DWF Group Plc

Africa’s renewable energy market

Question

Can investment in renewable energy help drive economic growth in Africa?

Answer

Across many regions of Africa, the renewable energy market is opening up opportunities for sustainable energy, which in turn is fuelling economic growth. Economic development, democratisation and strong natural resources have provided the environment necessary for investment in renewable energy to grow. The African Development Bank (AfDB) has estimated that the lack of energy costs the continent 2-4% GDP annually. Whilst there are some challenges to both international and domestic investment, it is clear that renewable energy could play a significant role towards the development of African economies.

Why renewable energy?

With the increase in domestic and industrial use of energy, the supply does not meet the current and future demands. The International Energy Agency has estimated that by 2030, demands for electricity will more than double. The obvious need for sustainable energy, combined with the vast natural resources that Africa possesses, gives the renewable energy market an opportunity for growth in the region. Not only are renewable energies sustainable, they are often safer, 'cleaner' and less harmful to the environment and people than other energy sources, for example, kerosene.

One of the key challenges to gaining investment is balancing the opportunities in Africa while ensuring longevity of the investment project. If the risks involved are not understood or mitigated correctly, the project will ultimately suffer and the investment could be lost. This creates hesitation among investors when considering the market.  

There are many factors that are crucial to ensure the successful investment in renewable energy projects in Africa. Three of these factors are:

  • understanding the political climate;

  • choice of location; and

  • local partners.

Investment in renewable energies requires an understanding of the political climate. The commitment of each of the 54 African countries to the Paris Agreement (climate change talks at COP24 in Katowice) and the clear desire of many leaders to gain investment in renewable energies shows the appetite and importance placed on renewable energy.

The Kenyan president, Uhuru Kenyatta, has recently revealed his intention to continue to invest in renewable energy, aiming for all of the country's energy to come from renewable energy within the next two years. This aim has been part of his political manifesto since taking over leadership in 2013, at which time 2.2 million households had access to electricity. Current reports indicate this figure may be as high as 6.9 million households. Not only is the aim to increase access to electricity, but also Kenyatta has stated that "we have to use renewable sources of energy to protect our environment, and ensure that we pass down, to our sons and daughters, a country as clean and green as we inherited from our fathers".The incentive to renewable energy in Africa is not just the sustainable energy resources available, but also an environmental awareness to reduce pollution.

Once the correct political climate is identified and the risks assessed, mitigated and understood, the correct site can be found. If the country's political and social climate is understood and the correct site is chosen, then it is essential to build and maintain relationships with local individuals. This three-pronged approach highlights and supports a risk management programme from the project’s inception. Therefore the project has more chance of securing investment and being successful.

The benefit of renewable energy

Investment in renewable energy provides potential for increased employment opportunities, both within implementation and monitoring of the energy projects themselves and also through wider infrastructure projects that are facilitated as a result. Furthermore, the Desert to Power Initiative highlighted that woman in business often struggle to connect to the electrical grid. The improved access will allow for these businesses to grow as they will have more sustainable access to energy and therefore can work more consistently.

Social developments benefit from increased availability of energy sources, as access to a reliable energy source is vital to support vital infrastructure such as hospitals and schools. Furthermore, a secure energy source allows for areas regarded as being dangerous to be lit, benefitting the entire community.

Conclusion

Renewable energy in Africa is a cost-efficient means of providing sustainable energy across the region. Once investment is found and the risks understood, the return for both the local community and the investors can be considerable. There is opportunity for international investment and the opportunity for the continent is expressed by Magdalena Seol in the AfDB’s Desert to Power Initiative: “Energy is the foundation of human living – our entire system depends on it. For Africa right now, providing and securing sustainable energy is in the backbone of its economic growth. A lack of energy remains as a significant impediment to Africa’s economic and social development.”

Hannah Child is a trainee solicitor at DWF.

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