High inflation and slowing GDP growth rates are combining for a dreary economic forecast for several African countries going into 2023. For this reason and more, business costs and de-risking operations are top of mind for investors, business owners, and governments heading into Q4. While investors and policymakers may feel inclined to take their foot off the gas of large-scale infrastructure investments, renewable energy investments, especially in the solar sector, should not be a casualty of a potential recession. Instead, increased energy prices should directly correlate to the increased attractiveness of solar and other renewable energy sources, as the International Energy Agency recommends.
Policymakers and investors should put added focus on the energy transition for three main reasons: 1. this transition has been well underway even through a pandemic with investment attractiveness only improving, 2. renewable energy systems can help businesses persevere during a downturn and 3. Commercial and industrial solar, in particular, is key to African businesses hitting their climate targets.
1. The energy transition is well underway in Africa
By any metric, the renewable energy transition is well underway in Africa. Renewable energy capacity in Africa doubled between 2006 and 2017, with nearly $18 billion invested over the same period. Africa is the largest destination for off-grid solar investment in the world, and hundreds of millions of dollars are pouring into the sector. In fact, annual investments in renewable energy grew tenfold from less than $500 million in the 2000-2009 period to $5 billion in 2010-2020. There is still room to grow: the African continent has the highest solar energy potential in the world but has only installed 5 gigawatts (GW) of solar PV, which represents less than 1% of the global total.
If the renewable energy sector is to continue to grow throughout Africa, governments must embrace renewable energy and provide an environment of clear regulation and governance conducive to large-scale private investment. Africa’s off-grid solar sector alone represents a $24 billion per year opportunity, and the high costs of fossil fuels caused by the Russian-Ukrainian war mean alternative energy sources are more in demand than ever.
2. Renewable energy systems are key to business resilience
The fundamental benefit of renewable energy to African businesses is the power reliability and cost predictability. These are constant concerns for any business owner, particularly large-scale consumers in the commercial and industrial space. Energy costs make up a significant portion of business expenses in Africa, with businesses paying 25% to 100% more for electricity from the grid than similar companies in other regions. One study found that 25% of Ghanaian and Nigerian businesses suffered double-digit losses in sales due to power outages, with some firms losing 31%. Add to this uncertainty the global uptick in energy prices caused partly by the Ukrainian War, and there is little promise for dependable diesel and gas prices in the next few quarters.
Solar installations, on the other hand, can offer predictable expenses and reliable energy: stand-alone solar mini-grids have installed costs in Africa as low as $1.90 per watt for systems larger than 200 kilowatts. Combine this with a battery storage solution, and businesses can be relatively disconnected from the ups and downs of global energy markets.
3. Commercial and industrial solar is key to African businesses hitting their climate targets
Nowhere is the benefit of solar for businesses more apparent than in the commercial and industrial sectors. These large power off-takers, be they manufacturing plants, data centers, or large-scale farms, have a consistent and high energy use that can come at a high cost. In addition to needing cheaper power rates, no commercial or industrial business can afford for their plant or site to lose power for any amount of time. Imagine a food processing plant that loses power and refrigeration, causing the spoilage of goods. Or a data center that loses power and goes offline taking thousands of internet-based services offline with it including mobile banking.
On top of these businesses benefits are ones of critical importance to our modern economy: carbon avoidance. Whether forced to be regulated or voluntarily undertaken for ESG principles, businesses can reach emission reduction targets by deploying solar installations on their sites. Companies do not have to wait for their grid power to become green – they can start drawing power from solar and batteries on their own terms through solar installations, instantly reducing their carbon emissions.
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