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Energizing Africa – a new investment opportunity
June 30, 2016, 1:16 pm

Affordable and reliable energy supply is crucial to social and economic development. Without universal access to energy services of adequate quality and quantity, countries cannot sustain dynamic growth, build more inclusive societies and accelerate progress towards eradicating poverty, says a new report by the Africa Progress Panel.

The report shows that Africa’s energy system is standing at a crossroad. For countries across the region, this is a moment of great opportunity. Two-thirds of the energy infrastructure that should be in place by 2030 has yet to be built. Demand for energy is set to surge, fuelled by economic growth, demographic change and urbanization. As innovation drives down costs for low-carbon energy, Africa could seize the opportunity to leapfrog into a new era of power generation.

Energy planning in Africa has suffered from a backward-looking conservatism that could leave the region on the sidelines of the global low-carbon energy revolution, warns the Panel report. Perpetuating the limited and unequal access to small amounts of power that characterizes much of Africa today is a prescription for inequality and restricted opportunity. When health systems are unable to provide preventive and curative services due to energy crunch, people who are already vulnerable face heightened risks. And when shortages of electricity hamper schooling, children lose a chance to escape poverty and build secure livelihoods.

Another area of energy challenge where insufficient attention has been paid to is the use of biofuels by households. Increasing demand for clean, efficient cooking-stoves, would save lives, liberate millions of women and girls from the drudgery of collecting firewood and generate wide-ranging environmental benefits.

Viewed from an investment perspective, replacing existing fuels with modern energy represents a widely neglected market opportunity. Access to modern energy systems could cut household costs, with benefits for expenditure and investment in other areas. Just halving costs would save US$5 billion for people living below $2.50, or $36 per household. Plausible price reductions of 80 percent would raise these figures to US$8 billion overall, $58 per household. An estimated $55 billion a year investment gap would need to be closed if Africa is to transform its energy system.

However, after decades of neglect, energy policy is starting to move center-stage in Africa. Governments are adopting more ambitious targets for power generation, backed in some cases by far-reaching reforms of their energy sectors. Part of the impetus towards change can be traced to financing. Several governments have stepped up public spending commitments. Energy-sector reforms have unleashed a new wave of private investment. Development finance institutions are playing an expanded role, and international cooperation has moved into a higher gear.

Renewable energy is at the forefront of the changes sweeping Africa. Many governments have recognized the potential benefits of non-hydro renewable energy. The region is registering some of the most remarkable advances in solar, geothermal and wind power. And, African governments are increasingly recognizing the benefits of developing larger regional markets by establishing shared power pools and developing regional grids.

Utility reform, new technologies and new business models could be as transformative in energy as the mobile phone was in telecommunications, but to do so African countries need to move away from anachronistic, centralized, grid-based energy models and embrace innovative renewable and sustainable systems.

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