the revenue generated by energy companies do not cover the total cost of power generated, impeding the supply of sufficient, reliable and affordable energy. People, who have access to electricity in Africa pay an average of about twice as much as electricity consumers in other parts of the world.

With the continent’s demand for electricity projected to increase by 3 percent a year, it will be impossible to achieve sustainable development with Africa’s current energy mix. At present, the region’s energy mix is derived largely from oil, burning coal and traditional biomass (charcoal, dry dung fuel and wood). These sources of energy may be cheap but they are not the most suitable energy mix, especially for a continent that is the most vulnerable to climate change. According to the African Development Bank (AfDB), Africa is the most vulnerable continent to climate change impacts under all climate scenarios above 1.5 degrees Celsius. Even though Africa accounts for the lowest greenhouse gas emissions, 7 out of the 10 countries that are the most vulnerable to climate change are in the region.

Africa is susceptible to the impact of climate change because of the region’s considerable reliance on agriculture. Agriculture plays a vital role in Africa, serving as the backbone of many economies, specifically countries in SSA. However, rain-fed agriculture accounts for more than 95% of farmlands in SSA; this and many other weather-sensitive economic activities such as fishing and herding put these countries in peril as the impact of climate change will derail progress made against poverty, increase income loss and accelerate food insecurity.

To meet Africa’s increasing energy demand without causing severe consequences to development, the natural environment and human health, the region is promoting renewable energy. Implementing a well-designed energy mix that is dominated by renewable sources will not only limit greenhouse gas emission, but will also have the capacity to stimulate growth, create new jobs and facilitate sustainable development. Obviously, Africa cannot achieve this feat alone; the continent needs the support of countries that have the resources to augment the region’s transition to renewable energy.

Among the many countries that are supporting Africa in this regard, China’s contribution represents the largest share. A report from the International Energy Agency (IEA) that examines China’s recent and planned contribution to SSA’s energy sector from 2010 to 2020, suggests that during this period, Chinese contractors built 10% of SSA’s installed capacity; this is equivalent to Finland’s total installed capacity.

Renewable energy sources represent 56% of the entire capacity added by Chinese projects within this period; hydropower accounts for 49%. A significant share of Chinese power projects in SSA are aimed at improving access to electricity. For a region that is home to 635 million people without electricity, Chinese contractors were responsible for 30 percent of the development works such as increasing power capacity and improving electricity access through grid development that ensured that 120 million people could access electricity.

China’s contribution to the development of technology and capacity in Africa’s energy sector is encouraging – between 2010 and 2015 buyer or seller credits, foreign direct investment (FDI) and loans for the development of SSA’s energy sector amounted to US$13billion, representing one-fifth of the total investments in the region’s energy sector. These investments in the energy sector have enhanced access to energy, created new jobs, increased renewable energy sources (solar, biomass, wind and hydropower) and limited greenhouse gas emissions.

However countries across the continent are grappling with the economic downturn that is caused by the COVID-19 pandemic; this could jeopardise the region’s substantial progress in alleviating energy poverty, improving access to energy and obstruct the ultimate goal of achieving universal energy access. As a result of the pandemic, economic activity has declined in Africa, reducing income and households’ ability to pay for energy services.

This has caused a significant drop in the revenue generated by energy companies and governments across the region, making it extremely difficult to provide sufficient and reliable energy to consumers in Africa. This is the time for development organisations and relevant stakeholders to provide unflinching support to African countries in an effort to sustain the growth in Africa’s energy sector.

Alexander is an economic consultant, chartered economist and a chartered financial analyst.

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