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27/09/2016

Energy crisis looms near for Africa

Development Policy

Energy crisis looms near for Africa

Africa needs more energy and it needs to attract investment in order to provide it.

[BudapestBamako/Flickr]

Africa suffers from a massive shortfall in energy supply and the problem is only expected to get worse as the population grows, unless investment and better management can be guaranteed. EurActiv’s partner El País – Planeta Futuro reports.

Paradox is one of the most often repeated words when it comes to the Africa-EU Energy Partnership (AEEP). In a continent with vast natural resources, 645 million people do not have access to energy and 13% of the world’s population consume just 4% of electricity produced.

The African Union’s high commissioner for infrastructure and energy, Elham Ibrahim, asked: “Why does sub-Saharan Africa suffer from an energy deficit in the 21st century, despite advances in technology and its enormous potential?” Africa wants to talk with European investors on an equal footing in its quest for answers and funding on how to pursue a sustainable energy model.

To promote change and ideas, more than 400 leaders, scientists, entrepreneurs, academics and members of civil society are met last week in Milan at the AEEP’s Second Stakeholder Forum. The consensus was clear: everyone has to get involved urgently.

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“Energy demand in sub-Saharan Africa is going to explode in the next few years, so all eyes are on the continent,” said Miguel Ángel Varela, an official from the European Commission’s International Development and Cooperation unit (DEVCO). According to the United Nations, Africa’s urban population will shoot up from today’s 414 million to 1.2 billion over the next 30 years.

There was also a consensus that Africa is not going to be able to deal with this boom by itself and that development aid is not the model to follow. The massive investments in infrastructure made by China, India and Brazil are also thought to be insufficient to cope. It is estimated that between $15 and €20 billion will have to be invested every year up to 2030 in order to provide universal access to energy.

“If you’re looking for an indicator as to why the energy sector hasn’t taken off in a majority of countries, the answer is a lack of investment,” said Jaques Moulot of the African Development Bank. Although there has been progress, Moulot explained that the lack of investment has been down to “political instability, unfavourable regulation and lack of data needed to carry out risk assessment”.

In contrast, Yofi Grant, head of Databank, a private investment fund in Ghana, insisted that it isn’t a lack of money, but bad coordination that is to blame. “The African private sector and foreign investors must both be more proactive and get involved with the development of the continent. This way, joint policies can be launched without fear of duplication,” he said.

Giles Dickson, head of WindEurope, said that “the African energy sector is very cost-effective”. As the situation differs between the 56 nations, the north of the landmass does not suffer from the same supply problems as the sub-Saharan countries.

“It is cheaper to develop wind farms in Morocco than in Europe and the environmental conditions are very good,” he added. Renewable projects like this also work in countries further south like Kenya, Ethiopia and South Africa.

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Dickson added that there are common risks associated with development projects, including “spending a lot of money and then not getting permission from the authorities” or other operational risks. He also pointed out that currency convertibility creates uncertainty among investors and that investment return could only be guaranteed by securing agreements with governments on electricity price.

While private investors are still to appear on the scene, the EU “intends to reduce market failures”, insisted Varela from DEVCO. In the 2014-2020 period, DEVCO intends to invest between €2.5 and €2.7 billion in sub-Saharan Africa. Varela added that they will be investing the money in projects that are determined by the countries themselves: “We will put the money at their disposal”.

“They have designed innovative financial mechanisms with the idea of combining our public funds with private, commerical and bank funds in order to create what we know as leverage,” he explained, with the funds being managed by the African Investment Fund.

“Public or private investors can approach the bank with their projects and ask for financial support. This aid could be anything between, for example, €1 million or €50 million… the flexibility is enormous,” Varela added.

But the continent doesn’t just have to contend with growing demand, the consequences of climate change are also hitting it hard. The COP21 summit last year reemphasised how vulnerable the region is to its effects. The challenge for local entrepeneurs is to transistion to a model that can benefit Africans in the short term.

Lois Gicheru runs Solafrique, a start-up that is dedicated to installing solar panels in Kenya’s rural areas. Venture capital funds have already adopted the model. “Our priority is to development clean energy for people have no access. If we only concentrate on urban areas, we won’t address the underlying problem,” she warned.

El País - Planeta Futuro