Transformational technologies will help solve Africa’s energy challenges

For Africa, where 600 million people have no electricity, the traditional grid model is not feasible, and a holistic approach is required to achieve efficiency, flexibility, transparency and long-term sustainability through the digital transformation of grids. Technologies, not fuels, are the centrepiece of the new energy system in Africa, according to a report published in April 2024 by the International Renewable Energy Agency (IRENA). Even more than elsewhere, here digitally enabled technologies are indispensable, not only to enhance grid operation and improve the quality of supply, but also for extending decentralised energy solutions to communities residing in remote or low-income areas.

However, Africa lags behind in digital tech use. The most energy-deficient continent in the world strongly relies on fossil fuel power and – too often - on aging and inefficient systems for its rapid industrial and population growth. Even in areas that are network connected, grids are beset by obsolescence and mismanagement, leading to challenges such as blackouts and surges. The ‘one size fits all’ approach is not suitable for African nations. Optimising electrification plans involve a combination of centralised solutions—such as large-scale power plants coupled with grid extension—and decentralised approaches—including mini-grids, stand-alone systems, and solar home systems, as well as internet of things (IoT) technology. These solutions can be progressively integrated into national grids to optimise costs and improve system reliability.

In this continent, decentralisation – based on “smart” or micro-grids – is crucial to reach universal energy access. These decentralised electricity networks that can function separately from a national grid are invaluable in rural areas, and in urban areas not yet reached by the existing grid. Nevertheless, the World Bank has estimated that, if mini-grid construction continues at its current pace, just 12,000 will be constructed by 2030—less than 10 percent of projected demand—at a cost of $9 billion. These findings confirm that achieving universal energy access in Africa will be possible only by embracing a combination of grid expansion and off-grid solutions. It has been estimated that, to reach universal access in Africa, $50 billion is needed annually in grids alone by 2030. Unlocking this scale of financing means that investment in grid expansion must shift beyond dependence on public capital and attract private financing, overcoming existing entrenched investment hurdles. Efforts to increase the level of investment have involved innovative financing mechanisms, such as blended finance, public-private partnerships, and investment incentives. Work has also been carried out to mitigate investment risks at a national level by creating more favourable investment climates through national policy reforms. Regrettably, a variety of investment barriers hindering renewable energy and electrification project development in Africa remain in place, the most challenging one consisting in the cost of capital, even seven times higher than in the US or Europe in certain instances for similar projects.

Hindered by various finance, country-specific, policy-related, and other risk factors, accessing finance remains a daunting task for most African nations. More needs to be done to implement innovative strategies at scale, such as further country and project level de-risking mechanisms, blending instruments, public-private partnerships, international cooperation, and other interventions at scale.

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