
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.
And the large electricity needs will only grow in the foreseeable future.
Given that the population in sub-Saharan Africa is expected to grow from 1
billion in 2018 to more than 2 billion in 2050, the demand for electricity
is projected to expand 3 percent a year. This takes into account a steady
increase in access to electricity as well as greater energy efficiency.
Meeting that demand with current energy sources would have severe
consequences for health and the environment. The current energy mix in
Africa is based mostly on burning coal, oil, and traditional biomass (wood,
charcoal, dry dung fuel). This reflects the energy resources of the
continent, but also the use of technologies of the past. While this energy
mix is comparatively cheap, it is insufficient to meet current needs, and
negative effects on the environment are left unaddressed. The continent’s
sources of energy will need to change, especially if African governments
aim to achieve a healthy environment for their citizens and meet the
emission limits for greenhouse gases set out by the 2015 Paris Agreement.
Getting the energy mix right
Fortunately, thanks to notable technological advances, Africa does not have
to rely on large amounts of fossil fuel, as advanced economies did when
they were at Africa’s current stage of development. There is the option to
design an energy mix, built largely on renewable sources, that supports
both strong growth and low emissions. Apart from ensuring an
ecologically sustainable approach to development, investing in renewable
energy will also generate new job opportunities (IMF 2019).
The right energy mix will allow Africa to develop rapidly while respecting
the emission levels required under the 2015 Paris Agreement, in which
governments commit to limiting global warming to 2°C above preindustrial
levels. Chart 1 shows one such projection, in which the energy mix relies
on a variety of technologies.
The chart, based on projections made in 2013, suggests using modern
biomass, cultivating high-energy plants, and using crop residue to produce
synthetic fuels, as well as carbon capture and storage (CCS), which
involves storing carbon dioxide emissions underground. Other
researchers have proposed different mixes, all making use of these
technologies (Schwerhoff and Sy 2019). However, these technologies carry
risks. Biomass production competes with food cultivation and nature
conservation. CCS has not yet been tested at an industrial scale. Both
technologies can face resistance from local populations. To avoid
large-scale reliance on unsustainable technology, Africa will need to move
toward an economically and environmentally sound energy mix. This will
require addressing the financial challenges of installing renewable energy
capacity while seizing opportunities provided by falling prices and
technological progress.
Falling cost
Prices for renewable energy have fallen substantially in the past few
years, especially for solar power, whose cost decreased 77 percent between
2010 and 2018 according to the International Renewable Energy Agency (see
Chart 2). While biomass, geothermal energy, and hydropower cost the least,
these sources have limited potential.
As illustrated in Chart 1, both geothermal energy and hydropower can reach
a value that is several times larger than today’s generation capacity. The
energy need, however, far exceeds this capacity. Geothermal energy can be
very efficient (as we have seen in Kenya) but is available only in certain
locations. Hydropower requires a careful balancing of environmental,
social, and economic objectives. It is impossible to exploit the entire
technical potential of hydropower: it requires the inundation of large
areas, which threatens local ecosystems and often involves relocation of
the local population. Hydropower is currently being hampered by continuous
drought in southern Africa, and related energy generation has been severely
curtailed in Zambia and Zimbabwe because dam levels are dangerously low.
Conversely, there are large hydropower projects coming onstream or in
preparation in west Africa, the Democratic Republic of the Congo, and
Ethiopia.
More promising for large-scale expansion of renewable electricity
generation are solar and wind power, whose prices are now in the same range
as those of fossil fuels. In addition, conditions for solar energy are
excellent in Africa, where sunshine is not only abundant but also much more
reliable than elsewhere. And investment into renewables is in fact picking
up in Africa. South Africa, Uganda, and Zambia have held renewable-energy
auctions that achieved competitive prices and attracted private investors.
South Africa already has several solar power plants with a capacity of more
than 100 megawatts. The Lake Turkana Wind Power project in Kenya is another
success story.
Despite successful examples in many countries, 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. The supply of electricity in
Africa is strongly dominated by fossil fuels and to a lesser extent by
hydropower (79 percent and 16 percent, respectively).
The problem with renewable energy has always been that its supply
fluctuates, posing a challenge for reliance on renewables as a source of
electric power. Technological advances in stabilizing the electricity
supply now make it possible for renewable energy to constitute a large
share of the energy supply. These advances include using hydropower as a
buffer during periods of peak demand, pooling electricity production from
different geographic regions through a well-connected electricity grid, adjusting electricity demand to supply, and
storing energy with flow batteries and hydrogen electrolysis. Currently,
the share of variable renewable energy in total energy production is so low
that variability is not yet a major concern. As this share increases, these
options can be rolled out at a reasonable pace. With these technological
advances, updates of Chart 1 show that it is possible for Africa to rely
100 percent on renewable energy by 2050 without slowing development.
Overcoming financial challenges
Financing is now the biggest challenge, however. Fossil fuel plants are
comparatively cheap to build but expensive to run, as they require
continued purchases of fuel. In contrast, renewable sources are inexpensive
to operate but have high installation costs, which must be financed up
front. Providing a high-quality energy basis for African development thus
requires a comprehensive approach to financing (Schwerhoff and Sy 2017). If
Africa is to take a new, low-carbon approach to development, its countries
must mobilize public, private, and multilateral and bilateral donor
financing to raise the funds needed for renewable-energy projects.
On the public side, African governments can generate significant revenue by
reducing the inefficiency caused by fossil fuel subsidies, which benefit
mainly coal and oil. These subsidies are estimated at 5.6 percent of
sub-Saharan African GDP (Coady and others 2019). Progressively phasing out
subsidies—while protecting the vulnerable—could raise financing for
renewable-energy projects. Moreover, African governments can potentially
mobilize more of their domestic resources to cover the initial capital
costs of renewable energy. For example, with an average tax-to-GDP ratio of
about 14 percent in 2017, sub-Saharan African countries have ample room to
increase their tax revenues. Use of carbon taxation could boost tax revenue
while reducing fossil fuel carbon dioxide emissions (IMF 2019).
On the private sector side, African countries must make substantial efforts
to attract private investment to the renewable sector. Surveys have
identified governance-related risks—complex bureaucracy and changing
regulation—as the greatest threat to private investment in renewable-energy projects in Africa. Attracting private financing will require
improvements in governance to reduce political risk. Reforming the
financial sector to boost the incipient green bond market and reducing
financial risk by transferring part of it to public actors can also help
attract private investment.
At the international level, multilateral financial institutions play an
important role in facilitating long-term financing to support investment in
climate change mitigation. In addition to identifying alternative sources
of funding, these institutions provide tailored advice on the 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. Honoring this financial
commitment would smooth the way for the transition to a low-carbon-energy economy across Africa—thecontinent with the lowest contribution to global warming. Only about 4
percent of global-energy-related carbon dioxide emissions in 2018 originated there (IEA
2019), yet Africa is the region most affected by climate change. This twist
of fate certainly justifies more international support for the continent.