Africa to Explore Renewable Energy Bringing Light To Many
Africa has tremendous potential to utilize renewable energy sources. More than half of the continent’s billion residents live without access to power and now that has the potential to change.
The 48 sub-Saharan countries have a combined installed power capacity of only 68 gigawatts (GW), roughly equal to the capacity of Spain, whose population is less than 5% that of sub-Saharan Africa.
Moreover, about two-thirds of sub-Saharan Africa’s total installed power generation base is situated in South Africa, the continent’s biggest economy.
Africa’s renewable energy potential is mostly untapped and it offers a great opportunity for the continent to address its power shortage with sustainable energy sources. While renewable energy cannot solve Africa’s power shortage on its own, Standard Bank believes that distributed power from renewables, such as solar photo-voltaic, can make a great contribution to solving the energy shortage that plagues parts of the continent.
Renewable energy’s suitability for Africa is underscored by the fact that it can now compete on cost with some conventional energy sources. The cost benefit of renewable energy is exemplified by the fact that users of diesel generation on the continent pay between $0.60 to $0.70 per kilowatt hour (kWh), compared with an estimate cost of up to $0.10 to $0.15 per kWh for wind generation, and up to $0.15 to $0.25 for solar photo-voltaic.
Africa has the hydroelectric capability of 1,888 terawatt hours a year, (TWh/yr), of which 41% is in the Democratic Republic of Congo on the Congo River.
Ethiopia’s Blue Nile also has potential hydroelectric capacity of 260 TWh/yr, while Cameroon has 115 TWh/yr and Madagascar has 180 TWh/yr. To put it in context, Russia’s entire renewable energy production in 2011 was estimated at 166.6 TWh/yr.
Some of the best solar irradiation potential is in Africa, where many countries receive an average 325 days a year of sunlight. The west coast has substantial wind generation capacity, where wind speeds often exceed a high 11-metres a second, while the East African Rift holds considerable geothermal potential.
Although South Africa’s 50-million people enjoy about two-thirds of the total installed base of power in sub-Saharan Africa with about 40,000MW, SA intends bringing 18GW of renewables capacity online by 2020 and has awarded 2.4GW of power purchase contracts through the first two windows of its procurement program. A recent Baker McKenzie survey showed 83% of survey respondents expect most renewables capacity in Africa to be installed in SA during the next five years.
Historically, North Africa has been the leader with regards to renewables in Africa.
Questions have been raised about whether renewable energy might be too expensive for Africa given the abundance of cheap coal, however, it is now clear that this has changed as the cost of renewable technology is steadily falling while the capital expenditure costs of coal-fired power stations are rising.
The relatively cheap power that South Africa enjoys is largely due to the historic low-cost base of power stations built about 30 years ago. Those same power stations built today would be far more expensive to construct.
It is also becoming increasingly difficult to find commercial funding for coal-fired power stations due to the greenhouse gas emissions associated with coal-fired power generally.
South Africa’s effort to reduce its reliance on coal-fired power generation is likely to see an increasing number of fund managers selectively investing in renewable energy projects in the rest of sub-Saharan Africa, whose 800-million people get by on just 25,000MW.
Interest is being fueled not only by the need of institutional investors to meet environment and sustainability targets in their mandates, but by internal rates of return which can match or exceed other comparable investments made by private equity.
Standard Bank believes Africa will follow the international trend to bolster renewable energy contributions to national grids as sub-Saharan African nations step up efforts to alleviate chronic power shortages. That will make for some compelling investment opportunities for institutions that wish to capitalize on Africa’s scramble for reliable and sustainable power.