What’s the energy challenge facing Africa?
Without reliable and well-run power infrastructure, companies don’t invest and grow, and economies fail to reach their potential. Low rates of electrification in many African countries have been identified as the most pressing obstacle to economic growth, more important than access to finance, red tape, or corruption.
In Africa today, around 600 million people have no access to electricity. For those that do have a connection, their consumption is only 20% of the global average. Improving the quantity and quality of power in Africa has the potential to alleviate poverty, promote industrialisation and improve gender equality.
Despite recent investment and improvements in electricity generation, the lack of progress in developing transmission and distribution infrastructure is a significant bottleneck to economic development across Africa.
This underinvestment is largely a result of unsustainable and loss-making business models that are unattractive to public or private capital and create ever-increasing financial burdens on governments. The hundreds of billions of dollars of capital needed to electrify networks to absorb current and planned generation far surpasses the investment available from African governments and foreign donors.
With African economies expected to grow at an average of 4% per year between now and 2040, governments, multilateral banks and private investors all have a role to play in funding the network improvements needed to support economic development. These improvements are also vital to integrate renewable resources and energy storage, helping African countries reach their climate change commitments.
The challenge in numbers
Why is investment needed?
- McKinsey estimated in 2015 that $345 billion of investment is needed in transmission and distribution in Africa by 2040, of which $80 billion would be in transmission.
- The International Energy Agency has concluded that grids and minigrids can together address 75% of the energy access gap by 2030 but that “improving the financial health of state‐owned utilities and mobilising private capital will be crucial to putting Africa’s electricity sector on the sustainable path depicted in the Sustainable Africa Scenario”.
- A study by British International Investment and Steward Redqueen showed how a 2.6% increase in GDP in Uganda over 2011-2014 came about as a result of the construction of the 250MW Bujagali power plant, which enabled the national utility Umeme to improve its operations. This, in turn, led to reduced load shedding and the creation of more than 200,000 jobs nationwide. In Senegal, almost 70,000 jobs were estimated to be created or induced by the development of 90 MW of added capacity on the grid.
- Research by the International Growth Centre in Ghana in 2019 shows the link between unreliable power supply and non-payment of tariffs. It finds that unreliable power supply exacerbates non-payment, creating a “revenue trap” for the utilities supplying electricity. The report estimates that intermittent power leads to a loss of productivity and economic growth in the order of $320- $924 million per year, or 2-6% of GDP.
The contribution of energy infrastructure to climate change mitigation
Improvement in energy infrastructure can contribute to climate change mitigation by:
- Reducing the extent of losses on the network
- Enabling grid connections for firms and households that currently use kerosene
- Building transmission lines that share electricity more efficiently within and between countries
- Establishing trading mechanisms to share electricity efficiently across the continent
- Improving the stability of grids, enabling more renewable energy generation