RE Investment Dropped To 11-Year Low In Africa In 2021

• BloombergNEF analysts count Africa to have secured only $2.6 billion out of $434 billion global renewable energy investments in 2021
• This represents 35% annual decline in Africa which is also the lowest investment in the segment in the last 11 years here
• Inadequate policies and their lax implementation is one of the reasons for this state of affairs
• Focus of governments here largely still remains on grid infrastructure expansion while competitive procurement policies that have been successful elsewhere, haven't yielded satisfactory results in Africa so far
• International investment needs to increase, with local participation to help increase deployment rates

In 2021, with only $2.6 billion capital invested for new wind, solar, geothermal energy and other such projects, Africa got its lowest investment in renewables in the last 11 years according to a new report of Bloomberg New Energy Finance (BNEF). This cannot be blamed on any 'lingering effects' of the pandemic but on inadequate policies and enforcement, according to the report.

On the other hand, global renewable energy investments grew 9% annually to reach an all-time high in 2021 with $434 billion. In Africa, there was a decline of 35% as it only accounted for 0.6% of the global share.

The United Nations (UN) Secretary-General's Special Envoy on Climate Ambition and Solutions and Founder of Bloomberg LP and Bloomberg Philanthropies, Michael Bloomberg called it an alarmingly low level for clean energy investment in Africa especially since the continent has excellent renewable energy resources like solar.

Solar potential unexplored

Despite having abundant solar energy potential, it is home to just 1.3% of global solar capacity or 13 GW of the world's total. South Africa, Egypt and Morocco account for 65% of all installed solar capacity in Africa in 2021. At least 8 GW of this 13 GW came up since 2019.

Nonetheless, the use of solar is gradually increasing in Africa thanks to the modular nature of PV complemented by steep decline in prices. As many as 24 nations installed at least 1 MW of solar in 2021 which the report terms as a 'new high following 5 years of stagnation'. And solar was also the top technology for new capacity added in 11 countries in the region in 2021, said BNEF.

In the report that BloombergNEF has jointly produced with Bloomberg Philanthropies, the authors see investment highly concentrated in a handful of markets as South Africa, Egypt, Morocco and Kenya. This leaves African nations to continue to rely on fossil-fuel produced electricity that accounted for 75% of all electricity production in the continent last year. Wind and solar together accounted for 5% while hydropower, that is dependent on rain, accounted for 18% of the output.

"Africa's dependence on gas- and coal-fired electricity puts the continent at risk of economic shock when commodity prices fluctuate. At least 28 countries meet at least half of their power demand with fossil fuels, of which 16 rely on fossils for 80% or more of their power," according to the report.

Barriers to clean energy deployment

The authors blame the low level of renewables on inadequate policies and the lax policy enforcement as factors that limit investment opportunities. There are policies in place to hold reverse auctions to award clean energy projects along with those for net metering, but not enough action on the ground.  Auctions and tenders have been the most successful procurement mechanism around the world, but contracts signed in Africa only represent 4% of the global total, they count.

Additionally, the focus more or less remains on grid infrastructure expansion, which is not only expensive and time consuming, but also often not viable. Off-grid then comes into the picture thanks to rural electrification initiatives.

At the same time, domestic investors have not enough knowledge of clean energy opportunities. If addressed, these could unlock significant renewable energy investment flows.

Address the challenges

BNEF highlights 3 barriers limiting clean energy deployment that are common to many African nations:

• First and foremost is for the governments to have consistent clean power procurement processes to provide certainty to investors and developers to build project pipelines.
• Secondly, improving both on- and off-grid infrastructure will ensure cost-effective, reliable low carbon energy supply.
• And third, it's about the lack of knowledge of clean energy opportunities from domestic investors.

While international investors should be welcome to invest in the continent's renewable energy growth, local Africa-based lenders and investors can play a fundamental role in scaling on- and off-grid deployment. Domestic financiers as banks with their unique connections can serve as intermediaries between international funders to support local deployment efforts.

In summary, BNEF says, 'All the potential is there for Africa, a continent that is home to abundant natural resources for renewable energy development, including exceptionally strong sunlight. And as a result, Africa is the continent that offers the best average long-term practical yield for a utility scale solar energy installation. These resources have the potential to be transformative in expanding power-generating capacity and access to electricity.'

The complete report titled Scaling-Up Renewable Energy in Africa A NetZero Pathfinders report is available for free download on BloombergNEF's website.