RENEWABLE ENERGY MARKET ANALYSIS

BACKGROUND AND SOCIOECONOMIC OVERVIEW

Africa is a continent rich in land, water and energy resources, with a young and fast-growing population. Already the world’s youngest continent, it is expected to grow to nearly 2.5 billion people by 2050, 80% of them in Sub-Saharan Africa (UNPD, 2019). Levels of human and economic development differ widely across the continent, but it is clear that the opportunities the continent offers are vast. Energy plays a fundamental role in Africa’s development pathway, and improving livelihoods and access to opportunities will depend crucially on the expansion of access to reliable and affordable and sustainable energy. This is also in view of the expectedly vast impact of climate change on the African continent, the effects of which are already beginning to be felt right now, and in view of the
enormous potential for industrial development, job creation and environmental management that more
widespread access to sustainable energy sources brings. The African Union’s Agenda 2063 clearly establishes the links between energy and industrialisation (AUC, 2015). However, access to reliable electricity and clean, modern cooking in Africa remains far behind most other parts of the world. With an electrification rate of 46%, 570 million people in 2019 were still without access to electricity in Sub-Saharan Africa, while only 16% had access to clean cooking (IEA, IRENA et al., 2021). This situation reinforces socio-economic inequalities and impedes progress in widening access to basic health services, education, and modern machinery and technology – thus, ultimately, to socioeconomic opportunities.

Africa’s economies are widely diverse in their growth trajectories. Many expanded until the mid 2010s
on the back of strong international commodity markets, but the pace slowed afterwards, first as
a result of falling commodity prices after 2014, and then because of the COVID-19 crisis. Because Africa remains highly dependent on commodity exports, the region’s economies rise and fall with international movements in commodity price. Fuelled mostly by the commodity price boom of the 2000s and early 2010s, average gross domestic product (GDP) per capita (in constant 2010 USD) grew at an annual rate of 2.3% between 2000 and 2014 (see Figure 1.1). In some countries the expansion of manufacturing capacity reinforced this growth. One of these was Ethiopia, which has been one of the fastest-growing economies in the world, with a sevenfold increase of GDP per capita between 2000 and 2019. However, persistent commodity dependence and an overall lack of economic diversification has now reversed the earlier trend, as shown in Figure 1.1. Between 2014 and 2019, when commodity prices were low, per capita GDP stagnated (with an average annual rate of -0.01%, and even -0.22% for the 2014 2020 period).

Expanding the manufacturing sector is essential for diversifying economies, increasing productivity,
promoting innovation and technological advances, and creating jobs (UNIDO, 2020a). However, following significant progress in the 2000s, a large majority of African countries saw their per capita manufacturing value added (MVA) rates stagnate in the 2014 2019 period; the rate even decreased in Southern Africa.3 In 2019, Africa’s MVA per capita (of about USD 207) was about eight times lower than the world average (USD 1 683) (see Figure 1.2). Even in the African countries with relatively large manufacturing sectors, such as Ethiopia and the United Republic of Tanzania, value-added and productivity levels remain relatively low (Rodrik, 2021). This is because Africa’s economic growth and employment generation have relied heavily on low-value-added sectors, such as raw commodity exports (fossil fuels, mining and agriculture) (ILO, 2019).

HUMAN DEVELOPMENT AND THE SUSTAINABLE DEVELOPMENT GOALS
As noted, Africa has made uneven progress in socioeconomic development over the past decade. The
continent’s score on the HDI rose from 0.45 in 2000 to 0.57 in 2019, implying overall positive progress (see Figure 1.7e), including on SDGs such as education and poverty alleviation (IEA, IRENA et al., 2021). When adjusted for its environmental footprint, Africa’s HDI does not fall as dramatically as in other world regions (due to the continent’s low carbon footprint overall) but remains below the planetary pressure– adjusted HDI of other regions (see Figure 1.7g).9 Still, the fight against poverty and hunger and for access to education, health care and economic opportunity remains one a fundamental challenge in many parts of Africa. With Africa containing 33 of the world’s 47 least-developed countries (in the UN classification) and more than half of those earning less than USD 1.90 (purchasing power parity) per day, the scope of the challenge is clear. (Purchasing power parity figures are presented in the annex to this chapter.)

AFRICA’S ENERGY LANDSCAPE

As mentioned in the previous chapter, Africa’s energy landscape is characterised by a rich, highly diverse range of energy resources, from hydrocarbons to renewable energy. Home to a fifth of the world’s population (around 1.3 billion people), Africa accounts for just 6% of global energy demand and 3% of electricity demand (IEA, IRENA et al., 2021). Significant gaps remain in access to modern energy, especially in rural areas where less than 27% of the population have access; and, except
for the export of raw materials, industrialisation and agricultural productivity lag. These factors that have shaped Africa’s energy landscape. This picture will undoubtedly change over the coming decades as the continent grows and develops, increasing energy needs. This chapter provides a panoramic view of the status of the energy sector on the African continent. It covers primary energy supply, final energy consumption, the electricity sector, the status of renewable energy and access to energy across the region.

Hydropower
Hydropower has been used in Africa for many decades owing to the presence of the continent’s large rivers, which have an average annual discharge of 17.7 cubic metres per second (Hoes, 2014). At almost 34 GW capacity by the end of 2020, hydropower is also the renewable energy source used most extensively for power generation. As of 2020, Ethiopia, Angola and South Africa hold Africa’s largest hydropower capacity (Figure 2.6). Ethiopia is building yet another mega-dam, the 6 GW Grand Ethiopian Renaissance Dam, which will be the largest in Africa in terms of capacity when it enters
into operation in 2022. In several African countries with large rivers crossing through their territory, hydropower accounts for half or more of electricity generation capacity. Chief among these countries are Angola, the Democratic Republic of the Congo, Ethiopia, Gabon, Guinea and Uganda (IRENA, 2021a).

At present, large-scale hydropower is the largest source of renewable electricity in Africa, with sizeable
unexploited potential (Figure 2.7). Africa’s largest hydropower producers are Ethiopia, Angola, South
Africa, Egypt, the Democratic Republic of the Congo, Zambia, Mozambique, Nigeria, the Sudan, Morocco and Ghana. The Delft University of Technology estimates the continent’s unexploited hydropower potential to be 1 753 GW (Hoes, 2014), with Angola, the Democratic Republic of the Congo, Ethiopia, Madagascar, Mozambique and Zambia leading.

NORTH AFRICA
North Africa is the African continent’s largest energy market. The region has a distinct energy landscape
that, like its socio-economic development status, sets it apart from Sub-Saharan Africa. With the exception of the Sudan, North Africa is made up of middleincome countries. Algeria, Libya, Egypt and the Sudan are endowed with significant hydrocarbon resources and have been long-standing exporters of oil and natural gas (Figure 2.20).

CENTRAL AFRICA
Central Africa is Africa’s smallest energy market. Access to electricity has expanded much more slowly here than in other parts of Africa, with 2019 access to electricity at a low 32%, and clean cooking at 17%. The Central African Republic and Chad have some of Africa’s lowest rates of access. Owing to its large population, the Democratic Republic of the Congo has Africa’s second-largest population without access to electricity, behind Nigeria. Angola is Africa’s second-largest producer of crude oil and has Africa’s third-largest hydropower generation capacity. Even so, as of 2019, Angola had no national
electricity grid owing to damage to transmission and distribution networks during the 27-year civil war from 1975 to 2002 (EIA, 2019). By contrast, Gabon boasts one of Sub-Saharan Africa’s highest rates of access to modern energy; São Tomé and Príncipe has a high rate of access to electricity (Figure 2.44).

RENEWABLE ENERGY FINANCE IN AFRICA

Over the past two decades, investment in renewable energy grew rapidly. Yet of the USD 2.8 trillion invested globally between 2000 and 2020, only 2% went to Africa (Table 3.1), despite the continent’s enormous potential to generate energy from renewable sources and its huge need to bring modern energy services to the billions of people still lacking access to electricity and clean cooking (see Chapter 6 on access). The COVID-19 pandemic could further widen the gaps in investment and access by slowing or even partially reversing the limited progress made to date. Going forward, unprecedented levels of investment will be required to put Africa on a path toward achieving the Sustainable Development Goals (SDGs), particularly SDG 7 on access to affordable, reliable, sustainable
and modern energy for all. This chapter surveys trends in renewable energy investment in Africa, sources of financing in the five regions, and measures and tools to manage risks and attract further investments in all end uses.

Investments in 2020 also varied by type of financing. Most of the 2019-2020 drop came in the
form of a decline in term loans, which shrank from USD 2.2 billion to USD 1 billion, while balance sheet financing rose by two-thirds, from USD 980 million to USD 1.6 billion. Wide fluctuations are not uncommon, but this was the first time since 2009 that term loans fell below balance sheet financing.
The pandemic also led to greater interest in clean energy investments, as oil-exporting economies
were hit hard, particularly Libya, Equatorial Guinea, Algeria, Angola and Nigeria. In 2020, low demand
for energy commodities and low oil prices cut export revenues and fuelled large fiscal deficits in many
countries in the continent (UNECA, 2020). Expanding their clean energy investment portfolios could help oil exporters hedge their risks against fossil fuels, creating opportunities for economic growth and jobs in the short run while safeguarding long-term climate interests globally.

In the 2010-2019 period, Central Africa received a total of USD 14.6 billion of which only 26% went
into renewables, chiefly hydropower. Fossil fuel investments continued to dominate, although almost
all of the USD 1.2 billion invested in 2017-2019 went to hydropower and solar. Cameroon has led the way in this regard, followed by smaller investments in countries such as the Central African Republic (the). In Southern Africa, funding from public sources has grown, especially within the last five years. In the 2010-2019 period, the region received USD 17 billion, of which only USD 7.5 billion (44%) went into renewables, primarily hydropower (19%) and solar (14%). The investments were concentrated in four countries: South Africa, Zambia, Mozambique and Zimbabwe. Except for Zambia, the same countries also led in fossil fuel investments.

GET FiT
The Global Energy Transfer Feed-in Tariff (GET FiT) programme implemented a hybrid FiT-auction
programme in Uganda in 2014 – leading to more than 20 MW of solar PV capacity (USD 164/MWh) – as well as a solar PV auction in Zambia (120 MW; USD 39 – 47/MWh). The GET FiT programme was designed by Deutsche Bank in 2010 and its initial focus was to address primarily the investment gap between renewables and conventional energy sources. As prices of renewables (particularly solar PV and wind) started declining, the GET FiT programme shifted emphasis to technical assistance. As such, it combined technical assistance (including developing standardised, bankable documentation), viability gap funding (premium payments, financed by the United Kingdom, Norway, Germany and the European Commission) and project de-risking through the provision of liquidity and termination support.

Private investments came mainly in the form of private equity or venture capital, with just one infrastructure fund. Over 2010-2020, these investors committed USD 467 million, or 44% of total private investment in off-grid renewable energy, with shares slightly increasing over time. This is not surprising, given the appetite of equity and venture capital investors for start-ups with limited track record but high growth potential (IRENA and CPI, 2020). Institutional investors were the second-largest provider of capital in the sector, with USD 341 million committed in the same period. This group of investors consisted almost exclusively of foundations (e.g. Untours, David and Lucille Packard, Rockefeller) because philanthropies have a stronger interest in the social and environmental impacts of their portfolios than do other institutional investors (e.g. pension funds, insurance companies and sovereign wealth funds).

POLICY FRAMEWORK FOR THE ENERGY TRANSITION

Africa has vast if untapped renewable energy sources. By harnessing these resources, the continent could leapfrog technology stages to create an energy system based on renewables that covers all sectors
and end uses. Yet the policies and measures driving investment have for the most part focused on the
power sector and rural access – electrification and clean cooking. An energy system based on renewable
energy could support sustainable development, industrialisation and economic growth. To that end, a set of targeted polices and measures is needed.

Africa’s deployment policies have focused on power, with less attention to transport and heating and cooling, even as gaps in access to cooling continue to widen, especially for the rural and urban poor (Box 4.5). In 2020, 40 African countries had regulatory and pricing policies for renewables in the power sector, compared with only 7 countries with renewable transport fuel obligations or mandates, and 2 countries with renewable heat obligations – reflecting global trends (REN21, 2021b). The power sector enjoys widespread global attention; as a mature sector, its technologies are decreasing in cost. By 2020, new solar and wind projects were undercutting even the cheapest and least sustainable of existing coal-fired power plants (IRENA, 2021g). Although the focus on power aligns with IRENA’s vision of a future energy system where electricity accounts for more than half of energy consumption by 2050 (IRENA, 2021e), policies that support the direct use of renewables for heating and cooling and transport are needed to achieve industrialisation and development goals on the continent, since electricity cannot cover all end uses.

Policies for the direct use of renewables: Heating and cooling and transport Heating and cooling
In the heating and cooling sector, African policies are focused on clean cooking and water heating. To take full advantage of its vast potential in solar, geothermal and bioenergy resources, Africa will need to do much more so that it can fuel productive uses such as agriculture and industrial processes.
Policies to promote solar water heating are common in East Africa (Kenya, Mauritius and Rwanda), North Africa (Morocco, Tunisia, Egypt and Libya) and Southern Africa (Zimbabwe, South Africa and Eswatini). Typically, these policies offer subsidies to support SWHs; Tunisia’s PROSOL programme was more comprehensive, however. Consumers could purchase SWHs at lower up-front costs through investment subsidies on a five-year loan. Working alongside banks, the programme reduced risks by making the electricity utility the debt collector and increasing the supply of finance available for the systems (Innovation for Sustainable Development Network, 2019). South Africa’s state-owned utility, Eskom, implemented a SWH rebate programme in two phases, 2008-2013 and 2010-2015. In 2011, Rwanda rolled out its flagship programme, SolaRwanda, which provided grants and loans for residential SWHs. By 2018, 3 400 units had been installed (Solar Thermal World, 2018).

INTEGRATING POLICIES
Renewable energy sources and their integration are central in the global energy transition. Secure supply by power grids requires a continuous balancing of supply and demand. Yet the presence of VRE like solar and wind power, whose feed-in depends on meteorological conditions like solar irradiation and wind speed, can pose challenges to grid operation. Given the relatively low base of installed capacity in Africa and the continent’s steep growth in demand, many African countries face a dual challenge: growing renewables while growing the system itself. The continent has a unique opportunity to
design power systems able to accommodate high shares of variable renewables (Sterl, 2021). The integration of renewables can be facilitated through the formation of power pools in Africa which provide a framework for regional and cross-national planning.

SOCIO-ECONOMIC IMPACTS OF THE ENERGY TRANSITION IN AFRICA

The energy transition, with its systematic shift to renewable energy, holds vast potential to improve
livelihoods across Africa in ways that transcend purely economic benefits. These improvements loom large for a continent that, despite its minimal emissions of greenhouse gases, is vulnerable to the depredations of climate change.1 These effects may include disruptions to the continent’s farming and agricultural systems, already strained by limited water availability, and to health systems (Niang et al., 2014). Disruptions may also extend to modern energy in parts of Africa (Chapter 2), to livelihoods and to cultural identity. Climate change also threatens global commodity markets and supply chains as the energy transition, vital for most of the continent, ramps up.

IMPACTS ON GDP UNDER 1.5-S
This section presents energy transition impacts on aggregate economic activity (as measured by GDP) in
Africa and its regions. These results are reviewed at the end of the section in light of the climate change damages wrought on the economy under both PES and 1.5-S. The energy transition under IRENA’s 1.5-S pathway boosts Africa’s GDP throughout the entire outlook period up to 2050, compared with PES. On average, GDP is 7.5% higher in the first decade, and 6.4% higher over the nearly three decades until 2050. Figure 5.2 shows relative differences between the scenarios, in percentages. The relative difference for total GDP, for instance, in the year 2030 means that the energy transition under 1.5-S yields a GDP 5.9% higher in that year than under PES.

GDP impacts by sector
The energy transition can contribute to diversifying economies, by boosting demand for new product
ranges and services, and promoting innovation in new technologies and knowledge-based products.
African economies can leverage on domestic strengths, increasingly addressing the value chain of
manufacturing in domestic industrialisation. Usingthe energy transition as a boost to more diversified
economies across Africa will require a variety of skills, developed through more and better education and training opportunities.

Figure 5.3 shows the difference between the scenarios in economic activity by sector for selected years
in Africa. Manufacturing and engineering-related economic activities gain from the energy transition,
and this effect increases over time. Additional output needs additional intermediate inputs for production
and hence services, retail, and transport also gain. By contrast, fossil fuel industries (coal, oil and natural
gas) stand to lose under the energy transition, as do respective utilities. Since 1.5-S is based on a high level of electrification throughout the economy, electricity suppliers also gain. It should be noted, though, that reaching 100% energy access often involves off-grid solutions, which do not fall under this category. The difference in output in the electricity sector between 1.5-S and PES is therefore slightly underestimated in Figure 5.3.

Climate change will damage aggregate economic activity in both the 1.5°C Scenario and PES, but to a
lesser degree according to their respective cumulative CO2 emissions during this century. Climate damages will vary across regions. Figure 5.6 presents how the difference in GDP develops over time for PES, globally, in Africa and for the individual regions. Climate damages in Africa and its regions are expected to be greater than the global average. Extensive climate damages can be expected under PES. By 2100 it could reduce GDP by 55%-65% (compared to GDP estimates that do not account for climate damages), implying that unmitigated climate change will have a highly damaging impact on the African continent.

TACKLING THE ENERGY ACCESS DEFICIT IN AFRICA

A key pillar of Africa’s energy future involves expanding access to reliable, affordable and sufficient
electricity and clean cooking fuels and technologies for the hundreds of millions of people who presently lack it. An estimated 592 million Africans were living without electricity in 2019; 927 million had no access to clean cooking fuels and technologies (IEA, IRENA, et al., 2021). The access deficit is particularly acute in rural areas of Sub-Saharan Africa, with average rates of 25% for electricity and only 4% for clean cooking. Of the world’s 3.5 billion people living without reliable access to electricity, the majority are found in SubSaharan Africa (Ayaburi et al., 2020). The full impact of the COVID-19 pandemic on access is not yet known, but it has been estimated that in Sub-Saharan Africa 17 million people lost the ability to afford an essential bundle of electricity services, while nearly 25 million might be at risk of reverting to traditional fuels and technologies, such as candles and kerosene for lighting and wood for cooking (IEA, IRENA, et al., 2021; IEA, 2020b). Even before COVID-19, the achievement of universal access by 2030 – as targeted by Sustainable Development Goal (SDG) 7.1 – had become increasingly unlikely. The energy access trajectory presents a bleak picture for the African continent, as population growth and slow progress over the past decade has resulted in limited reductions in the absolute numbers of people without access. By 2030, around 560 million and 1 billion people in Sub-Saharan Africa are still expected to be without electricity and clean cooking fuel access, respectively (IEA, 2020c).

RAISING ACCESS TO ELECTRICITY USING DISTRIBUTED RENEWABLES
Distributed renewable energy solutions play a steadily growing role in expanding electricity access in off-grid areas and strengthening supply in already connected areas in Africa.2 In the off-grid context, renewables-based stand-alone systems (e.g. solar lights, home systems) and mini-grids have spread in recent years, driven by improving technology, falling costs and favourable policy and regulatory environments. With the active participation of the private sector and facilitated by context-specific local conditions (e.g. mobile payments in East Africa), these solutions have quickly come to complement electrification through grid extension. At the same time, grid-interactive distributed renewables are also increasingly being considered to raise the quality and reliability of supply in connected areas, particularly for commercial and industrial consumers.

also be found in the value chains of oil, poultry, dairy and coffee. In Sierra Leone, for example, a 250-kW hydro-based mini-grid powers a palm oil pressing plant, which also improves the financial case for the mini-grid, as the plant buys a third of the electricity generated (Power for All, 2020). In Kenya, pilot projects have been launched to use geothermal heat to pasteurise milk, heat aquaculture ponds and
dry grain. Substantial potential exists in meat and honey processing, as well, and in postharvest crop
preservation (IRENA, 2019c).

Source:IRENA

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