Funding Dynamics For Off-Grid And Renewable Energy In Africa | Independent Newspapers Limited
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Funding Dynamics For Off-Grid And Renewable Energy In Africa

Renewable Energy
Posted: Sep 1, 2016 at 1:55 pm   /   by   /   comments (0)



By Rolake Akinkugbe

The case for renewable energy technologies in Africa grows stronger for every power cut experienced across the continent, and to date, renewable energy projects in sub-Saharan Africa have attracted over $25 billion in investment. Beyond this, the continent still needs to generate at least 250 gigawatts (GW) of capacity till 2030 to meet current demand growth for electricity.

The scope and availability of renewable energy resources in Africa is significant and can be deployed across grid-based, mini-grid and off-grid structures. The total hydropower capacity in Africa is estimated at 26 GW. Small hydro accounts for around 10% of Africa’s total hydropower potential, and there is an estimated 4.7GW of small-hydro potential in 13 West African countries. Wind resources in Africa are equally large, but not evenly distributed geographically.

Perhaps the solar story is where Africa’s clean energy Nirvana truly lies. Solar Photovoltaic (PV) and Concentrated Solar Power (CSP) are different technologies, but Solar PV accounts for more than 95% of solar generation in Africa, and CSP accounts for less than 5%. At the moment, the total installed capacity in Africa is approximately 200MW. However, the growth potential for both technologies is huge and public policy support for PV in Africa is emerging, even as private sector investors are increasingly taking note. Besides, in East Africa, geo-thermal sources are in abundance and could provide a renewable, cost-effective, and reliable base load technology. Currently, around 210 MW of installed capacity exists in the region, with particular focus on the East African Rift system – particularly in Kenya and Ethiopia.

Bagasse is the most important source of bioenergy in Africa, currently accounting for 94% of the 860MW of installed bioenergy capacity (2012). Up to 60% of Africa’s potential is located in Central Africa. Bagasse potential will largely hinge on trends in the sugar cane industry, though the use of alternative agricultural waste can also be attractive for bagasse production. In more developed economics, the trend for bagasse production is the co-combustion of biomass in coal-fired power plants. While this method may find easy acceptance in places like South Africa, the drivers for co-combustion in developed countries – waste management and climate change policies – are less relevant in the African context, unless some future mechanism is developed to incentivise its use.

As independent power generation grows in Africa, and grid electricity remains limited and unreliable, the economic attraction of renewable energy… grows. While diesel generators have become the substitute default choice to grid electricity due to their low upfront costs, they are expensive to operate and maintain, due to the high cost of fuel.

Funding and raising financing for renewable or sustainable energy projects is particularly challenging despite the economic dividends to be enjoyed; the International Finance Corporation (IFC), for instance, notes that every US$1 invested in the power sector adds US$15 to a country’s GDP. While there is growing acknowledgement of the falling costs of renewable energy technologies, the upfront capital investment required to develop such projects is significant.

However, funding renewable energy technologies is also driven by a range of commercial and structural dynamics in energy markets broadly. Critical considerations are Feed-in-Tarrifs (FITs) which go a long way in providing investment security, as they guarantee payments to project developers for the electricity they produce. They have had tremendous success in Europe, and the fix prices created by FITs can help stabilise electricity rates, with potential for additional job creation and economic development.


At least 70 countries globally have some form of FITs underpinning several wind and Solar PV projects. In Nigeria, the Nigeria Electricity Regulation Commission (NERC) in 2015 approved new FITs for renewable energy in a bid to ensure a better-balanced energy mix. Under the new regime, distribution companies (DISCOs) will be required to source at least 50% of their total supplies from renewable energy. While the regulatory environment for renewable energy in Africa is expected to evolve positively overtime, there are considerations beyond this for potential funders.

Given the level of innovation now trailing renewable energy projects globally, it has become pertinent to develop creative funding structures too. The best models adapted today are focused on building scale around projects both in terms of the funding structures and in terms of the target assets.From the asset perspective, these can also be aggregated. An interesting example in recent times, while not focussed on the off-grid market, saw infrastructure investors establish $3.3bn joint venture to create one of the largest pan-African energy companies.

From a funding perspective, aggregating finance can also be effective. Under such a model, DFIs, and other debt providers could sit alongside equity investors and political risk insurers in SPV or holding company structures that provide scale for individual projects.

In many markets outside Africa, crowd funding as a direct investment vehicle connecting motivated individual investors to projects, which interest them via an aggregator, has become increasingly popular. It has particular benefits for early stage companies, allowing projects to attract funding over the internet.

Lease-to-own and pay-as-you-go financing programs are emerging and are among the most innovative solutions to tackling costs associated with renewable energy uptake, helping to provide a usual form of ‘off-taker financing’. These models can be suitable for both residential and small-scale corporate clients. The success of M-Kopa in East Africa where mobile phone technology is used to market and scale energy solutions across East Africa is a good example of making energy accessible to off-grid communities.


Akinkugbe, a Head of Energy and Natural Resources at FBN Capital, writes from Lagos.