Energy across the world: Using Responsible Investments to Advance Sub-Saharan Africa’s Renewable Energy Landscape Whilst Addressing Energy Poverty
By: Sahel Mirrazavi, May 21st 2024
Edited by: Seppi Saatchi
SSA is the most energy poor region in the world, as the IEA estimates that two-thirds of their population do not have access to electricity (Mukhtar et al., 2023) with 80% of the energy poor population living in rural areas (International Energy Agency [IEA], 2022). SSA has demonstrated slow progression in addressing energy access as their electricity growth has been about half of that of other developing regions in the last 40 years (Mukhtar et al., 2023). Access to reliable energy is recognized as a key driver of both human and economic development, which can facilitate in achieving various SDGs (Valickova & Elms, 2024). However, economic development is positively correlated with environmental degradation, suggesting a tradeoff between environmental wellness and economic development. Thus, when discussing the barriers that stagnate global climate governance, skeptics of sustainable development argue that this concept hinders our ability to strike international agreements that would actually address climate change. Contrarily, advocates for energy justice often suggest that initiatives for increasing energy access to SSA’s growing population should not explicitly prioritize renewable energy deployment over energy poverty. Despite these contradictions, the IEA’s net-zero emission by 2050 roadmap suggests that due to the sizeable share of SSA in the global population, a commitment from African countries is necessary. Therefore, an increasing body of research discussing the viability of such a concept has come forth in recent years, condemning the notion that sustainability and development are mutually exclusive ideas for SSA’s energy landscape. In this regard, private investments into mini-grid projects are becoming an incredibly acknowledged solution to SSA’s energy problem.
Mini-grids produce electricity that is fed into a small, decentralized distribution grid that can be isolated or connected to the main-grid system. Mini-grids can provide electricity to multiple end users on a small, typically small town scale (Babayomi et al., 2023). As energy prices are positively correlated with lower electricity demand, which is driven by low-population density, mini-grids are incredibly relevant in rural contexts.
The deployment of mini-grids in SSA increased from 17% in 2010 to 28% in 2020 (Babayomi et al., 2023). This equates to over 11 million mini-grid connections, which primarily consist of hybrid systems (Babayomi et al., 2023). The vast majority of currently deployed mini-grids are powered by solar PV followed by diesel, heavy oil, and hydropower (Babayomi et al., 2023). In terms of future projections, the mini-grid market is expected to impact an estimated 111 million households by 2030 (Babayomi et al., 2023). Solar PV is expected to continue providing the bulk of these connections as it becomes increasingly cost-effective (Babayomi et al., 2023). The IEA’s Sustainable Africa Scenario for 2022-2033 determined that mostly solar based mini-grids and stand-alone systems are the most viable solutions to providing electricity to rural Africa (International Energy Agency [IEA], 2022).
The mode of governance required for this intervention is responsible investment as mini-grid technologies are commonly funded through loans, equities, and grants sourced typically from nongovernmental entities (Oyewo et al., 2023) such as corporate entities and private entrepreneurs (Babayomi et al., 2023). Various international companies are beginning to incorporate mini-grid energy projects into their investment portfolios. For example, Husk Power Systems, a clean energy company, has raised over $103 million USD, which involved investments from various other multinational companies, to develop solar mini-grid projects in Nigeria (Kene-Okafor, 2023). This example demonstrates how mini-grid projects can swiftly address sustainability challenges by creating an intersection between corporate sustainability and responsible investing. Support for sustainable development via responsible investments is also not constrained to national borders as various companies with equity in Husk Power Systems’ projects are multinational corporations. On the contrary, depending on national government policy support or global funding for the development of such projects can present various challenges including being slow to emerge, differing stakeholder interests, and being tied up in various institutional formalities, and disorganization in global governance.
As previously stated, a core sustainability challenge within SSA’s energy landscape is sustainability whilst addressing energy poverty. Effectiveness can therefore be seen as the ability to address energy poverty in a sustainable manner. In terms of renewable energy investments, off-grid systems are seeing an increasing trend in renewable energy related mini-grid projects, as various corporate and private entities are realizing the potential of investing in such projects (De Zárate, 2023). In Ethiopia, for example, agricultural companies are advancing the capital for mini-grids projects from renewable sources (De Zárate, 2023). Additionally, programs such as the Clean Development Mechanism can further incentivize corporate involvement in developing SSA’s clean energy landscape by generating carbon offset revenue from renewable mini-grid projects (Tenenbaum et al., 2013). On the contrary, the majority of energy finance provided to African countries, mainly by international institutions, has been funneled into central-grid, large liquefied natural gas and mixed fossil fuel projects (Moses, 2023). This option is less viable as these funds have been falling short of what is needed and two-thirds of the existing funds are being spent on fossil fuel projects (International Energy Agency [IEA], 2023).
The viability of different systems in addressing energy access and poverty depends greatly on the population density and its implications on energy consumption. A study conducted by Dagnachew et al. (2017) determined that the least-cost electrification system for high consuming scenarios utilized central grid extensions, whereas decentralized systems dominated in low consuming scenarios. The vast majority of SSA’s energy poor population lives within rural communities, where grids have yet to extend to as their rurality and low energy consumption patterns make doing so incredibly costly. Therefore, responsible investments into mini-grid systems benefit both sustainability and energy access as it is a more affordable option for the vast majority of SSA lacking energy access.
Efficiency examines the relative cost-competitiveness of different technologies. This is an incredibly relevant criterion for this challenge in SSA given the limitations in financial resources of both institutions and individuals (Dagnachew et al., 2017). In terms of renewable technology costs, small off-grid technologies have seen steep reductions in costs, especially in the decade following 2011 (Valickova & Elms, 2024), more so than the cost reductions seen by large utility scale renewable technologies. This has made investing in mini-grid projects even more desirable to multinational corporations. Furthermore, the price per kWh in rural areas with low population densities is often much higher, making sourcing global funding into central grid extensions the less cost efficient option even on a household basis.
Circling back to energy inequalities, it is important to consider how different interventions for providing energy access in SSA impacts the most equity deserving stakeholders within SSA’s energy landscape, being the energy poor individuals. Various studies have concluded that solar PV is the most job creating energy form in SSA which poses an advantage to mini-grid systems as solar PV has a larger share in mini-grid systems than on-grid (Babayomi et al., 2023). This is relevant as improved economic activity, especially in developing countries, has been shown to improve health outcomes and increase access to education. Responsible investment into mini-grid projects also provides equity on a community scale as private developers need to negotiate the contract terms of mini-grid projects with the village governments in which these projects take place. This affords local governments more control and ownership over local energy systems. On the contrary, the approach taken by national utility regulators on behalf of grid-extension projects leaves the conditions of grant agreements often unknown to the community and largely beyond its control (Tenenbaum et al., 2013). Mini-grid projects can also better reflect the specific needs of a community as planners are tasked with the responsibility of identifying the various needs of the communities (Babayomi et al., 2023). This is beneficial for both parties as it provides developers with an understanding of the technical and capacity needs of the community—thus reducing project uncertainties for investors—while allowing the community to access systems that are better tailored to their unique energy needs (Babayomi et al., 2023).
Evidently, responsible investments into sustainable mini-grid projects demonstrate great potential for overcoming both energy poverty and energy sector emissions in SSA. As demonstrated, mini-grid projects have successfully garnered financing via private and corporate investments and are advantageous when assessed by the criteria of effectiveness, efficiency, and equity. Despite this, the reliability of these systems could be improved, which would further boost their uptake and enhance their economic impacts. There is also a lack of detailed mapping of local renewable energy resources, which makes cost minimization difficult (Babayomi et al., 2023) and hinders the ability to take full advantage of the flexibility in that mini-grids offer. Therefore, increasing efforts to map resources available across rural SSA is pivotal for scaling up mini-grid projects and making these projects even more desirable for investors.
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