South Africa, Kenya and Ethiopia Lead Renewables Expansion

This analysis will identify the regional trends and themes present in Sub-Saharan Africa renewables industry and highlight the key countries that are emerging as frontrunners in the African renewables space. Although momentum is building behind the industry, there are still numerous risks that threaten the expansion of the sector, ranging from the inefficiencies within the power infrastructure, the low levels of competition and liberalisation in the markets and the challenging business environments prevailing in SSA countries.

Countries in the Sub-Saharan Africa (SSA) region are increasingly turning to their largely untapped renewable energy potential in order to meet projected power demand and diversify their often precarious energy mixes towards sustainable sources. We have witnessed numerous project announcements over the last few years as momentum builds behind the industry, with projects covering the whole renewable energy spectrum; including geothermal, wind, solar and biomass. In fact, during 2012 new renewable energy investments in the Middle East and Africa region (MEA) grew by 228%, to US$11bn. It is noteworthy that South African renewable energy investments feature in the top ten highest globally and posted the world's highest renewable investment growth over 2012, according to the United Nations Environment Programme (UNEP).

By examining the region in greater depth, we have noted some key trends and themes emerging within the SSA renewables industry, these include:

Renewables Expansion Underway
SSA Non-Hydro Renewables Capacity By Type (MW), 2014 and 2023

This analysis will identify the regional trends and themes present in Sub-Saharan Africa renewables industry and highlight the key countries that are emerging as frontrunners in the African renewables space. Although momentum is building behind the industry, there are still numerous risks that threaten the expansion of the sector, ranging from the inefficiencies within the power infrastructure, the low levels of competition and liberalisation in the markets and the challenging business environments prevailing in SSA countries.

Countries in the Sub-Saharan Africa (SSA) region are increasingly turning to their largely untapped renewable energy potential in order to meet projected power demand and diversify their often precarious energy mixes towards sustainable sources. We have witnessed numerous project announcements over the last few years as momentum builds behind the industry, with projects covering the whole renewable energy spectrum; including geothermal, wind, solar and biomass. In fact, during 2012 new renewable energy investments in the Middle East and Africa region (MEA) grew by 228%, to US$11bn. It is noteworthy that South African renewable energy investments feature in the top ten highest globally and posted the world's highest renewable investment growth over 2012, according to the United Nations Environment Programme (UNEP).

Renewables Expansion Underway
SSA Non-Hydro Renewables Capacity By Type (MW), 2014 and 2023

By examining the region in greater depth, we have noted some key trends and themes emerging within the SSA renewables industry, these include:

Regulatory Frameworks Boosting Renewables Prospects

In an attempt to attract investment into the sector, many countries are offering subsidies for renewable projects in the form of tax incentives or, in some cases, Feed-in-Tariffs (FiTs). FiTs guarantee the price paid for electricity from renewable sources, ensuring these technologies are cost competitive with more conventional power plants, and therefore encouraging the development of renewable facilities in the country. Countries that have adopted FiT programmes include Kenya, Uganda, Tanzania and Ghana, and it seems that the regulatory frameworks are successfully attracting developers into the market. For example, it was announced in early March 2014 that UK renewable energy investor Blue Energy will begin the construction of its 155MW solar photovoltaic (PV) Nzema project in western Ghana in September 2014, which is underpinned by a 20-year FiT ( see 'Solar Brightening Diversification Prospects', March 4 2014).

  • Rural Renewable Energy

We have long-held the view that rural, off-grid renewable energy projects, installed at a community level, have huge potential in the SSA region, owing to the generally low levels of electrification rates in rural areas. We have so far seen schemes implemented in Kenya, Rwanda and Ethiopia and expect further growth in this segment ('Electrification Plans To Benefit From Small-Scale Renewables', March 6 2013). In fact, the Ethiopian Ministry of Water and Energy announced at the end of August 2013 that, as part of a World Bank (WB) funded programme launched in December 2012, over 13,200 solar systems had already been installed in rural communities that were not connected to the grid ( see 'Solar Lighting Up Rural Areas', September 3 2013).

  • Increased IFIs and Development Bank Activity

The SSA renewables industry is receiving a great deal of support from development banks and international financial institutions (IFIs), which are playing an important role in minimising financing risks for projects. We have seen funding committed by the likes of the WB, African Development Bank (AfDB), UNEP, Export-Import Bank of China and the African Carbon Asset Development Facility, particularly into the East African geothermal industry and rural renewable energy projects. The expansion of renewable energy is often viewed as a crucial element in combating poverty and boosting social and economic development, and as such we believe that these financing channels will continue to be available for these types of projects.

  • Technology Initiatives

New technology initiatives which utilise renewable energy are growing in prominence across the region, and appear to be designed specifically for the African market. For example, Kenyan solar system company M-KOPA focuses on providing off-grid solar systems, including lights, phone chargers and solar-powered radios, to homes across Kenya. The scheme aims to be affordable for low-income households as it works on a mobile payment plan agreement (in conjunction with Safaricom), whereby customers pay an initial deposit and then make daily instalments over the course of the following year. We expect to see greater interaction between the renewable energy and telecommunications industry in the region, a partnership that is also likely to be supported by development banks and non-governmental organisations (NGOs). In fact, in early February 2014 M-KOPA secured a US$20mn loan facility to help it increase its consumer base from the Commercial Bank of Africa (CBA), with lenders also including the Bill & Melinda Gates Foundation, the Shell Foundation and the UK's Department for International Development (DFID) ( see 'Household Solar System's Prospects Brightening', February 10 2014).

South Africa Dominating Mix
SSA Non-Hydro Renewables Capacity By Country (as %), 2014 and 2023

By examining both our 10-year renewables capacity forecasts and our Renewables Risk Reward Ratings (RRRs) for SSA, we can gauge where the growth opportunities lie in the region and which countries are emerging as frontrunners in the African renewables race. In terms of installed renewables capacity, South Africa dominates the regional picture, contributing roughly 54% to the total and we expect this trend to remain in place by the end of our forecast period in 2023. South Africa has shown great promise with regards to its renewable energy expansion - through its Renewable Energy Independent Power Producer Procurement Programme (REIPPP) - and interest from high-profile international players remains robust and the project pipeline continues to grow (see 'Significant Interest As Auctions Progress View Related Content', December 16 2013).

We have been following the second largest renewables market, Kenya, closely over the last year, and we expect the country's renewables industry to grow gradually more important, in terms of contribution to the region's total capacity, over the course of the decade, driven particularly by the geothermal segment. In addition to this, Ethiopia has vast potential to harness its, as of yet, underdeveloped geothermal resources and there has been significant progress across its entire renewables industry recently ( see 'Renewable Energy Prospects On The Up', October 28 2013).

Ratings: Mixed Bag
Renewable Risk/Reward Ratings By Selected Country (score out of 100)

Our cautiously optimistic outlooks for Kenya, South Africa and Ethiopia are supported by our Renewable RRRs, which examine a range of factors that affect the investment climate in the renewables sector in different ways. Each country outperforms the SSA regional average, both for risks and rewards, highlighting that, despite some challenges, these countries are overall better placed than others to attract investment in the region.

Inefficiencies High
Quality Of Electricity Supply (score out of 7) and Electrification Rate (as a %)

That said, although momentum is building behind the industry, there are still numerous risks that threaten the expansion of the sector. The electricity sectors across SSA are burdened with weak electrification rates and ageing transmission and distribution (T&D) infrastructure, as highlighted by the chart above. This will no doubt present a challenge when commercial-scale renewable energy projects are connected to the national grid system, and losses are likely to be high.

Furthermore, the level of competition and liberalisation in the region's power sectors remains moderately low. Some factors hindering the efficacy of these reforms include a lack of policy clarity, a continued reluctance by the government to relinquish control of the sector, as well as political and economic instability. In fact, the challenging business environments prevailing in SSA countries are likely to deter the more risk-averse companies, thus hindering the growth prospects of the industry.

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This article is tagged to:
Sector: Power, Renewables
Geography: Africa, Ethiopia, Kenya, South Africa
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