The small green solution to Africa’s big electricity problem

THE now traditional early-January announcement of a new hottest year on record is a stark reminder — if one were needed — of the global need to transition from fossil fuels to renewable energy.

Last month’s pledge by world leaders at the COP28 summit in the UAE to triple global renewable energy capacity remains a daunting, but not impossible, prospect. Renewable energy capacity increased by 50 percent in 2023 — the fastest annual increase on record — thanks to rapid expansion in China, Europe, the US and Brazil.

Despite such progress, there is an urgent need to scale up deployments in emerging and developing economies in the coming years, according to the International Energy Agency’s (IEA’s) executive director Fatih Birol.

“Success in meeting the tripling goal will hinge on this,” he said in the agency’s latest report.

As home to 60 percent of global solar resources, Africa is a key geography for such capacity expansion. Yet, despite the deployment of major solar projects such as Morocco’s Ouarzazate and Egypt’s Benban, the priorities for much of the continent remain far more mundane.

“For much of the continent, energy security is a more urgent concern than focusing on the transition to renewables,” says Rentia van Tonder, head of renewable energy, power and infrastructure at Standard Bank.

Responsible for less than 5 percent of global carbon emissions, the IEA estimates that 600 million people in sub-Saharan Africa do not have regular access to electricity, acting as a significant break on economic growth.

Over the past five years, African utility providers have been running to stand still, incurring mounting debt levels to maintain energy prices at affordable levels, with the maintenance and extension of national grids suffering as a result, a trend only exacerbated by the recent rise in inflation across the continent.

“As a result, the number of people on the continent that gained electricity access via a grid connection or a mini-grid dropped by up to 50 percent in 2022,” the IEA noted in a recent report.

“Setbacks were observed in almost 80 percent of countries in sub-Saharan Africa, notably in the Democratic Republic of the Congo, Ethiopia, Sudan, Tanzania and Uganda.”

In the midst of such challenges, a new generation of smaller solar providers providing mini-grid and home solutions are stepping into the breach, offering more localised solutions that can not only provide a more reliable service than many national utilities, but that are often better suited to extending access in more remote areas.

“Having a large transnational power distribution network that’s rolled out across the African continent doesn’t seem like a technically or economically viable solution, given the geography and the distances involved,” says Sergio Pimenta, the International Finance Corporation’s (IFC’s) regional vice-president for Africa.

“Because of this, distributed systems are becoming really important methods for bringing access to electricity across much of the continent, especially in rural areas.”

While small-scale solar systems are not a new phenomenon, they have assumed an increasingly important role given the travails of utility providers. The installation of home solar systems accounted for more than half of access increases in sub-Saharan Africa during 2022, according to the IEA, following government programmes to reduce their cost in countries such as Nigeria, Kenya and Rwanda.

The spread of solar kits that serve not only individual homes but smaller communities has increased in recent years as equipment and installation costs fall, with innovative pay-asyou-go financing models offered by providers such as M-Kopa, Sun King, Engie Energy Access and Lumos. This approach enables homes and communities to access electricity and lessen their usage of kerosene, a widespread fuel used for lighting, cooking and charging mobile phones.

“The payments that users make [under the new solar schemes] are more or less the same as what they would have previously paid for kerosene fuel and recharging their phones,” says Tedd George, founder and chief narrative officer of Kleos Advisory.

While off-grid solar’s impact on national economies is increasing in key markets such as Kenya, Uganda and Nigeria, much of its growth has relied thus far on government and development finance institution (DFI) funding, with private sector funding only recently starting to ramp up.

Jérémie Bismuth, a counsel with French law firm Gide, told The Banker that his firm had seen a steady increase in recent years in the number of financings of smaller off-grid and renewable energy projects across a number of African markets, with private funding largely taking a back seat.

“The money for such projects tends to come from private investors that are already well-acquainted with African markets, many of which owe their funding to DFIs,” he told The Banker.

“DFIs understand that the financing of SMEs is a key part of economic development across Africa. They will therefore often specifically allocate funds to investment vehicles with the requirement that they are allocated to finance SME projects.” In the main, mainstream banks and investors remain wary of such projects — which tend to cater to customers with low and irregular incomes — without the security of DFI involvement.

“Most of the companies operating in this segment (i.e. small scale solar projects) are still mainly funded via DFIs, who are to a certain extent more able to absorb some of the risks, mainly due to their development and social responsibility mandate and approach,” says Ms van Tonder. —The Banker