Is Sector Liberalization Driving an African Energy Revolution?
Many countries in Africa are rapidly redesigning the systems and structures that govern their energy sector. Electricity access in Sub-Saharan Africa is the lowest in the world. In response, governments are taking concerted action to liberalize their energy sectors. Such efforts auspiciously coincide with falling costs and broad adoption of renewable energy to help meet the continent’s large and growing energy demand. The confluence of these trends may well hold the promise of country-level energy independence.
TFE Africa have recently undertaken a piece of work for GET.Invest to provide a data-driven private-sector centered snapshot of the status of a number of renewable energy market segments across 15 countries. Key insights and sector trends, as discussed here, can be drawn from these snapshots which will be available on the GET.Invest website soon.
Private participation in the energy sector frees up critical resources for other public services.
Private participation can have a catalytic effect, not only on developing a country’s energy sector, but also more broadly on the entire national fiscus. Public capital expenditure on electricity and associated infrastructure can exceed 20% of a country’s total annual spend. Even if private investment displaces only a portion of this, the equivalent savings could amount to million if not billions of dollars which can be readily re-allocated to unprofitable public services like education, healthcare, or infrastructure. Moreover, if private investment can be derived domestically, the returns they generate will most likely remain within country borders, further strengthening the local economy. One example is Uganda’s 50 MW Tororo-Electro-Maxx thermal plant, often considered one of the first indigenous African IPPs, financed, built and operated solely by African companies.
Many governments realize the opportunity to boost domestic economic development by attracting foreign investment, especially in the energy sector. Case in point is the fact all 15 countries examined have, in some form or another, established a dedicated entity with the sole mandate of attracting and promoting investment into the country. Investment agencies typically define priority sectors, and the energy sector makes this list every single time. Some countries, like Ethiopia encourage investment beyond simply supply infrastructure and into, for example, manufacturing components. This spurs local industry and strengthens the tax base.
Flexible finance driving responsive solutions.
Private investment and enterprise in the energy sector is a fundamental shift away from the large and centralized modality of conventional energy supply. Privately developed solutions tend to be more flexible, tenable, and responsive to changing needs. Renewable energy can be similarly characterized. For this reason, policy reforms and the projects that result from them are increasingly leveraging the complementarity between renewables and private project development. For example, several countries including Kenya, Mozambique, Nigeria, and Tanzania have established dedicated rural energy funds to support off-grid solutions instead of more expensive grid extension. Beyond flexibility, and even beyond environmental benefits, privately developed renewables have demonstrated their ability to rival fossil fuels on price. And price drives decision-making.
Resilience as a function of self-sufficiency.
‘So where is the revolution?’ you may be asking. First, countries able to effectively manage the imminent transition may well see themselves become energy autarkic or self-sufficient. By generating and supplying sufficient energy for all domestic consumption, a country could eliminate its reliance on energy imports, either as electricity or as fossil fuels. This effectively hedges a significant portion of its productive economy against global fluctuations in exchange rates and fuel prices. Second, emerging industries in emerging economies have considerable growth potential. As this happens, value chains are developed, local capacity is built, jobs are created, innovation spurs innovation, and the cycle fortifies itself.
Meanwhile, the lines between consumers and producers are blurring, allowing anyone to be both a consumer and producer of electricity. In principle, this democratization of energy liberates organizations and even individuals to generate energy to meet their own demand or, in some cases to sell. In addition to security of supply, this provides a degree of financial certainty compared to the unpredictable, often significant tariff increases regularly imposed by utilities.
This revolution is not some distant ship on the horizon. Instead, we are firmly engulfed in the waves of change already. At TFE, we help companies and governments navigate this transitional environment by operating at the vanguard of technological innovation while remaining squarely rooted in the fundamentals of energy on the continent. We balance ground level work in remote, unelectrified villages with developing some of the most cutting-edge technologies in the world.
Get in touch.
If you want to know more about the private sector-led transition to distributed renewable energies in Africa or how new forms of finance enables the revolution, please reach out to Adrian Lotter.
