Women and girls gather over a solar panel installation in Benin. Photo courtesy of Solar Electric Light Fund via Flickr Commons.  (License)

Over 620 million people in Sub-Saharan Africa (SSA) — roughly two-thirds of the region's population — lack access to electricity (Figure 1).The overall electrification rate for the region is 31 percent, with less than 10 percent of rural households having access to electricity. [1] Of the region's grid-connected households, 40 percent do not pay their bills.

Indeed, the region's energy generating capacity has continued to be stagnant for the past 30 years, causing a significant drag on GDP growth. Universal electricity access will require over USD 400 billion. SSA is rich in energy resources, many of which remain untapped. Tapping into renewable forms of energy such as solar, geothermal, and wind alone could meet demand. At the current rate, however, not only will half of the region's population still be without electricity by 2030, but the proportion of the population relying on traditional fuels for household energy needs will also persist as the highest in the world.

The shortage of access to electricity in SSA presents a strategic opportunity for energy companies to invest in electrifying the region quickly and sustainably. This may be accomplished by instituting certified emission reductions (Clean Development Mechanism CDM credits) traded at high price levels, and by creating a level playing field in terms of profitability between innovative renewable energy technologies and conventional fossil fuels-based electricity generation options.

Globally, the appeal of renewable energy technologies has progressively improved due to two major factors. First, these technologies open new export opportunities and revenue streams because they are eligible for carbon crediting on international carbon markets underpinned by the Kyoto Protocol. In this system, developed countries pay developing countries to invest in local infrastructure. Second, innovation driven by increased market demand has reduced prices for renewable energy considerably over the past decade. Wind and solar power, for instance, are now exploitable in stand-alone units or mini-grids. This eliminates the cost of connecting them to the main grid and ensures that the energy produced is distributed in a decentralized and modular manner across rural areas. It is precisely in such rural areas that small grids or off-grid solutions are most feasible, and where they could have the most potential impact. An estimated 66 percent of the population in SSA lives in rural regions.

Figure 1: Global Access to Electricity

The main investment in meeting the energy needs of the SSA region over the last decade, however, has been in generating fossil fuel or hydroelectric power. These forms of energy production have adverse effects on the region's economies and populations. In particular, dependence on fossil fuels exposes SSA countries to price volatility in local and regional markets as well as in foreign supply chains. Additionally, each year nearly 600,000 premature deaths in Africa are attributed to household air pollution resulting from the traditional use of solid fuels.

On the other hand, while hydroelectric power is a renewable source of energy, its development can result in serious environmental damage and social conflict, particularly in the case of large-scale dam-based generation. It is also vulnerable to droughts, a particularly pertinent risk category in SSA. While other sources of renewable energy such as wind, solar, and biomass might be better suited to many African countries, they have largely been neglected.

Therefore, in the context of the SSA region, solar energy is a particularly feasible source of renewable energy. Solar energy is naturally decentralized, available in huge supply, improving in cost-effectiveness as technology advances, relatively more immune from supply or price uncertainty, and eligible for support from bilateral and multilateral institutions that are seeking to increase low-carbon energy production. The SSA region is endowed with rich solar energy resources suitable for photovoltaic solar systems and large-scale solar thermal facilities.

Despite the vast potential for harnessing renewable energy, addressing the region's energy deficit will require significant finances. A large financing gap exists in SSA because the focus of much of the current spending is on maintenance and operations of the existing power infrastructure, with little remaining to fund long-term investments needed to address the power supply gap. In the past, hydro-based, gas- and coal-fired generation have often been the most cost-efficient options, making them the preferred political choice as well. Additionally, fossil fuel subsidies lower the price of fossil fuel-generated energy, artificially making them more competitive relative to renewable energy alternatives.

Other significant barriers to potential investment include the paucity of funds, weak institutions, lack of law enforcement, manipulation of electricity prices for political reasons, exchange rate volatility, and the lack of technical and managerial expertise in both the public and private sectors.

Policy Recommendations:

The following recommendations for the governments of SSA countries and to international donors can help to attract private investors and overcome the barriers to renewable energy production:

• Institute markets for certified emission reductions (CDM credits) traded at high price levels: The Green Climate Fund, Climate Investment Funds, Global Environmental Facility, Climate-focused Multilateral Insurance Guarantee Agency, and Climate-focused Currency Exchange Fund are funding mechanisms to attract the private sector to invest and operate in SSA. These international bodies offer mitigation solutions for private investment in developing countries. CDM credits have played a significant role in most non-hydroelectric, grid-based renewable energy development in SSA.
• Create a level playing field in terms of profitability between innovative and promising renewable technologies and conventional fossil fuels-based generation:
  • Remove fossil fuel subsidies. The benefits — including the many positive externalities — of renewable energy generation tend to materialize in the medium- to long-term and accrue at the country level. Therefore, governments should consider capitalizing on the benefits by establishing regulatory frameworks and incentive structures. This will mobilize private sector actors to engage in renewable energy generation at an appropriate scale.
• Establish public incentive mechanisms to attract private investment by:
  • Setting clear national targets for renewable energy generation. This will provide certainty and commitment to private sector actors, reduce regulatory risks, and make subsequent public incentive instruments more reliable and trustworthy from the perspective of financiers.
  • Levying carbon taxes at a fixed amount of tax per ton of carbon dioxide emitted. Thus, the market is steered away from high-emission fossil fuels and into low-carbon alternatives.
• Execute market liberalization efforts to provide easy market access and grid access to private sector actors on a competitive basis: Governments should consider decentralizing state-owned national power utilities. State-owned power and grid control aims to keep prices artificially low, thereby adversely affecting the sustainability of national power provision.
• Mitigate political and regulatory investment risk:
  • In the short run, international development banks, donor countries, development assistance agencies, and other such organizations can achieve this by providing hedging instruments and guarantees through official development assistance and international climate finance. These actors ensure credibility and offer safety nets to private sector actors in SSA.
  • In the long run, however, the onus is on governments in the region to address the drivers of business risk in SSA through fundamental reforms in the political, economic, and societal structures. Public institutions and the legal system would do well to be stable and trusted in order to attract project sponsors and investors to deploy, install, operate, and finance renewable energy technologies.

The recommended policies would supplement the Africa Clean Energy Corridor and the Regional Initiative for Sustainable Energy 2009-2020, which targets universal electricity access for the region by 2030 with cheaper electricity prices and an increased share of renewable electricity up to 82 percent by 2030. This target may seem ambitious, but the SSA region presents vast opportunities for both public and private investment in renewable energy. Consequently, these recommendations have the potential to make the region attractive for investors, strengthen the legitimacy of governments in the region, and, ultimately, bring the SSA population closer to gaining access to electricity sustainably.

1. Benjamin Zaitchik, "Lectures" (Johns Hopkins University School of Advanced International Studies, Washington, D.C., Spring 2017).

Joniel Cha is a Masters Student in International Economics and Energy, Resources, and Environment at Johns Hopkins University School of Advanced International Studies (SAIS). He has lived in developing countries for over 11 years, working on social entrepreneurial and humanitarian aid projects.