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Editorial Powering Africa with renewables can make it the next economic hotspot

Experts are calling Africa the next bright spot in the global economy, with several African nations registering strong economic growth. However, for this to continue, modernising the continent’s energy supply and distribution is a key issue that cannot be ignored.

 

By Frederic Baralon *

 

Frederic Baralon – Wartsila-DR

 

In 2017, NASA released a series of satellite images of Earth at night. The images breathtakingly illustrated the massive inter-continental disparity when it comes to lighting at night. Europe, North America, parts of the Middle East, and East Asia were well-lit whereas Africa, Australia, Latin America, and central Asia are much dimmer.

In Africa’s case, the lack of light reflects a sobering reality: over half a billion Africans have no access to electricity, and yet more have access only to very expensive and intermittent electricity.

Although there are major differences between countries, with some having large electricity deficits and others being further along in meeting their citizens’ energy needs, the continent as a whole is behind Europe and the US, and there’s a huge need for electrification.

A complex problem

Africa’s electricity struggles are all the more striking when you consider the fact that the African economy is growing steadily. Data from the African Development Bank shows the continent’s GDP reached 3.5% in 2018.

Likewise, data from the EY Attractiveness Program Africa (2019) shows Foreign Direct Investment (FDI) in the continent, has remained largely steady. In 2018, 710 projects attracted USD 75.5 billion in capital and created 170,000 jobs, a 5-year high.

So why, in spite of this, are large parts of Africa deprived of access to regular electricity? In short, supply hasn’t kept pace with demand. This is due to a number of factors, including rapid urbanisation, failure to make necessary investments, and high costs for existing electricity supplies.

The African continent has the world’s fastest urbanisation rate. It is forecast that by 2040, more than half the population of Africa will be living in urban areas. Lagos, grew from eight to 16 million residents from 2009 to 2015. However, supporting infrastructure — including power grids — hasn’t kept up. Consequently, there are frequent blackouts, brownouts, and load shedding. Reliable power infrastructure is a major challenge today. This is partially because of a lack of generation, but also due to lack of transmission.

A lack of infrastructure and a dearth of funding contribute to African utilities’ challenges. There needs to be the ability to build power plants and generation capacity. The African Development Bank, International Finance Corporation (IFC), and other institutions that can give grants and funding need to negotiate with governments to fund these projects. The urgent need for capital means many African countries are also open to foreign investment in the energy sector.

National utilities’ operating costs are also a challenge, as the bottom line is that their generation costs are higher than what they can legally charge consumers.  As a result, they need to be continually subsidised, which is impractical if countries are working towards a healthy power market.

When you don’t have self-standing utilities, it becomes a very difficult situation. And raising prices isn’t a viable solution. In the short term, if you want to sanitise the utilities, you would increase the power price — but that might kill the industries and wouldn’t enable healthy economic growth. So, you’re in a sort of lock-in situation.

Finally, even those African consumers who are lucky enough to have access to a regular supply of electricity must contend with high prices. A ballpark power price is two to three times more for energy in Africa versus in Europe or America, while at the same time the population’s purchasing power is much lower than in those comparator regions.

The renewable energy option

However, new technologies, especially renewables, offer hope. Indeed, many experts wonder why one of the sunniest spots on the planet is not leveraging the benefits of renewable energy to solve its energy problems. In fact, hydropower alone could serve the entire African continent’s needs. According to Ayittey, the Congo Basin alone has enough hydroelectric potential to power the entire African continent.

Broadly there is reason to be optimistic about the African energy sector’s future. Indeed, he believes that it, like the phone sector, could leapfrog outmoded technologies and skip straight ahead to new technologies.

The African continent didn’t build landlines; they went straight to mobile phones. Similarly, countries don’t need to build up a huge fossil capacity first and then go to renewables. Instead, they can use energy modelling to determine the most economically viable mix of generation.

Decentralized renewable energy solutions can quickly be implemented, along with storage capacities that limit transport infrastructure costs and flexible thermal solutions to manage intermittency and support grid stability. Natural gas, present in many countries, will play a major role in this development.

This energy strategy, which has already started to be applied, will probably accelerate given that public or private investors are moving further and further away from fossil fuel-based electricity production projects, in favor of solutions producing less CO2. Renewable energies will represent 75% of new means of generation, the key question being to know how quickly they will grow.

 

On the other hand, Africa needs a significant intensification of investments in the electricity sector, which is estimated at around US $ 120 billion by 2040. For example, the Solar deployment is expected to be around 15 GW per year over this period. The development of adequate regulatory frameworks as well as the strengthening of the African financial sector will be essential to ensure a sustained flow of long-term financing of energy projects.

Finally, the constant decrease in the price of renewable energies on a global scale will lead to a profound modification of energy systems, using renewable energies as base production, in addition to thermal solutions providing great flexibility to manage intermittence and seasonality of renewables.

 

For a long-term vision

According to numerous reports, by 2050 solar PV could account for more than 50% of total electricity production in Africa. The continent will thus take full advantage of its considerable solar resources and the continued decline in the prices of photovoltaic equipment and battery energy storage systems.

Today’s energy choices extend over decades. This is why electrification strategies must be considered over the very long term; renewable energies providing cheap electricity whose production should be maximized as much as possible. But the energy mix must now also integrate the constraints intrinsically linked to renewable energies, which are their intermittence and their seasonality.

To meet these constraints, natural gas, which is flexible and easily distributable, becomes a valuable ally. Through the latest discoveries of numerous gas fields on the continent, Africa is becoming a major player in the natural gas markets as a producer, consumer and exporter. Natural gas will therefore become the predominant fuel in the energy mix. These new thermal capacities will meet a crucial need for flexibility, by offering rapid response and ramp-up times, and scalability by allowing fuel to be changed.

The integration of all these energy solutions will ultimately provide access to electricity to as many people as possible while reducing the production costs of kWh and improving the reliability of the energy system.

Many scenarios are possible for Africa’s energy future, however political choices must lead countries towards sustainable and inclusive solutions to accelerate social, industrial and economic development. New technologies, the dynamism of the African energy sector, and the sustained growing demand in the long term, are all positive points for the development of a reliable energy system in many African countries.

 

*Frédéric Baralon is Senior Market Development Manager at Wärtsilä Energy Business.
He is in charge of relations with the various stakeholders in the field of energy in Africa, monitoring market developments and modeling the electricity market to optimize additional capacities and LCOE. Together with his team, he plays a key role in the development of Energy Business strategies in Africa such as assessing the potential of new markets and developing strategic partnerships in the region.

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