## Powering Africa with Solar Energy

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### Current challenges and demand projections
- About half of sub-Saharan Africa’s population today does not have access to electricity.
- Those who do have electricity pay on average nearly twice as much as consumers elsewhere in the world.
- Power shortages cost the continent about 2 to 4 percent of GDP a year.
- Population in sub-Saharan Africa is expected to grow from 1 billion in 2018 to more than 2 billion in 2050.
- Demand for electricity is projected to expand 3 percent a year (taking into account a steady increase in access and greater energy efficiency).
- Africa’s current energy mix is based mostly on burning coal, oil, and traditional biomass (wood, charcoal, dry dung fuel).

### Environmental and technological considerations for the energy mix
- Meeting future demand with current fossil-fuel–heavy sources would have severe consequences for health and the environment and would not meet the emission limits under the 2015 Paris Agreement (limit global warming to 2°C above preindustrial levels).
- Projections (Chart 1) suggest mixes that include modern biomass, cultivating high-energy plants, using crop residue to produce synthetic fuels, and carbon capture and storage (CCS).
- Risks and constraints:
  - Biomass production competes with food cultivation and nature conservation.
  - CCS has not yet been tested at an industrial scale and can face local resistance.
  - Hydropower requires inundation of large areas, threatens local ecosystems, and often involves relocation; hydropower is currently hampered by drought in parts of southern Africa.
  - Geothermal is efficient but geographically limited.
- Technological advances to stabilize variable renewable supply include:
  - Using hydropower as a buffer during peak demand.
  - Pooling electricity production through well-connected grids.
  - Adjusting electricity demand to supply.
  - Storing energy with flow batteries and hydrogen electrolysis.
- With these advances, updates of Chart 1 show it is possible for Africa to rely 100 percent on renewable energy by 2050 without slowing development.

### Cost trends and comparative economics
- Prices for renewable energy have fallen substantially; solar cost decreased 77 percent between 2010 and 2018 (International Renewable Energy Agency).
- Cost of generating electricity using renewable sources declined sharply from 2010 to 2018 and is now in the same range ($0.05 to $0.17 a kilowatt hour) as fossil-fuel-fired power generation.
- Biomass, geothermal, and hydropower cost the least but have limited potential and constraints.
- Solar and wind prices are now in the same range as those of fossil fuels; conditions for solar energy are excellent in Africa due to abundant and reliable sunshine.
- Despite progress, solar and wind accounted for only 3 percent of the electricity generated in Africa in 2018 compared with 7 percent in other regions of the world.
- Electricity supply in Africa is strongly dominated by fossil fuels and to a lesser extent by hydropower: 79 percent and 16 percent, respectively (2018).

### Financing challenges and options
- Renewable sources have high installation costs that must be financed up front; fossil fuel plants are cheaper to build but expensive to run.
- Financing requires mobilizing public, private, and multilateral and bilateral donor financing.
- Public finance measures:
  - Fossil fuel subsidies are estimated at 5.6 percent of sub-Saharan African GDP.
  - Progressively phasing out subsidies—while protecting the vulnerable—could raise financing for renewable-energy projects.
  - Sub-Saharan African countries had an average tax-to-GDP ratio of about 14 percent in 2017, indicating room to increase domestic revenue.
  - Use of carbon taxation could boost tax revenue while reducing fossil fuel carbon dioxide emissions.
- Private sector measures:
  - Governance-related risks—complex bureaucracy and changing regulation—are identified as the greatest threat to private investment in renewable-energy projects in Africa.
  - Improvements in governance to reduce political risk are required to attract private investment.
  - Reforming the financial sector to boost the incipient green bond market and reducing financial risk by transferring part of it to public actors can help attract private financing.
- International support:
  - Multilateral financial institutions can facilitate long-term financing and provide tailored advice on effective deployment of climate financing.
  - The 2015 Paris Agreement is based on advanced economies’ commitment to mobilizing the equivalent of 0.12 percent of the world’s GDP a year through 2025 to address the needs of developing economies.
  - Only about 4 percent of global-energy-related carbon dioxide emissions in 2018 originated in Africa, justifying increased international support.

### Policy implications and priorities
- Design an energy mix built largely on renewable sources to support strong growth and low emissions while generating new job opportunities.
- Address the financial challenges of installing renewable energy capacity while leveraging falling prices and technological progress.
- Reduce fossil fuel subsidies and protect vulnerable households during subsidy reform.
- Increase domestic revenue mobilization (tax-to-GDP improvements) and consider carbon taxation.
- Improve governance and regulatory stability to attract private investment.
- Reform financial markets to support green financing instruments (green bonds) and manage financial risk through public-private arrangements.
- Leverage multilateral financing commitments under the Paris Agreement to smooth the transition to a low-carbon-energy economy across Africa.

*Source: “Powering Africa with Solar Energy,” Gregor Schwerhoff and Mouhamadou Sy, Finance & Development, March 2020.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2020/march/powering-africa-with-solar-energy-sy.pdf_