Mark Hankins, Mathias Gustavsson and Federico Hinrichs
October 02, 2012 | 9 Comments
Key to business development is how strong productive partnerships can be created between African country-based companies and international players and investors. As new businesses are started up, it is important that perspective be kept and that attention is paid to how benefits are shared. Bioenergy production in Africa has received a lot of attention both as a route to decrease oil dependency as well as a threat to biodiversity and local livelihoods. As another example, cheap solar products from the far east have flooded markets and driven local companies out of business. As is the case in all economically important sectors, there are many important discussions that need to be had about building local sectors and skills and keeping prices at an affordable level.
As was the case with the telecom sector 10 years ago, much of this will be dependent policy changes that enable the private sector to participate in decentralized and deregulated power sectors. It goes without saying that Governments must be willing to commit the necessary resources that will be required for mid-sized projects such as rural mini-grids or grid-connect solar, the price supports for biofuels or the regulation needed for sustainable charcoal to open up the next generation of renewable industries.
Inject Finance into the Sector
Access to capital at the appropriate terms and costs is a significant obstacle for the scale-up of renewables. In fact, the financing is, in many ways, available. It is more correct to say that financiers are having trouble connecting with demand. Even if the policy environment and feed-in tariffs were right (and they have a ways to go in most African countries), deals would not magically occur.
A major factor affecting financing access is the capacity of local banking institutions to assess projects. Without properly appraising technology, banks cannot shoulder financial risks. International and development finance institutions have up to now been the major sources for renewable energy project finance in Africa. These however tend to favour large-scale projects as opposed to the many smaller, decentralised or off-grid projects that local companies have the capacity to implement.
Best practices to more effectively leverage funds can be found in Africa, and will be improved upon with:
There are already a range of carbon-based financing mechanisms such as the Clean Development Mechanism (CDM) and other voluntary schemes. These can provide important support to scaling access to renewable energy. But they need to more effectively target Africa.
We have not seen enough scaling-up of renewable projects – at least not on the order of the telecom and ICT sectors, and not on the order that needs to occur to make a difference among African communities. Successful projects or experiences are often orphaned or stranded once funding has ended – or they become donor-driven cottage industries (improved stoves, solar lanterns). The sheer number of small-scale pilot projects in the renewable energy sector is, perhaps, simply a feel-good alternative which wallpapers over the fact that real scale has not been achieved.
Scaling will occur when the demand is created, and where the policy, finance and private sector capacity are in place. In Africa, we are told that people are not concerned about green energy, and that the cost of making the transition to decentralised sustainable power is too high. However, the same officials that speak of power in terms of cents per kWh ignore the costs consumers must bear by sitting through brown-outs or investing in generator and back-up alternatives. Given the choice, a large portion of Africa’s growing business and middle class will invest in renewables.
Link with Best Internatioanl Practice
As wind, PV and other sources increasingly dominate new electricity and energy investments in Europe and the US, Africa risks being left behind. In fact, Africa has been isolated when it comes to international best practice in medium- and large-scale renewable projects. Despite the strong appetite for energy and new projects, pulling together diverse teams for frontier renewable projects is expensive, complicated and risky.
International cooperation is vital for the industry. Best practices in medium- and large-scale renewable projects are much needed in Africa and can be drawn from the international community. Thus the need to support experienced companies and expertise that can provide the needed glue which can bind together projects. Multilateral and bilateral donors have been supporting such projects and are beginning to show positive results. But much more can be done.
Regional and South-South cooperation can be encouraged to share infrastructure (interconnection), form sustainable energy partnerships and learn from successful business models implemented in similar environments.
That renewables have made a good start in Africa is undeniable. Nevertheless, the bitter truth is that the full transition to renewables in the continent is a long way off. In many African countries, governments are out of step with an international community that has fully embraced renewables. Moreover, leaders have not realised that plentiful renewables can help drive forward energy access, can help build economies and, with investment, will enable Africa to participate in the ongoing green energy revolution.
Risk-averse power sector executives and Ministers will not lead the charge for renewables in Africa. As happened in many developed countries, demand for renewables will be driven first by an educated civil society. Progressive government policy follows the demands of an educated public – and investment and private sector development follow attractive policy environments. It is therefore necessary that a multipronged strategic approach that engages a wide base be adopted by proponents of Africa’s renewable energy future.
Mark Hankins is CEO and Federico Hinrichs is project manager and consultant at African Solar Designs, Nairobi, Kenya. Mathias Gustavsson is a researcher in climate and sustainable cities at the Swedish Environmental Research Institute.
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