By Linda Munyengeterwa, IFC Regional Director for Infrastructure in the Middle East and Africa
It goes without saying that power touches pretty much every aspect of our lives. Electricity is essential in all parts of the modern economy, from agribusiness and transport to communications and manufacturing. Without the power sector, the entire global economy would quickly grind to a halt.
The COVID-19 pandemic has shone a bright light on the importance of reliable, affordable power, highlighting its essential role in healthcare and in connecting friends, families, and coworkers.
During the past six months we have all been focused on containing the spread of the virus and helping to keep companies afloat. We now must work together to rebuild. It’s an opportunity to reimagine the future and to power the continent optimally to ensure those that are connected stay connected and to connect those that have no access.
While access to electricity in emerging markets is improving globally, disappointingly, Africa’s progress is lagging. According to the 2019 Tracking SDG 7: Energy Progress Report, sub-Saharan Africa accounts for 68 percent of the global access deficit, with 573 million people—or about half the population—lacking electricity in 2017. By 2030, the World Bank estimates that 90 percent of the global population without access to electricity will be concentrated in the region.
The demand is significant and will require strong partnerships between the private sector and governments, as well as investment in new types of energy and transmission systems. IFC is redoubling its efforts to attract investment to the region’s power sector and we are hopeful that many partners will see the opportunity to succeed in Africa whilst helping millions. There is a lot of work for all of us to do post the pandemic and we need to ready ourselves now.
Our “Upstream” engagement could not have been launched at a better time. For those of you not familiar with our Upstream Strategy, it means working at the country level with multiple stakeholders to establish the conditions that lead to private investments. This includes for example helping governments enact policies conducive to attracting the private sector.
IFC’s goal through its upstream work is to attract billions of dollars of new private capital that addresses development challenges, generates jobs, and creates opportunities in the developing world.
Access to electricity is a key focus for us as an institution and we are focused on bridging this gap with our partners. One of them, the Multilateral Investment Guarantee Agency (MIGA), is helping us bring private investors along on this journey to an equitable, sustainable future by insuring them against some of the risks that come with investing in developing markets.
How can we power up Africa? Listed below are two ideas we are excited about—and we’re calling on our partners to help us unlock these opportunities.
Mini-grids. One of the most significant growth opportunities we see is mini-grids, which among other off-grid solutions can help bring clean, affordable and reliable electricity to rural households not connected to national grids. As for now, the market remains largely underdeveloped with only 1,500 mini-grids online across sub-Saharan Africa and 4,000 currently planned. Yet, innovations in technologies and business models, coupled with the declining cost of clean energy are marking mini-grids an increasingly relevant solution with the potential to serve up to 30 percent of the continent’s population between now and 2030. At the global level, the mini-grid market represents an estimated $200 billion high-impact investment opportunity that is yet to be unlocked. We believe this can be done by de-risking projects upstream notably through upgrading regulations or deploying appropriate models that will enhance bankability and, thus, scale. We are working with MIGA and the World Bank to make scaling mini-grids a reality. You can read more about the potential of mini-grids in Africa in a recent IFC Insights story here.
Wind. Wind and solar made up the majority of the world’s new power generation in 2019, the first time this has ever happened. In Africa, our Scaling Solar program has nurtured a market for private investment that has led to affordable energy production. We’ve seen this in Zambia and Senegal and are also supporting governments in Côte d’Ivoire, Madagascar, and Togo. Can we replicate this with wind? Wind is one of the fastest-growing, cheapest sources of new power generation around the world with over 651 Gigawatts (GW) of installed capacity. However, installed wind capacity in Africa represents less than 1 percent of this global capacity. A recent study by IFC and Everoze consultants shows that continental Africa possesses onshore wind potential of almost 180,000 Terawatts-hours (TWh) per annum, enough to satisfy the entire continent’s electricity demand 250 times over. Wind also has the benefit that in much of Africa its output is strongest in the early mornings and evenings which serves as a good complement to solar. We’re exploring how we can help investors tap into this opportunity and help the continent capitalize on this cleaner source of power.
Access to energy is at the very heart of development. By tackling the upstream barriers, we can increase investment in Africa’s power sector together and turn the lights on for more people across the continent.
Recent global economic challenges can provide an opportunity to help governments embark on reforms that strengthen the power sector and to mobilize the significant financing – both public and private – that is needed to allow millions of people, in Africa and elsewhere, to access reliable and affordable energy.
For more on IFC’s work in Energy, visit: www.ifc.org/energy
Check out our recent note on Covid-19’s impact on the power sector
This article was originally published in the Africa Energy Forum’s weekly newsletter on November 6, 2020.