Even as startup investment in Africa continues to grow — more than $700 million in venture capital is expected to flow in this year— the continent’s energy needs remain a $450 billion challenge.
Nearly 600 million Africans, most of them in Sub-Saharan Africa, lack access to electricity, according to a report released this week by the International Energy Agency (IEA).
With demand projected to rise by 60% through 2040 as the continent’s population continues to grow and urbanize, investments in expanding access to electricity, including renewable technologies such as solar, continue to fall woefully short.
“Except for Nigeria, finance commitments for electricity in Sub-Saharan African countries remain abysmally low,” states a 2019 research report by Sustainable Energy for All (SEforALL), an independent NGO founded by former U.N. Secretary General Ban Ki-moon. “With population increases, which is outstripping levels of new access, Sub-Saharan Africa is only at risk of getting left further behind.”
A Complex Challenge
The United Nations made ensuring universal energy access worldwide by 2030 one of its sustainable development goals. But at the current rate, more than 530 million Africans would remain in the dark at that point, according to the IEA.
The global consulting firm EY estimated that it will cost $450 billion to build new power generation capacity over the next quarter-century— but that goal faces strong headwinds.
Ten of the 13 Sub-Saharan African countries received less than $300 million in energy investments in 2017, the last year for which data was available, according to SEforALL. Four countries saw year-over-year declines in investment, and much of the overall increase for the subcontinent as a whole represents a single large hydropower plant in Nigeria.
SEforALL has “prioritized engagement with private sectors to understand what is holding them back from addressing the electricity access gap at both speed and scale,” according to the organization’s 2018 report. “Unlocking finance and attracting private sector engagement were deemed to be top priorities.”
Many African nations have taken steps to attract private-sector investment. Uganda, Kenya and Nigeria are among them. These countries have opened the door to private-sector companies and implemented policies and incentives including reductions in import taxes, according to EY.
”Building a strong domestic power industry in Africa is crucial to avoid long-term reliance on aid, and vulnerability to political change abroad.”
South Africa attributes significant investments in renewable energy to a government procurement program launched in 2011. SEforALL is working with a consortia of 30 diverse private sector companies operating in Africa on an electrification accelerator initiative.
At the same time, there’s unprecedented activity in the African startup ecosystem, where venture capital investment has increased more than threefold in 2018 to exceed $725 million, according to the World Economic Forum and the African business website WeeTracker.
Published accounts suggest that this year will see similar levels of investment, though many of the largest deals are focused in sectors like fintech and transportation. For example, Kobo360, the Nigerian freight logistics startup vaguely comparable to Uber for trucking, raised $30 million earlier this year.
Even so, African cleantech startups raised more than $143 million in 2018, according to WeeTracker. And local companies represent a more sustainable alternative to foreign aid and other investments from countries such as China, which was responsible for 30% of new capacity in the region between 2010 and 2015, say researchers Philipp Trotter and Sabah Abdullah, authors of a paper on sustainable development in Africa’s power sector.
”Building a strong domestic power industry in Africa is crucial to avoid long-term reliance on aid, and vulnerability to political change abroad,” Trotter and Abdullah write. “To do so, it is key to implement efficient and stable sector regulations, as well as to foster African entrepreneurism.”
Solar represents a particular opportunity. While Africa has what the IEA calls the “richest solar resources on the planet,” the continent represents about 1% of overall global solar generation.
“Africa has a unique opportunity to pursue a much less carbon-intensive development path than many other parts of the world,” IEA Executive Director Fatih Birol said in a statement. “To achieve this, it has to take advantage of the huge potential that solar, wind, hydropower, natural gas, and energy efficiency offer.”