Scaling-up Energy
Investments in Africa
for Inclusive and
Sustainable Growth
Report of the Africa–Europe
High–Level Platform for Sustainable
Energy Investments in Africa
Photo: Jesse Alegre
2
Photo: Lola Morales
Africa does not need charity, it needs true
and fair partnership. And we Europeans need
thispartnership just as much. Today, we are proposing
a new Alliance for Sustainable Investment and Jobs
between Europe and Africa. This Alliance,
as we envision it, would help create up to 10 million
jobs in Africa in the next 5 years alone.
Ibelieve weshould develop the numerous
EUAfrican tradeagreements into a continent-to-
continent freetrade agreement, as an economic
partnershipbetween equals
President Jean-Claude Juncker
On 12 September 2018, on the occasion
of his State of the Union Address
ˮ
Feed Africa, Light Up and Power Africa,
Integrate Africa, Industrialize Africa and Improve
quality of life of the African people. I irmly believe
that if Africa focuses on these high 5s, the continent
will achieve 90% of its SDG and 90%
of its Agenda 2063 goals. It is why Industrialize
Africa is at the heart of the African Development
Bank’s high 5 SDGS.
Akinwumi Adesina
President of the African Development Bank
ˮ
ˮ
4
Acronyms and Abbreviations
AEEP Africa-Europe Energy Partnership
SEI Platform Africa-Europe High Level Platform for Sustainable Energy Investments (the SEI Platform)
AMDA African Mini-Grid Developers Association
AREI Africa Renewable Energy Initiative
AU African Union
AUC African Union Commission
AFD Agence Française de Développement
ARE Alliance for Rural Electriication
C&I Commercial and industrial (customers)
DFI Development Financial Institution
DG DevCo EU Directorate-General for International Cooperation and Development
EACREEE East African Centre of Excellence for Renewable Energy and Energy Eiciency
EAPP Eastern Africa Power Pool
ECOWAS Economic Community of West African States
ECREEE ECOWAS Centre for Renewable Energy and Energy Eiciency
EU European Union
EUEI PDF EU Energy Initiative Partnership Dialogue Facility
EIP European External Investment Plan
EIB European Investment Bank
EEP Energy and Environment Partnership
EFSD European Fund for Sustainable Development
FiT Feed-in-tari
GDP Gross domestic product
GHG Greenhouse gas
HEPA Health and Energy Platform of Action
IEA International Energy Agency
IRENA International Renewable Energy Agency
IPP Independent power producer
IFI International inancial institutions
MW Megawatt
MDB Multilateral development bank
MIGA Multilateral Insurance and Guarantee Agency
NEEAP National Energy Eiciency Action Plan
NLRP National loss reduction programme
NDC Nationally determined contribution under the Paris Agreement
PAYG Pay-as-you-go payment scheme
PPA Power purchase agreement
PPP Public-private partnership
RCREEE Regional Centre for Renewable Energy and Energy Eiciency
RE Renewable energy
REESP Renewable Energy Entrepreneurship Support Facility
REIPPPP Renewable Energy Independent Power Producer Procurement Programme of South African
Department of Energy
RES Renewable energy sources
SHS Solar home systems
SADC Southern African Development Community
SACREEE SADC Centre for Renewable Energy and Energy Eiciency
SAPP Southern African Power Pool
SEFA Sustainable Energy Fund for Africa
SSA ub-Saharan Africa
SEforALL Sustainable Energy For All Initiative of the United Nations
SDG Sustainable Development Goal of the United Nations, 2015
SME Small and medium enterprise
T&D Transmission and distribution
Toe Tonnes of oil equivalent
USD United States Dollar
WEF Water-Energy-Food Nexus
WACC Weighted average cost of capital
WHO World Health Organisation
5
6
Table of contents
Context and Terms of Reference .........................................................8
SUSTAINABLE ENERGY, ECONOMIC GROWTH AND JOBS. A CALL FOR ACTION IN AFRICA ...9
1 POWERING ELECTRIFICATION, SUSTAINABLE GROWTH AND JOBS......................12
1.1. Utility-scale generation .................................................... 13
1.1.1 Barriers.......................................................... 14
1.1.2 Recommendations ................................................ 15
1.2 Transmission ............................................................ 18
1.2.1 Barriers ......................................................... 18
1.2.2 Recommendations ................................................ 19
1.3 Distribution ............................................................. 20
1.3.1 Barriers ......................................................... 20
1.3.2 Recommendations ................................................ 21
1.4 Power pools and system operation .......................................... 22
1.4.1 Barriers.......................................................... 23
1.4.2 Recommendations ................................................ 23
2 THE GROWTH OF THE OFFGRID SECTOR INAFRICA ..................................25
2.1 Mini-grids ............................................................... 26
2.2 Stand-alone systems for rural electriication .................................. 28
2.3 Stand-alone systems for commercial and industrial consumers .................. 29
2.4 Sector diagnostic: barriers and recommendations ............................. 29
2.4.1 Barriers.......................................................... 29
2.4.2 Recommendations ................................................ 31
3 THE INTEGRATED GRID OF THE FUTURE ..............................................36
3.1 Integrating distribution models ............................................. 36
3.2 Integrating power supply with services and productive uses .................... 38
3.3 Integrating regional grids .................................................. 39
4 ACCESS TO CLEAN COOKING SOLUTIONS ...........................................41
4.1 The clean cooking landscape............................................... 41
4.2 Technology assessment ................................................... 42
7
4.3 Sector diagnostic: barriers and recommendations ............................. 43
4.3.1 Barriers.......................................................... 43
4.3.2 Recommendations ................................................ 44
5 ENERGY EFFICIENCY................................................................46
5.1 Energy eiciency: tools, technologies, and opportunities in Africa ............... 47
5.1.1 Supply-side: bulk power systems .................................... 47
5.1.2 Demand-side energy eiciency: residential and commercial customers,
buildings, transport and industrial applications ........................ 49
5.2 Energy eiciency sector diagnostic ......................................... 51
5.2.1 Barriers.......................................................... 51
5.2.2 Recommendations ................................................ 54
6 CROSSCUTTING ISSUES ...........................................................57
6.1 Access to inance ........................................................ 57
6.2 Capacity Building ........................................................ 60
6.2.1 Capacity building needs ........................................... 61
6.2.2 Institutions and programmes in Africa and Europe...................... 64
6.2.3 Empowering local SMEs and commercial banks ........................ 65
6.3 Africa-EU B2B Partnerships, Matchmaking and Networking ...................... 66
6.3.1 Barriers.......................................................... 67
6.3.2 Recommendations ................................................ 67
6.4 Gender mainstreaming .................................................... 68
6.5 Technological research and digitalisation .................................... 69
6.6 The water-energy-food (WEF) nexus ......................................... 70
7 ACTION AGENDA FOR SUSTAINABLE ENERGY INVESTMENTS ..........................74
ANNEX A. Training activities of the Florence School of Regulation ...................... 82
ANNEX B. Key principles for a reliable, aordable and sustainable distribution of electricity. 84
ANNEX C. Capacity building resources andprogrammes ............................. 86
ANNEX D. Members and participants to the SEI Platform meetings and Working Groups.... 87
8
Context
The EUAU Summit in Abidjan in November 2017 recognised the need to shape the right business framework to
attract responsible and sustainable investment in Africa. The summit concluded that renewed engagement of
public and private sectors of both continents is needed to boost investment in sustainable energy and energy
access in urban and rural areas in Africa. It also concluded by committing to full implementation of the Paris
Agreement, including with a focus on the importance of energy eiciency and the development of renewable
energy, reiterating support to the Africa Renewable Energy Initiative (AREI) and deepening the strategic alliance
through the AUEU Energy Partnership (AEEP).
In his State of the Union Address on 12 September 2018, President Jean-Claude Juncker announced a new Africa-
Europe Alliance for Sustainable Investment and Jobs. Recognising the long-standing political partnership, it
deepens the economic and trade relations between the two continents and goes beyond a donor-recipient
approach, to form an "equals’ alliance". The EU is Africa’s irst partner in trade, in foreign investment and in
development, including climate inance. One year after its launch, the Alliance is delivering, with many work
streams in full implementation. Accompanying tools, such as the EU External Investment Plan (EIP) are being
further developed and rolled out. The Sustainable Business for Africa Platform is reinforcing the facilitation of
public-private dialogue in African countries by EU Delegations. Four Sectoral Task Forces have been set up as
thematic platforms for high-level policy dialogue on agriculture, energy, digital economy and transport.
Serving as the task force for energy, the Africa-Europe High Level Platform for Sustainable Energy Investments in
Africa (the SEI Platform) was launched in November 2018 during the Africa Investment Forum, organised by the
African Development Bank (AfDB).
The SEI Platform engages public and private sectors alongside key inancial institutions and academia to outline
pathways for up-scaling sustainable energy investments, through innovative inancial mechanisms and targeting
successful business models. With this objective, the SEI Platform provides recommendations on how to improve
policies, regulatory environments, markets and business climates. It identiies reforms to catalyse the scaling-
up of sustainable energy investments, to streamline adoption of technological advancements, and to support
pan-African sustainable energy integration. Its eorts to improve EUAfrica business-to-business and networking
activities serve to increase coordination and eectiveness among key stakeholders.
The SEI Platform’s ambitions are jointly pursued by the two continents within a broad global consensus on
sustainable development and on the required shape of a future energy system that enables climate stability.
9
SUSTAINABLE ENERGY, ECONOMIC GROWTH AND
JOBS. A CALL FOR ACTION IN AFRICA
The population in Africa will double by 2050 with
increased pressure from climate change and
environmental degradation. To power the ambitious call
for sustainable development, enhanced resilience and
poverty eradication, industrialization, high economic
growth rates and job creation envisaged in the AU agenda
2063, massive reforms and investments are required along
the whole supply chain of the energy system.
Sustainable development can only happen with access to reliable and aordable sustainable energy. Increasing
sustainable energy services in Africa oers opportunities to progress in many dimensions of development,
including alleviating poverty, enhancing food security, creating new jobs, and fostering education and gender
equality. Clean energy solutions are also essential to reduce pollution and environmental degradation, provide
access to water and sanitation, improve human health, and protect ecosystems while contributing to tackling
climate change and enhancing resilience. Energy poverty coupled with increasing climate change and ecosystems
damage can trigger conlict and drive people to leave their homes, contributing to rising urbanisation and
migration in places where infrastructure already struggles to cope to meet people’s needs. Providing universal
access to aordable, reliable, sustainable and modern energy for all is the seventh Sustainable Development
Goal (SDG) of the United Nations (UN).
1
A sustainable energy sector is also essential to address strategic interests
of Africa and Europe and will contribute to the implementation of the UN Paris Agreement on Climate Change.
The population of sub-Saharan Africa (SSA) is expected to double by 2050, reaching nearly 2 billion.
2
Meanwhile,
climate change is adding pressure on African ecosystems, food security, energy security, livelihoods, and
economies, especially due to worsening natural disasters. By 2030, electricity supply across Africa must triple
to meet the demand from modernizing economies, demographic growth, changing lifestyles and expectations,
combined with projections for universal reliable, clean and aordable energy access under SDG 7. This calls
for urgent steps to ensure that investments keep pace with energy infrastructure needs. Expanding and
strengthening sustainable energy supply will help drive the industrialisation process (SDG 9) to advance socio-
economic development while tackling the climate crisis (SDG 13). Therefore, the EU’s partnership with Africa
must tackle the problem at a scale that matches the challenge. This requires us to think big.
Access to aordable and reliable energy services remains a major challenge in large parts of Africa. Of the top
20 access-deicit countries in the world, 15 are in SSA, where over 570 million people lived without access to
electricity in 2017.
3
The SSA population without electricity is projected to stabilise at around 585 million people
in 2030, following current electriication trends and accounting for population growth.
4
Even those with access
do not always receive quality supply, limiting the potential for electricity to improve quality of life and boost
economic development. Africa currently has 80 GW of new electricity capacity under construction, compared
to under 250 GW currently installed (of which only 80 GW in SSA, excluding South Africa).
5
Yet demand is
projected to increase by 215% from 2016 to 2030.
6
The continent’s primary energy needs (including electricity,
transport, and industry) are overwhelmingly met with fossil fuels (50%) and unsustainable biomass or waste for
1
United Nations, About the Sustainable Development Goals. https://www.un.org/sustainabledevelopment/sustainable-development-goals/
2
United Nations Department of Economic and Social Aairs, Population Division (2019). World Population Prospects 2019: Data Booklet. (ST/
ESA/SER.A/424) available at https://population.un.org/wpp/Publications/Files/WPP2019_DataBooklet.pdf
3
IEA, IRENA, UNSD, World Bank and WHO (2019), Tracking SDG 7: The Energy Progress Report, Washington DC.
4
Ibid.
5
IEA (2019). Africa Energy Outlook 2019.
6
Multiconsult & AfDB. The AfDB New Deal on Energy for Africa: Optimal expansion and investment requirements. Report to African
Development Bank. (2018).
10
cooking (45%), with consequences for air pollution and climate change.
7
Dependence on imported fossil fuels
also harms local economies due to fuel price volatility. Electricity only represents 10% of the continent’s inal
energy consumption. The total installed generating capacity in SSA remains low, about equivalent to that of
Spain, whose population is about 95% smaller. South Africa alone accounts for nearly half of the generation
capacity for all of sub-Saharan Africa. From 2015 to 2016, Africa-focused investments made up only 16% of total
global commitments, and about 26% of power sector commitments in Africa were concentrated on just four
countries.
8
The access challenge is equally acute for clean cooking solutions. The population in Africa without access to
clean cooking solutions has grown to 900 million, a 20% increase since 2010.
9
Traditional use of solid biomass
(fuelwood, charcoal, dung, agriculture residues, wood waste, other solid wastes) for cooking has damaging
health and environmental impacts. Every year, around half a million premature deaths in SSA are attributed to
household air pollution, linked to smoke from burning polluting fuels and ineicient technologies for cooking,
heating and lighting. Fuel gathering takes up a signiicant amount of time for women and children, limiting
their available time for education, leisure, or other productive activities. Black carbon and methane emitted
by ineicient stove combustion contribute to climate change, while unsustainable wood collection causes
deforestation and land degradation. Despite SSA countries’ eorts, models predict that around 820 million
people will still rely on non-sustainable biomass by 2030 (amounting to 56% of the population).
The African Union’s (AU) Agenda 2063 highlights renewable energy as a priority pathway to achieve a prosperous
continent with inclusive growth. The AU Commission calls for “harnessing all African energy resources to ensure
modern, eicient, reliable, cost eective, renewable and environmentally friendly energy to all African households,
businesses, industries and institutions, through building the national and regional energy pools and grids.” The
Commission stresses the need to ensure sustainable investment and continuous innovation in the energy sector.
The AU’s Africa Renewable Energy Initiative aims to mobilise potential to invest in at least 300 GW of renewable
energy generation by 2030.
The new European Consensus on Development highlights three objectives in the energy sector: expand access to
energy; increase renewable energy generation and energy eiciency; and contribute to the ight against climate
change. Three strategic drivers underpin these goals: political ownership and partnerships on sustainable energy;
unlocking the potential of sustainable energy resources through building adequate regulatory frameworks,
developing energy markets and improving energy sector governance; and boosting investments in renewable
energy generation, distribution and interconnections, notably through innovative inancial instruments.
Sustainable energy in Africa oers signiicant potential to boost growth and jobs, both domestically as well as
in Europe. This irst report of the SEI Platform provides recommendations on how to leverage public and private
investments in sustainable energy in Africa, and how to accelerate access to electricity and clean cooking for
human development and sustainable growth.
7
RES4MED and RES4Africa, 2019. White Paper: A New Instrument to Foster Large-Scale Renewable Energy Development and Private
Investment in Africa https://www.res4med.org/wp-content/uploads/2019/02/RenewAfrica-White-Paper_FINAL.pdf
8
SEforALL and CPI (2017), Understanding the Landscape – Tracking Finance for Electricity and Clean Cooking Access in High-Impact
Countries.
9
Ibid.
11
12
Photo: Girmay Tilahun
Photo: Juan Manuel Becaría Morales
1 POWERING ELECTRIFICATION, SUSTAINABLE
GROWTH AND JOBS.
Barriers to private and public investment exist across
the electricity supply chain in SSA, resulting in a woeful
shortage of generation and network infrastructures
The AfDB’s New Deal on Energy for Africa recognises that energy sector bottlenecks and power shortages
are estimated to cost Africa 2 to 4 percent of GDP annually. This undermines economic growth, employment
creation and investment. Strengthening power supply and expanding access to electricity is at the heart of the
African Union’s Agenda 2063,
10
and the AfDB’s New Deal on Energy for Africa and Programme for Infrastructure
Development in Africa (PIDA).
Delivering sustainable, aordable and reliable electricity services involves performing many activities, applying
various technologies and business approaches, and enlisting diverse actors. African countries must examine
each segment of the electricity sector to understand why progress in strengthening and expanding power
systems has been slow.
The measures proposed in this report focus on creating the conditions to attract public and private investment
in sustainable energy. Investments need to reach a scale that meets the ambition of the electriication challenge,
to it each country’s context in a sustainable, climate-compatible way.
Traditionally, most investments in the electricity supply chain take place at bulk power system level (in utility-
scale infrastructure). Roughly two thirds of investment is directed towards utility-scale generation and one tenth
in the transmission network, with the rest for distribution. SSA is heavily underinvested in each one of these
three segments for various reasons. Section 1.1 analyses the situation and interventions needed for centralised
generation. Section 1.2 considers the transmission network, while section 1.3 addresses distribution. Zooming
out, section 1.4 examines the impact of aggregation of national power systems into regional power pools.
10
The New Deal on Energy for Africa calls for universal access to electricity for all in Africa through a ive-pillar strategy. https://www.afdb.
org/en/the-high-5/light-up-and-power-africa-%E2%80%93-a-new-deal-on-energy-for-africa
13
1.1. Utility-scale generation
Utility-scale renewable energy projects, in particular solar PV and wind, have grown in recent years. Thanks
to excellent domestic resources and eective competitive procurement frameworks, many African countries
have received record-low prices for new generation bids. Allowing private investment in generation has driven
new grid investments in renewable capacity. The vast majority of new independent power producer (IPP)
procurements—83% of IPP projects that have reached inancial close since 2008—are for renewables, including
solar, wind, biomass, hydro, bagasse, and geothermal technologies. Investing in expanding renewable generation
capacity oers Africa a head-start on the transition to green growth pathways and in decarbonising the energy
sector. It also helps boost countries’ energy security by reducing their reliance on fuel imports.
11
Despite these
encouraging trends, much larger sustainable investments must be mobilised, and these investments must be
spread more evenly across the continent, to address each country’s needs.
IPPs now frequently operate alongside—and contract with—Africa’s publicly-owned, vertically-integrated
electric utilities (which remain the most common structure for electricity companies on the continent). Privately-
inanced IPPs are the fastest-growing source of investment in generation capacity, present in more than 30
African countries, with 270 existing projects at utility scale.
12
Together, these projects total over 27 GW of new
capacity, representing about €47 billion of investment.
13 ,14, 15,16
Demand projections suggest that installed generation capacity in Africa’s power system should reach 610 GW in
2030.
17
This would require on average €41 billion per year of investment by 2030, of which 71% for renewables.
18
The AREI targets 310 GW of new renewable energy generation capacity over the same period. Renewables have
become the most competitive energy solution for Africa, thanks to the continent’s abundant resource potential
as well as cost reductions in the technologies.
19,20
Renewables also oer a key element to enhance sustainable
economic development through fostering local value chains within sound, long-term markets. Approximately
277 GW of this new generation capacity is expected to come from on-grid generation, while 33 GW will need to
be in the form of decentralised generation.
Competitive procurement programmes have become a popular, successful solution in Africa for encouraging
investment in renewable generation. Implementing auction programmes helps attract lower prices in each
successive round, as shown in South Africa’s Renewable Energy Independent Power Producer Procurement
programme (REIPPPP).
21
The following section discusses the barriers to attract the investment needed to meet these targets. The
recommendations to surmount these barriers follow in section 1.1.2.
11
AfDB and APUA (2019), Revisiting Reforms in the Power Sector in Africa, https://africa-energy-portal.org/sites/default/iles/201909/
Revisiting%20Power%20Sector%20Reforms%20in%20Africa%20v03.pdf.
12
Larger than 5 megawatts (MW) peak capacity.
13
AfDB and APUA (2019).
14
Eberhard et. al., (2017), Independent power projects in Sub-Saharan Africa: investment trends and policy lessons. Energy Policy 108:390–
424.
15
AfDB and APUA (2019).
16
Ibid. Over 42% of new capacity additions through IPPs during the last decade has been for solar PV, and over 37% for other renewables
including wind, hydro, biomass, and geothermal generation. Auctions (international competitive bidding programmes) are now a well-
established trend to guarantee lowest prices for new RE projects.
17
318 GW in North Africa, 63 GW in West Africa, 25 GW in Central Africa, 55 GW in Eastern Africa, and 150 GW in Southern Africa. IRENA
(2015), Africa 2030: Roadmap for a Renewable Energy Future. IRENA, Abu Dhabi.
18
Ibid.
19
Ibid.
20
The share of public investment s in RE is 34%, higher than any other region and more than double the global average, which is 16%. https://
www.irena.org/-/media/Files/IRENA/Agency/Publication/2018/Jan/IRENA_Global_landscape_RE_inance_2018.pdf
21
AfDB and APUA (2019)
14
1.1.1 Barriers
Many of the barriers to mobilising investment in power generation are well understood. These can be broadly
classiied as follows.
• Level of liberalisation and regulations on entry. Many low-energy access countries are only just
beginning to authorise private-sector participation in the power sector. Several countries have now
created conditions in the generation segment to encourage IPPs, even if they have not unbundled and
liberalised the generation segment.
22
• Weak legal and regulatory frameworks. The ‘rules of the game’ within the power sector are unclear
in many countries, including with high levels of subsidies remaining for fossil fuels. This introduces
substantial risk for private-sector investments and increases project development costs. Major investor
risks lie in potential changes in law, resource availability, and responsibility for force majeure. Tari-
setting processes, network utilisation charges, permitting processes for power evacuation at the point
of connection to the grid, and settlement of accounts also present risks for investment.
• Poor governance. Weak rule of law and lack of transparency in many countries provide opportunities for
corruption and policy reversal in regulatory and other processes. These put contractual agreements at
risk and further discourage private investment in the power sector.
• Insuicient regional integration to allow economies of scale. Limited integration of the power system at
regional level reduces the commercial incentives to develop utility-scale power plants that maximise
available resources, increase competitiveness, and optimise output eiciencies. This creates obstacles
to achieving necessary economies of scale. For example, South Africa’s solar and wind localisation
roadmaps take into account regional economic development, even quantifying the level of local content
that would be achievable if the region prospers. These require suicient integration and electricity
demand across the region to be considered technically feasible and bankable.
• Financial risks. The creditworthiness of the o-taker (often a vertically integrated national utility or
distribution company in dire inancial straits) poses a major investment risk. Often, governments need
to underwrite the payment obligation of national utilities through guarantees, but are unwilling to do so
due to debt sustainability caps.
23
Other de-risking tools are negotiated on a case-by-case basis with IPPs,
with varying success (such as escrow accounts on the utility end, or comfort letters and put-call option
agreements). Most available risk mitigation instruments designed to support IPPs are applicable only
in cases where utility companies are public. The bankability of long-term power purchase agreements
(PPAs) is undermined by additional inancial risks, resulting from political instability, legal uncertainty,
and currency luctuations.
24
• Diicult macroeconomic and institutional conditions. Macroeconomic policies and related factors
inluence the attractiveness of the investment climate, such as the country’s credit rating (or that of the
national utility) and its previous experience with private investment. Political risk in the country can also
deter private-sector investment.
25
• Technical barriers. These include poor transport infrastructure needed to facilitate the construction of
power plants, and uncoordinated development or poor maintenance of grid infrastructure.
26
• Lack of energy planning. Comprehensive energy sector planning, which is not widely conducted,
provides investors with a long-term view on available and needed energy sources, based on both
population and GDP growth.
22
bid.
23
Debt sustainability caps are set by the International Monetary Funds (IMF). Governments are especially reluctant to provide guarantees
for privately-owned (or concessioned) utilities, as with ENEO in Cameroon. EU Technical Assistance Facility (TAF) SEforALL CW188, 2018.
Market Study in view of preparing partial o-take guarantees under the European External Investment Plan (EIP) in Sub-Saharan Africa,
conducted in 2018
24
Eberhard et. al. (2016), Independent Power Projects in Sub-Saharan Africa: Lessons from Five Key Countries. Washington, DC: World Bank.
25
Eberhard et. al., (2017), Independent power projects in Sub-Saharan Africa: investment trends and policy lessons. Energy Policy 108:390–
424.
26
For example, in Zambia, a private sector project was delayed by 8 years due to inadequate road infrastructure. EU TAF SEforALL (2016)
ES0059 : Technical Assistance Facility (TAF) for policy support to improve the enabling environment of the Zambian energy sector for rural
electriication and IPPs
15
• Other barriers. Many partially-built assets across SSA are not operational. These could be revived under
the right circumstances. Alongside a transformation of the distribution sector, this could help reduce
the cost of generation as well as the o-taker risk. It is increasingly diicult for governments to approve
new projects when assets are not being fully utilised on the ground.
The challenges faced in developing utility-scale projects are less connected to the nature of the generation
business than they are related to external causes of risk. Solutions to these barriers exist, and depend on country
context, readiness, and sectoral capabilities.
1.1.2 Recommendations
IPP investments in African countries are still largely driven by long-term PPAs. The following recommendations
address barriers to achieving robust, commercially viable and attractive PPAs.
• Redeine the sector’s commercial structure. Generation and transmission/distribution segments of
the power sector should be separate to reduce conlicts of interest in procurement and to strengthen
utilities’ inancial autonomy and creditworthiness. In over three quarters of African countries, public
companies own the transmission and distribution segments (including South Africa, Kenya, Egypt, and
Morocco). In most cases, these companies also own generation assets, which can conlict with their
procurement decisions for new generation.
• Create solid legal frameworks and oer well-designed, bankable PPAs. Robust PPAs are necessary to
secure IPPs’ long-term revenue streams. This reduces risks and facilitates access to inancing under more
favourable conditions, by allowing project debt repayment and providing appropriate risk-weighted
returns to investors.
27
Contract structures must clearly deine the allocation of risks and rewards
28
and
rights and responsibilities of stakeholders, and the quantity and price of power to be procured (see
Rademeyer, 2016 for details of sound PPA provisions).
29,30
Standardised contracts can serve as a de-
risking measure to facilitate IPP negotiation and development processes (see Box 1). The provisions
should suit the local context and be understandable to both public and private sector counterparties.
Countries should not retroactively and unilaterally change terms of procurement or power contracts.
Box 1 - Standardised procurement contracts
Various initiatives, such as the Open Solar Contracts (led by IRENA and the Terawatt Initiative) and the
multidonor GET FiT programme, provide a set of standardised project documentation, including contract
templates and procurement processes for renewable IPPs. These are developed through a collective
process including market-leading energy stakeholders. These oer models of a Power Purchase Agreement,
Implementation Agreement, O&M Agreement, Supply Agreement, Installation Agreement and Finance
Facility Term Sheet, as well as implementation guidelines. Such standardised documents help streamline
project development and inance, as well as helping to balance risk allocation and simplifying project
aggregation and securitization.
• Provide clear regulatory frameworks. Regulatory certainty, backed by suicient political stability, is
necessary to support legal contracts. Taris agreed with an IPP often depend heavily on the prevailing
costs at inancial close of the project, including construction and inancing costs. The agreed tari
(including any tari adjustment mechanism built into the contract) must be honoured regardless
27
Ideally, a ‘bankable’ PPA creates a long-term agreement with a creditworthy o-taker over a time horizon that allows debt servicing and
provides for risk-equivalent returns for investors.
28
Rademeyer, G. (2016), How can Independent Power Producer (IPP) investments be accelerated on the African continent?, Norton Rose
Fulbright, https://www.insideafricalaw.com/publications/how-can-independent-power-producer-ipp-investments-be-accelerated-on-the-
african-continent
29
Ibid.
30
Nehme, B. (2013), PPAs and Tari Design, Presentation at the Renewable Energy Training Programme, https://esmap.org/sites/default/iles/
esmap-iles/ESMAP%20IFC%20Re%20Training%20World%20Bank%20Nehme.pdf.
16
of whether technology costs subsequently reduce (which allows future IPPs to oer lower taris).
Retrospective tari adjustments deter future investments in the country. There must also be a clear,
independent legal system that allows for the fair enforcement of contracts. Licensing procedures must
be simple and transparent, and the term of any applicable generation and export licences should be at
least as long as the tenor of the debt provided to the IPP.
• Deine clear planning and policy frameworks for IPPs. Programmes for IPP development (whether
solicited or unsolicited) must be created at government level, based on integrated planning to identify
capacity thresholds, project locations, distribution model (on- or o-grid), and desired technologies.
This project pipeline must deine clear objectives to provide direction to the private sector.
• Phase out fossil fuel subsidies to provide iscal space for sustainable energy. Other iscal measures such
as tax exemptions to sustainable energy technologies or carbon pricing policies to avoid carbon leakage
also support sustainable energy development. These should align with complementary policies, such
as energy eiciency policies, emissions performance standards, and research and technology policies,
etc.
• Implement competitive procurement procedures. IPP procurement processes must show integrity and
transparency, while increasing competitiveness. Globally, over 95% of power-sector investments rely
on regulated remuneration, or long-term PPAs, instead of short-term wholesale markets. Across Africa,
power utilities and energy ministries are increasingly employing competitive procurement mechanisms
to develop new capacity, increase private sector participation, and reduce costs compared to unsolicited,
directly negotiated projects. Additional support from governments in the preparation phase of such
projects, such as with pre-feasibility studies, site identiication, and guidance on licensing, helps boost
bidder participation and reduces overall project development costs. This naturally has a positive impact
on the tari required to make the project bankable. The regulatory framework should clearly deine
the work to be done upfront during the preparatory phase, as well as the respective responsibilities of
government institutions and the private sector.
Box 2 - Technical assistance and knowledge sharing for competitive procurement
The European Commission’s External Investment Plan and programmes such as Get.Invest, ElectriFI,
renewAfrica, and Scaling Solar provide technical assistance, donor inancing, and de-risking packages to
support the preliminary development of power projects prior to tendering. As well as oering standard and
tailored contract documents, the technical assistance helps design the tendering process and enables pre-
feasibility studies, including environmental and social impact assessments.
For example, renewAfrica is an innovative European private sector-led programme, launched in 2019 to
support investment growth in renewable energy sources (RES) in Africa. renewAfrica brings together
leading EU renewable energy industry players, inancing institutions and African governments. The Europe-
wide initiative is designed as a one-stop shop to support the creation of a conducive energy investment
environment through enhancing inancial instruments, sharing knowledge on successful supporting
policies, and disseminating best implementation practices. The initiative, which aims for technological
neutrality, oers technical assistance along the whole project lifecycle, and promotes high-level dialogue
between public institutions and public-private collaborations. It also oers a full staple blending inance
package for bankable projects, supported by guarantees and insurance as inancial de-risking tools.
• Strengthen coordination. Public institutions need to coordinate to avoid overlaps or contradictions
in licensing procedures. For example, the permitting process and tests required from environmental
agencies as well as entities in charge of providing land or water permits may be duplicated or have
conlicting timelines, increasing government as well as project costs and delays. More transparent
information sharing systems and more eicient guidance should be provided to private players willing
to develop unsolicited projects. This can be achieved notably through the establishment of independent
authorities or agencies acting as one-stop-shop institutions.
17
Box 3 – Developing local value chain with stable planning and policies
The irst wind turbine blade plant in Africa and the Middle East was opened in Morocco in 2017 by Siemens
Gamesa Renewable Energy (SGRE), a global leader in the wind sector and overall leader in Africa. The
Government of Morocco’s sound policy frameworks convinced the company to invest there. Enabling
policies include a target to achieve 52% electricity generation from clean energy by 2030, and the Ministry
of Industry, Investment, Trade and Digital Economy’s Accelerated Industrialization Plan (2014).
The plant aims to serve the domestic market as well as to export to Europe, around Africa, and to the
Middle East. SGRE also built a training centre to facilitate knowledge transfer from Denmark to Tangier.
The learning process ensures the complete transfer of the technical and process skill sets necessary to
optimise the manufacturing process. SGRE has devoted over 350,000 hours of employee training to
Moroccan employees, both in-house in Tangier and at other locations. The plant has created 700 jobs, as
well as about 500 auxiliary jobs.
https://www.siemensgamesa.com/newsroom/2017/10/siemens-gamesa-inaugurates-the-irst-blade-plant-
in-africa-and-the-middle-east
• Set up risk mitigation tools to facilitate inancing. Creditworthy, inancially viable power purchasers
boost the attractiveness of the generation sector to investors. To begin, structural reforms may be
necessary to improve the technical and inancial performance of distribution companies. At the
same time, measures should also be introduced to mitigate risks for IPPs. IPP project inancing
often requests a sovereign guarantee aimed at shifting investment risk to the government,
especially when the o-taker utility has poor credit rating.
31
But sovereign guarantees depend on the
government’s iscal position and its ability to take on debt. The principal de-risking mechanisms to
date have been provided by export credit agencies, DFIs and multilateral development banks (MDBs),
32
Box 4 - Intermediary o-taker for risk mitigation: Africa GreenCo model
New structures are being developed to leverage the beneits of aggregation and diversiication—inherent
in interconnected regional electricity grids—in order to mitigate risk and provide an alternative route
to market in case of default. Africa GreenCo is implementing this approach in the Southern African
Development Community, starting in Zambia (part of the Southern Africa Power Pool, SAPP), aiming to
operationalize in early 2020. This will introduce a creditworthy intermediary o-taker, buying renewable
electricity from small to medium IPPs through take-or-pay PPAs and on-selling to utilities and private o-
takers through long-term contracts, as well as proactively interfacing with the regional power pool. This
reduces the risk, and therefore the cost, of inance at IPP level by providing IPP developers and lenders with
a creditworthy long term PPA counterparty. This leads to lower taris required to make the IPP bankable. A
reduced risk proile should also make investment better suited to the risk proile of local institutional capital.
This approach—working with increasingly liquid regional power pools—can alleviate problems related to
the traditional single buyer-single seller model, transforming the risk to the level of the interconnected
regional pool.
Source: www.africagreenco.com
such as through political risk insurance
33
and partial risk guarantees.
34
However, such instruments
often entail long negotiation processes and are often inaccessible to smaller projects. The EU’s
31
Rademeyer, G. (2016), How can Independent Power Producer (IPP) investments be accelerated on the African continent? Norton Rose
Fulbright.
32
European DFIs committed to energy projects in Africa, especially renewable projects, include: KfW (Germany); DANIDA/IFU (Denmark);
PROPARCO and AfD (France); FMO (Netherlands); FIEM (Spain); CDC and UK Aid (UK); and the Nordic Development Fund and related
partners: Norfund, Swedfund, Danida/IFU and Finnfund.
33
Political risk insurance is provided by the Multilateral Insurance and Guarantee Agency (MIGA), part of the World Bank Group
34
Partial risk guarantees are provided by the World Bank and AfDB.
18
External Investment Plan (EIP), adopted in September 2017, supports partner countries in Africa and
the European Neighbourhood by i) mobilising inance (through the European Fund for Sustainable
Development (EFSD)); ii) providing technical assistance to help prepare investment projects; and iii)
helping partners to develop a favourable investment climate and business environment. Alternative
models to address o-taker risks are emerging under the EFSD, such as the Africa GreenCo model (see
Box 4) and the European Guarantee for Renewable Energy being proposed by the European Investment
Bank (EIB) Agence Française de Développement (AFD), Cassa depositi e prestiti (CDP) and Kreditanstalt
für Wiederaubau (KfW). These guarantees provide signiicant comfort to private sector beneiciaries,
often by leveraging the broader relationship of the guarantor with the host country to deter defaults
arising. However, they have limited ability to mitigate underlying risks in case of a default.
Section 6.1 (Access to inance), below, oers further recommendations on cross-cutting inancing issues.
1.2 Transmission
35
The transmission segment accounts for only around 10% of the total cost of the entire traditional power-sector
supply chain,
36
but it serves essential functions in the power system. It connects low-cost, large-scale sources
of electricity generation with important load-bearing distribution centres in cities, and with large industrial or
commercial loads. Energy-eicient and robust transmission networks help develop renewable energy capacity
at greater scale in resource-rich areas to serve distant loads, allowing eicient dispatch of electricity across
national and regional networks. Transmission networks also reduce the operating and capacity reserves needed
to ensure security of supply, and support the integration of variable renewables into the power system. New
transmission investments depend on new generation plants’ technical characteristics (including siting, capacity,
and technology), and on the volume and location of new demand connected to the distribution grid. Upgrading
and building new transmission infrastructure is an essential part of the overall expansion of the power sector.
The existing African transmission system,
37
with a total length of less than 90,000 km, is the major bottleneck for
further energy system integration and cross-border trade.
38
This presents a huge opportunity for improvement.
SSA has a combined transmission network smaller than that of Brazil. Nine sub-Saharan countries have
no lines rated above 100 kilovolts (kV). Africa has fewer kilometres of transmission lines per capita than any
other region of the world, despite having a much larger land mass and more dispersed population. As with
generation, substantial investment in transmission infrastructure is needed to contribute to full electriication by
grid extension, and to achieve globally competitive electricity prices. Understanding how to plan, operate, and
manage transmission grids, as well as combining high voltage with lower voltages, will be essential. A strong
interconnected transmission network can also help to mitigate the variability of wind and solar production.
1.2.1 Barriers
Transmission investment in SSA has lagged for several reasons:
• Limited public budget and donor inancing. Most countries inance transmission investments directly
from utility revenues or from the government budget, which creates a major constraint on network
expansion. Others rely on concessionary inancing from DFIs, and in some cases grants from donor
countries.
• Policy and regulatory barriers to private investment. Transmission has not beneited from the same
inlux of private investment as generation in African countries. This is especially true in SSA, where
only a handful of governments have introduced regulations to allow any form of private participation in
35
This section and section 2.3 owe much to World Bank, 2017. Linking Up – Public-Private Partnerships in Power Transmission in Africa,
Washington DC.
36
Equivalent to 10% of total cost of electricity supply.
37
Deined as lines with a voltage equal to or greater than 100 kV.
38
World Bank (2017).
19
transmission. Weak private investment in transmission results from the absence of enabling policy, gaps
in regulation (for example, relating to construction agreements, cost-sharing arrangements, payment
guaranties, and right-of-way permits), and country-speciic risk.
• Regulatory risks and uncertain cost allocation. Flaws or uncertainties in the regulation of transmission
developments add another risk factor (which varies between countries). For example, challenges can
be associated with reaching agreements for line construction, obtaining permits for necessary rights-
of-way, enforcing sound rules for cost-sharing among dierent parties (particularly important for cross-
border transmission lines), and providing payment guaranties. Lengthy negotiation and construction
processes for new transmission networks (in some cases, up to 10 years) add additional barriers.
Transmission lines are most often inanced by DFIs and MDBs. According to the EIB, public inance is already
challenging for transmission projects due to lengthy and complex negotiations surrounding contractual
and inancing processes, especially for those that involve multiple governments. Private investors also
struggle to raise investors’ interest in transmission. Poorly designed or uncertain transmission charges
create barriers to raising the investments needed to support network infrastructure, especially for
cross-border lines.
39
The lack of sound, commonly agreed procedures for allocating transmission costs
create uncertainties for ensuring adequate returns on investment.
• Lack of energy planning and insuicient regional integration. These prevent opportunities to create
economies of scale and fail to provide the vision and stability needed to foster investments. Transmission
lines crossing two countries are often planned and built on the basis of bilateral discussions and
negotiations, without taking into consideration the regional or continental context. Bilateral planning
of transmission networks risks overlooking opportunities to use the full potential of interconnected
electricity markets. This can detract from optimal use of generation resources.
• Non-speciic country-dependent risks. As previously described for generation investments, this set of
risks includes macroeconomic conditions, political stability, legal security, and currency convertibility.
1.2.2 Recommendations
• Facilitate private sector participation in transmission. Several developing and low-access countries have
introduced viable transmission business models—such as independent transmission projects mostly
inanced by private capital—to attract investment in transmission. Many countries in Latin America and
Asia have successfully introduced private-sector participation in transmission inancing, resulting in
investments at attractive costs. The approach is similar to the concept of IPPs in generation, which has
already yielded good results in sub-Saharan Africa.
The most appropriate model for private-sector participation depends on the local context. IPT tenders
oer a promising model for both national and regional-level investments, as shown in numerous
experiences.
40
The IPT model can use dierent PPP structures, most commonly build–own–operate–
transfer and build–own–operate.
• Strengthen the inancial viability of national utilities. Public electricity utilities in SSA need to be inancially
sound to ensure investors’ recovery of transmission costs. The power sector’s inancial weakness poses
a challenge for implementing the IPT model, which requires returns to private investors. One option
to address this challenge is to use revenue escrow arrangements to ring-fence consumer payments.
Where escrow arrangements are deemed insuicient to make a project bankable, governments may
also have to use government and multilateral guaranties to back payment obligations to IPTs.
• Invest in technological solutions. Various technologies are available to improve operations eiciency,
technical eiciency, integration of renewable energy and network management. For example,
SCADA systems are not widely implemented across SSA. These are critical for network planning and
management, and eicient dispatch of generation as well as load management. The system can also
39
An AfDB-funded study performed by Multiconsult, “Roadmap to the New Deal on Energy for Africa: An analysis of optimal expansion and
investment requirements”, published in June 2018, estimates total investment needs of $8.9 billion in regional interconnectors from 2018 to
2030 to support a least-cost power investment and expansion plan across the African continent.
40
There are four typical models for private sector participation in transmission: i) complete privatisation; ii) concession for the entire network
for a period of time (e.g. 20 years); iii) independent power transmission (IPT), a concession for one or few lines; and iv) merchant lines.
World Bank (2017), Linking Up- Public-Private Partnerships in Power Transmission in Africa, Washington DC
20
beneit from increasing levels of automation and implementing other basic systems to improve overall
reliability.
• Invest in capacity building for planning and operation. Good planning and operations are essential to
avoid stranded assets or unsuitable investments, as well as to integrate renewable energy sources.
1.3 Distribution
African utilities are frequently vertically integrated: a fully publicly-owned utility performs distribution services
through grid extension, while also operating generation, transmission, and retail services. Many countries have
allowed private sector involvement in some or all of these segments, most commonly in generation. Only few
have incorporated private participation in distribution, such as Cameroon, Nigeria, Uganda, or Ghana.
41
The distribution segment of a power system—which in SSA systematically includes retail—is closest to the
end-user. It has played a central role in the failure to provide universal access to electricity in many African
countries. Traditional distribution companies connect and supply electricity to dierent customers, procure this
electricity at the wholesale level, and are responsible for developing and maintaining distribution infrastructure.
They require a business model that ensures long-term sustainability and quality of service. Challenges in the
distribution sector have negative implications at the wholesale level if they mean that distribution companies
become unreliable o-takers, eroding the conidence of potential investors in centralised generation and
transmission.
1.3.1 Barriers
• Electriication diiculties. Electriication is costly and diicult, especially in remote, sparsely populated
regions, which make up most of the remaining areas needing grid extension. Providing a grid connection
to poor communities often causes losses to the utility, due to low initial electricity demand from new
customers and their inability to pay for the full connection cost. Distribution utilities in SSA frequently
need signiicant subsidies or government bailouts to continue operating.
• Financial viability. Many distribution companies in Africa are in a inancially dire state. To begin with,
taris are often set at levels that inhibit inancial viability and cost-recovery for the utility. Although
electricity taris are supposed to cover the costs of all segments in the electricity supply chain, the
deicit typically accumulates in the regulated distribution segment. A study in 2016 found that only two
countries in SSA had a inancially viable electricity sector (the Seychelles and Uganda), while utilities
in only 19 countries covered operating expenditures.
42
This leaves distribution companies lacking the
resources needed to invest in strengthening existing networks to improve quality of service, or in
expanding infrastructure to connect additional consumers. Non-cost-relective taris lead to limited
investments, poor quality of service, customer dissatisfaction and defection. A vicious circle of theft
and unpaid bills can further erode distribution company revenues.
• Serving commercial and industrial (C&I) customers. C&I customers are a huge source of revenues
for utilities, consuming power at higher voltage and volumes. They can also represent an important
source of cross-subsidies for residential consumers. When they defect from the grid in favour of other
sources of power, the distributor loses a major source of revenue. This is increasingly common thanks
to distributed generation (grid connected or not). For example, in Kenya, Nigeria, and Ghana, on-site
solar power (at small and medium-size facilities) can now be generated for $0.10 to 0.14 per kilowatt-
hour (kWh), which is cheaper than the regulated taris for grid-connected C&I customers. As of 2018,
a total of 74 MW of installed PV capacity has been recorded in sub-Saharan Africa (excluding South
Africa), which is expected to double in 2019. Where a PPA or leasing deal has been signed, it has
41
AfDB and APUA (2019), Revisiting Reforms in the Power Sector in Africa, https://www.gsb.uct.ac.za/iles/Final_Report_Revisiting_Power_
Reforms.pdf.
42
Trimble, Chris, Masami Kojima, Ines Perez Arroyo, Farah Mohammadzadeh.
“Financial Viability of Electricity Sectors in Sub-Saharan Africa: Quasi-Fiscal Deicits and Hidden Costs” 2016. Policy Research Working
Paper, World Ban
21
usually been inanced with developer equity. Developers almost unanimously cite the lack of access
to debt inancing as the biggest hurdle to growth.
43
Policy makers and regulators in African countries
increasingly face the challenge of creating enabling regulations to support the growth of this sub-
sector, driven in large part by economics, while also ensuring the resilience and long-term viability of
the distribution segment.
• Regulation on taris. Power sector investments are greatest in markets with cost-relective tari-setting,
where utility companies can adequately recover their supply costs.
44
Achieving these conditions in
low-access countries requires structural adjustments in the power sector, including tari-setting
regulations, support mechanisms and incentive structures that enable distribution companies to move
toward long-term sustainability.
1.3.2 Recommendations
• Diversify electriication solutions. Distribution companies could make use of the three modes of
electriication—grid extension, mini-grid, and standalone solutions—to eiciently achieve universal
access. However, so far, fragmented approaches are widespread, in which grid and o-grid solutions
(discussed in chapter 2) are pursued in silos by independent agents with limited institutional interaction
and planning. Recent technological innovations can enhance the operational capacity of distribution
companies. For example, smart metering, GIS-based integrated planning,
45
and advanced power
electronics and control devices (such as Demand Side Management with billing for real time use and
dynamic pricing) enable eiciency improvements and better monitoring of assets, while also reducing
the cost of new connections in unconnected or under-served rural areas.
• Support utility inances. Financing distribution in rural areas still presents a major challenge in terms
of regulation and business models, unlike the situation for centralised generation and transmission,
where problems and solutions have been identiied and multiple success stories exist. Utility-driven
electriication approaches have been successful in contexts where substantial public inancial support
was available, and/or where the utility’s inancial condition was acceptable and the socio-economic
proile of consumers was relatively more aluent (such as in Morocco and South Africa).
• Expand private participation models for distribution. Utility scale distribution remains the last frontier
for private investment, and needs ixing for all the pieces of the puzzle in the power sector value chain
to start working together eiciently. Classic distribution by grid extension is critical to achieving full
electriication, but open questions remain about the format of the most promising business models,
the need for enabling regulations, and the inancial viability of distribution service providers. Investors
tend to hesitate to invest in the traditional distribution sector given the regulatory, tari and overall
challenges with the under-invested state of the network. While some investors are turning their focus
from generation to distribution, they still focus on more ‘bankable customers’, like commercial and
industrial o-takers. Alternative delivery models have been tried in an eort to catalyse private sector
participation and investment in electriication, including through zonal concessions (such as in Senegal)
and transformation of existing mini-grids into small power distributors when the grid arrives (such as in
Tanzania). Most of these initiatives have been implemented with little or no utility involvement, which
risks creating conlict in the future as the grid expands into areas that are being served by private-
sector entities. The success of some distribution franchises in India—which typically involve long-term
territorial concessions based on PPPs—is encouraging, although these franchises have so far been
limited to mostly urban areas.
43
BNEF (2019), Solar for Businesses in Sub-Saharan Africa, https://data.bloomberglp.com/professional/sites/24/BNEF_responsAbility-report-
Solar-for-Businesses-in-Sub-Saharan-Africa.pdf
44
IEA (2019), World Energy Investment 2019, International Energy Agency, Paris.
45
Geographic information systems
22
1.4 Power pools and system operation
Energy trade through regional power pools is a core part of the AU’s long-term strategy to achieve universal
access to electricity and to increase the share of renewable energies. The vision of the new African Continental
Free Trade Area (AfCFTA) is to expand cross-border cooperation in larger regional power generation projects and
strengthen interconnections, to facilitate trade and mutual support to increase energy access and to decarbonise
the electricity system. Power pools exist in all continents, with dierent levels of maturity and success. They
connect a group of countries by cross-border transmission lines to enable regional power trading arrangements
and to coordinate operation and investment. Four power pools have been established in sub-Saharan Africa,
and one in North Africa.
46
The oldest, the Southern African Power Pool (SAPP), was launched in 1995. Further
initiatives such as the African Clean Energy Corridor (ACEC) have also been launched to connect SAPP with the
Eastern Africa Power Pool (EAPP).
Regional power pools and cross-border electricity trading provide several beneits. They help attract investors
in generation who can expect to gain access to larger and more diverse markets, while achieving economies
of scale that can help reduce costs. Power pools increase liquidity in trading, which is mostly dominated by
physical bilateral contracts. Meanwhile, better coordination of generation dispatch among power pool members
can reduce supply costs and improve system reliability, reducing curtailments of grid-connected demand and
therefore increasing economic output.
Box 5 - Regional integration in Nordic countries
Nordic countries have cooperated on electricity market issues since the 1990s. Norway, Sweden, Finland
and Denmark have shared a common electricity market since 2000. The Louisiana declaration, signed
by Nordic energy ministers in Denmark in 1995, has guided the Nordic electricity market towards closer
cooperation and increased harmonisation since its publication. The Nordic region beneits from RES and
hydro power synergies, supported by their electricity market collaboration. The increased wind, solar
and bioenergy production occurring throughout the Nordic region is balanced out among the dierent
RES generation technologies (wind, solar and bioenergy), as well as by adapting Norway’s hydropower
production to other RES production and demand curves.
Source: Nordic Energy Research
The African Union’s Agenda 2063 also recognises the beneits of regional integration, particularly relevant for
electricity trade in SSA. The size of the national power system in at least 20 countries in SSA is below the eicient
level of output for a single power plant.
47
At the same time, some countries have suicient hydro resources both
to meet domestic demand and to export excess power. The same can apply to solar and wind resources in various
SSA countries. By using dispatchable hydro resources to balance intermittent generation resources on a regional
basis, resource eiciency can be greatly improved for the beneit of all (see Box 5 for the Nordic context).
Maximising the potential for trade and integration through power pools relies on three conditions:
• Cross-border interconnection infrastructure to integrate national power grids
• A common legal and regulatory framework (involving memoranda of understanding between
governments, utilities, and power pool)
• A multi-country organisational structure to oversee planning, harmonise rules, and develop a commercial
framework for cross border power trade.
48
46
he Maghreb Electricity Committee (COMELEC), since 1989, promotes energy exchange and interconnection between members; the irst
true power pool is Southern African Power Pool (SAPP), with 16 members representing 13 countries; West African Power Pool (WAPP) since
2000, in 14 countries; Eastern Africa Power Pool (EAPP), 7 countries; Central African Power Pool, 10 countries. AfDB and APUA (2019)
47
Programme for Infrastructure Development in Africa (2012), Interconnecting, integrating and transforming a continent,
www.afdb.org/ileadmin/uploads/afdb/Documents/Project-and-Operations/PIDA%20note%20English%20for%20web%200208.pdf.
48
Vanheukelom, J., Bertelsmann-Scott, T. 2016. The political economy of regional integration in Africa - The Southern African Development
Community (SADC). Maastricht: ECDPM
23
1.4.1 Barriers
• Weak regional institutions. Despite its clear beneits, regional integration is hampered by the absence of
strong regional institutions and enabling regulations. From a governance perspective, the most salient
issue is that existing power pools generally lack executive powers in the two key regional institutions:
the regional system operator, and the regional regulator.
49
This undermines regional transmission
planning, and results in poor regulatory harmonisation. In addition, national institutions often lack trust
towards other states and are reluctant to assign power to a regional institution.
Regulatory weaknesses are common to most power pools that serve African countries:
• The system lacks sound rules, which need to strike a delicate balance between i) pooling together
generation resources to eiciently meet regional demand, ii) coordinating the expansion of generation
and interconnected network capacity, and iii) preserving the autonomy and sovereignty of participating
countries. Countries prefer to be in the position of exporter, to avoid dependence on imported power
and ensure security of supply. To make regional power trade work, conditions that guarantee the
irmness of cross-border contracts are essential.
• Ineicient physical bilateral contracts. Much of the trade in SSA power pools is through physical bilateral
contracts between utilities. Their design frequently results in ineicient expensive generators being
dispatched, while others with lower operation costs remain idle. This mandatory dispatch also reduces
the liquidity in incipient regional wholesale markets.
• Resisting security of supply at regional level. Power pool members can be reluctant to trust security of
supply in generation at the regional level, fearing that exporting countries will not be honoured in a
situation of supply shortage in the exporting country. This, in turn, inhibits investment in large power
plants, depriving the power pools of important economies of scale.
• Asymmetric allocation of beneits of trade among the parties in exporting and importing countries
reduces incentives to invest in interconnection infrastructure. This problem is compounded by existing
vested interests. Countries are unwilling to liberalise markets. For instance, ‘energy champions’ such
as Ethiopia appear to have limited incentives to pioneer the development of a regional power pool, as
opposed to seeking bilateral contracts.
50
• Lack of regulatory mechanisms to mitigate risks in long-term contracts within a power pool. Such
regulatory mechanisms include allowing open access to the grid, permitting buyers to freely select
suppliers, mechanisms for hedging price dierences between countries, intervening in scarcity
situations, and managing uncertainty in the determination of transmission charges.
Proven solutions to address these regulatory and governance issues exist, based on the experiences of other
power pools and regional markets. The EU Internal Electricity Market (EU Energy Union) and the Nord Pool oer
excellent sources of successful regulatory measures and experiences. Others, such as the Central American
Market (MER), whose features are more similar to SSA power pools’ stage of development, also oer helpful
lessons in successful regulatory practices.
1.4.2 Recommendations
Economic and human resources are needed to advance regional integration, including through deining power
pools’ executive responsibilities. Eective interventions must focus on removing remaining obstacles or at least
mitigating their impact.
• Empower and strengthen existing regional institutions for eective regional integration. For example, the
Economic Community of West African States (ECOWAS) has developed a set of criteria for regulators
(including open access and independency), which can be further expanded for West Africa. The
49
We resist using the term “regional market” and we typically opt for “power pools” or an equivalent proxy, when the basic conditions for a
wholesale market are not met.
50
Medinilla, A., Byiers, B. and Karaki, K. (2019), African power pools: Regional energy, national power, ecdpm, Maastricht, the Netherlands,
https://ecdpm.org/wp-content/uploads/DP244African-Power-Pools-1.pdf.
24
ECOWAS Regional Centre for Renewable Energy and Energy Eiciency (ECREEE) has a legal mandate
to deliver on these criteria. The parallel Regional Sustainable Energy Centres
51
in the remaining African
Regional Economic Communities (REC) may follow suit. A low-cost, two-pronged approach could work
well: oering capacity building (see section 6.2) and political inluence to increase national political
commitment. Regional institutions should create a stronger coordination mechanism between the
dierent ministries and institutions involved (notably for generation, transmission and distribution
plans).
• Revise power pool design. Best existing international practices must be applied to revise important
aspects of power pools. The Single Market Paradigm is the guiding principle in power pool design.
This holds that a power pool must resemble a single country as far as possible in its operation and
planning decisions, transmission regulation, and institutional design and governance. In practice, loss-
of-sovereignty concerns and implementation issues limit the reach of this principle. In this context,
regional integrated planning should be emphasised at national level, based on strong understanding
of economic and environmental implications for each state, and consistent with national integrated
plans and goals as well as investment and access priorities. Regionally integrated transmission planning
should be a part of a common pan-African approach to ensure necessary coordination between the
power pools.
When existing power pool rules fall short of this ideal, the eiciency and security of supply deteriorate. As
mentioned above, this is frequently the case in African power pools, where poor implementation of physical
bilateral contracts distorts the economic dispatch of generation and demand.
• Introduce sound transmission rules and regulation. The absence of sound, commonly agreed procedures
to allocate transmission costs, for example, deters potential investors because it increases their risk
of not receiving suicient compensation. Inadequate charges for cross-border transactions using
regional interconnections stile trade, a lesson learnt from Europe and Central America before sound
transmission pricing rules were implemented. Power pools must create congestion management rules
to establish priorities for using scarce network capacity eiciently. The AU Commission is working on
harmonising regulation and taris with the support of the EU. For example, these will clearly deine rules
for allocating transmission costs among dierent states, as well as how and to what extent such costs
impact end-user taris in individual countries. The protocol of agreement between governments, which
already exists in power pools, must be enhanced.
• Deine environmental and social standards, including environmental and social impact assessment.
Experiences from other regional markets can provide valuable lessons to address regulatory barriers. The
implementation of the EU Internal Electricity Market (IEM), Central America’s MER, the Indian and Australian
National Electricity Markets, and regional transmission organisations (RTOs) in the United States
52
oer various
helpful measures to apply in African contexts, combined with adaptations to relect speciic conditions and needs
of emerging economies. Rules such as “beneiciary pays” (applied to cost allocation for investments in cross-
border transmission infrastructure) or “transmission charges must not depend on commercial transactions,”
which have been successfully implemented in some power pools, can equally be applied in African contexts.
51
Notably, the Regional Centre for Renewable Energy and Energy Eiciency (RCREEE) in the Arab region, including North Africa, the East
African Centre for Renewable Energy and Energy Eiciency (EACREEE), and SADC Centre for Renewable Energy and Energy Eiciency
(SACREEE).
52
Although it should be noted that US RTOs do not encompass dierent countries and face lesser integration challenges.
25
2 THE GROWTH OF THE OFFGRID
SECTOR INAFRICA
The distributed and decentralised nature of o-grid
renewable technologies oers the opportunity
to maximise the socio-economic beneits of energy
access by engaging local capacities along dierent
segments of the value chain.
53
Technological advances combined with innovative inancing and delivery models in the o-grid sector are
disrupting traditional electriication processes. Opportunities are emerging to accelerate progress towards
universal access as well as socio-economic growth. Rapid cost reductions of renewable technologies and
improved reliability have enabled o-grid technologies, notably stand-alone systems and mini-grids, to provide
alternatives to centralised power infrastructure for dierent end-users. O-grid systems provide a variety of
electricity services from basic lighting and mobile charging, to 24/7 supply for households and commercial
or small industrial use. Globally, at least 154 million people were estimated to have beneitted from electricity
services from o-grid renewable energy technologies through 2017—a seven-fold increase over 2011.
54
While grid extension-based electriication has long been perceived as the reference model in developing
economies,
55
private stakeholders are spearheading the design of innovative electricity supply models based on
o-grid technologies.
56
These solutions hold the potential to successfully address peri-urban and rural contexts
that are characterised by limited, sparse demand as well as lower ability to pay among customers. These three
factors increase the cost of grid-based electriication, reducing the economic feasibility of traditional energy
access approaches.
57
As aordability of o-grid solutions improves, access to energy eicient appliances for household use and
to services and tools for productive use also grows. These enable o-grid companies to oer a wider range
electricity services. There is consensus among electriication institutions and investors that o-grid solutions
represent a key pillar of a universal electriication strategy. Their value can be maximised when deployed in
coordination with on-grid solutions as part of a comprehensive plan, which should adopt a mid- and long-term
vision of the national power sector including all three delivery modes. Taking a piecemeal approach to o-
grid and on-grid electriication investments—where incumbent distributors and third party developers plan and
operate in parallel without coordination—risks producing outcomes that are not suiciently inclusive, eicient,
or permanent.
This chapter presents the emerging opportunities and existing landscape for mini-grids in Africa, followed by
stand-alone systems for rural electriication, and systems for commercial/industrial end-uses. It highlights the
challenges faced in the deployment of these solutions and oers recommendations to address them. O-grid
business models need immediate support through inancial and regulatory measures. Taking a comprehensive
approach, this report proposes to integrate all support mechanisms under a regulatory and management
framework. This could transform the existing SSA distribution companies into viable businesses, which integrate
on- and o-grid technologies and can attract serious investment.
53
IRENA (2019). O-grid renewable energy solutions to expand electricity access: An opportunity not to be missed. IRENA, Abu Dhabi.
54
IRENA (2018), O-grid Renewable Energy Solutions: Global and regional status and trends, IRENA, Abu Dhabi.
55
World Bank (1995), Photovoltaic Applications in Rural Areas of the Developing World, ESMAP, The World Bank, Washington D.C.
56
Lepicard et al. (2017), Reaching Scale in Access to Energy: Lessons from Practitioners, Hystra, Paris
57
Debeugny et al. (2017), L’Électriication Complète de l’Afrique est-elle Possible d’ici 2030?, Afrique Contemporaine, Agence Française de
Développement, Paris.
26
2.1 Mini-grids
About half a billion people in Africa and Asia can be cost-eectively supplied with electricity through mini-
grids, according to a recent World Bank report.
58
The combination of falling costs, improved quality of service,
and favourable enabling environments have made modern mini-grids a scalable option to complement grid
extension and solar home systems (SHS). A study of 53 operational mini-grids found that connection costs for
mini-grids were competitive with grid connections, particularly for demand clusters located far from the existing
grid or with total low demand.
59
Modern mini-grids can pave the way for more inancially viable future grid expansion. They stimulate demand
for electricity and enable growth in income-generating activities, so by the time the main grid arrives customers
have a greater ability to pay and are also already used to paying for electricity service. Mini-grids can also be
connected to the main grid, if and when the grid reaches the mini-grid electriied area. This can be taken into
consideration when designing business models and inancing schemes. Electriication planning and regulatory
frameworks must deine, in advance, technical standards to enable grid interoperability and regulatory options
that enable a mini-grid developer to safeguard its investment if the main grid arrives. The aim is to create a win-
win situation for both mini-grid developers and the national utilities.
For some communities, mini-grids are the most eective and least-cost way to provide access to energy as they
can be easily deployed almost anywhere, they are lexible, scalable, and can connect to the main grid if and when
the national network expands. They also oer sustainable long-term development impact by reducing carbon
emissions, pollution, environmental degradation and creating new jobs and business opportunities.
60
Most mini-
grid systems have a productive life span of 15 to 25 years, which can be extended with new investments.
Financing and business models
As the technology becomes more standardised, mini-grids can be rapidly replicated and disseminated after a
successful test pilot, with suicient inancing. Creating portfolios of projects can interest larger investors, as
aggregating projects considerably increases the size of the investment, and optimises the risk-return ratio.
61
Cooperatives or social enterprises have also proven to be eective and sustainable models in rural areas where
initial margin returns are limited. However, these run the risk of being phased out in time.
Over the past several decades, mini-grids have grown from a niche solution for electriication to being deployed
widely across the globe. At least 19,000 mini-grids have been installed in 134 countries, representing a total
investment of €25 billion and providing electricity to about 47 million people. Asia has the most mini-grids
installed today, including about 2,000 from solar sources, compared to about 800 in Africa. The latter has the
largest share of planned mini-grids: 4,000 out of 7,500 planned mini-grids based on solar-hybrid technologies,
aiming to connect more than 27 million people worldwide at an investment cost of €11 billion.
62
African countries need to actively mobilise public and private investment for mini-grids, which so far has been
mostly private. At present, mini-grid investments in sub-Saharan Africa total only €3.6 billion, a fraction of
investment needs by 2030.
63
Public inance should play a key role in meeting the funding gap in the o-grid
renewable energy sector, working through three channels. First, direct inancing can be allocated to power
public services and for rural households unable to aord available solutions on the market. Second, inancing
instruments can be used to de-risk investments and leverage private capital (such as through high-risk innovation
58
This section on mini-grids is directly based on a recent World Bank report: Energy Sector Management Assistance Programme. 2019.
Mini Grids for Half a Billion People: Market Outlook and Handbook for Decision Makers. ESMAP Technical Report;014/19. World Bank,
Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/31926
59
Cost of connecting a customer to a mini-grid ranges from around $1,000 to $2,100. Ibid.
60
Energy and Environment Partnership (EEP), Opportunities and Challenges in the Mini-Grid Sector in Africa – Lessons Learned from the EEP
Portfolio, 2018, p. 7. Available on https://eepafrica.org
61
EEP, Opportunities and Challenges in the Mini-Grid Sector in Africa – Lessons Learned from the EEP Portfolio, 2018, p. 7. Available on https://
eepafrica.org
62
World Bank, Mini Grids for Half a Billion People: Market Outlook and Handbook for Decision Makers, 2019, p. 2. Available on https://www.
worldbank.org/en/topic/energy/publication/mini-grids-for-half-a-billion-people
63
An estimated $220 billion is needed worldwide to connect 490 million people with 210,000 mini-grids. Ibid.
27
funds, or funding initial feasibility studies). Third, the public sector can play a crucial role in supporting innovation
in delivery models, through research and pilot projects.
64
Productive uses in rural areas
Mini-grids oer the potential for transformative socioeconomic impacts for end-users. One of the advantages
of mini-grids is replicability, which means that a system design can be implemented across a wide range site
conditions (such as weather, terrain, ease of access). Standardising the system design also lowers development
costs. Replicability suits productive uses (using electricity for small industrial or manufacturing purposes), which
increase the load requirement and boost the mini-grid’s potential, aecting a wider range of income generating
activities.
Mini-grid models are evolving, from providing only basic electricity services for households, to providing electricity
services for income generating activities. These bolster the systems’ inancial sustainability and viability. The rural
population in Africa mainly depends on crops and livestock farming as income-generating activities, accounting
for more than 50% of income generation in rural communities,
65
using rudimentary traditional practices. Mini-
grids can improve rural livelihoods by increasing eiciency and productivity in agricultural value chains. At the
same time, they allow other electricity-based services to develop. The systems’ inancial sustainability relies on
the expectation that farmers and entrepreneurs can generate increased income through improved productivity,
which increases their ability to pay for electricity services, and in turn increases their demand for electricity.
66
Access to electricity can increase crop production, facilitating soil preparation, sowing, fertilising, irrigation,
harvesting and storage. The same applies to livestock farming and other productive processes in rural areas.
67
Using mini-grids to power mechanical and electronic agricultural technologies, combined with automation
of certain processes, also dramatically reduces the need for manual labour. This frees up time for leisure or
education.
Box 6 - International inancing cooperation: renewable mini-grids for productive uses and health services
ACCESS SARL (an ARE member) is a Malian solar and hybrid energy systems company with 10 years’
experience in urban and rural electriication. After being awarded a $230,000 grant from OPEC Fund for
International Development, ACCESS mobilised the equivalent sum of inance to invest into a solar hybrid
system in the Malian municipality of Blendio (population of about 4,000). Mali’s electriication rates are
below 20%. This project is expected to present a model for sustainable solar and renewable energy
solutions in the country.
ACCESS installed a mini-grid system of 55 kW capacity, including solar panels, inverters and batteries
provided by SMA Sunbelt Energy GmbH, as well as a backup diesel genset of 68 kW. The seven-kilometre
distribution line that was developed will oer long-term socio-economic beneits beyond the 15-year
concession period. To date, 205 residential and 19 productive users are connected to the mini-grid. Three
clinics/doctors are also connected. Three women started small restaurant businesses following their
electricity connection. Blendio women’s groups were given access to capacity building opportunities, and
they were connected with Nyetaa Finance, a local Malian micro-inance institution.
See: www.accessenergie.com/; www.oid.org/; www.ruralelec.org/
Even lighting can be considered a productive use. Electric lighting can increase the income of small businesses,
allowing them to open longer hours. Electricity also oers opportunities to diversify business models and provide
new services, such as Wi-Fi hotspots and mobile charging stations.
W
64
IRENA (2018), O-grid Renewable Energy Solutions: Global and regional status and trends, IRENA, Abu Dhabi.
65
FAO (2007), Rural income generating activities in developing countries: re-assessing the evidence, FAO
66
Fritzsche et. al (2019), Exploring the nexus of mini-grids and digital technologies, IASS, Postsdam.
67
Hamadani et al. Automation in livestock farming - A technological revolution, (2015)
28
2.2 Stand-alone systems for rural electriication
Several East African start-ups developed a new generation of SHS in the late 2000s, providing remote rural
markets with sustainable, aordable and safe electricity on market terms. These took advantage of mature solar
technologies and mobile money markets, supported by favourable regulatory policies. With a basic package
usually oering only basic lighting and phone charging, the service is typically prepaid by mobile payments on a
pay-as-you-go (PAYG) basis. PAYG allows companies to signiicantly reduce the costs associated with bill recovery
in remote rural areas, while maximising aordability for customers. Prepayment pricing schemes are are based
on rural households’ usual expenses for traditional energy sources such as kerosene, as well as for outsourced
phone charging. Systems have inbuilt remote controllers that can block the system once the prepayment
balance is spent, and restart it after a new prepayment. This creates strong incentives for customers to prepay
on time. Lastly, a technical warranty and after-sale services ensure system durability for the whole repayment
period. This is crucial in establishing a trust relationship between private companies and local populations, and
also maintains the proitability of the company’s ixed assets.
68
Within less than a decade, digitally inanced o-grid solar has transitioned from pilot scale to a diverse and
substantial sub-sector of the global o-grid energy market. More than 3,000 PAYG SHS are sold every day by
nearly 30 companies operating in at least 32 countries in SSA. These operate in nearly complete independence
from public supervision or any national electriication plans.
69
The number of PAYG SHS sold in Kenya is about to
reach 300,000 kits per year,
70
which is about equivalent to the annual growth in new rural households.
The lexibility of PAYG business models allows o-grid companies to work within the major economic and
inancial constraints of rural populations, providing an immediate solution to their basic power needs. PAYG solar
business models reduce information asymmetries and transaction costs by integrating into a single commercial
structure the inancial, technical, and operating functions that have previously been split between a range of
local actors, including civil society organisations, microinance institutions, and solar product suppliers.
71
Once
markets are more mature, these functions might become separate again.
The major innovation of PAYG solar initiatives is to pursue rural electriication on market terms with high
proitability, in sharp contrast to the poor inancial records of existing utilities, or the need for subsidies of most
existing mini-grid companies. This greatly increases the systems’ per-unit cost (per kWh of electricity consumed)
compared to mini-grids and to grid power. The systems are typically smaller, so little power is consumed and the
total (absolute) cost remains low. But the long term outcome is not ideal from a systems perspective. PAYG solar
companies generally focus their activities on ‘low-hanging fruit’, primarily targeting wealthy rural populations.
Leading companies therefore concentrate around densely-populated urban and rural regions of the most densely
populated countries.
72
This diminishes these systems’ poverty-reduction potential. Within less than a decade, the
private sector managed to completely redesign the dynamics of rural electriication by making energy access
proitable,
73
but not accessible to everybody.
74
The resilience of current PAYG business models is still to be seen. In May 2019, one of the sector’s leading
companies, Mobisol, went bankrupt in response to high costs of capital and growth expectations from private
investors. The company was recently acquired by ENGIE. Nonetheless, the sector keeps growing and serving
previously unelectriied people at a fast pace. More than 30 PAYG solar companies are now operating in the
peri-urban and rural areas of Kenya, Rwanda, Tanzania and Uganda. New companies appear every year in
neighbouring countries. Other business models have been successful, like the innovative inancial approach for
SHS in Bangladesh. The sector remains justiiably optimistic about its long-term prospects, driven by the need
to achieve universal access, provided the right regulatory and policy conditions are met.
75
68
Alstone et al. (2015), O-Grid Power and Connectivity, Pay-as-you-go Financing and digital supply chains for pico-solar, Lighting Global, IFC,
Washington, D.C.
69
GOGLA (2017), Providing Energy Access through O-Grid Solar: Guidance for Governments, GOGLA, Utrecht
70
Ibid.
71
Winiecki et al. (2014), Access to Energy via Digital Finance: Overview of Models and Prospects for Innovation, CGAP, Washington D.C.
72
Ibid.
73
Debeugny et al. (2017), L’Électriication Complète de l’Afrique est-elle Possible d’ici 2030 ?, Afrique Contemporaine, Agence Française de
Développement, Paris
74
GOGLA (2017), Providing Energy Access through O-Grid Solar: Guidance for Governments, GOGLA, Utrecht
75
Lecoque D, Wiemann M, Mohapatra D (2019), High-proile bankruptcies in the o-grid sector: Where do we go from here? http://www.
ruralelec.org/publications/high-proile-bankruptcies-grid-sector-where-do-we-go-here
29
2.3 Stand-alone systems for commercial and industrial consumers
Diesel generators—increasingly complemented with solar PV—oer a lexible, although sometimes expensive,
alternative to unreliable centralised generation. Also called self-generation, captive power or embedded
generators, they may be developed on a standalone basis or connected to the grid. They are typically managed
by residential, industrial or commercial energy users for their own consumption.
Box 7 - Renewable hybridisation standalone projects: already a reality
Hybrid solutions—that combine both wind and solar alongside storage technologies—provide a powerful
technical solution to accelerate the penetration of renewables in Africa. Hybrid projects have already been
developed in various contexts, proving that the technology is ready and demonstrating its attractiveness to
investors. Siemens Gamesa has shown the competitivity of the hybrid approach by pioneering standalone
hybrid systems combining dierent sources of power for both on-grid as well as o-grid applications. The
company commissioned the irst ever large-scale wind hybrid o-grid project in 2007 (in the Galapagos
Islands, Ecuador). The project maximises wind power penetration to save on diesel fuel, achieving an annual
reduction of 20,359 tonnes of CO2 with 2.4 MW of wind backed up by 1.95 MW of diesel generators, driven
by a Hybrid Plant Controller. Siemens Gamesa has expanded its hybrid developments to Spain (using wind-
solar PV-storage-diesel), India (two projects: Kudgy 4 MW and Kavital 78,8 MW), and the Philippines (with 16
MW wind + 6 MWh Battery Storage).
Source: Siemens Gamesa
Captive generation oers operational lexibility in rural areas and some independence from national grids with
unreliable service. But when the plant relies on fossil fuel, it comes at a inancial and environmental cost, and
can be hard to deploy, operate and maintain in remote areas. It also presents important regulatory challenges
when producers connect to the distribution network. While beneits may outweigh costs in certain geographies,
diesel-based captive generation often remains less cost-eective than innovative and well-designed mini-grid-
or standalone solar/hybrid system-based solutions (combining solar, wind, and storage, for example). Diesel
is also much more polluting and subject to price volatility. Once grid reliability ceases to pose a problem and
deter large customers, in the medium and long term, the optimal solution is to connect all C&I customers to
the national grid, which should provide cheaper and more reliable power. In the short term, hybridisation with
solar power can reduce the costs of diesel in certain price contexts, as well as improving the environmental
sustainability of the system.
2.4 Sector diagnostic: barriers and recommendations
This section discusses the barriers to scaling up investment in o-grid systems, and proposes some
recommendations to overcome these.
2.4.1 Barriers
Many obstacles to investment in o-grid technologies remain, despite signiicant market growth, drastic cost
reductions in technologies, and improved policies across the continent. Challenges especially relate to raising
private sector capital and the lack of conducive policies, which hinder up-scaling and technology deployment.
76
76
See ARE, High-proile bankruptcies in the o-grid sector: Where do we go from here, 2019. Available on http://www.ruralelec.org/
publications/high-proile-bankruptcies-grid-sector-where-do-we-go-here. See also, ARE, Energy Access from the Bottom Up: Start-up and
SME Showcase, 2018. Available on http://www.ruralelec.org/publications/energy-access-bottom-start-and-sme-showcase-2018
30
Enabling environment:
• Unsupportive or non-existing policy frameworks. While a growing number of low-access countries
are introducing dedicated measures to support o-grid solutions,
77
many are yet to do so, and policy
implementation remains a key challenge. O-grid solutions represented less than 1% of total electricity
access inancing commitments in 201516. In some cases, policies are public-sector oriented, such
as in Ghana, and do not always address the question of end-user prices and subsidies. Abrupt policy
changes, such as adjustments to import duty for equipment and appliances, and lack of a long-term
market development view (backed by integrated electriication planning and targets) have also inhibited
the growth of the sector. Also, policies are silent or unclear on the outcome for scenarios where the
central grid reaches a location electriied by mini-grids or SHS.
• Poor legal and regulatory framework.
78
Regulations on mini-grids often do not adequately address
aspects related to licensing provisions, tari setting and implications when the main grid arrives.
79
These
are crucial to assess the viability and sustainability of mini-grid projects. In some countries, for instance,
taris are set by regulators or the statutory entity in charge of electricity (in some cases the energy
ministry) which may not allow suicient cost-recovery.
80
Few countries have regulations allowing—
and setting the methodology to determine—developers to set taris alongside subsidies to cover any
viability gaps. Also, licensing may require lengthy, unclear processes and inappropriate fees given the
size of installations, such as in Cameroon.
81
Procedures associated with concession models (such as
for the supply of SHS or lighting applications) are complex and could slow the project development
process.
82
Finally, regulation is in many cases not eiciently and eectively implemented.
Lack of access to inance and de-risking instruments:
• Diicult access to inance. Small-scale projects struggle to access inance due to the perceived risks
of these types of investment, especially for local o-grid small and medium enterprises (SME) in early
stage inancing. Financing in local currency may be scarce. Often, companies’ own resources are used
to cover preliminary studies. Funds to cover upfront investment also remain hard to reach, including
working and medium to long-term capital from private sources (whether through equity or debt), as in
the case of mini-grid developers for unsolicited projects in Nigeria.
83
• Limited private investment. Private investment is limited due to the risks associated with the overall
enabling environment (see above). Communities’ inancial viability is often questionable. At the same
time, regulated taris—usually not cost relective—aect the bankability and inancial viability of
projects. The investing and regulatory environment seems to expect the rural electriication sector to
be achieving full commercial viability, and has reduced the amount of de-risking support accordingly.
This is unrealistic in a sector that targets the hardest-to-reach clients, the rural energy poor, and which
faces a distorted market situation in view of the heavily subsidised central grid and fossil fuel sectors.
• High cost of capital. Many rural electriication projects and companies need to rely on venture capital
and private equity funding, as large swathes of the sector are perceived to be risky. In addition to raising
the weighted average cost of capital (WACC), this also creates a potential conlict of interest, where an
industry that operates in long(er)-term horizons needs to rely on investors with shorter horizons.
When companies must rely on investors who seek high returns in a relatively short time horizon, they have more
incentive to develop scale-up strategies seeking growth at any cost. This can jeopardise the sustainability of the
business model and the quality of the value proposal to clients.
77
Countries that have increased electricity access rates the most since 2010 have also shown a concurrent improvement in electricity access
policies. The share of low-access countries adopting measures to support mini-grids and SHS has grown from around 15 percent in 2010
to 70 percent in 2017, as concluded by the World Bank’s Regulatory Indicators for Sustainable Energy 2018 report (www.worldbank.org/en/
topic/energy/publication/rise-2018)
78
The renewAfrica programme, in charge of assessing existing tools aimed at supporting RE projects in Africa, remarks that the real risk lies
within the poor regulatory frameworks (seconded by ECREEE and ARE).
79
IRENA (2016), Policies and regulations for private sector renewable energy mini-grids, Abu Dhabi.
80
https://greenminigrid.se4all-africa.org/ile/152/download
81
EU TAF SEforALL for West and Central Africa: Mission CW188 (2018)
82
SEI Platform Working Group 1 meeting with GOGLA (5th of June 2019)
83
EU TAF SEforALL for West and Central Africa, 2018. Mission CW216: “Scoping Mission - Nigeria: Market Potential for Renewable Energy and
Private Sector-led Investment Opportunities under EDFIMC/ElectriFI”
31
• Expensive inancing. In this context, commercial banks provide short-term loans at high rates, making
debt inance challenging. In some cases, they may not be willing to support businesses in the renewable
sector, as is the case with several banks in Nigeria.
• Diicult environment for DFIs. DFIs also face challenges in supporting small-scale projects, due to the
perceived risk and size of the investments. To mitigate these risks, in many cases they operate through
inancial intermediaries (for example, with lines of credit to local commercial banks, or dedicated fund
structures such as AfDB’s Facility for Energy Inclusion (FEI)).
84
• Insuicient public inancial support. A clear trend in the last few years has seen public investment in the
sector shift from grants to blended inance. This helps companies to futureproof their business models
and to plan their projects over longer-term timeframes. However, the pendulum of providing adequate
de-risking support may have swung too far in the direction of expecting rural electriication companies
to achieve full commercial viability. This could be expecting too much of a sector that targets the
hardest-to-reach clients—the rural energy poor—and faces a distorted market situation, competing with
the heavily subsidised central grid and fossil fuel sectors.
• Limited de-risking instruments, such as operational guarantees, for small-scale projects. Such
instruments address risks associated with currency luctuations (impacting the cost of inance and
repayment capacity of debt obligations) and o-takers’ creditworthiness (the end-users). In this context,
the ability of existing instruments (see Box 10) to increase investments in the RES sector from local
SMEs is yet to be proven.
Long-term perspective and energy systems sustainability:
• Scale and replication challenges. Small-scale projects developed under unsolicited proposals face
problems with replicability and scalability, especially due to lack of access to inance and in many cases
poor local development framework.
• Lack of monitoring and evaluation. Energy projects’ impacts on community livelihoods, spanning
economic, environmental, and social dimensions, tend to have weak monitoring and evaluation systems
(exceptions include South Africa’s pioneering REIPPPP). This limits the interest and engagement of
both private and public investors as well as the donor community, and makes projects more diicult to
replicate. For example, some of the drivers in the water-energy-food (WEF) nexus approach still need
to be understood and properly deployed through local energy projects (see section 6.6 on the WEF
Nexus).
85
• Lack of o-grid market information, data and transparency. While many studies have been conducted
on o-grid RES systems, results are seldom shared. More data is needed on the performance and costs
of private sector operated mini-grids to increase investor conidence, such as through benchmarking
studies on mini-grid deployment and costs. Knowledge sharing is also needed on the role of dierent
productive uses in business models.
2.4.2 Recommendations
The following recommendations aim to increase investment and deployment of renewable technologies for
mini-grids and standalone systems. They focus on improving the enabling environment, expanding inance and
de-risking instruments, and ensuring long-term systems and sustainability.
Enabling environment
• Organise policy dialogue through stakeholder meetings (stand-alone or in parallel with private sector
business delegations) to sensitise policy makers and to discuss rural electriication strategies. These
should communicate the added value of o-grid solutions to provide reliable electricity supply and spur
rural socio-economic development. Recent meetings carried out by the Alliance for Rural Electriication
84
FEI, operating through two dedicated funds (FEI o-grid and FEI on-grid), is designed to close funding gaps in the small-scale energy
infrastructure sector, mitigate key credit and local currency risks, and catalyse growth in last-mile energy access solutions.
85
Energy is a necessary condition but not suicient to leverage alone local development.
32
(ARE) with the EU Directorate-General for Development Cooperation (DG DevCo), EU Delegations,
AEEP, and GET.invest (formerly RECP) provide good examples of such dialogue. Collaboration among
government institutions and the private sector should be enhanced, especially with local SMEs. This
should clarify the private sector’s needs and challenges (including in terms of investors’ risk perception
and business environment) and identify key areas needing government support. The Africa Energy
Market Place (AEMP) platform also oers a good example of fostering tri-partite dialogue between
governments, private sector and development partners.
86
• Develop a regulatory toolkit with sector-wide input on policy best practices and lessons learnt to reach
100% electriication in target countries. This can be built based on the 2016 Mini-Grid Policy Toolkit
created by EU Energy Initiative Partnership Dialogue Facility (EUEI PDF), RECP, REN21 and ARE in 2014.
• Enhance the regulatory framework to ensure policy and regulatory certainty over the short and medium
terms. Regulatory frameworks should encourage grid-compatible mini-grids for those that might
connect in future. Regulation must also deine geographical boundaries for utilities or distribution
companies and provide investment safeguards for mini-grid operators. Energy eiciency and quality
standards should create incentives to develop high-quality standalone systems with energy eicient
technologies , as well as preferential custom duty on certiied equipment. Regulations should support
participation from both local and foreign private sector companies, with speciic focus on SMEs (see
Box 8).
Box 8 - Support for mini-grid policymakers and regulators
Several entities have been set up to increase local capacity-building in o-grid sector development, both
for policymakers and for entrepreneurs. The Sustainable Energy Fund for Africa (SEFA)-funded green mini-
grid market development programme has set up a Green Mini-Grid Help Desk that provides hands-on
support to developers and policymakers (greenminigrid.afdb.org).
The Renewable Energy Entrepreneurship Support Facility (REESP) was established in West Africa. It aims
to bridge the gap between entrepreneurs and local inancial institutions by increasing the capacities of
local entrepreneurs to develop renewable energy projects, and oers them opportunities to beneit from
mentoring. It also informs local banks on the business case of small-scale renewable energy projects. The
REESP originated as a joint eort by IRENA, ECREEE, and LuxDev, and is being carried forward by the World
Bank under the Regional O-Grid Electriication Project. IRENA is also implementing the REESP in the SADC
Region in collaboration with ECREEE and SACREEE.
• Evaluate options to cross-subsidise taris, to make taris aordable for end-users. PPP frameworks with
a subsidy component can be eective to make taris aordable while being proitable for mini-grid
operators.
• Create a stronger framework to facilitate aggregation of projects (e.g. clusters of mini-grids) through
policy and regulation. Aggregation can be achieved at dierent stages (see Finance and de-risking
instruments below), such as through a multi-project procurement process, which requires restructuring
tender approaches. For example, in the DRC, a Government-led auction programme for a private
electriication approach to deploy renewable-based mini-grid solutions is expected to provide access
to 150,000 people.
87
• Further enhance the legal set up of mini-grids including by streamlining licensing and permitting
procedures. This should simplify procedures for opening SMEs and registering jobs. Procurement
procedures should be evaluated for eectiveness to identify an optimal approach (such as auction
processes for mini-grids).
• Include the o-grid sector in energy sector planning at ministerial level as well as for the utility or rural
electriication agency. Today, o-grid technologies oer robust quality to households, and the o-grid
86
https://www.afdb.org/fr/topics-and-sectors/initiatives-partnerships/africa-energy-market-place
87
https://www.afdb.org/en/news-and-events/african-development-bank-approves-20-million-facility-for-green-mini-grid-program-in-
democratic-republic-of-congo-19136
33
private sector should be considered essential partners. This requires utility companies to implement a
holistic integrative approach in their planning, investment and overall development of the sector.
Finance and de-risking instruments:
• Scale up the inancing initiatives/funding mechanisms aimed at supporting local private sector
enterprises in early stages of project development. Several facilities are available to support early
project development stages. Information and access to these facilities must be clear and available.
• Promote inancial incentives for the private sector to establish modern energy services in rural and
peri-urban areas. The provision of working capital is critical. This type of inancial support needs to be
patient as the customers of o-grid companies are poor and signiicant cash earnings will only build
slowly. One key instrument provides grants at a results-based level (see Box 9). Such targeted grants
should become part of every development bank’s portfolio, with the purpose to incentivise companies
to enlarge their markets and to build a solid base, which will in future attract more commercial types
of investment. Taking a long-term view, combined wih local currency funding, can help reduce the
project’s cost of capital (whether for standalone systems or utility-scale mini-grids).
• Create innovative products to support small-scale inance, building on existing inancing and de-risking
instruments. For example, enhance support to MFIs, engage with local banks through debt co-inancing,
and design new lines of credit or dedicated funds to facilitate rural households’ access to inance.
88
Tailored schemes such as results-based inance (RBF) and climate inance reward strong results and
track records, while levelling the playing ield with the grid.
89
Such instruments should be speciic to
clean energy projects, and complement or align with existing support mechanisms. Pension funds may
also oer potential for supporting RE project investments (for example, these have been used in Kenya).
While grants remain necessary to activate markets, especially given the customers’ low ability to pay,
the sector should not rely on such inancing means in the long term, and should aim to be inancially
sustainable and make projects viable.
Box 9 - Zambian o-grid results-based inancing
The Beyond the Grid Fund, inanced by Sweden and implemented by NEFCO and REEEP, monitors
implementation and impact metrics of o-grid companies in Zambia. In addition to underpinning results-
based inancing, it provides critical insights into Zambian o-grid markets.
See: www.edison.bgfz.org
• Identify public sector roles forthe early stages of project development, to reduce development costs
(and optimise electricity supply cost to communities). For example, the government could elect to
carry out de-risking measures such as site identiication and conducting preliminary studies for project
preparation, or could facilitate permitting and licensing for solicited and unsolicited proposals (see
section 6.2 on Capacity Building).
88
The economic situation of households makes it complex and challenging for companies to sell their products.
89
Such instruments and support are strongly expected by private sector companies and investors.
34
Box 10 - SMART programme for results-based mini-grid subsidy
Over € 1.1 bn of donor funding is committed to the mini-grid sector, but the programmes are fragmented,
creating gaps in the funding cycles, and creating uncertainty for the private sector. African Mini-Grid
Developers Association (AMDA) members have aligned to advocate for SMART results-based inancing to
close the inancial viability gap. This proposes a standardised, Pan-African subsidy programme that will
attract talent and capital to scale the sector. AMDA’s key principles for SMART RBF are:
Simple—one solution, one subsidy amount, certainty and simplicity
Measurable—results-based and easy to measure what the subsidy achieved
Africa-Wide—remove fragmentation between countries, encourage movement across SSA
Repeatable—a revolving facility, instead of time-bound programmes that take years to design
Timely—connections are veriied quickly, and payments made in a timely manner
The SMART RBF aims to scale-up infrastructure subsidy with a simple, results-based model where developers
receive a set subsidy per connection, once completed. Sites must be built to a technical standard to qualify.
Developers must share data to allow donors to make data-driven decisions on reducing the subsidy over
time. The connections are veriied remotely through smart meters, and include random in-person audits
to ensure robust control and governance. The irst call for proposals will launch late 2019/early 2020 in
Nigeria, Kenya, Tanzania and potentially Benin, with the goal to eventually launch in all African countries
that have conducive mini-grid regulations. The SMART RBF facility will also open a collaborative window to
multilateral donors while harmonizing eorts across parties.
Source: ESMAP (2019); AMDA. Africa Mini-grid Developers Association SMART RBF Policy Recommendation.
(2018).
• Deploy instruments that address local currency inancing challenges. For instance, under the EIP’s
upcoming guarantee instrument, the Distributed Energy Service Companies (DESCOs) programme,
a joint AfDBEU initiative, will provide credit enhancement to support local currency inancing to
companies deploying o-grid solar products.
• Set up a framework to strengthen coordination between inancial institutions. Coordination between
international inancial institutions (IFI), MDBs, commercial banks, equity providers and funds should
include discussing areas of cooperation—such as through blended investing—and aim to avoid
duplication of eorts, speciically regarding small-scale investments and support. Financial institutions
should coordinate in monitoring and evaluation of current inancing tools, and follow up on existing
inancial and de-risking mechanisms. ElectriFi presents a good example of a new inancing aid tool
created via multi-stakeholder dialogues.
• Aggregate projects to access inance. Putting together larger portfolios of projects can engage larger
investors, by increasing the investment’s ticket size, while optimising the risk-return ratio. For example,
the Nigeria Electriication Programme aggregated 10,000 mini-grid projects in clusters. This allowed
it to mobilise €315 million from the World Bank complemented by €180 million from the African
Development Bank. Stronger frameworks are needed to facilitate aggregation of o-grid projects. A
developer can bundle projects when seeking inance, or a inancier can take a portfolio approach to
risk assessment when inancing multiple mini-grids. This can also be achieved at the otake level, by a
single o-taker purchasing (or backstopping payment obligations) from multiple mini-grids and thereby
providing payment security to the mini-grid developers, improving the bankability of the projects. A
feasibility study to create such an aggregate mini-grid o-taker is currently being conducted.
90
Long term perspective and energy systems sustainability:
91
• Promote needs-based design and demand side management. Without revenue-generating productive
uses, the economics of mini-grids are challenging. The AfDB/SEFA Green Mini Grid Help Desk (a market
development programme) has published results and guidance on productive uses of energy to advise
90
http://minigridgate.com
91
Some recommendations proposed by ARE as a result from the ARE Energy Access Investment Forum in Abidjan on 1314.03.2019
35
green mini-grid developers in addressing demand risk and revenue sustainability.
92,93
(See section 3.2
on Productive uses of renewable energy)
• Use new and available tools for energy planning and optimisation. Latest tools, such as geospatial
information (via GIS), enhance system planning and determine the most appropriate energy access
solution for each location and the local needs.
• Develop a common impact evaluation framework, which would allow for better planning of the energy
sector. This could also help evaluate the eectiveness of business models based on smart mini-grids,
grid connection or productive uses, and may support inancial institutions in their selection phase of
bankable projects.
• Promote technical quality standards for mini-grids and standalone systems to avoid local markets being
looded by poor quality, ineicient products. While some standards have now been developed, markets
in various countries such as Mauritania have fallen prey to poor quality devices.
94
Mini-grids especially
need to meet speciic grid standards when their integration into the national grid is planned.
• Deine and propose a joint industry initiative to collect aggregated data from clean energy mini-grids
and standalone systems in selected countries to create a benchmark on mini-grid performance and
costs, and to analyse data on business models and local entrepreneurial activity related to productive
use of energy.
• Include a life cycle perspective and awareness of Water-Energy-Food nexus into the development of
o-grid projects to address the question of waste (electronic and battery) and develop recycling value
chains, integrating water quality and environmental dimensions into project design.
92
AfDB, 2016. Green Mini-Grids in Sub-Saharan Africa: Analysis of Barriers to Growth and the Potential Role of the African Development Bank
in Supporting the Sector. GMG MDP Document Series: n°1. https://www.energy4impact.org/ile/1818/download?token=j67HKZEy
93
Energy4Impact and Inensus, 2019. Mapping of Cereals, Fisheries and other Productive Use
Businesses for Village Mini-grids: A Review of 15 African Countries. Report for AfDB’s Green Mini Grid Help Desk. https://www.
energy4impact.org/ile/2097/download?token=HAPpuCJW
94
AfDB, 2017. Strategy for the utilisation of solar energy for water pumping in rural and semi-urban areas in Mauritania
36
3 THE INTEGRATED GRID OF THE FUTURE
To achieve the full beneits of renewable energy solutions,
more support is needed for creating grids of the future
that combine grid-based and o-grid solutions within an
integrated distribution strategy, which also accounts for
the productive services enabled by electricity supply
This chapter presents a vision for the integrated grid of the future. Integrated planning at distribution level will
be essential to reveal the least cost delivery modes to achieve universal access. The integration needs to take
place at three dierent levels to catalyse successful electriication eorts.
First, the three modes of electriication—stand-alone systems, mini-grids and grid—need to be integrated. The
IEA has published some estimates of the economically viable share of o- and on-grid solutions for people
currently lacking access.
95
In most countries, there is poor coordination between commercial, technological, and
regulatory development of the three delivery modes, if any. This results in ineicient infrastructure investment,
poor service standards, sub-optimal resource utilisation and, importantly, people being left behind. A key
building block of this integrated vision requires a coordinated approach to on-grid and o-grid development
with a view to ensure inclusive and permanent rural energy supply.
A second level of integration must take place between electricity supply and end-uses. This would aim to optimise
the economic, climate, environmental and social impact of access, for example by matching planned distributed
renewable energy. generation investments with demand from productive uses Power network planning must
consider cross-sector demand growth, with in-depth understanding of energy needs, including in industry,
heating/cooling and transport sectors, and others that underpin long-term economic growth, sustainability and
human development. At a higher level, integration between the power sector, environment and other sectors of
the national economy is also necessary. Section 3.2 discusses this in further detail.
A third level of integration is needed system-wide, and at regional level. National and regional power sector
institutions should coordinate distribution planning with transmission and large generation planning. Plans at
national and regional levels should also integrate climate change and environmental factors and forecasts. Most
of the energy being distributed continues to be supplied from the bulk power system. Regional integration is
discussed in further detail in section 3.3.
3.1 Integrating distribution models
The mission of distribution is to reach every individual customer with reliable and aordable power. Power
distribution is particularly important not only to deliver electricity services to customers, but also to act as a
inancially trustworthy o-taker for large generators. Distribution in rural areas of low-access countries is expensive
and the prospective customers’ ability to pay is typically low. Targeted internal (through cross-subsidies) and/or
external subsidies (from public funds) are required. Yet distribution revenues depend on regulated taris that are
often politically motivated and too low to recover the incurred costs.
Making rural electriication attractive to private investors is harder than for other segments of the electricity
supply chain. Furthermore, new disruptive technologies and business models are laying down a challenge to
95
IEA (2017), Energy Access Outlook 2017. According to this analysis, decentralised systems, led by solar PV in o-grid and mini-grid systems,
would be the least-cost solution for three-quarters of the additional connections needed.
37
the traditional, dominant approach to distributing electricity. All these factors make distribution in developing
countries a complex activity, where technology, economics, politics, and social norms play important roles.
Distribution concerns the supply of electricity to end customers, of all sizes, whether in urban or in rural
areas. Traditionally, supply has been performed by distribution networks at various voltages connecting the
transmission substations of the bulk power system to residential, commercial, and industrial customers. Grid
connection continues to be the majority electriication mode in SSA, and will probably continue to be in the
long term. But technological advancements and innovations in inancing and delivery models of distributed
renewable energy solutions are disrupting the traditional electriication processes. This oers new opportunities
to accelerate progress towards universal access. Rapid cost reduction and improved reliability are allowing
distributed renewable energy technologies, both grid-connected and o-grid, to oer alternatives to centralised
power infrastructure for end-users. This chapter considers both on- and o-grid distribution solutions, as both
share a common purpose from the customer’s perspective.
Business model for an integrated distribution framework
This section deines the business models for distribution—both on- and o-grid—that can attract investment
and provide reliable and aordable services without leaving anyone behind. This is possible under an Integrated
Distribution Framework (IDF) vision.
96
A key feature of the IDF is that the three modes of electriication (on-grid, mini-grids and stand-alone systems) are
seen in an integrated manner and placed on a level playing ield. So far, the three solutions have been developed
in a largely uncoordinated manner by dierent entities, leading to competition rather than complementarity
between the approaches. A comprehensive integrated planning using advanced GIS technologies can ind the
least cost mix of electricity delivery modes. A dedicated entity needs to oversee implementation of the plan, and
dedicated policies and regulations should address any problems arising from the interaction between on- and
o-grid solutions, as well as tari-setting.
Electriication can no longer be perceived as a static process, but rather a dynamic one. Mini-grids and stand-
alone systems are crucial solutions to deliver initial electricity access relatively faster than grid-based solutions.
They can unlock latent community demand for sustainable electricity. As the understanding of local consumption
patterns and willingness to pay evolves, investments in larger systems or grid extension can be justiied. Local
communities could be active stakeholders in certain contexts, partnering with the concessionaire and the private
sector to own, operate and maintain decentralised energy systems in their unserved areas.
Financing and iscal allocation
It is important to emphasise that in every country, developed or not, rural electriication has needed subsidies.
Extending the power grid to serve diuse, low-level loads is much more expensive than electriication in urban
areas. A subsidy is needed for any distribution utility that expands access where regulatory authorities are not
willing to apply retail taris that relect the actual costs. Subsidies can adopt dierent formats, ranging from tari
cross-subsidisation to direct payments to the incumbent distribution company (such as capital subsidies linked
to performance), or territorial concessions under mutually agreed conditions. This applies to both on- and o-
grid solutions. In either case, subsidies need to be designed in a manner that crowds in private investments and
reduces risks associated with the delivery of the inancial support.
Any potential investor in the distribution company will require guarantees that the government will deliver
adequate timely subsidies for some agreed period of time. This would require cooperation from DFIs. The
government can only provide such guarantees if its debt lies within debt sustainability caps, or the limits
acceptable to credit rating institutions. The situation is even more diicult for privatised distribution companies.
96
There are some ongoing activities in relation with the design and implementation of the IDF. The initial concept was developed by MIT
researchers in collaboration with the Shell Foundation. This resulted in the creation of Konexa/Energy Company of the future – which is a
donor funded business that is now catalysing private sector capital to put the concept into practice in a pilot in Nigeria by end 2019. See
https://www.powerforall.org/news-media/articles/konexa-seeding-integrated-utility-future
The Global Commission to End Energy Poverty (GCEEP), with support by the Rockefeller Foundation and with MIT as the research team, is
working towards the implementation of the IDF at large scale in some selected countries. See https://www.endenergypoverty.org and the
Inception Report issued by the GCEEEP.
38
Financing the IDF is only feasible through a consensus among the major stakeholders for implementing
this approach. The national government, the regulatory authority, the distribution company and the o-grid
developers, the investors, and the DFI (providing some sort of inancial guaranty) must all come to the table.
This would create conditions to radically improve the distribution segment and open the door for necessary
investment. The IDF concept is versatile and can be adapted to diverse circumstances for the diverse African
countries that face access challenges. Adaptations can be made to suit dierent power-sector structures and
regulatory regimes.
3.2 Integrating power supply with services and productive uses
Taking only supply-side aspects of electricity access into account—considering the number of connections,
generation capacity or consumption levels—risks overlooking opportunities to oer electricity services for
end-uses that can have a transformative impact on socio-economic development. Energy is a primary input
to any economic activity, essential for production and transport of goods, information, and people, as well
as for domestic uses and service industries. Energy scarcity, by consequence, constrains economic growth.
Industrialised economies have beneited from exploiting diverse energy resources to generate electricity in past
centuries, which has contributed to their growth. However, most African countries still lack suicient modern,
eicient, reliable and sustainable energy services to meet demand and improve economic productivity, growth,
and livelihoods.
The accelerated expansion of rural electriication must be supported by sustainable consumption patterns,
including energy eiciency. This calls for sustainable business models that link energy access with productive
sectors (such as agro-processing, assembling and manufacturing, or service sectors)
97
to increase local
productivity. Growth in these sectors also supports job creation and can catalyse gains in education, health
and general well-being.
98
Nonetheless, the energy-water-food-agriculture-climate-development nexus that
empowers people with electricity access to improve their living conditions and be able to aord the energy bill
still needs to be investigated.
99
Suicient, aordable, sustainable, and reliable power supply is crucial to support a range of economic end-uses
and income-generating activities. O-grid systems, notably mini-grids, can more easily anticipate and manage
customers’ supply needs by sizing up and integrating ‘anchor’ productive loads into the system, such as with
agro-processing machinery, irrigation pumps, or telecommunications equipment. Advancements in energy
eicient appliances oer a growing portfolio of productive end-use technologies that are compatible with low-
voltage o-grid systems, including milling machines, welding equipment, and pottery wheels.
Integrating Productive Uses of Renewable Energy (PURE) strengthens o-grid business models by:
100
− Boosting local energy demand, complementing low household consumption.
− Boosting local incomes, enabling a higher ability to pay for o-grid solutions.
− Underpinning local productive activities, which equally increase willingness to pay.
− Diversifying the o-taker risk proile by including business users, which could become anchor
clients in time.
− Improving capacity utilisation of renewable power.
− Taking advantage of sector nexuses, such as between small industry, agriculture, or water.
− Increasing resource and energy eiciency, recycling/reusing and proper waste management.
97
See for details https://www.ruralelec.org/publications/productive-use-renewable-energy-africa
98
Several case studies of productive end-use examples can be found here http://www.ruralelec.org/project-case-studies.
99
Riva, F., Ahlborg, H., Hartvigsson, E., Pachauri, S., Colombo, E.; Electricity access and rural development: Review of complex socio-
economic dynamics and causal diagrams for more appropriate energy modelling (2018) Energy for Sustainable Development, 43, pp. 203-
223.
100
See also NREL, Productive Use of Energy in African Micro-Grids: Technical and Business Considerations, 2018
39
Linking electricity supply with public services, such as education and healthcare, can also have positive impacts
on rural populations’ well-being and on human capital development. In the health sector, for instance, typically
solar-powered o-grid technologies are delivering reliable, aordable, and sustainable energy to power medical
devices and support the provision of basic amenities (including lighting, cooling, communications, and water).
About one in four health facilities in 11 countries in sub-Saharan Africa have no access to electricity; most facilities
that do have access have an unreliable supply.
101
Some African countries are already embracing solar energy for
the health sector: for example, in Sierra Leone, 36% of all health facilities and 43% of hospitals use solar energy
in combination with other electricity sources. In Liberia, more public sector primary health clinics use PV solar
systems than diesel generators. Meanwhile, in Uganda, 15% of hospitals use it to complement electrical grid
access.
102
Interlinking electricity supply with dierent end-uses requires several additional measures. Capacity building
in recently connected areas can be pivotal to develop local skills and improve market access for new products
and services, which help sustain productivity gains from electriication and support new and existing income-
generating activities. Financial services are a cornerstone of electriication outcomes, as formal and informal
enterprises in rural areas need access to inancing to invest in new equipment and meet other enterprise
development needs (such as working capital). Utilities and private sector suppliers may have limited capacity to
develop the ecosystem for productive end-uses of power. Partnerships with local NGOs and community-based
organisations, as well as local inancing institutions can play a crucial role in providing the necessary support.
Likewise, DFI-sponsored electriication programmes can ring-fence inancing for additional eorts needed to
link electricity supply with various end-uses.
An electricity as a service approach creates an opportunity to optimise the impacts of reaching SDG 7 across
multiple other SDGs. New opportunities are unlocked when power sector development is integrated with other
sectors, such as water and agriculture (see section 6.6 on the WEF nexus), transport (to meet electric mobility
needs and opportunities), heating and cooking, and information and communication technologies.
3.3 Integrating regional grids
Regional integration of economies and power systems oers important opportunities to support the continent’s
sustainable growth agenda. The AfCFTA is the world’s largest free trade zone, with the potential to boost intra-
African trade by 52% by 2022. A greater integration of power systems also oers major beneits. It is estimated
that power market integration—through bilateral trades until 2025, followed by a liquid market—could collectively
provide around €29 billion of beneit to the region throughout the next decade.
Regional power integration oers several opportunities, including to:
• lower electricity procurement costs
• beneit from pan-continental domestic energy resources, in particular renewables
• allow power producers to sell surplus power and generate additional income
• reach economies of scale to attract large amounts of private capital.
Transmission planning is essential here, since adequate transmission capacity is necessary to allow cross-
border trade and regional generation plants. The bulk power system continues to supply most of the energy
being distributed, , so distribution planning must also continue to be coordinated with transmission and large
generation planning, and even with regional or multinational power sector planning. However, no existing
models are capable of addressing the distribution and bulk power system segments together in suicient
detail. Coordinating the distribution power supply needs with investments in transmission and large generation
infrastructure requires an iterative, procedural approach.
101
WHO (2019), ”Harnessing Africa’s untapped solar energy potential for health“, www.who.int/bulletin/volumes/92/2/14020214/en/
102
Ibid.
40
To harness the opportunities oered by regional power integration, the governance of power pools must be
reinforced, notably by empowering:
• The regional regulator to establish regional market rules and enforce regional transmission planning
• The regional system operator to dispatch generation eiciently, keep security at regional level, and
make transmission plans
• Pan-African institutions to develop a common approach on transmission planning between regions.
Power pools design must make use of best international practice in several respects: i) in dealing with physical
bilateral contracts; ii) in allocating the cost of regional transmission network investments; iii) in providing regional
security of supply; and iv) in providing capacity building at all levels, from technical to political and managerial.
In addition, the chief obstacles to successful implementation of multi-national power pools must be addressed,
especially countries’ reluctance to trust their neighbouring countries to honour supply commitments, and
countries’ fears of losing sovereignty over their electricity supply.
For the AfCFTA agreement to be successful, and for the successful development of the power pools in particular,
African leaders must play their part, keeping the bigger picture in mind. Long-term economic growth and Africa’s
betterment must be prioritised above short-run political agendas.
Capacity building, opinion-shaping and political nudging can go a great distance to overcome this low-hanging-
fruit barrier at minimum cost. The European Union’s rich experience in garnering the political will for regional
integration, as well as in developing the guiding market frameworks and infrastructure, can provide valuable
experiences to inform African regions’ steps towards integration.
Photo: Ishwar Rauniyar
41
4 ACCESS TO CLEAN COOKING SOLUTIONS
Access to clean cooking solutions has massive
environmental, economic and human co-beneits. It must
be a high priority on the development cooperation agenda
for the next few years.
103
The situation for the clean cooking sector is bleak, even compared to electricity access (which has made
important gains in past decades). If current trends continue, about 1 billion people in Africa will still lack access to
modern cooking services by 2030, jeopardising not only the achievement of SDG7, but also several other related
SDGs.
104
In SSA as many as 83% of households are still cooking mainly with polluting fuels and technologies,
leading to 500,000 additional deaths each year linked to household air pollution.
105
Up to one gigaton of CO2/year (approximately two percent of global emissions) arises from the use of non-
renewable wood fuels for cooking worldwide, including from black carbon pollution.
106
Up to 34% of biomass
fuel harvested is unsustainable, contributing to climate change and local forest degradation.
107
Several causes
underlie the limited progress in achieving access to clean cooling solutions globally, and in SSA in particular.
Energy for cooking is often overlooked by governments and by international initiatives in favour of more easily
achievable electriication objectives. Resources for clean cooking have fallen well short of the estimated
necessary investment levels needed (from €1.8 billion to €4 billion annually).
108
Responsibility for cooking falls
between competing areas of political responsibility, and the sector has lacked powerful national and international
champions to help channel the needed inancial resources. Current approaches to promoting clean cooking—
despite some small successes—remain piecemeal, uncoordinated, frequently oering partial solutions (e.g. the
poor emissions performance of many lower tier stoves) and with limited consumer buy-in. At the same time,
many barriers remain to scaling up cleaner cooking technologies such as electricity or gas, including widespread
electricity load shedding, weak grids, and the perceived high cost of electricity. In addition, a lack of political
prioritisation and investments, poor access channels to liquid petroleum gas (LPG), local traditions, perceptions,
and a lack of suitable cooking appliances hamper eorts to supply improved clean cooking technologies.
4.1 The clean cooking landscape
A recent WHO survey on the disease burden across SSA showed that household air pollution from solid fuel
cooking emissions is now the second largest health risk factor in terms of death and disability in the region.
These health costs add to a laundry list of socio-economic and environmental burdens arising from solid fuels,
including: time losses due to irewood collection, increased mortality and morbidity, continuing deforestation
and carbon dioxide emissions, and avoidable spending on solid fuels. These collectively cost the region about
three percent of GDP annually.
The World Bank’s comprehensive review of the SSA cooking sector in 2014 reveals why these circumstances
persist. Across SSA, 95% of rural households and 62% of urban households still depend on traditional solid fuels
103
This chapter draws heavily from two World Bank ESMAP Studies on clean cooking in SSA, namely Clean and Improved CookIng
In Sub-Saharan Africa, November 2014; and Scalable Business Models for Alternative Biomass Cooking Fuels and Their Potential
in Sub-Saharan Africa, 2017.
104
IEA, Africa Energy Outlook 2019. IEA, Paris
105
Ibid.
106
Bailis, R.; Drigo, R.; Ghilardi, A.; Masera, O. The carbon footprint of traditional woodfuels. Nature Climate Change. 2015, 5, 266272.
107
Rob, B.; Yiting, W.; Rudi, D.; Adrian, G.; Omar, M. Getting the numbers right: revisiting wood fuel sustainability in the developing world.
Environ. Res. Lett. 2017, 12, 115002
108
IEA (2019); SEforAll, 2017. Energizing Finance: Scaling and Reining Finance in Countries with Large Energy Access Gaps, SEforAll:
Washington DC, USA.
42
for their cooking needs. Only around 11% of SSA households use ‘modern’ fuels like LPG or electricity for cooking
(a further seven percent use highly polluting kerosene stoves). Fewer than one percent use alternative renewable
fuels such as biogas, ethanol, or advanced gasiier stoves, and 3.5% use ‘rocket stoves.’ Up to 10% use legacy
improved cooking stoves (ICS), which show little improvement on traditional three stone ires. Many households
continue to use traditional biomass-burning stoves as a secondary cooking device alongside a cleaner option, a
common phenomenon known as “fuel stacking” (simultaneous usage of multiple fuels and stove technologies).
These dismal igures hide some partial success stories.
109
The Clean Cooking Alliance
110
has tracked signiicant
growth in sales of improved stoves: over 80 million stoves were sold between 2010 and 2015. The sector is
becoming more professionalised. Research and development into fuels and stoves has increased and more
innovative business models are emerging. For example, businesses are experimenting with PAYG models for
LPG distribution and new ways to eiciently disseminate ethanol (standardised canisters). At the same time,
donors have introduced results-based inancing programmes into their portfolios in order to channel capital into
the market. Impact and commercial investors are beginning to show interest in clean cooking business models.
This trend has been supported by the emerging policies and standards for biomass and biofuels. Political and
inancial engagement are growing. Recently, the World Bank launched a $500 million Clean Cooking Fund,
connected to the Health and Energy Platform of Action (HEPA). This platform supports the Leaders for Clean
Cooking Coalition, aimed at increasing political prioritisation of clean cooking.
4.2 Technology assessment
The clean and improved cooking sector in SSA has evolved signiicantly, but is still stunted.
111
The quantity of
clean biofuels (including ethanol, ethanol gel, pellets, and briquettes) sold across the region remains low in
absolute terms, and especially low compared to the number of distributed biofuel stoves. This suggests that
most households only use these biofuels as a secondary or tertiary backup.
Two basic strategies are used to achieve clean cooking: “making the available clean,” and “making the clean
available.” The former consists of making the most accessible fuels (mainly wood and charcoal) cleaner for the
end user through improved cookstove technologies. The latter consists of making cleaner fuels (mainly gas and
electricity) more accessible to consumers.
112
In recent decades, several biomass-based improved cookstoves
have been promoted, but with poor results in reducing emissions. Biogas-based cooking is more successful as
a real clean cooking solution, especially economically attractive for households with livestock or other suitable
feedstocks.
Some experts see electric cooking as the cleanest cooking solution, provided that it is based on renewable
energy sources (either via renewably sourced grid electricity, or o-grid mini-grid or individual systems). Unlike
biogas, electricity can eventually be available for everyone. The social cost of electric cooking can be competitive
with LPG-based cooking in the absence of fossil fuel subsidies. Moreover, the costs of cooking with electricity
both in mini-grid contexts and via SHS are now well within the range of cost competitiveness of other cooking
alternatives, since the costs of solar and storage systems have come down by between 3050%, and continue to
decline as markets scale-up and technologies improve.
113
Electric cooking oers the additional advantage of reducing the per-unit cost of electricity supply because of
the increased utilisation ratio of network infrastructures. Electricity for cooking would encourage the use of
very high eiciency electrical appliances, such as slow cookers and pressure cookers, with signiicant energy
savings. By scaling down the actual demand of the appliances used, it is possible to install a much smaller SHS,
109
Hivos and SNV run the African Biogas Partnership Programme, funded (among others) by EnDev. This develops the biogas sector through
growth and development of manufacturers, entrepreneurs, local inance, maintenance, and service call centres. The programme led to
installation of 80,000 bio digesters. See https://www.africabiogas.org
110
Formerly the Global Alliance for Clean Cookstoves.
111
World Bank. Scalable Business Models for Alternative Biomass Cooking Fuels and Their Potential in Sub-Saharan Africa, 2017
112
Smith, K. R. & Sagar, A. Making the clean available: Escaping India’s Chulha Trap. Energy Policy 75, 410414 (2014).
113
Couture, T. D. & D. Jacobs, 2019. Beyond Fire: How to achieve electric cooking, Hivos, World Future Council. https://greeninclusiveenergy.
org/publication/beyond-ire-how-to-achieve-electric-cooking/
43
saving substantial costs in both the solar array and battery bank required. These cost savings translate directly
into a lower cost for the end user.
114
PAYG companies and other stakeholders can start playing a role in driving the transition “beyond ire”.
115
Many
PAYG companies operating in Africa and Asia already oer their customers a range of other high-demand
appliances, driven mostly by customer demand. Against this backdrop, it is time for solar PAYG companies
to start exploring the economics of adding cooking technologies to their product lists, supporting not only
electricity access but also access to clean cooking.
A basic requirement is the availability of reliable electricity supply, either grid or o-grid, and adequate storage,
as cooking needs to happen several times daily, including after sunset. The connection must also have suicient
capacity and power quality to serve the load, and oer aordable power. The power source must be clean and
oer continuous supply to be sustainable.
An inclusive, reliable, aordable, and sustainable electrical supply is possible to achieve, following the
recommendations in chapters 1 to 3 of this report (notably through the “integrated distribution framework”).
Electricity supply represents an ideal opportunity to kill two (or more) birds with one stone, and should be
vigorously pursued. This calls for a synergistic approach to electricity and clean cooking access.
116
4.3 Sector diagnostic: barriers and recommendations
This section discusses the barriers to scaling up clean cooking solutions, and proposes some recommendations
to overcome these.
4.3.1 Barriers
Compared to the rapid growth of electriication, and in particular decentralised o-grid solar, the provision of
clean cooking solutions has been very slow. In addition to the challenges highlighted earlier, several speciic
barriers forestall the adoption of clean cooking solutions.
• Lack of political will. Most governments and donors have treated cooking as a low-priority sector. The
topic of clean cooking is often absent from national development plans or negotiations with MDBs and
DFIs, unlike electriication. A lack of awareness of the economic, health and environmental impacts of
using solid fuels means few local champions emerge at the civil society and political levels. The worst
aected households are often poor and in rural areas, and may not even be aware of the impacts of
household air pollution. There is also the general misconception that cooking technology is “low-tech”,
does not have formal market structures and is not attractive to investors and policy makers.
• Demand barriers to adoption. The cost of available clean cooking technologies may be too high for
both urban and rural poor. Inability to pay is a major barrier to access to clean cooking technologies.
Roughly half of the continent’s population lives in rural areas and half are below the poverty line of $1.25
a day. Many cannot aord clean cooking stoves or fuels and rely on free collection of biomasses. High
poverty rates in urban and peri-urban areas also makes clean cooking solutions unfordable to many.
• Absence of electricity and LPG supply networks. Without available and reliable clean energy supply,
cooking solutions—whether traditional or improved cookstoves—must continue to depend on largely
non-sustainable solid biomass or other dirty, unsustainable fuels.
• Cultural cooking practices. Cultural practices of cooking with wood or on stones are deeply embedded.
Combined with limited awareness among consumers of the risks of solid fuels for health, this complicates
the introduction of alternative fuels, such as LPG, biogas, and ethanol, to be accepted by consumers. On
114
Couture & Jacobs (2019)
115
Ibid.
116
Batchelor S, Brown E, Scott N, Leary J. Two Birds, One Stone—Reframing Cooking Energy Policies in Africa and Asia. Energies. 2019
Jan;12(9):1591.
44
the other hand, the comfort and advantages of modern cooking technologies must strongly incentivise
cookstove users (predominantly women) to switch.
• Regulatory constraints. Lack of enabling regulatory and policy environments stiles the growth of
suppliers of LPG, natural gas, and biofuels. These ecosystem-level challenges include policy barriers,
such as poorly calibrated tax and tari regimes that make it diicult to import fuel production equipment,
stoves, and biofuels (which are essential when local supply is inadequate, as is often the case in the
early stages of market development).
117
Explicit government endorsement of clean alternative fuels and
stoves can help, such as through policies to create a favourable enabling environment.
• Limited private sector capacity. Financial and management constraints of cooking sector entrepreneurs have
stiled growth of suppliers of clean fuels and stoves. Lack of inance for suppliers is acute and pervasive, with
scant global impact investment or commercial investment capital being directed at the sector.
The sector receives a minuscule amount of investments, and depends heavily on international inance.
The most recent picture of total inancing for clean cooking businesses tracked by the Clean Cooking
Alliance was about €36 million in 2017. This is far from reaching the level of €3.6 billion a year until
2030, including €1.8 billion in SSA, required to reach universal access to clean cooking. The sector is
considered too nascent for local banks to invest in. The dependence on international inance adds to
the inancial risks associated with currency.
• Limited research and innovation. Low creativity in the sector has produced a somewhat meek approach,
dominated by piecemeal innovation rather than the emergence of disruptive ideas and technologies.
Clean cooking tends to be treated as a separate sector rather than an integral part of the wider energy
system. This has resulted, for example, in the lack of interest in cleaner alternatives such as gas and
electricity, until recently.
4.3.2 Recommendations
• Take a systems approach to promoting access to clean cooking. To shift the mix of cooking fuel and
technology requires a multi-sectoral and coordinated approach. This must span regulations, research
and development, manufacturing, distribution, and aordable entrepreneurial and end-user inance
across value chains (including cookstoves, irewood and charcoal, biofuels, gas and electricity). The
starting point is a national programme with high-level support and sizable investments to scale up
access to clean cooking. Such a programmatic initiative should adopt a multi-stakeholder approach,
including local civil society. Eective inter-ministerial coordination is needed at the country level, since
clean cooking solutions touch on so many aspects of human development, including gender, health,
and environment.
• Adopt a synergistic approach to electricity and clean cooking access. Policymakers and planners should
take advantage of the co-beneits of promoting access to electricity and clean cooking together, by
jointly considering both sectors for electriication planning. Synergies between electricity and clean
cooking also have consequences for the cost of energy, for electricity delivery business models, and
the role of utilities. Electric cooking presents an interesting option for distribution utilities or mini-grids
that have a reliable supply of wholesale or local power and that operate under a cost-relective revenue
requirement.
• Oer capacity building to shape the regulatory and policy environment in African countries. These need
to promote an integrative approach for electricity and clean cooking solutions for market development,
and rapid deployment of technologies and fuels. Capacity building of inanciers is also critical. The
health and energy sectors must coordinate on political and technical approaches, through a multi-
stakeholder platform of action (with governments, civil society, UN, private sector). This should build
and/or strengthen existing national coordination mechanisms on energy and health policies and
programmes. Donors and sector intermediaries should provide capacity building and business advisory
support to key value chain actors to scale-up production and build out fuel and stove distribution.
• Design interventions that drive consumer behaviour change through research and data collection at
the country level. Such research can lead to local innovation and contextualised solutions to ensure
117
World Bank, 2017
45
long-term sustainability. Simply distributing cleaner cooking solutions and fuels will not lead to optimal
health and environment outcomes. The challenge of achieving the beneits of universal clean cooking in
SSA is not simply one of technology and economics. Consumer education, access to inance, funding
for research and development, the expansion of standards and testing, and clean cooking-focused
policies (tax, tari, and subsidy reform) are key pillars of the solution.
• Use results-based inancing approaches to leverage public resources to incentivise the market. This can
be designed to it the country context and market conditions.
• Leverage funding from MDBs and institutions (such as the EU Commission) to attract private sector
investments in the clean cooking sector. Lack of equity and debt investment for clean cooking
enterprises (manufacturers, fuel producers, distributors) is a critical bottleneck for the growth of
the entire industry. MDB and donor funding can be blended to create an investment fund or vehicle
targeting private enterprises in the clean cooking value chain, taking into account the dierent needs
in the sector, relecting a broad range of inancial ticket sizes. This would also leverage commercial and
institutional investors into the sector. For example, the AfDB is working with the Clean Cooking Alliance
to set-up the SPARK+ Africa Fund, a €4563 million equity/debt fund for enterprises in the clean cooking
value chain.
• Provide direct subsidies linked to health and climate impacts, and targeting hard-to-reach communities
and areas. Market-led models should be promoted wherever feasible to ensure inancial viability. But
maximising climate and health beneits sometimes calls for targeted subsidies delivered through
public inance for infrastructure (where consumers are paying for use), or through carbon markets and
mechanisms such as results-based credits for health beneits.
• Mobilise global political leadership through EU and UN diplomacy. This is crucial to secure EU leadership
to galvanise political action, similar to their leadership in mobilising global support for SEforAll, SDG
7 and the Paris Accord. The EU should support HEPA’s ongoing work to raise awareness about the
dangers of household air pollution and to make clean cooking a political priority. The EU should also
mobilise global support for initiatives to deliver cleaner fuels and stoves to poor communities. Given
the environmental, economic and human co-beneits of access to clean cooking solutions, it must be a
high priority on the EU development cooperation agenda for the next few years.
• Create consumer demand through national campaigns on social drivers (norms, gender, cooking habits,
inance accessibility, political support), targeted behavioural change interventions and increasing
availability of consumer inance.
46
5 ENERGY EFFICIENCY
Energy eiciency (EE) is a powerful solution to the
challenges posed by increasing energy demand across
Africa, catalysed by growing populations and economies.
This supply challenge is exacerbated in many cases
by dependence on energy imports, combined with
underexploited indigenous energy potential, especially
from renewables. Energy eiciency—deined as the ratio of
GDP to the primary energy supply—is key to ensure access,
aordability, and energy security in sub-Saharan Africa.
It eases the pressure on security of supply by reducing
primary energy consumption and decreasing the need for
energy imports. It is also a cost-eective way to reduce
greenhouse gas (GHG) emissions, bringing associated
beneits for climate change mitigation.
The IEA’s model for emissions reduction to meet the Paris Agreement shows that energy eiciency will account for
over 40% of emissions reductions in the energy sector (without factoring in new technologies).
118
Today’s global
demand is 30% less than it would have been without the energy eiciency improvements of the past 25 years.
119
This
represents 251 Exajoules of energy use avoided annually, equivalent to 5,987 million tonnes of oil (Mtoe), or the total
annual demand of China, India and Europe combined. But despite its clear inancial, economic and environmental
beneits, global improvement in energy eiciency has slowed in recent years, while investment has lattened.
Energy intensity in SSA has plateaued in recent years, at 147 tonnes of oil equivalent (toe) per $1 million of GDP.
120
This is 40% higher than the global average of 106 toe/$1m, which has been decreasing for several years. This is
partly explained by SSA’s dependence on biomass fuel for cooking, and partly due to a lack of regulation, such
as for car eiciency standards. The average African car uses 25% more fuel than an average European car. This is
both a problem for transport cost, as well as local air pollution and greenhouse gas emissions. Current policies
and investment trends suggest African energy intensity will reach 115 toe/$1m by 2030, which will still be 45%
above the global average of 79 toe/$1m in the same year. Reaching universal access and reducing pollution
emissions across sectors will require an improvement to 65 toe/$1m by 2030.
121
Energy eiciency will be a central pillar to reach the aspirations of Agenda 2063. Africa could more than double
its GDP by 2030 with the same energy used today thanks to energy eiciency.
122
Shifting to an energy eicient
economy will require deploying existing technologies at scale across the continent. Ensuing energy savings will,
in turn, improve the competitiveness of African enterprises and industries vis-à-vis international competition and
create white-collar jobs in the energy hardware and service sectors of the economy. African countries will need
to adopt an integrated approach to identifying the most accessible and cost-eective energy savings measures
addressing both supply and demand sides. As Africa develops, investment in energy eiciency measures across
dierent sectors can avoid locking in demand for decades to come.
The dierent regional centres for renewable energy and energy eiciency, such as RCREEE, ECREEE, EACREEE, and
SACREEE, are responsible for setting guiding principles and frameworks for speciic energy eiciency policies as well
as issuing and implementing National Energy Eiciency Action Plans (NEEAP) in African sub-regions, in cooperation
118
OECD/IEA. Energy Eiciency 2018: Analysis and outlooks to 2040. (2018).
119
EN21, 2017, Renewables Global Futures Report, Paris, REN21 Secretariat - http://www.ren21.net/future-of-renewables/global-futures-report.
120
IEA (2019).
121
Ibid.
122
Ibid.
47
with national public institutions. NEEAPs include estimates of energy eiciency potential, viable energy eiciency
and energy conservation programmes, long term indicative saving targets, and concrete measures for the short and
medium term. Regional centres should guide individual African countries to adopt a NEEAP that sets their energy
savings goals and deines actions that it their socio-economic situations and trends. With a NEEAP in place, African
municipalities and other public bodies can oversee implementation or outline their own sub-plans based on integrated
approaches to energy saving and energy supply, for example via energy covenants uniting groups of municipalities.
This chapter reviews the challenges and provides recommendations towards promoting EE investments in Africa
across dierent market segments. For the SEI Platform, four sectors stand out for immediate action in energy
eiciency: electricity supply, industry, transport, and buildings. Corrective action in all four segments will reduce
stress on the power grids, improve economic and business opportunities, reduce pollution in- and out-doors,
and bring further socio-economic beneits, including job creation.
5.1 Energy eiciency: tools, technologies, and opportunities in Africa
Many opportunities exist to improve energy eiciency in Africa. Interventions can target either the supply or
demand side of energy use. The following sections discuss measures to improve eiciency for the bulk power
system, and how to incentivise energy eiciency on the demand side, including through demand management,
smart meters, and the building and transport sectors.
5.1.1 Supply-side: bulk power systems
The low eiciency of generation plants and high transmission and distribution (T&D) losses in the grid pose a
major burden on African countries’ energy systems. New generation installations need to have close eiciency
monitoring, accompanied by measures to modernise the existing asset base, as well as to reduce technical and
commercial losses. The latter lie in the range of 25 to 40% across the continent, with 37.5% in West Africa (over
twice the acceptable norm of about 15%). The cost of commercial losses alone in the subregion is estimated to
be in excess of €1.5 billion/year (equivalent to 8.6 TWh/year).
123
Box 12 - Cogeneration: recycling waste heat
Waste heat can be used in industries and in district cooling with signiicant potential for energy savings,
especially when the location of heat generation and supply is relatively close to the point of use. New generation
plants, as well as existing installations undergoing extensive refurbishments, can be equipped with high-
eiciency cogeneration units to recover waste heat to use in nearby industries. Cost-beneit analyses should
be conducted to determine the feasibility for new projects. Such activities may be rare in Africa, but given the
associated high energy savings potential, they could be feasible in various contexts. Investigation should begin
with existing industrial parks housing power plants that supply adjacent factories with electricity.
Utilities need to design, implement and monitor preventive and curative maintenance programmes to reduce the
high technical losses in the system. For example, United for Eiciency is working to develop eicient distribution
transformers.
124
As an essential component of electricity distribution, transformers are a common source of loss.
Utilities should prioritise reducing losses, including through road maps with annual targets for cutting losses.
Similar to NEEAPs, utilities should create a network losses reduction programme (NLRP) aiming to identify the
source of losses and ways to reduce them, with an action plan deining needs, investments and timeline.
123
The Southern African region records losses from 25% to 30% of electricity injected into the grid. In the Central African Economic
Community (CEMAC), electricity losses over T&D networks reach 40%.
124
See united4eiciency.org/products/distribution-transformers/
48
Future investments in generation, T&D assets should meet higher eiciency standards, associated with enhanced
procurement requirements. Supply-side energy eiciency (generation, transmission, and distribution) will
have direct positive impacts on energy system costs, and taris by extension. Investing in new infrastructure
technologies such as smart grids can facilitate these improvements. Other low-cost modiications are available to
address high losses, such as the technology-based loss minimisation project carried out by Electricity Company
of Ghana (see Box 13), which identiied sources for technical and commercial losses.
The information management techniques oered by smart grids can implement energy eiciency measures
across the supply chain, from generation to distribution.
125
Technological enhancements on T&D networks
should prioritise reducing losses. Smart grids can rank various access and dispatch priorities from dierent
power sources, including by dierentiating among renewable sources. Grid operators can then provide
priority dispatch of electricity from eicient sources, such as renewable energy or cogeneration plants, while
guaranteeing secure grid operations. Some North African countries, such as Egypt, have conducted studies on
adopting smart grid technology to accommodate higher intermittent renewable penetration, supported by grid-
scale storage through pumped storage facilities or batteries to decrease electricity network losses.
Box 13 - Technology-based loss minimisation pilot project, Ghana
In 2016, the Electricity Company of Ghana’s (ECG) power system aggregate technical and commercial
(AT&C) losses were estimated at 22.72% of energy purchases. The company then commissioned a pilot to
implement a technology-based loss minimisation system in April 2016. The primary objective of the project
was to identify commercial losses in the selected areas of deployment. The pilot was deployed in two high-
consumption industrial and commercial areas, Tema and Kaneshie Districts, where in spite of smart meters,
20% overall losses persisted. The investment cost was US$ 345,580.
The implementation was successful, and identiied US$ 1,560,000 of unbilled annual consumption on ECG’s
customer network (worth 7.2 gigawatt-hours). After analysing usage patterns of the customers involved in the
study, the pilot recommended focused investigations on 5 customers with abnormal consumption patterns.
Energy eiciency measures that depend on smart grids and power systems operation may not be an immediate solution
for Africa, since distribution and retail activities are performed by the same company. Adequate incentives must be
designed taking this situation into account. Many examples exist of good practices in electric utilities operating under
similar conditions. New generation capacity planning must consider the lower-cost generation option through energy
eiciency. Generation projects should include energy eiciency components to reduce losses, allocating part of the
investment to the T&D network (for both public and private projects). Losses will remain stable regardless of source of
the investment, or the type of project, if no actions are systematically integrated in all new generation projects.
Regional centres and utility associations such as the Association of Power Utilities of Africa (APUA) should
replicate past successful loss-reduction projects. Installation of smart meters and highly eicient transformers
represent good irst steps for utilities’ loss-reduction strategies.
125
Smart grid is a power system in which power retailers, distributors and customers communicate their market needs to each other through
digital technology.
49
Box 14 - Energy management systems (EMS)
Energy management systems allow grid operators to monitor, control, and optimise grid performance.
Scaling up EMS on grids will be particularly eective for optimising electricity supply to large consumers.
RCREEE has implemented in collaboration with several regional partners the Pan-Arab Certiied Energy
Management Professional certiication scheme, which professionals of several North African countries
have enrolled in. Such a certiication scheme could be deployed in other regions of Africa.
5.1.2 Demand-side energy eiciency: residential and commercial customers, buildings, transport and
industrial applications
Demand-side measures oer various pathways to improve energy eiciency in SSA, including in clean cooking,
transport, buildings, SMEs, and household electrical appliances. For example, switching to eicient stoves for
fuelwood and charcoal burning can cut down biomass consumption for cooking in Africa by 70% by 2030.
126
This
would reduce charcoal demand by over 60%, representing an important tool for protecting forests, biodiversity,
and carbon sinks. Energy audits and energy management regulations are eective tools to enforce energy
eiciency at an industrial level (see Box 15, below).
Eicient household appliances—allowing consumers to access higher levels of energy services at lower costs—
oer the potential to cut energy consumption by up to 5 times compared to standard appliances (with associated
beneits for household energy spending).
127
PAYG schemes with multiple instalments and digital payments could
help alleviate the high upfront costs of energy eicient appliances. Several East African countries are front
runners in energy eiciency of residential appliances, with supportive policies and private companies having
provided SHS with very low-consumption TVs on a signiicant scale.
In ECOWAS, residential and commercial buildings consume 25% to 30% of total electricity supply for cooling
and water heating. This represents a major opportunity for investing in thermal renovation to improve the energy
performance of building stock. The public sector, with its signiicant number of oice buildings, can be a natural
multiplier of energy eiciency measures. One proposed measure would set an annual rate (such as 23% of loor
area) for thermal renovation of publicly-owned and occupied buildings in each ECOWAS country, with the aim to
improve their energy performance, based on a set of legally binding minimum requirements.
Regulations must play an active part in encouraging energy eiciency for buildings. Enacting and enforcing rigorous
building codes can clearly improve energy use through better design and construction methods. Green building
rating systems would encourage compliance with such systems. A common barrier to energy eiciency in buildings
is the split incentive that exists between landlords and tenants. Landlords typically bear the brunt of costs to upgrade
the energy eiciency of a building, but the tenants stand to beneit most from the reduction to their power bills.
Equitably sharing the beneit of energy eiciency among landlords and tenants (both in residential and commercial
property) can increase the proportion of energy eiciency investments in the building sector. For example, the
PACE programme (developed in the United States) oers building owners the chance to inance retroits or energy
eiciency improvements and repay over time through voluntary assessments of the property.
128
Governments can lead eorts to improve buildings eiciency through Super ESCOs, which act as an interface to
customers for the wider ESCO market. Private ESCOs then implement the energy eiciency upgrades through
investments from government. This creates an energy eiciency market by providing a pipeline of thousands
of projects, with bulk procurement to drive prices down. Private sector entities also gain the opportunity for
capacity building and to oer energy performance contracting, a mechanism to reduce energy bills through
guaranteed project performance (such as from savings produced by LED lights). The Indian Ministry of Power’s
Energy Eiciency Services Limited oers a good example of such a mechanism.
129
Building market capacity
allows expanding these services to commercial and industrial sectors.
126
IEA (2019).
127
Ibid.
128
See https://www.energy.gov/eere/slsc/property-assessed-clean-energy-programs
129
See https://www.eeslindia.org/content/raj/eesl/en/home.html
50
Box 15 - Energy eiciency policies for industries, Tunisia
Tunisia has comprehensive policies targeting energy eiciency in the industrial sector. Existing installations
that consume over 800 toe/year are required to have energy audits, dedicated energy managers, and
annual energy reporting. For new industries, the law mandates prior consultation with the national energy
conservation agency, ANME. Tunisia also requires prior ministerial authorisation before the commencement
of any industrial project with a projected annual energy consumption of over 7,000 toe/year. This strong
policy framework to provide energy eiciency services to industrial facilities has supported the local ESCO
market.
In the transport sector, introducing regulation on energy eiciency would make transport more aordable, while
at the same time, not increasing oil use or dependency. However, including transport reforms in national energy
strategies is rare in Africa. Tools and procedures to assess and monitor vehicle eiciency are also needed to
accompany any programme for regulating transport eiciency.
Fuel quality standards and carbon dioxide emission caps are eective tools to improve fuel eiciency in
transport. Adopting such standards is an important irst step to improve energy intensity in Africa, as well as
reducing transport costs and emissions levels. African Regional Economic Communities (REC) can play a role in
encouraging national stakeholders to adopt appropriately stringent measures.
Energy suppliers use demand-side management (DSM) to modify consumer demand for energy through various
methods, such as inancial incentives and behavioural change through education. The objective is often to
encourage consumers to use less energy during peak hours (thereby reducing electricity peaking load and
associated costs), or to move the time of energy use to o-peak times such as night-time and weekends. Peak
demand management does not necessarily decrease total energy consumption, but is expected to reduce
the need for investments in networks and/or power plants for meeting peak demand. For example, energy
storage units can be used to store energy during o-peak hours and discharge them during peak hours. A
newer application for DSM is to aid grid operators in balancing intermittent generation from wind and solar
units, particularly when the timing and magnitude of energy demand does not coincide with the renewable
generation. Smart meters can also prompt new consumption patterns from electricity customers allowing least-
cost operations. Senegal’s electricity utility, SENELEC, is developing SMARTSEN, a project to install 2.5 million
smart meters over the next decade.
Cost-eective technological innovations such as smart meters oer signiicant eiciency gains by inluencing
behavioural change. Smart meters track end-users’ actual energy consumption, providing information on actual
time of use and transmitting consumption data to the utility in real-time. Utilities must deliver clear billing to
produce eiciency gains from smart meters: billing based on actual consumption (rather than on deemed
consumption or on ‘bulk billing by cubic meters of premise’), oered regularly enough to allow consumers to
regulate their own energy use. Clear billing can also be eective in areas where smart meters are not immediately
available. When consumers can regularly read their installed meters and transmit data to their electricity supplier,
they are more likely to modulate their energy use.
Smart meters also enable net-metering policies, by accounting for electricity fed into the grid. This has been
an important function of smart meters in supporting African countries’ medium-term renewable energy and
demand management initiatives.
51
Box 16 - Seawater desalination, Cabo Verde
High population growth in Africa has exacerbated drinking water shortages, especially in arid and semi-
arid regions, island nations and areas where populations are aected by climate change. In 2015, over 300
million people worldwide relied entirely on desalinated drinking water. Desalination requires 2 to 12 kWh
of energy per cubic meter of water, depending on the technology applied. Solar PV and wind energy are
already being used for powering some desalination plants. There are opportunities to completely phase
out thermal power for this application. Cabo Verde, a country that relies almost entirely on desalinated
water, is spearheading one of the irst successful wave-to-power projects in Africa, harnessing tidal wave
power for electricity generation. The feasibility of this concept for other sea-adjacent parts of Africa should
now be investigated and replicated where viable.
Public bus leets used for mass transport in large African towns and cities present an immediate investment
opportunity that has largely been ignored in energy eiciency programmes and by the investment community.
Phasing out diesel buses and introducing Compressed Natural Gas (CNG)-fuelled vehicles is feasible in certaing
cases where bus leets are refuelled at a single or limited number of municipal gas stations, even in large towns.
It is especially eicient when CNG is available from reineries located close to demand centres. CNG buses
also reduce harmful and smelly particulate pollution, road vibrations, and internal and external noise emissions.
Electric buses might require a higher capital cost outlay, but oer equally attractive reduction of operating cost,
greenhouse gas and particulate emissions, and noise.
5.2 Energy eiciency sector diagnostic
The energy eiciency sector faces several barriers spanning policy, planning, laws and regulation, institutions,
and inancing.
5.2.1 Barriers
This section discusses barriers to scaling up energy eiciency investments, presented in the following categories:
• Policies, planning, programmes.
• Institutional framework.
• Legal and regulatory framework.
• Capacity building.
• Access to inance and investments.
• Lack of awareness and data scarcity.
• Lack of aggregators or facilitators.
Policies, planning, programmes
African countries often lack integrated, coherent and comprehensive energy policies and planning, which
are essential for implementing national energy eiciency strategies. Targets need to relect the local level of
industrial or economic development, and should be accompanied by detailed plans on national and sectoral
levels. Regional standards can be set to guide countries in setting their own policies. Regulations designed for
implementing NEEAP programmes should help guide energy consumers (including industries, enterprises, and
households) in their energy eiciency activities.
Even where energy eiciency targets are in place, several African countries lack well-designed conservation and
demand management programmes, for example to address energy eiciency funding, mandate energy labels
on appliances and equipment, set minimum energy performance standards (MEPS), and conduct energy audits.
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These programmes should capitalise on the socio-economic beneits of energy eiciency investments, tailored
to the country’s economic and industrial context.
Many African countries’ policies and support frameworks do not provide for transparent energy pricing mechanisms,
which drive energy eiciency. Taris are not cost-relective in most countries, which hinders the utilities’ inancial
sustainability. Utilities therefore struggle to invest in energy eiciency and conduct appropriate maintenance
programmes, limiting opportunities for growth and expansion. For example, ESKOM, South Africa, implemented the
Power Conservation Programme in 2008 to reduce demand by 10%, especially among industrial users.
130
Energy eiciency measures must be carefully balanced against the commercial interests of African utilities. RECs,
working alongside their respective member states, should propose a range of measures that minimise impacts
on utilities’ commercial performance, and on utilities’ existing contractual o-take obligations, as parties to PPAs.
Institutional framework
State and donor inancial investments and technical assistance in energy eiciency are scattered. An eective
institutional set-up is essential to streamline sustainable initiatives and pilot projects that can attract further
public and private sector investments. The success and sustainability of energy eiciency programmes
depend on dedicated institutions and units on a sectoral level (such as in industry and buildings), ensuring
coordination among dierent actors. Local ownership of the programme is critical, as progress in energy
eiciency typically relies on multifaceted approaches combining inancial and price incentives, regulations on
high-energy consuming appliances and equipment, cutting down on peak-time electricity use, and promoting
energy eiciency in buildings. For example, Tunisia’s ANME is a dedicated entity in charge of implementing
energy eiciency policies, as well as promoting energy conservation and conducting studies. The AfDB recently
presented a new instrument, energy savings insurance, which combines inancial and non-inancial mechanisms
to mitigate the risk of energy eiciency investments.
131
Legal and regulatory framework
The absence of labels and MEPS, and where they do exist, weak enforcement and compliance measures, represent a
chronic concern in many African countries. Several markets suer from least eicient products distorting the market,
where providers of less eicient and lower-quality products crowd out high-eiciency products. Such markets should
adopt regulatory phasing out of ineicient appliances and reform subsidies to improve the market conditions for
energy eicient appliances. Standardisation and equipment certiication form a part of such remedial measures.
Capacity building
African countries lack implementation capacity to adopt energy eiciency measures. Experiences in countries
such as Egypt, Tunisia and Morocco show the success of energy eiciency programmes in the industrial sector
relies on technical assistance and capacity building for industry and ESCOs. Countries need training on technical
and inancial assessment of energy eiciency and renewable energy solutions, including energy management
systems, motor system optimisation, compressed air system optimisation, and solar heating for industrial
processes. In the building sector, for example, software tools are available to help developers, builders, and
designers in tracking and drafting reports on code compliance. RCREEE supported Tunisia to develop a national
code compliance tool customised to the local conditions, and provided capacity building for stakeholders.
Access to inance and investments
Investments in eicient equipment generally produce cost savings over the course of several years. Customers
seldom see the inancial beneits of EE equipment in the short term. This can discourage purchases at commercial
and residential levels.
On a larger scale, investments in energy eiciency technologies often come with high capital costs. These can
be prohibitive for smaller companies with limited access to loans from the formal banking sector. In practice,
this means high interest rates, short loan tenors and typically large inancial securities required by the borrower.
130
IEA, 2011. Saving Electricity in a Hurry: Update 2011. IEA, Paris.
131
See BASE, Scaling up energy eiciency with energy savings insurance, at energy-base.org/project/scaling-up-energy-eiciency/
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In this context, companies only consider energy eiciency investments that have short payback times, but even
those tend to take low priority when competing with business growth and expansion investments (where risks
and returns on investment are better understood). Higher eiciency equipment with higher incremental cost is
often avoided, even when payback times appear otherwise very convincing.
Senior business leaders tend not to pay enough attention to energy eiciency, which means CAPEX budgets
often overlook capital-intensive eiciency upgrades. Instead, industrial eiciency investments are typically
inanced through OPEX budgets, and thus limited to incremental improvements. At the same time, aordable
inancing for bigger purchases—or the option of ‘green public purchasing’ for public bodies—is scarce.
The public sector must play a leading role in promoting EE investments. Public spending makes up a major
share of African countries’ GDP. The public sector is an important driver to stimulate market transformation
towards more eicient products and services, as well as to trigger behavioural changes in energy consumption
by citizens and businesses. Decreasing public-sector energy consumption through EE improvement measures
can also free up public funds for other purposes.
Box 17 - Business model for energy eiciency: Energy performance contracting (EPC)
EPC is a type of third-party inancing arrangement that is not yet widely used in Africa but may warrant pilot
project identiication among more industrialised countries. The term denotes a contractual arrangement
between a beneiciary (power consumer) and a provider of an energy eiciency improvement measure
(an ESCO). The performance is veriied and monitored during the term of the contract. Under the EPC, if
the ESCO’s investment brings about energy savings for the beneiciary, the latter will pass on part of the
savings as payment to the ESCO.
EPC contracts tend to be complex. National energy agencies can provide templates to facilitate their
deployment. Capacity building would be required to shape the required skills and awareness, including for
ESCOs, inance providers, and the client (such as industries, utilities, and consumers).
Regulatory and accounting-related obstacles still prevent a wider deployment of EPC in Africa. Traditional
accounting rules and annual company audits can sanction investments under the EPC. Regional alliances
such as RECs will need to step in and propose changes in accounting legislation of their member states.
Lack of awareness and data scarcity
African policy makers, entrepreneurs and businesses, the inance sector, and consumers commonly lack
awareness of the potential beneits of energy eiciency. Industrial customers tend to be risk-averse towards
new or unknown energy eiciency technologies, and often suspect hidden costs or lack conidence in the
technology’s savings potential.
This lack of trust must be mitigated by information and awareness raising campaigns. Customers should base their
purchase and investment decisions on veriied data on risk and returns, rather than on partly-informed preconceptions.
Data scarcity also poses a challenge in scaling up energy eiciency investments. Many projections currently
in use are based on empirical data from other parts of the world. For example, governments and regional
organisations need data to assess how each sector of the economy can contribute to energy eiciency targets,
to map out energy savings potential and actual savings per sector or market segment, and to assess market
potential for energy eiciency appliances.
Lack of aggregators or facilitators.
Public energy bodies tend to address the above-mentioned barriers in isolation. Countries lack comprehensive
programme development to catalyse energy eiciency market growth. This results in piecemeal, small impacts
on energy eiciency market development and project implementation. This is further impeded by development
partners’ piecemeal support as facilitators for market development.
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5.2.2 Recommendations
• Design and formulate dedicated energy eiciency policies and targets. Policies are needed to accelerate
energy eiciency investments, tailored to the country context and following advancements in the sector.
Enhanced policy dialogue and information sharing platforms should promote the beneits of energy eiciency
and energy conservation. Dedicated policies must address both supply and demand side management in
electricity (at utility level), industries, commercial, and buildings sectors, as well as green public purchasing.
• Design regional and national action plans and programmes with strengthened cooperation between
regional organisations and national public sector authorities, including to:
− Assess energy savings potential in the industrial, building, transport and electricity supply sectors.
− Set up energy eiciency targets and strategies.
− Develop dedicated energy eiciency programmes.
− Support utilities in developing an NLRP to reduce network losses with a well-deined action plan and
investment strategy.
− Create a regulatory framework to encourage investments in energy eiciency.
− Prevent dumping of obsolete or ineicient technologies from wealthy nations in Africa, which
causes pollution and GHG emissions leakage.
• Develop and implement complete project packages for energy eiciency, covering policies, project
pipeline development, inancing, capacity building and performance tracking. Technical assistance
should help establish programmes for project design, inancing, implementation, measurement and
veriication. These should develop an initial pipeline of projects to catalyse sustainable market growth.
Box 18 - Energy eiciency legislation, Egypt
Egypt’s electricity law, adopted in 2015, mandates transmission and distribution companies to purchase
energy from cogeneration and energy recovered from secondary sources with less than 50 MW capacity,
and to conduct necessary expansion to accommodate this supplied energy. Companies can also issue
demand side management bids. The law requires each facility with a contracted capacity equal or above
500 kW to appoint an energy manager as well as an energy register. The government must set policies and
programmes to expand energy labels for energy equipment and appliances, and to phase out ineicient
equipment. Programmes must also support energy eiciency activities in industrial and commercial
systems.
• Formulate, review and strengthen laws and regulations. Energy sector legislation should articulate
energy eiciency measures. Climate change and environmental legislation should also recognise and
provide for energy eiciency opportunities in the electricity, fuels, transport and buildings sectors.
Laws and executive regulations help advance energy eiciency across sectors through rules that:
− Amend building codes and establish green building rating systems, especially for new buildings.
− Incentivise high-quality eicient goods through reduced customs duty or value-added tax.
− Enforce certiication and establish test centres.
− Review tari settings to link taris with utilities’ and customers’ energy eiciency performance.
− Link subsidies with the degree of end-users’ energy eiciency performance.
− Scale back price-distorting fossil fuel subsidies.
− Conduct energy audits (audit irms and independent experts).
− rovide technical assistance to help set up Super ESCOs for government facilities, and to support the
market development of the ESCO sector, including through operations, inancing, and capacity building.
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− Support the establishment of ESCOs.
− Promote energy management systems at a regional level.
− Mandate energy labels on appliances and equipment.
− Set minimum energy performance standards.
− Create thermal insulation codes and oer rebates/coupons to trade in ineicient equipment.
− Enforce fuel economy standards to encourage more fuel-eicient vehicles, including hybrid, as well
as promoting full-electric vehicles.
• Prioritise demand-side management programmes. Utility companies should allocate resources to develop
and implement DSM programmes to help reduce peak load and improve resource eiciency. Utilities’
implementation of DSM is essential to support the development of smart networks. Utility programmes can
implement energy eiciency projects across sectors, for example in the residential sector, where on-bill
inancing schemes have been successful in driving behavioural changes and potential market transformation.
• Provide technical assistance and capacity building to utility companies for designing and implementing
maintenance programmes to improve power systems eiciency.
• Improve the institutional framework by creating dedicated energy eiciency and conservation entities
as implementing agencies for policies, programmes and action plans.
• Provide capacity building to public entities for implementing policies, programmes and action plans, and
to support energy eiciency investments. Regulators need capacity building to understand principles
of design, implementation, and monitoring of energy eiciency measures. Institutions and local ESCOs
need technical expertise for installation, maintenance and control of eicient products and services.
• Oer support through capacity building for domestic commercial banks, to increase investment in energy
eiciency projects and to support SMEs’ involvement in the sector. Banks need capacity building that
explains how to develop investment pipelines, overall risk assessment and due diligence for energy
eiciency projects. Some MDBs are extending credit lines to selected African commercial banks, for
on-lending to their clients, which should be supported. This can include risk sharing or blending of
concessional support from DFIs to unlock energy eiciency potential through the private sector. Capacity
building can help businesses to understand and take advantage of energy eiciency opportunities.
• Encourage MDBs to incentivise green public purchases in projects they are involved in. This could take
the form of collateralising loans to unlock access to inance for large energy eiciency purchases by
the public sector. OECD countries have applied green public purchasing policies supporting energy
eiciency, and these can be replicated in Africa, although they may take a long time to implement.
Green public purchasing policies create incentives for public authorities to procure goods, services
and works with reduced environmental impact through their life cycles. Energy eiciency purchasing
decisions implemented by administrative departments, municipalities, among others, can serve as
examples and contribute to raising awareness about energy eiciency beneits.
• Put in place accounting and regulatory tools that allow accounting for energy savings as revenue streams,
or encourage ESCO models that remunerate service providers for veriied energy eiciency gains.
• Ensure access to adequate inance and investment for energy eiciency through dedicated credit lines or
loan products that can be added to other credit lines, for example to support incentives and subsidies.
Access to targeted energy eiciency funding encourages companies to explore potential for eiciency,
and to pursue such potential investments when faced with competing investment options.
• Support SMEs to extend multiyear loans at reasonable rates for energy eiciency investments, through
speciic credit lines with concessional support by DFIs. Loans could include partial grant components as
an incentive for successful implementation. Setting up such lending programmes may require technical
assistance to show the beneits to lenders and inal beneiciaries, and to support implementation.
• Establish information sharing platforms and create awareness raising campaigns to promote the
beneits of using energy eicient products and services, in terms of cost, environment, health, and job
creation. Communication strategies involving key stakeholders—policy makers, businesses, inance,
consumers—can highlight the importance and potential beneits of EE across sectors.
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• Allocate funds to oer incentives for energy eiciency. Re-allocating energy subsidies towards energy
eiciency measures can improve public welfare by lowering households’ energy spending, and can
reduce overall iscal spending on subsidising energy. Institutional capacity building and regulatory
interventions could help address systemic misalignments of incentives, such as split incentives in
residential housing, ineicient energy subsidies, or harmful taxes and duties for necessary EE equipment.
In Algeria, for example, energy taxes are used to fund energy eiciency measures.
• Earmark funds for investing and administering subsidy schemes for energy eiciency initiatives.
Countries such as Egypt, Tunisia, Algeria, and Morocco already earmark funds for energy eiciency.
Typically, international inancing agencies oer favourable terms for such credit lines, which are a
common funding mechanism used to promote energy eiciency technologies, raise awareness of
energy eiciency programmes, reduce operating costs and encourage competitiveness. The business
case and feasibility of energy eiciency investments can be demonstrated through technical assistance.
• Conduct studies to analyse energy savings potential in cogeneration at the level of energy ministries
or dedicated energy eiciency institutions. New generation plants (and existing installations that need
extensive refurbishments) should be equipped with high-eiciency cogeneration units to recover waste
heat, speciically when heat demand is in nearby industries. Cost-beneit analyses should be conducted
to show their feasibility and savings potential in various contexts. Studies should begin with existing
industrial parks housing power plants to supply electricity to adjacent factories.
• Deploy smart meters to end-users of electricity everywhere where it is technically possible, inancially
reasonable, price-competitive, and proportionate to the expected potential of energy savings. RECs
should set regional goals that specify which segments of households and enterprises must be equipped
with smart meters by a certain time horizon. Local regulations should require newly-connected (or
extensively renovated) buildings to install individual smart meters.
• Publish data on public building energy performance and encourage thermal renovation, to raise
awareness and encourage similar measures in privately-owned buildings. National strategies and
policies to address thermal renovation of the public building stock could encompass the following
steps: i) review the building stock’s current energy characteristics; ii) identify cost-eective approaches
to renovations by building types; iii) propose incentives to the construction industry and commercial
banks as debt providers; and iv) inventory the resulting energy savings in a national register.
• Collect data to monitor and evaluate policy progress.
• Develop accessible, aordable and eicient public transport systems in urban areas to encourage mode
shifts from private vehicles to public systems.
Photo: Soumyabrata Roy
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6 CROSSCUTTING ISSUES
Several challenges cut across all segments of the energy sector,
intersecting in dierent ways with the energy system
and macro-economy as a whole.
6.1 Access to inance
Globally, private investment in electricity access has increased considerably over the past few years. Private
investors provided the majority of funding in the sector for the irst time in 2015/2016, accounting for 60% of
total commitments. Yet these investments are still largely limited to grid-connected generation projects in a
handful of countries. And at €27.2 billion per year, total global investment in electricity access falls short of SDG
7 targets, as well as the necessary funds to achieve the objectives of the Paris Agreement.
Public inancing instruments need to catalyse private capital into Africa’s energy sector, where inancing gaps
persist in nearly every segment. Large amounts of capital will need to be mobilised to attain three related aims:
strengthening and expanding the energy system to achieve universal access to energy, enabling a sustainable
energy transition based on rapid renewable technology deployment and energy and resource eiciency, and
underpinning sustainable economic growth and job creation. Further funding needs to be mobilised through
public channels, including national accounts as well as DFIs, but public sources alone will be insuicient to bridge
the gaps. The private sector must play a major role—such as in catalysing uptake of o-grid solar solutions—
given the enormity of the investment needed.
Current inancing lows reveal not only the gaps, but also the uneven distribution of capital. Investment is still
concentrated around grid-connected, generation projects, with less interest in transmission and distribution
(including o-grid technologies).
Energy leaders should focus on setting up an enabling business environment, through planning, policy and
regulatory frameworksthat support energy sector governance in line with the Paris Agreement, including
necessary provisions for climate, social, and environmental governance. Policy and regulatory certainty are
crucial to maintaining an attractive investment climate. Strong leadership commitment and political willingness
have also proven to be important factors, for countries that have reached universal access. At a high level,
strategic long- and medium-term energy and climate planning must clearly delineate the roles for grid and
o-grid approaches, with speciic targets in each segment to provide clarity to stakeholders.
132
Equal access-
to-market rules must be developed, to avoid discriminatory actions so that both private and community-based
investors can fully engage in the energy transition.
Creative sources of inance and climate-speciic incentives must also be tapped to maximise the inancing
available to address energy sector bottlenecks. For example, long-term carbon pricing can provide a new source
of public funds. Progressive reform of existing fossil fuel subsidies can also open up new opportunities for public
spending.
The latest picture of global inancing in the clean cooking sector shows about €36 million allocated to businesses
for 2017, according to the Clean Cooking Alliance. This is far below the required threshold of €3.6 billion a year
until 2030, including €1.8 billion in SSA, to reach universal access to clean cooking.
133
Local banks tend to
consider the sector too nascent to invest in. At the same time, the sector’s dependence on international inance
exacerbates the inancial risks associated with currency luctuations.
Mitigating investment risks using public funding mechanisms
132
The EU Energy Union and the National Integrated Energy and Climate Plans are a good example.
133
Clean Cooking Alliance (2018) and IEA (2019)
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Strategic use of public funds can attract additional sources of capital by leveraging private sector participation.
Public institutions must work to remove barriers hindering investment from private actors, to meet the immense
potential of RES in Africa (see chapters 1 and 2 for more detail). Innovative inancing and de-risking mechanisms
will be essential in this eort. Financiers’ experiences show that investing in Africa today involves exposure
to various risks, including related to o-taker reliability and currency exchange and transferability. Unclear
contracts and regulations, long, complex tendering and enforcement processes, complex administrative and
permitting procedures, and land issues compound these inancing risks. Other major perceived risks for
investing—based on research among leading IPPs and manufacturers in African markets—are linked to political
scenarios, regulations and policy.
Numerous initiatives have been devised to de-risk investments, yet the level of risk coverage remains low along
the investment lifecycle.
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Most existing de-risking instruments oer only one risk mitigation mechanism, with
fewer than 20% oering an aggregated package of guaranties plus insurances. More than two-thirds favour a
speciic technology (rather than benig technologically neutral). And few are valid across the entire continent:
only a third apply to all African countries.
New instruments are being designed to leverage additional private capital and develop a inancing ecosystem
that is sustainable over the long term. A prominent approach involves blending concessional loans with funds
from DFIs and entities investing on commercial terms, to improve the inancial viability of projects and unlock
private inancing. The EU's EIP supports partner countries in mobilising inance for sustainable energy through
the EFSD and blending. It also provides technical assistance to help prepare investment projects and develop
a favourable investment climate and business environment. Facilities such as the Green Climate Fund and
the Climate Investment Fund oer such concessional inancing. They can absorb more risk than commercial
investors and can be blended to leverage private sector inancing.
The External Investment Plan (EIP) for Africa and the EU’s neighbourhood plays a fundamental role in the
operationalisation of the Alliance. The EIP provides inance, technical assistance and investment climate
support, and has a speciic investment window for sustainable energy and connectivity. Various initiatives have
emerged recently to draw inancing into renewable energy in Africa: . The EU Electriication Financing Initaitive
(ElectriFI) inances early-stage companies focusing on electricity access and generation from sustainable energy
sources in emerging markets. Other examples are Climate Investor One , the Africa Renewable Energy Scale-
up Facility, and the World Bank Scaling Solar, are some examples. Others still in development phase include
the Terrawatt and Desert to Power initiatives.
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Project and business development support facilities such as the
Private Financing Advisory Network and the EU funded GET.invest have started to oer valuable support. These
programmes, varying in geographical and technological scope, have produced impressive results, with several
projects online and others in development. But they have only scratched the surface of the opportunities and
needs for renewable energy investments in Africa. Drawing from positive experiences in the energy market, the
renewAfrica Initiative has been conceived as a new European industry-driven initiative addressing the market
gaps and deepening the inancial support to accelerate project development (see box 2, section 1.1.2).
MDBs and DFIs can play a key role in mobilising private sector investment, providing investment terms that a
commercial lender would struggle to provide (notably given the regulatory provisions applicable to the inancial
sector such as Basel III and Solvency II). MDBs and DFIs should collaborate with commercial lenders by providing
long tenor debt tranches and/or tenor extension products that enable commercial lenders to provide shorter
tenor tranches. This in turn would help familiarise commercial lenders with the sector, and address some of
the apparent inconsistencies between risk perception and risk reality, paving the way to increase commercial
lender participation in future transactions. MDBs and DFIs need to shape their internal KPIs to consider both the
amount of capital invested as well as assessing the leverage achieved.
Potential pitfalls of concessional inancing
MDBs and DFIs will continue to play a critical role in facilitating universal access in places that remain too risky
for commercial lenders. While credit enhancement is fundamental in those contexts, it is important to take a
clear-eyed view of DFIs’ need for sovereign counter-guarantees, especially considering the political problems
134
RenewAfrica, 2018. RES4Africa Foundation, PwC.
135
See https://opensolarcontracts.org/
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they pose for cash-strapped governments. By creating an unsustainable burden on sovereign balance sheets,
sovereign guarantees can impede progress in scaling up transactions.
The international development community must design its proposed de-risking instruments in collaboration
with domestic and international private sectors to ensure they address the key risks identiied by the private
sector. For example, most de-risking instruments provided by DFIs and MDBs can only support state-owned
enterprises; they would fall away if a national utility were to be privatised. This creates uncertainty about
how durable the instrument will be, especially given conversations in the market about the restructuring and
potential unbundling of vertically-integrated utilities to promote private investment in distribution companies. In
this context, commercial lenders can struggle to rely on such instruments in their risk assessment and pricing.
Concessional inancing needs to be additional, by supporting highly risky projects that would not otherwise
be supported through commercial inancing. Gaps in risk coverage that are not illed by existing de-risking
packages should be assessed, and additional tools can be designed to ill such gaps. Such products must be
based on feedback from commercial banks to understand how they can be structured, how commercial banks
can provide support, and how end-customers can beneit. Flexible support mechanisms such as the Green
Climate Fund and the EIP and the EFSD should be aware of the limitations inherent in working through partner
institutions. For example, if they require an accredited entity or partner inancial institution to invest on the
same terms as them, they may limit their ability to ill the necessary funding gaps and achieve transformational
change. Financial and de-risking support needs to focus on maximising socio-economic beneits, especially at
the local community level, including through local job creation.
The continuity of support measures is also critical, to avoid long term dependence on international development
support or concessional inancing. The Africa GreenCo model, for example, is designed to overcome this
problem by channelling development inance to start up a sustainable business. It demonstrates the ability of
regional power markets to mitigate risk and acts as a pathinder for other market participants.
Private sector insurance companies can absorb power sector risks by spreading them across a portfolio. MIGA
and the African Trade Insurance Agency already pass on some of their risk exposure to private insurers. This can
greatly increase insurance capacity while making use of DFIs and MDBs’ relationships and reputations, which
may still bear the risk as reinsurers.
Local private sources of capital
Local institutional investors and capital markets represent another signiicant source of potential inance and de-
risking. Local currency lending has the added beneit of allowing PPAs to be denominated in local currency. This
reduces the foreign exchange risks borne by o-takers, whose revenues are usually in local currency. However,
local investors still have little experience with renewable energy investments. They also ind it challenging to
provide debt with a suiciently long tenor, and are hampered by typically high local currency interest rates.
DFIs and MDBs can play a role in transferring knowledge by investing alongside such local institutions.
International partners can lead on project due diligence until local institutions gain the internal capacities they
need. While DFIs and MDBs are often reluctant to lend in local currency, organisations like GuarantCo and TCX
can provide support in this regard.
Targeted technical assistance can also reinforce local commercial banks’ interest and capacity to assess renewable
energy and energy eiciency projects, and their associated risks. Leading European renewable industry players
are ready to set the scene and share knowledge to establish an attractive framework for investors.
Distribution companies and o-taker viability
Cash-strapped distribution companies need innovative inancing instruments to strengthen their inancial
viability—which underpins the creditworthiness of the entire power sector. Public inancing instruments are
needed that can ix ongoing debt problems and support distribution companies’ transition towards long-term
viability. Some countries in SSA have put in place reforms to increase private-sector involvement to improve
operational eiciency and management, as well as to facilitate new investments in distribution. These reforms
have had varying success. Approaches have ranged from management contracts, to long-term concessions and
full privatisation. Each approach seems to lack some component that prevents the utility from achieving universal
60
electricity access. The proposed Integrated Distribution Framework tries to overcome these limitations. It
proposes attracting blended public inance alongside majority private investment into the distribution segment.
A private public partnership can then be set up between the incumbent utility and the new private investor,
who must bring capital, advanced technology, managerial expertise, and a renewed approach to customer
engagement.
In addition to providing capital, support for project preparation should also be provided to improve o-taker
companies’ bankability
6.2 Capacity Building
Africa’s just transition to a sustainable energy model—that provides universal access and addresses climate
change realities— is seriously constrained by a lack of well-trained professionals. Capacity building is urgently
needed in a wide range of ields across the electricity, clean cooking and heating value chain.
African people will shape the sustainable energy transition, through forming the institutions they need, and
through building and operating their infrastructures. Capacity building is low-cost compared to the capital and
operating costs of energy infrastructures. Moreover, it encourages local empowerment and ownership through
a clear domino eect, resulting in improvements throughout the entire supply chain. The ongoing digitalisation
across sectors in Africa represents an opportunity to accelerate the capacity building momentum.
A recent report by the World Bank oers useful recommendations for capacity building actions in the energy
sector:
136
• Diversiied targets. Capacity building should address dierent beneiciary groups, which may have
dierent access to training opportunities at technical, vocational, or institutional levels.
• Dierent skills. Capacity building interventions should be diversiied to address the dierent needs for
skills existing at dierent levels of the energy supply chain and within dierent local contexts—and be
aligned with the ability of the dierent target groups.
• A multitude of stakeholders. Due to the diverse nature of the required competences, a variety of local,
national, and international stakeholders should be involved (even beyond the traditional players of the
educational systems).
• Life-cycle perspective. People are the catalyst and the drivers of change. Their capacity needs to be
developed all along the supply chain of the design solution. Within this approach, linking skills and work
needs to be a guiding principle.
• Comprehensive approach. Capacity building for energy access should encompass a comprehensive
approach based on human, scientiic, organisational, and institutional capabilities.
• National/regional and local strategies. The need to strengthen national capacities should be shared by all
countries and should be able both to drive national-based priority deinition and regional coordination
and to assure the support to project-based or speciic local actions.
• Teaching tools. A mix of tools may be used, varying with the targets and the expected learning
outcomes—including training, seminars, workshops, on-the-job tutoring, and site visits.
136
Colombo et al. 2017. The power of human capital multi-level capacity building for energy access. State of Electricity Access Report.
Washington, D.C.: World Bank Group. http://documents.worldbank.org/curated/en/104731494940162971/The-power-of-human-capital-
multi-level-capacity-building-for-energy-access. This is a useful document to be consulted for capacity building in energy access.
http://documents.worldbank.org/curated/en/104731494940162971/The-power-of-human-capital-multi-level-capacity-building-for-energy-
access
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6.2.1 Capacity building needs
i) Many areas of expertise need targeted capacity building, focused across multiple levels of experience,
types of job, and institutions. The following lists capacity building needs according to ive categories:
Executive capacity building, addressing high level professionals in the public sector (energy and inance
ministries and regulators), the private sector (large energy corporations and small irms), civil society
(consumer, environmental or industry associations), and research and academic institutions.
ii) Professional capacity building, oering certiied technical training programmes to equip the upcoming
workforce to build and operate energy generation and network infrastructures.
iii) Educational training, creating awareness among students at school and advanced degree level, and
among the general public on the energy challenges in Africa and solutions to address them.
iv) Technical support activities, providing databases, handbooks, technical guides, and templates of
commonly used documents for general use by practitioners.
v) Research and innovation capacity building, promoting local research skills for upcoming researchers by
supporting postgraduate studies (such as doctoral or masters programmes) to strengthen the academic
work force and national innovators/entrepreneurs. Young researchers will play a key role to embed local
ownership and capacity in the long term to carry out technological research and innovation in the
energy sector (favouring local over imported innovations in the long term).
Comprehensive training targeted towards energy sector professionals in categories i) and ii) will allow them
to deepen their understanding of the complex questions at hand and to eectively contribute to producing
solutions through their work. The following section expands on capacity gaps in the above categories, with a
focus in the electricity sector.
Executive skills for energy and inance authorities, policy-makers, and planners.
Oicials in energy and inance ministries must develop skills in a range of ields, on top of their specialised
expertise in policy formulation, implementation and monitoring. They need to understand investors’ requirements
for participating in new energy projects, as well as how to put in place enabling factors to de-risk private
inancing. For example, they should be aware of investors’ expectations, perceived risks and related implications
of investing in renewable and o-grid technologies. Energy ministries also need to house a range of technical
skills, spanning from long-term supply and demand planning to setting performance targets (such as in energy
access, decarbonisation, supply reliability, losses, and costs). Other essential technical skills include resource
forecasting (notably for climate change scenarios) and managing and using of energy modelling tools.
Regulatory commissioners need speciic training to complement their capacities in tari-setting, licensing,
regulatory decision-making procedures, and implementing regulations. For example, regulatory board members
should receive training on regulatory transparency, eiciency, and independence from political and inancial
aairs. The AfDB’s Electricity Regulatory Index (ERI) assesses the quality of electricity regulatory frameworks
of African countries on an annual basis, including the degree of independence and regulatory outcomes, and
proposes areas to improve among those countries evaluated.
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Regulatory bodies also need their technical
sta to be equipped to set targets, standards, and monitoring measures to evaluate equipment quality (such as
batteries and meters).
Utilities and rural electriication executives across Africa need capacity building to address their organisations’
technical and inancial weaknesses. This requires training in organisational management, as well as technical
capacities to oversee least-cost integrated electriication plans. Sta of utilities or system operators need skills to
carry out integrated power system planning across all segments, in coordination with other institutions. Utilities
should train in-house legal counsel to understand PPA and PPP provisions and dierent types of contractual
arrangements, and to draw up eicient procurement procedures.
Capacity building should review international best practices in structuring, investment, operation and
management of distribution companies, focusing on the present weaknesses of many incumbent African
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The irst edition of ERI was published in 2018 and the second edition will be published in November 2019.
https://www.afdb.org/ileadmin/uploads/afdb/Documents/Generic-Documents/Electricity_Regulatory_Index_2018.pdf
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utilities. It should address approaches to designing and implementing concession agreements. This should
cover methods to determine cost-relective revenue requirements and taris, and incentive-based regulation for
reliability and losses. Courses should review other utilities’ successful experiences with customer engagement.
Distribution companies need training in implementing o-grid solutions and coordinating them with conventional
distribution activities. O-grid training should also review the dierent modes of interaction with independent
o-grid developers, and how such interactions are regulated.
The four power pools in SSA would beneit from targeted capacity building opportunities in governance and
operations. Such an initiative would align with the African Union’s priority for regional integration through the
AfCFTA. Flawed regulation can pose a serious barrier to cross-border transmission deployment and energy
training in general. The EU oers longstanding experience in this ield and could provide substantial know-how.
Other international best practices could also contribute valuable insights.
Professional capacity building: sta in sustainable energy
Local electricity sector developers and entrepreneurs, in particular local SMEs, need more support to build
capacity at the technical and managerial level. This is essential to allow them to participate in project tenders
with high quality, well-structured project proposals that use optimised systems design (including for mini-grid
and other o-grid projects). Training is also needed to help developers access inance and improve their project
bankability. Electricity sector professionals need skills in conducting feasibility studies and forecasting project
costs, including construction, operations, and maintenance. Business management skills, including developing
business plans and models, and inancial management are essential. For example, the African Network of Centres
of Excellence in Electricity (ANCEE) has trained over 4000 engineers, technicians and managers in these areas to
date. Regional centres such as RCREEE, ECREEE, EACREEE, and SACREEE will play a central role in these eorts.
Capacity building should focus on knowledge gaps at the institutional level (among utilities, regulatory agencies
and energy ministries) in developing IPPs, especially for renewable technologies and for energy eiciency
investments. Public institutional knowledge is needed in the following areas:
• Estimating capacity for public procurement
• Developing adequate licensing procedures for unsolicited and solicited project proposals
• Supporting project development across project phases
• Understanding risk mitigation options and instruments
• Integrated energy sector planning at ministry and utility level
• Evaluating grid absorption capacity for renewable energy integration.
Several areas of mini-grid and o-grid sector expansion need capacity building, including in planning,
development impact, and government support mechanisms. For example, energy planning entities need to plan
how to develop mini-grids alongside larger on-grid generation, and set electriication targets through mini-grids,
including by specifying suitable locations for mini-grids. Energy ministries and electriication/planning agencies
must understand how mini-grids contribute to local development, and what government support mechanisms
can contribute to their expansion (such as site identiication and pre-feasibility studies). Regulatory authorities
need knowledge of the sector to better assess o-grid projects, and to design and implement appropriate rules
and regulations.
Financial institutions need to develop in-house capacity to appraise renewable energy projects. Insurance
companies, investor funds, and commercial local and regional banks also need sta skilled in structuring energy
sector deals, especially for renewable technologies and energy eiciency.
Power pool designers at national and regional levels need to develop specialised understanding on international
best practices in regional market design and operation. This requires an understanding of various political and
technical matters, including:
• Shaping the necessary institutions and governance regimes.
63
• Setting market rules and monitoring frameworks.
• Treating bilateral contracts.
• Conducting transmission planning and cost allocation, and congestion management.
Educational training
Secondary and tertiary institutions can create the foundation for a skilled workforce for the energy sector by
introducing students to the professional pathways and opportunities oered by the energy sector, as well as
its role in the economic development of Africa. Targeted modules can be designed around the various aspects
of the energy sector, to be oered at bachelor or master level in energy programmes across Africa. Women
students in particular can be encouraged to enter into energy ields to increase and diversify the pool of talent.
For example, the renewable energy and o-grid sectors oer new, dynamically growing, and high-impact ields
for young women to enter the job market.
Technical support activities for private and public sectors
Various jobs in the energy sector require certiied technical training. Developing and disseminating manuals,
software tools, and guidelines—supported by training programmes—can support these technical activities,
focusing on speciic areas of weakness. Targeted instruction can support the creation of a local workforce to
deliver solutions to Africa’s energy challenges, and foster private sector growth in the sector.
Teaching materials and training should be provided in the following ields:
• Building renewable energy and o-grid installations.
• Manufacturing, construction, and maintenance of power system infrastructures.
• Electriication planning using geospatial computer-based tools.
• Conducting operations and maintenance of small o-grid systems.
• Mini-grid design and operation.
Regional and national electricity regulatory sta can beneit from handbooks and templates, such as for:
• Determining cost-relective revenue requirements for electricity distribution (through both on- and o-
grid systems) and tari design.
• Applying performance-based regulation methods.
• Setting reliability targets and incentives, as well as loss reduction incentives.
• Producing templates and evaluating PPA contracts, as well as applying best practices for concession
contracts and PPP agreements.
Research and innovation programmes
Local research capacities need to be constantly developed and upgraded to support the energy sector’s long-
term evolution in its national and regional context. This is a feasible and aordable objective. The Long-Term
EUAU Partnership for Research and Innovation on climate change and renewable energy
138
emphasises the need
to foster and advance research and innovation in the energy sector as a pillar of the AEEP, supported by Horizon
2020, Europe’s research and development programme.
139
Research on renewable energy technology development is a major component to support Africa’s sustainable
energy transition, as highlighted in the EUAfrica High-Level Policy Dialogue Roadmap on Climate Change
and Sustainable Energy. The EU recently launched the Research and Innovation Action to conduct a series of
138
https://ec.europa.eu/info/funding-tenders/opportunities/portal/screen/opportunities/topic-details/lc-sc3-ja-52020
139
Horizon 2020 Work programme
https://ec.europa.eu/research/participants/data/ref/h2020/wp/20182020/main/h2020-wp1820-intro_en.pdf
64
strategic and joint research activities, innovation workshops, and capacity building programmes for developing
and adapting renewable energy technologies to address African challenges. These activities focus on innovating
technologies that can be applied to Africa’s speciic environmental, social and economic conditions.
Researchers are exploring several areas to address generation questions, notably surrounding:
• Decentralised generation and stand-alone systems, including with energy storage solutions.
• The lifetime, behaviour and adaptation of renewable technologies in extreme conditions, as well as
related maintenance factors.
• The environmental and social implications of renewable technologies (such as geothermal) in areas
with existing potential for energy resource exploitation.
• The supply chain sustainability of generation technologies, and adaptation to local contexts.
Transmission and distribution are also important areas for research, especially to address grid integration of
renewables. For example, innovative system designs are essential for wide deployment of smart hybrid mini-
grids with RES, both for o-grid conigurations as well as when considering their long-term integration within the
national grid. This is an attractive area of research. Innovations can leverage the digital revolution taking place in
the continent to help African regions leapfrog traditional grid structures.
Capacity building and local empowerment can also create enabling environments that ensure long-term,
equitable local innovation. Research should focus on ways to harness dierent energy sources for o-grid or
on-grid solutions, as well as on integrating heat applications (such as process heat, cooling) with decentralised
systems and energy eiciency solutions.
Complementary strategies for skills development
• Encourage sta development programmes of European utilities and large RES developers to second to
African utilities to build capacity at local level. For example, this could develop local skills on regulation,
licences, contracts, documentation, and capacity building on technologies, business models, and
inancing.
• Develop twinning programmes between international and local business and industry associations. These
can facilitate sharing knowledge and experiences, provide a platform for conducting management
trainings, and organise secondments and joint activities. GET.invest, ARE and SolarPower Europe are
preparing models of this type of initiative. European industry associations can provide capacity building
on association management, policy and regulation, business development, and advocacy.
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• Support youth and women entrepreneurship programmes to empower the pioneers of the decentralised
energy sector and to stimulate demand in rural villages. The 2017 Young Leader Awards carried out by
ARE and AEEP set a good example of such an initiative.
6.2.2 Institutions and programmes in Africa and Europe
Various universities, research centres, and foundations in Africa and Europe are developing capacity building
and research programmes on sustainable energy development and engineering. For example, the Pan-African
University Institute for Water and Energy Sciences (PAUWES) at the University of Tlemcen, Algeria, oers
graduate courses in engineering and policy for energy, and is implementing an online postgraduate programme
on Mini-grids, Digitalisation and Entrepreneurship. Other African institutions oer capacity building for sector
professionals on the continent, including:
• The Mediterranean Renewable Energy Centre (MEDREC) in Tunisia, which is reaching out to expand
capacity building in SSA.
141
140
The European Solar PV association SolarPower Europe, via its Emerging Markets Task Force, is pursuing this approach by partnering with
local associations in Africa. See Box 20.
141
http://www.medrec.org/En/Sta_11_70
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• The South African Renewable Energy Technology Centre trains solar technicians, mostly women,
through local universities.
142
It can collaborate with other universities across Africa.
• The University of Cape Town Graduate School of Business oers courses on economics and regulation
for African energy utility executives and government oicials.
143
• Clean energy corridors, incorporating major capacity building programmes, have been set up across
SSA by ECOWAS, as well as by EAPP and SAPP (with development partners).
• The French École des Mines has a partnership with the South African Energy Training Foundation to
oer courses on energy economics and regulation in francophone African countries.
In Europe, educational institutions and industry groups oer various courses for African professionals and
students. The Florence School of Regulation is oering a 5-month training to African energy executives in
collaboration with the ENEL Foundation. The FSR’s on-line learning platform can also be adapted for almost
any kind of educational material and course format. Also in Italy, Politecnico di Milano, Fondazione Eni Enrico
Mattei (FEEM), and RES4Africa oer graduate courses and capacity building programmes for energy engineers.
Politecnico di Milano manages the Emerging African Innovation Leaders
144
programme, promoted by the Italian
Agency of Cooperation, to empower leaders in the energy, transport and digital sectors through a set of massive
open online courses.
145
GIZ, Get Invest, and the EU TAF for SEforALL also oer capacity building programmes
throughout Africa.
6.2.3 Empowering local SMEs and commercial banks
More than one-third of the global population is employed in formal micro, small, and medium scale enterprises.
Thanks to their operational lexibility and their ability to respond rapidly to market needs, SMEs represent the
backbone of modern economies. They have important social and economic development impact, thanks to their
potential to create jobs quickly and to contribute to Agenda 2030 and Agenda 2063 targets.
Many SMEs throughout the African continent have understood the business opportunity that the renewable
energy sector oers, notably in the o-grid sub-sector, but they face an unfriendly inancing environment that
slows progress. SMEs often lack the skills to draw up bankable business proposals. Even when they can, local
lenders often cannot provide the support they need, due to a lack of inancing instruments to support these
types of activities. In addition, lenders generally lack understanding of the business proposition. Small-scale
energy projects are especially suer from a high-risk perception from lenders.
Existing initiatives that target the empowerment of African renewable energy SMEs and local commercial
banks could help address this situation. This presents a high-impact opportunity. IRENA, in collaboration with
ECREEE, launched the Renewable Energy Entrepreneurship Support Facility (REESP) in 2017. It has since been
incorporated into the Regional O-Grid Rural Electriication Project (ROGEP), covering ECOWAS countries as
well as Cameroon, Chad and Mauritania. In the irst two years of its implementation, REESP provided support
to over 90 SMEs throughout West Africa, helping them raise over $1 million inancing by building capacities of
local commercial banks. It also contributed to the creation of a Regional Solar PV Association. ROGEP also oers
credit lines through local commercial banks. Based on its success in ECOWAS, IRENA collaborated with SACREEE
to launch the REESP initiative in the Southern African Development Community (SADC) region.
Empowering local SMEs and banks to develop renewables markets relies on local professionals, including
qualiied renewable energy technicians. IRENA, ECREEE, GIZ and ROGEP have supported the creation of a regional
certiication scheme for renewable energy technicians: the ECOWAS Certiication for Sustainable Energy Skills
(ECSES) Programme. The scheme’s objective is to improve RE professionals’ skills through standardised regional
certiication, to support market development. The scheme requires technicians to take regionally agreed exams
to ensure a standard competency level across the region. To date, ECOWAS members have approved the creation
142
https://www.saretec.org.za/
143
https://www.gsb.uct.ac.za/power-reform-regulation
144
http://community.africainlead.net/
145
https://www.pok.polimi.it/
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of certiication materials for o-grid solar PV technicians in both English and French, including exam content and
operational processes.
Several countries have successfully piloted the ECSES scheme. Practical and written exams were held at the
Ecole Supérieure Polytechnique in Dakar, Senegal in January 2019, and at the Kwame Nkrumah University of
Science and Technology in June 2019 in Kumasi, Ghana. The scheme is being rolled out in other ECOWAS
countries, with exams scheduled in Burkina Faso, Cabo Verde and Nigeria in the third quarter of 2019. Work has
commenced to develop exam materials for additional competencies, such as for grid-connected solar PV, solar
PV mini-grids and solar PV inspectors.
6.3 Africa-EU B2B Partnerships, Matchmaking and Networking
African and European companies do not operate in similar macro-economic contexts and business climates. A
large section of the African population has no access to basic services such as electricity and drinking water, and
suer from unequal and insuicient education and employment opportunities. European companies have access
to cost-eective technologies, advanced policies and regulation, and wide access to digitalisation, as well as
inancing. At the same time, European companies understand the importance of running sustainable businesses,
and the various impacts of business on job creation, gender equality, and environmental protection. African
companies can provide support based on their understanding of local political and socio-economic contexts
and business culture. European and African parties working together need to understand and address local
and regional risks and barriers associated with conducting business in Africa. Combining their complementary
knowledge and resources to overcome these barriers can help transform them into opportunities.
B2B relationships are essential to help businesses follow developments and share knowledge of new energy
eicient and cost-eective technologies. They help to grow business activities and partnerships, encourage
market developments, and support innovation in business models.
The EU, alongside other donors, promotes and supports various initiatives and events to strengthen B2B
partnerships through dialogues, including at forums and high-level strategic meetings . The EUAfrica Business
Forum, for example, presented discussions on digitalisation, and covered questions necessary to developing
and strengthening business partnerships between EU and African companies, as well as the role of Governments
in facilitating EU support. ARE, alongside development partners AfDB, ECREEE, ElectriFI, GET.invest, Swedfund
and UNIDO, initiated the ARE Energy Access Investment Forum in 2019. But more action is required to create
business opportunities aimed at achieving sustainable development.
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Box 19 - Creating Partnerships between African and European companies
Ensol Tanzania Ltd provides convenient, aordable access to quality clean energy products and services in
Tanzania. Spanish project developer Trama TechnoAmbiental (TTA) selected Ensol Tanzania as its partner
to deliver clean energy solutions to East Africa.
Tanzania's the rural electriication rate is below 15%. The vast countryside is sparsely populated, making
it favourable for o-grid electriication where grid extension remains infeasible. The 730 households in
remote Mpale village have long depended on fossil fuels such as kerosene and diesel to provide lighting
and electricity. Ensol Tanzania and TTA (both ARE members) joined forces with the United Nations Capital
Development Fund to coordinate and inance a hybrid solar mini-grid project to deliver sustainable,
reliable and cleaner energy services in Mpale. The mini-grid has 48 kW PV capacity with looded lead-acid
battery storage, backed up by a 50 kVA diesel generator. The electricity produced is distributed via a two-
kilometre-long aerial line installed throughout the village. Consumers receive electricity via a service-based
tari scheme.
Mpale village now enjoys 24/7 access to reliable electrical power. Their health centre now provides
uninterrupted service and students can study after sunset. The modern energy access stimulates the local
economic and social development by creating local business opportunities. Noise and environmental
pollution are signiicantly reduced. A further 15 villages have been identiied to replicate the project.
See https://ensol.co.tz/; http://tta.com.es/; https://www.ruralelec.org/; https://www.uncdf.org/
6.3.1 Barriers
The main barrier to B2B partnerships is a lack of interaction between local and international market players. Local
African SMEs and start-ups—especially those building small-scale projects such as mini-grids, but also larger
wind and solar project developers—have limited capacity to access and meet international inanciers, donors,
technology providers and suppliers. Local companies often have in-depth knowledge about last-mile customers
and local distribution chains.
6.3.2 Recommendations
- Organise investment forums and workshops bringing together international and local stakeholders in
the energy sector, government institutions, private sector, technology suppliers, NGOs and investors
to enable collaborations that can fast-track o-grid and on-grid projects on the ground. Investment
forums can help increase understanding of synergies between African and European partners, shine a
light on complementary functions and potential for cooperation, and oer space to share experiences
of African and European business cultures.
- Set up local help desks in selected markets or activities to increase interaction and knowledge transfer
between local and international players. A good example is the donor support, with local development
partners (GNSEC network), that has encouraged creating or strengthening African industry associations,
following the model of European associations.
- Create an evaluation framework to assess the impact of initiatives in terms of B2B creation and
development under speciic programmes. For example, the AEEP's Pan-African Programme studies how
to improve governance to facilitate business development between large international companies and
local players in Africa.
- Strengthen dialogue at the political level to discuss potential areas for cooperation between EU and
African Governments, the type of support needed, the role of EU Delegations in facilitating B2B activities
in African countries, and the role of digitalisation in strengthening B2B (such as through online inancial
platforms for access to crowd-funding).
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Box 20 - SolarPower Europe Emerging Markets Task Force
The European solar PV industry association SolarPower Europe set up its Emerging Markets Task Force
in 2018. The task force identiies business and cooperation opportunities in emerging markets. This
contributes to the energy transition outside Europe, with a focus on Africa. Its working group of over 100
experts from 50 companies has produced a series of market reports (including on Ivory Coast, Tunisia,
Senegal, and Mozambique) and other technical reports developed by directly engaging local stakeholders
through meetings, site visits, and conferences. The task force aims to develop structured partnerships with
local associations in Africa (such as the newly-funded AMER in Mozambique) to maximise B2B networking
opportunities, share best practices on policy and regulation, and encourage business development.
- Design marketing and communication strategies and programmes to share information on technological
innovation with African counterparts, and on how such technologies can create business opportunities.
- Improve B2B opportunities and linkages between private companies and industry players, for example
between European and African trade associations.
- Provide quality information about business opportunities and potential partners to market actors, for
example through market analyses. This can inform and help structure B2B opportunities, as well as
making them more eective.
6.4 Gender mainstreaming
Over 40% of the population of sub-Saharan Africa lives in extreme poverty, of which 70% are women and children.
The gender equality landscape is complex, and shows a strong overlap between gender equality and access to
energy. Most of the rural population in SSA lack access to clean and sustainable energy for lighting, cooking and
heating, as well as for productive uses such as agricultural processes. This is compounded by limited access to
water and public services (see section 6.6 on the water-energy-food nexus).
Women are heavily constrained by slow progress in the energy sector. Women are still the main users of energy
at a household level, and suer most under energy poverty. Women also tend to shoulder most of the (unpaid)
extra labour when their community lacks easy and reliable access to clean water or cooking and heating fuels.
On average, women spend four hours daily collecting fuel to produce fuelwood and charcoal in poor countries
such as Sierra Leone and Niger, with associated health consequences.
146
Similarly, women represent half the
agricultural workforce as small-holder farmers in sub-Saharan Africa and often bear primary responsibility for
growing food for household use. These challenges also aect women living in peri-urban areas.
The predominant means of acquiring and using energy create a heavy economic and health burden for rural
households in SSA. Charcoal, kerosene lights and candles, which remain primary or secondary energy sources
in rural Africa, produce harmful air pollution. According to the WHO, the smoke caused by cooking with these
unclean fuels aects 860 million people in Africa, and is responsible for over 4 million deaths globally each year.
Wood fuels such as charcoal are also major drivers of deforestation, which has harmful impacts on food security,
water availability, and climate change.
Women have an active stake in bringing solutions to the energy sector, and can be agents of change in all
aspects of energy value chain development, especially when they have access to microinancing schemes.
147
As household managers, women tend to be more sensitive to, and willing to adopt, sustainable consumption
practices, including using energy saving appliances like cookstoves, solar appliances, public transport, and
recycling. As consumers and users of energy, women directly beneit from clean, eicient energy solutions, and
use these to their advantage.
146
IEA (2019).
147
International Labour Oice, 2007. Small change, Big Changes: Women and Microinance. https://www.ilo.org/wcmsp5/groups/public/---
dgreports/---gender/documents/meetingdocument/wcms_091581.pdf
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As sales agents, women can more easily engage with other women consumers, who are the direct users of
improved stoves, solar appliances and other household products. When women do take up energy business
activities, however, they face various challenges. In poor rural regions, women typically do not formally own
household assets, and so cannot access credit from banks. If they do engage in business they stay in the informal
sector and rely on informal sources of credit, so their businesses tend to stay small. The challenges women
entrepreneurs face also encompass operational issues and lack of technical skills and training. Moreover, they
lack role models and professional networks to represent their collective interests in energy markets and value
chains.
In the public sector and in private energy companies, women are signiicantly underrepresented at the senior
management level. This aects companies’ recruiting decisions and strategies. Greater engagement of women
in the energy sector and gender mainstreaming will help expand the talent pool. Women professionals bring
diverse skills and perspectives that can make a dierence to sustainable energy development.
148
Any investment directed to reduce energy poverty must explicitly focus on empowering women. Solutions
should follow a dual track: i) supporting women to establish clean energy businesses, and ii) mainstreaming
gender-sensitive approaches across all energy sector interventions, especially in areas like clean cooking, SHS,
and mini-grids with productive uses (where women’s role has largely been overlooked).
149
Women should be
actively encouraged to enrol in training to work as technicians, salespeople, or engineers for supply, installation
and maintenance of energy appliances. They should be among the main beneiciaries of education, capacity
building and training programmes focusing on sustainable energy within local or international companies.
6.5 Technological research and digitalisation
Over half of the African population is under 24 years old, a trend that is likely to continue until 2030. African youth
play a central role in shaping the development of the continent, especially in the energy sector. In this regard,
The Agenda 2063 of the African Union has placed youth at the centre of the continental drive for transformation,
promoting their participation in all sectors, including energy.
The global changes in information and communications technology (ICT) have contributed to innovations in
various sectors. A recent World Bank report highlights that ICT has the potential to drive entrepreneurship
and innovation, especially in Africa. Several innovations have enabled new business models to emerge on the
continent, including mobile money transfer and mobile merchant services such as MPESA and Kopo Kopo in
Kenya.
ICT is playing a key role in the global shift from traditional centralised energy systems to distributed renewable
energy-based systems. Digital technologies present tools for improving energy access levels across Africa.
They have underpinned the design of new inancing schemes tailored to rural communities’ needs. For example,
they allow rural customers to pay in instalments for o-grid stand-alone power systems. Iinnovative and lexible
payment methods for energy services have emerged thanks to ICT, including prepaid and mobile payments.
The growing interest in mini-grids in Africa opens new spaces to apply digital technologies. Renewable and
hybrid energy-based systems need smart and digital technologies to balance demand and supply, and to ensure
eicient system operation. Digital innovations can address a wider scope of challenges in the mini-grid sector,
such as optimising project development processes, improving the design and planning of mini-grids, as well as
maintenance, management, and customer service processes.
Frontier technologies in the last decade have opened up new possibilities for African youth to drive innovation
and transform the socioeconomic landscape in Sub-Saharan Africa. Promising new areas of research and
development are emerging in technologies such as artiicial intelligence, big data, advanced computing, and
the Internet of Things. Combined with cost reductions of sensors and microcontrollers and mobile devices,
these create ideal conditions to renovate the energy products and services. A recent GIZ study shows several
148
ECOWAS, 2017. Regional Policy for Gender Mainstreaming in Energy Access
149
Ibid.
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youth-based digital innovations have led to the creation of start-ups, including in the energy sector. Youth
empowered with digital and entrepreneurship skills can both strengthen the smart-grid sector and harness it to
produce structural change. New digital business initiatives can facilitate the movement of workers from lower to
higher productivity employment. On the other side of the coin, digital exclusion can have severe repercussions
including to widen socio-economic disadvantages, disproportionately impacting young people. This presents
high costs for governments and society as a whole.
PAUWES is creating a dynamic framework for research and innovation, to use digital technologies to address
the challenges in the mini-grid value chain, including generation, distribution and operation. Frugal innovation
and research in the ICT sector oer a model for building a research and innovation framework for solving African
power sector challenges. PAUWES is working with actors and stakeholders of entrepreneurial ecosystems
in the continent—including tech hubs, incubators, and start-up investors—to build such an innovation and
entrepreneurship framework, linking with academic research institutions.
Developing Africa’s technological research and innovation capabilities requires support from development
partners. For example, funding is needed for applied research and capacity building to support demand growth
estimation and research on the potential for electricity access to foster economic development.
Support is also essential to encourage technology transfer for sustainable industrialisation. Well-established,
eicient and sustainable power systems, with widespread or near-universal electricity access, help catalyse
sustainable industrialisation, as in North African countries. The EU can support industrialisation and foster related
job creation by facilitating technology transfer between Europe and Africa.
6.6 The water-energy-food (WEF) nexus
Water, energy and food are the building blocks of economic, societal and sustainable development. Despite
Africa’s vast resources, over 600 million Africans lack access to energy, 737 million have no access to safely
managed drinking water, and 374 million experience severe food insecurity.
150
As African societies and economies
grow, urbanise, and evolve their lifestyles, the demand for basic resources will multiply. Meanwhile, Africa’s
vulnerability to climate change will further stress resource scarcity. This section discusses the Water-Food-
Energy (WEF) Nexus approach, and presents some recommendations in light of the need to integrate strategies
for water, energy, and food security.
The WEF Nexus describes the multiple interrelations between energy, water and food, highlighting that:
• Water is central to all human needs, to energy generation, and every phase of agricultural production,
and is also vulnerable to climate change.
• Energy is needed to extract, process and distribute water and treat waste water, as well as to power
agricultural and agribusiness processes. Transforming the energy sector is fundamental for climate
action.
• Food and agriculture require vast amounts of water and energy for production, processing, distribution,
storage and disposal of food products; food supplies chemical energy for human and animal
consumption, as well as biomass by-products. Agriculture is also vulnerable to climate change, while
producing high GHG emissions, pollution and environmental degradation.
Land use and allocation between climate, energy and food production create another overlap between these
sectors. This tension is relected in the interface between soil management, agricultural techniques (notably
agrochemical production and use) and groundwater pollution.
The WEF Nexus approach focuses on these connections to oer an innovative perspective in designing strategies
to increase access to clean energy, combined with water and food sector development. The approach considers
trade-os between the sectors, and promotes resource management techniques to improve productivity,
150
IEA (2017), FAO (2018a), UN SDG Indicators (2019)
71
eiciency, resource security, and sustainability in water, energy and food value chains. The idea is to kickstart
virtuous development cycles by helping rural and peri-urban users gain access to previously lacking resources.
Access to basic resources brings people and communities into the economy and spurs socioeconomic
development.
Harnessing productive uses of energy to underpin sustained economic growth in Africa through agricultural
development and water security can create widescale development impact. This approach aims to advance water
security alongside growth of the agricultural sector, which is a source of employment and income generation at
the heart of Africa’s economy.
151
However, these sectoral interdependencies are particularly challenging for Africa,
where widespread resource infrastructure is still lacking. This hampers progress in agricultural productivity,
industrial development, and poverty reduction.
152
PAUWES, in their scientiic contribution to the AU Agenda 2063, recommend taking an inter- and trans-disciplinary
approach to address the WEF Nexus.
153
Agenda 2063 organises the nexus into three main pillars: Energy – Water;
Energy – Climate; and Water – Climate. It analyses the current status and relevance of each sub-nexus for the
continent, as well as challenges and recommendations for further research.
The WEF Nexus oers various pathways to deliver sustainable impact (see Annex B).
154
WEF-based approaches
can help create captive markets by sustaining productive uses of renewable energy, which then diversify local
economies. Taking agriculture and water sectors into account in energy investments can help accelerate last-
mile connectivity and stimulate energy demand among poor users in rural and peri-urban communities. This
enhances the market attractiveness of energy access. Especially when powered with clean sources, WEF Nexus
approaches reduce carbon footprints and pollution across sectors. This creates additional environmental and
socio-economic beneits and contributes to advancing the SDGs.
Innovations stemming from the WEF Nexus can attract a broad range of investments which need viable business
models to work at scale. These would foster local demand growth, open new market possibilities, and increase
the private sector’s willingness to invest in African markets. Largescale investments in the WEF Nexus can
stimulate demand for energy access and build new access markets, which would increase economic productive
capacity. WEF Nexus case studies remain limited, however. More research and trials on business models are
needed to reveal their potential for scale and replicability.
In order to meet the daunting global challenges related to water, energy and food security and maintaining
ecosystems health, the EU is also developing the water-energy-food-ecosystems (WEFE) Nexus. The strain on
ecosystems resulting from unsustainable single-sector planning increases poverty, inequality and instability.
The WEFE Nexus incorporates the main drivers of climate change (water, energy and food security) and the main
sectors aected (water and the environment). It is diicult to imagine solutions to climate change problems that
are not built on a form of Nexus approach.
155
6.6.1 Recommendations
Sector policy, capacity building and markets need to adapt to catalyse further development of WEF Nexus
applications:
156
151
Ensuring long-term development and poverty eradication partly depends on growing and industrialising the agricultural sector and
advancing development in rural areas. WEF Nexus initiatives can create opportunities to support the expansion of agricultural and agri-
food production cycles (e.g. farming, poultry and ishing value chains), which drive agricultural and industrial development. The WEF Nexus
oers an innovative perspective on overcoming Africa’s energy access gaps by considering how energy can both enable development and
solve resource challenges.
152
In this perspective, energy acts as an enabler of increased food security, agricultural productivity and improved access and management
of water resources for human and productive uses.
153
http://pauwes-cop.net/documents/PAUWES_Research_Agenda_Final.pdf
154
Energy can become truly transformative when it endows other pillars of sustainable development, such as water and food: RE can play a
signiicant role in leading the water and food sectors towards greater sustainability.
155
See Position Paper on Water, Energy, Food and Ecosystem (WEFE) Nexus and Sustainable development Goals (SDGs) at EU Science Hub.
https://ec.europa.eu/jrc/en/publication/position-paper-water-energy-food-and-ecosystem-wefe-nexus-and-sustainable-development-goals-
sdgs
156
RES4Africa and Enel Foundation, 2019. Africa’s Future Counts. https://www.res4africa.org/wp-content/uploads/2019/06/RES4Africa_
lagship_2019.pdf
72
- Integrate the WEF Nexus as a strategy for market discovery, resource management, and sustainable
(business) development. Energy sector actors in Africa and Europe, including public and private sector
entities, should take advantage of the linkages and opportunities in the WEF Nexus. The WEF Nexus
approach should be part of overall energy sector planning and cross-sector planning. This requires a
stronger coordination between national institutions. The development and business agenda, as well
as associated actors, should also adopt the WEF Nexus to increase impact, in line with their capacity,
mandate, and expertise.
- Shape an inclusive and supportive business environment for the WEF Nexus. Policy and regulatory
frameworks should be designed to recognise the importance of the WEF Nexus as a driver of
sustainable development. They should promote the WEF Nexus approach for o-grid and on-grid
energy investments (such as hydro plants also used for irrigation). Development partners should
support African governments to ensure that reliable and enabling business conditions are set to enable
WEF Nexus approaches.
- Create adequate and dedicated inancing schemes to support the promotion of WEF Nexus approaches,
and to scale up implementation. For example, agri-food and water sector projects mobilise large
resources and funds from targeted inancing instruments, which still fail to recognise the need for
renewable energy supply to optimise operations in those sectors. Renewable energy investors are left
without access to those inancing sources. Financing programmes and support instruments need to
recognise and address the cross-sectoral connections between water, energy and food sectors.
- Dedicate eorts to capacity building to ensure the longevity of projects and markets. Training programmes
should integrate the WEF Nexus to raise awareness and anchor WEF Nexus thinking into development
strategies at government and corporate level. Actors engaged in capacity building programmes should
include the WEF Nexus in ongoing capacity building strategies, programmes and plans.
- Integrate cross-sectoral collaboration between energy, water and agricultural sector players as well
as other key stakeholders, including public and private sector actors across industries, and inancial
institutions. Energy, water, and agricultural sectors need to break free from silo-based action and
mainstream WEF approaches. Collaboration would help strengthen policy dialogue, produce viable,
scalable business models that can be replicated across contexts, and design adapted inancing
mechanisms. Applications of the WEF Nexus should be trialled to explore their potential for scale and
creating development impact.
- Close information gaps in WEF sectors, which impede development and implementation of WEF Nexus
business models. Applying WEF Nexus business models at larger scales requires access to reliable
market and customer information, as well as data on case studies and best practices to build on.
Experience-based knowledge is key to oer examples and reine business models.
6.6.2 A framework to mainstream environment, biodiversity and climate change
The energy sector’s interactions with the biophysical and social environment can have unintended or unwanted
eects, including harmful social and environmental impacts. At the same time, clean, sustainable energy
services underpin responsible production and consumption, and eicient use of natural resources.
157
Three core
questions can reveal the main environmental and social concerns linked to renewable energy interventions:
A. How does the sector impact on the environment? This considers the environmental and social impacts
of energy sector interventions.
B. How does the sector depend on the environment? This considers the energy sector dependency on
ecosystem services provided by the environment.
C. What risks does the environment impose on the sector? This considers the energy sector’s resilience to
environmental and climate risks and disaster risk preparedness and/or reduction.
157
A good summary overview is provided in the Sector Note: Mainstreaming Environment and Climate Change – Energy by the environment
and climate mainstreaming facility. It is structured according to entry points for mainstreaming of environment during programme and
project identiication, formulation, implementation and evaluation.
73
Environmental and social impacts. Energy sector development requires infrastructure that interacts with people
and the environment. Building energy infrastructure commonly entails land use change, with potential impacts
on biodiversity and ecosystem services. It also can lead to competition or conlicts over resources. Construction,
operation and decommissioning of energy infrastructure can cause air and water pollution. These may impact
natural processes, with eects reaching far beyond the construction site. These questions are addressed by
‘conventional’
158
environmental and social impact assessment (ESIA) of projects.
Environmental dependency lies at the heart of renewable energy production. Environmental conditions determine
what kind of energy can be produced and at what costs. Availability of wind, sunshine, water, biomass, geothermal
sources and suitable space provide the opportunities for energy generation. Space is an increasingly limiting
factor, both on land and on water. This creates an overlap between energy sector planning and spatial planning
or regional development planning. Strategic environmental assessments (SEA) should be used to assess regional
and national energy plans and policies to ind an optimal balance between economic, social or environmental
uses of space and resources, taking into account long-term climate change scenarios.
Environmental risks. The environment imposes risks on energy projects, mostly through geological (such as
earthquakes and landslides) and weather-related events (such as loods, drought, hurricanes, heat waves,
and wildires). Climate change can increase these risks. Climate resilience, adaptive capacity, early warning
systems and risk reduction strategies are part of climate risk assessments and climate risk management plans.
159
ESIAs and SEAs can integrate climate risk assessments and management plans for projects, policies, plans and
programmes, where relevant.
Going beyond a “do no signiicant harm approach”, energy sector strategies and planning should identify
opportunities where energy investments can also contribute to achieving environmental objectives, such as
promoting and protecting biodiversity, water quality and ecosystem services. More detailed information on
integrating environment and climate change in the sustainable energy sector can be found in annex E.
158
Where early impact assessment was focused on impacts resulting from project activities, nowadays, environmental dependencies and risks
are considered to also be part of good practice ESIA.
159
Further detailed information provided in “Integrating the environment and climate change into EU international cooperation”.
74
7 ACTION AGENDA FOR SUSTAINABLE ENERGY
INVESTMENTS
Achieving inclusive, environmentally sustainable, reliable,
aordable, and climate-resilient access to energy should
be a priority in the short-term. This inal chapter presents
the SEI Platform’s priority recommendations and practical
actions for implementation.
This action agenda requires concerted political dialogue and the active participation of the private sector, civil
society, academia, and public and international institutions with a common interest in sustainable development
to foster prosperity. In this context, it is recommended that the AU and the EU maintain this cooperation platform
and expand it to more stakeholders, while following up on the implementation of these recommendations.
These recommendations contribute towards achieving African leaders' aspirations in the Agenda 2063, the New
Deal on Energy for Africa, the Cairo Declaration and Action Plan, as well as the United Nations’ 2030 Agenda and
Paris Agreement.
Substantial investment in capacity building and technical assistance support is needed to carry out most of
these recommendations. At the same time, realising the stated objectives requires that partner countries make
strong political commitments through adopting appropriate policies and regulations.
The priority recommendations are structured in the following 10 categories:
A. Adopting policy and regulatory measures to facilitate sustainable energy investments.
B. Promoting best practices in project identiication, preparation, and procurement.
C. Adapting inancial and iscal systems to meet potential investors’ and projects’ needs for maximising
beneits to African partners.
D. Launching a comprehensive capacity building programme.
E. Investing in the distribution segment.
F. Expanding mini-grids and standalone systems.
G. Investing in generation, with a focus on renewables.
H. Advancing regional integration of national power sectors and strengthening transmission
I. Improving energy eiciency.
J. Encouraging market development, consumer demand, and investments in the clean cooking sector.
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A. Adopt policy and regulatory measures to facilitate sustainable energy investments
Objective
Adopt policy and regulatory frameworks that ensure a level playing ield, favourable to local and
foreign private sustainable investment, including for the establishment of PPPs.
Action
A.1 - Policies
Design and implement a technical assistance and capacity building programme to support energy
and corresponding line ministries to develop national policies and targets for all segments of
the energy sector. Policies should focus on i) expanding access to electricity and clean cooking,
wider deployment of renewable energy, and energy eiciency, ii) promoting and increasing local
and international private sector investments in sustainable energy, including through phasing out
fossil fuel subsidies and decommissioning thermal plants, and iii) integrating climate change and
environmental considerations across all measures.
A.2 - Regulations
Design and implement a technical assistance and capacity building programme to support energy
regulatory authorities in regulatory review processes, and in drafting and promoting a framework to
implement the above policies. The framework must address weaknesses (such as those identiied
in the Electricity Regulatory Index— regulatory independence, tari design, operation of wholesale
markets).
160
The aim is to strengthen the regulatory framework for all segments of the energy sector
with a focus on access to electricity, o-grid/mini-grid systems, clean cooking, deployment of
renewable energy, and energy eiciency.
B. Promote best practices in project identiication, preparation, and procurement
Objective
Get more sustainable energy projects done in Africa by enabling a favourable environment for
renewable energy investments, by ensuring the processes for infrastructure project development
are eicient, sustainable, simpliied, and standardised, and that donors’ instruments are deployed
coherently and eiciently.
Action
B.1 - Identify a
pipeline of eective
and impactful
projects
Develop a technical assistance programme for specifying project pipelines, starting from the existing
project pipelines of PIDA, AREI, SEforALL and other sources’ investment prospectuses that have been
identiied based on agreed selection criteria for all energy projects.
B.2 - Streamline
the process of
implementation of
sustainable energy
projects
Develop a technical assistance and capacity building programme, reinforced by political dialogue
through energy diplomacy engaging with African governments to support public authorities
(governmental entities, utility companies, rural electriication agencies and energy ministries, and
regulatory authorities) in standardising: i) tendering, procurement and licensing processes, including
environmental and social impact assessment procedures; and ii) transaction documents (such as land
and water permits, land rights documents, PPAs, and Environmental and Social Impact Assessments).
Avoid retroactively and unilaterally changing the rules of procurement and compensation for IPPs, as
such actions risk destroying market and investor conidence.
B.3 - Design de-
risking measures
in the process of
project preparation
Recommendations C (Financing and iscal systems), F (O-grid and mini-grids), and H (Generation)
describe these de-risking measures in more detail.
B.4 - Streamline
Africa-Europe
support activities
and harness
synergies
for eective
implementation
procedures
Appoint a task force to review current instruments and processes, to i) reduce potential overlaps
or duplications of instruments applied; ii) standardise diverse procedures; iii) unify potentially
fragmented programmes under an operational one-stop-shop, iv) ine-tune coordination of existing
tools; v) reinforce simultaneous support from three channels: inance, technical assistance/capacity
building, policy dialogue; and vi) ensure eective follow-up, inter alia by adopting monitoring
standards to increase the eectiveness of current and future actions within the purview of the SEI
Platform.
160
See the African Development Bank’s Electricity Regulatory Index (ERI), https://www.afdb.org/en/news-and-events/african-development-
bank-launches-irst-electricity-regulatory-index-for-africa-18250 (accessed in October 2019)
76
C. Adapt inancing and iscal systems to meet potential investors’ and projects’ needs, for maximising beneits to African
partners
Objective
Enhance the economic viability of energy projects and their attractiveness to potential investors,
along the entire project chain with the aim of maximising beneits for African partners. Risk
mitigation is critical in this respect.
Action
C.1 - Enhance
cooperation among
DFIs and between
DFIs and commercial
lenders
Encourage DFIs to attract local commercial lenders by co-investing, sharing risk and leveraging
DFIs’ ability to provide longer tenors and lower interest rates.
Encourage IFIs to support the implementation of wider risk mitigation strategies, including
packages of de-risking tools (e.g. political risk insurance, o-taker guarantees and currency risk
hedging mechanisms, in addition to advisory services and technical assistance). These strategies
should be designed in collaboration with the private sector.
Support the scale-up and replication of funding structures with a track-record of delivery, and
develop new funding structures to address market gaps not covered with existing instruments.
Set up a standardised monitoring and evaluation framework to evaluate the eectiveness of
existing inancing and de-risking tools through an enhanced multi-stakeholder dialogue. Improve
coordination among IFIs on existing instruments. Promote a multi-stakeholder dialogue for
sharing best practices for addressing key bottlenecks to private investments in the sector of
sustainable energy (e.g. capitalising on platforms such as the Africa Energy Market Place).
C.2 - Design de-risking
packages for tendered
projects
Provide technical assistance for appropriately solicited project preparation prior to tender launch.
Support multi-project tenders, for example using services oered by existing instruments (e.g.
Get.Invest, GMG Helpdesk) to reinforce early stage support/handholding for project developers.
These instruments help de-risk inancing in renewable investments and create a market friendly
to renewable investments.
Provide capacity building/training to local commercial banks to conduct due diligence and risk
assessment on clean sustainable energy projects.
Encourage local commercial banks by providing incentives for lending to women entrepreneurs
(through special lending programmes).
C.3 - Empower local
banks and local
institutional investors
to invest in the
sustainable energy
transition
Encourage DFIs to attract local commercial lenders by co-investing and sharing risk of sustainable
energy projects.
Provide credit lines, including supportive funding and de-risking instruments, to local banks to
lend to clean sustainable energy projects or of SMEs, to support the growth of local SMEs in the
energy sector, in particular for women entrepreneurs.
Encourage local institutional investors and pension funds to shift their portfolios in support of
clean sustainable energy projects.
See chapters 1 to 4 for recommendations speciic to each segment of the power sector segment, clean cooking
and energy eiciency.
77
D. Launch a comprehensive capacity building programme
Objective
Invest in human resources, particularly technicians, engineers, sector managers, and
regulation professionals, to support the sustainability of the sector. Capacity building is
urgently needed across the sustainable energy sector, for electricity, heating, and clean
cooking.
Action
D.1 - Create knowledge sharing
platforms and capacity building
programmes
Launch an ambitious capacity building programme spanning a portfolio of topics
and professional levels, and for all energy sector stakeholders building on previous
successful experiences and existing centres of excellence in Africa (e.g. African
Network of Centres of Excellence in Electricity, ANCEE) and Europe for Africa (e.g.
Florence School of Regulation at the European University Institute).
Foster cooperation between European regional institutions and counterparts in Africa
(such as through twinning) for exchange of knowledge and capacity building on
energy access and clean cooking, energy management, sustainable energy and energy
eiciency.
D.2 - Promote Africa-Europe
joint innovation, research and
development
Support and strengthen initiatives, like Pre-LEAPRE, that support long-term
collaborative AU/EU joint research and innovation activities in renewable energy and
energy eiciency.
Support the creation of and provision of technical assistance to digital and energystart-
upsto facilitate the entry of innovative technologies on the African market. This can be
achieved through partnerships with EU start-ups.
D.3 - Promote B2B partnerships
and networking between
companies, industries and
associations across sectors
Organise forums to convene international and local stakeholders in the energy sector,
including public and private sector, technology suppliers, and civil society organisations
to enable synergies and fast-track o-grid and on-grid projects on the ground.
Organise and/or facilitate B2B partnerships, matchmaking and networking through
African energy associations and African countries’ EU Delegates, which can serve
as information desks on speciic or targeted business opportunities (e.g. under EU
supported investment programmes).
E. Invest in the distribution segment
Objective
Transform the presently dysfunctional power distribution segment into a viable
business model that can attract the investment it needs, to ensure reliable, aordable,
and sustainable electricity access for consumers.
Action
E.1 - Develop national integrated
GIS-based electriication plans
Provide technical assistance to the Ministry of Energy, incumbent utilities or rural
electriication agencies to develop new and/or review existing electriication plans and
investment criteria, alongside beneiciaries, project developers, industry and investors.
Learn from those countries that have already developed and are implementing National
Electriication Programmes.
Provide technical assistance to outline investment programmes or prospectuses
consistent with electriication plan.
Strengthen and capacitate national rural electriication agencies through training,
network building and knowledge/experience exchange.
E.2 - Promote the adoption
of the integrated distribution
framework (IDF) adapted to
countries’ speciic conditions
Convene a high-level multi-stakeholder dialogue to promote the IDF for grid and o-grid
electriication.
Provide technical assistance to perform in-depth analysis of the potential application
of the IDF to a small group of countries based on a transparent call for proposals, and
subsequent implementation.
Provide technical assistance to support integrating electricity supply through a range of
electricity services, emphasising productive uses and promoting women’s participation.
E.3 - Review / develop / improve
regulations for the speciic
activity
Provide technical assistance to design performance-based incentives for distribution
operators to improve reliability and customer commercial service, augment connections,
roll out advanced metering systems, and reduce technical and commercial losses.
E.4 - Create loss-reduction
programmes
Support utilities to elaborate a network losses reduction programme to reduce network
losses with a well-deined action plan and investment strategy.
* See chapter 3 of the complete report for a more detailed description of the integrated distribution framework.
78
F. Expand mini-grids and standalone systems
Objective
Expand o-grid sector with appropriate regulations and subsidies. Mini-grids and
standalone systems form part of the distribution segment, and prior recommendations
for distribution also apply to o-grid solutions. O-grid solutions are being deployed
with novel business models and largely without being subject to conventional
regulation. Standards and regulations for o-grid solutions must protect consumers and
developers, establish conditions for the interaction among the dierent electriication
modes and create a level playing ield for all of them.
Action
F.1 - Support the deployment
of mini-grids and standalone
systems through sensible
administrative procedures,
regulations, subsidies, and risk-
mitigation
Launch a technical assistance programme to simplify and standardise the administrative
processes to identify, fund and implement mini-grid projects, eliminating the current
fragmentation and gaps in funding cycles.
Create portfolios of projects to attract and facilitate inancing (including for standalone
systems, where applies).
Explore support for a standardised, multinational (even pan-African) subsidy programme
to facilitate mini-grid deployment at scale. In principle, this could be based on RBF.
Support initiatives to develop electricity demand, such as through productive uses,
alongside new supply systems. Including women’s work and employment opportunities
is essential in this sphere.
F.2 - Develop standards and
inspection procedures for mini-
grid and standalone system
components
Provide technical assistance to design and/or review the regulatory framework for mini-
grids performance standards, making use of existing quality assurance frameworks.
161
F.3 - Support consumer inance
for rural electriication using
standalone systems
Cooperate with microinance institutions in funding, de-risking, and technical
assistance, notably to design new lines of credit or dedicated funds and/or scale up
existing initiatives to facilitate access to inance by rural households.
F.4 - Adopt the Integrated
Distribution Framework as a
medium and long-term guide
to develop the distribution
segment for inclusive and
sustainable electricity access
See recommendations and actions in E (Distribution segment). Mini-grids and standalone
systems must play a key role in the deployment of the IDF, adapted to the situation of
each country.
G. Invest in generation, with a focus on renewables
Objective
Close the deicit in generation to supply the large, still unelectriied population, and
to underpin sustainable industrialisation. Africa needs to harness a broad mix of low-
carbon technologies in its transition to decarbonise the energy system, to deliver least-
cost aordable energy and protect economies from vulnerability, including for coping
with the variability of solar and wind.
Action
G.1 - Deine actionable
guidelines and tools to
facilitate Africa’s transition to
decarbonise the power sector
Enhance dialogues at high institutional level (e.g. in the context of PIDA) to deine
guidelines and instruments for sustainable generation investments.
Explore instruments that support African countries to expand the use of renewables for
addressing baseload requirements, such as by oering technical assistance to national
power system planning and optimisation for increasing the share of variable renewable
energy in the power system and deploying energy storage solutions.
161
See https://www.nrel.gov/docs/fy17osti/67374.pdf
79
G.2 - Support approaches for
reducing risks in generation
investments, especially
for renewable projects,
including by improving the
creditworthiness of o-takers
Provide technical assistance to assess the market potential for introducing creditworthy
intermediaries in speciic countries/regions, based on deined criteria and in dierent
electricity market conigurations; design and/or adapt the regulatory framework to
allow the introduction of intermediaries; consider combining the following measures:
increase the liquidity of national markets or power pools; strengthen the guarantees
associated to the supply contracts; allow the introduction of creditworthy intermediaries
to diversify risk.
Transform the presently dysfunctional distribution segment into a viable business
model to make a creditworthy o-taker (see the proposed IDF in section E (distribution)).
Reduce T&D losses (technical and commercial), through i) technical assistance support
for an enhanced regulatory framework, e.g. linking electricity taris with performance
on energy eiciency;
162
ii) designing smarter distribution grids with eective monitoring,
advanced metering, fault rectiication, and supply improvement; and iii) capacity
building for utility companies or distribution entities in using smart meters to improve
collection rates.
G.3 - Design de-risking packages
for tendered generation projects
Plan generation projects in harmony with necessary development and expansion of
T&D networks. Procurement procedures and technical speciications should align with
country regulations where they will be deployed, as well as the power pool rules if the
project has an impact at regional level
Create regulations to facilitate extending connection lines between new generation
plants and appropriate substations, with the aim of accelerating the deployment of
renewable energy into the grid. The grid code must clearly deine the conditions and
process for connecting third parties to the existing grid.
See recommendations C (Financing and iscal systems) for general purpose recommendations on de-risking
packages.
H. Advance regional integration of national power sectors and strengthen transmission
Objective
Integrate regional power systems and build up transmission investments to support the
continent’s growth agenda, in line with the AfCFTA initiative. Despite its many potential
beneits, regional integration is hampered by the absence of strong regional institutions
and frequently inadequate enabling regulations. In addition, existing power pools
lack suicient executive powers. The transmission segment, a backbone of regional
integration, continues to face a critical investment gap: a major bottleneck for further
system integration.
Action
H.1 - Strengthen regional
institutions: regulator and
system operator
Prepare a draft protocol agreement with options to strengthen the functions of the
regional and system operators of power pools. Discuss successful international
experiences in the context of a high-level AU conference, including African energy
ministries, regional institutions and relevant EU organisations.
Support initiatives like the Africa Clean Energy Corridor (ACEC) that supports indigenous
and cost-eective renewable power options, selecting suitable deployment areas where
adequate transmission capacity could be eiciently provided, and meaningful trade
could happen.
H.2 - Adapt and adopt
international best practices in
market rules
Launch a technical assistance programme to share best international practices in
power pool regulation, including eicient economic dispatch in the presence of
bilateral contracts, open cross-border access, open and transparent membership, and
transmission cost allocation. The experience gained in the implementation of the EU
Internal Electricity Market will be valuable. Include speciic capacity building activities
at political, executive, and technical levels.
H.3 - Support comprehensive
planning with regional scope to
inform transmission investments
Provide technical assistance for transmission regulation and planning questions, in
particular those with high potential for meaningful cross-border trade, such as cost-
beneit analysis of transmission network infrastructure, transmission cost allocation,
and congestion management approaches.
162
For example, by refusing a tari increase to the distribution utility if losses are not reduced by a certain degree.
80
I. Improve energy eiciency
Objective
Strengthen the ability of African countries to implement energy eiciency (EE) policies
and investments to bolster economic growth and industrialisation decoupled from
growing energy use.
Action
I.1 - Formulate, review and
strengthen EE regulations
Provide technical assistance to support regulatory authorities and/or energy ministries
to review existing EE regulations, and to propose new/improved regulations.
I.2 - Identify and assess EE
savings potential across
selected African countries
Provide technical assistance to energy ministries or dedicated institutions to design and
launch studies analysing energy savings potential, including in cogeneration, industrial,
buildings, electricity, and transport sectors.
I.3 - Design regional and national
EE action plans and programmes
Support regional organisations and national public sector authorities to design EE
action plans and programmes in buildings, industrial, and transport sectors.
J.4 - Improve the institutional
framework for EE
Begin dialogue among EU and African energy ministries and/or regulatory authorities to
set up or strengthen dedicated EE and energy conservation institutions, as implementing
agencies for EE policies, programmes and action plans.
Provide technical assistance to set up the legal and regulatory framework for EE
institutions and train sta.
I.5 - Provide capacity building to
public institutions to implement
EE policies, programmes and
action plans, and to support EE
investments, respectively
Design and/or build on existing capacity building programmes to support regulators
with design, implementation and monitoring of EE measures.
Provide support to enhance technical expertise of institutions and local private sector
companies for installation, maintenance and control of EE products and services.
Provide Technical Assistance and capacity building to utility companies to design and
implement maintenance programmes for improved EE in power systems.
Provide technical assistance to establish Super ESCOs for government facilities and
to assist in putting in place all required components for operation, inancing, capacity
buildings and private ESCO market development.
Provide technical assistance to develop and replicate an on-bill inancing scheme,
notably for the residential sector.
I.6 - Create information sharing
platforms and awareness raising
campaigns to promote the
beneits of EE
Provide technical assistance to design communication strategies across all sectors and
involving key stakeholders (policy makers, businesses, inance, consumers) to highlight
the importance and potential and beneits of EE products and services, notably in terms
of cost, environment, health, and job creation.
81
J. Encourage market development, consumer demand, and investments in the clean cooking sector
Objective
Shape a policy, regulatory and business climate with supportive social drivers that can
expand access to clean cooking solutions across the continent.
Action
J.1 - Prioritise access to
integrated clean cooking
solutions in national
development plans and policy
documents
Launch an integrated multi-year clean cooking technical assistance and awareness
programme supporting a coordinated approach to regulations, social drivers, inance,
manufacturing and distribution of cookstoves and eicient appliances, and addressing
irewood and charcoal, biofuels, gas and electricity (for electric cooking) value chains.
This could be led by multi-sectorial taskforces (such as energy, health, gender, inance).
EU and AU leaders to jointly call on governments to prioritise access to clean cooking
solutions in national development plans and climate action programmes.
J.2 - Create regulatory and
policy environment to support
market development and rapid
technology deployment for
clean cooking solutions
Enhance political and technical cooperation between the health and energy sectors
through a multi-stakeholder platform of action (governments, civil society, UN, private
sector), such as the new Health and Energy Platform of Action (HEPA) launched at the
2019 UN Climate Summit.
Support African countries to adopt policies and laws to support and incentivise
investments in the clean cooking solutions value-chain, treating the clean cooking
sector as an integral part of the wider energy system.
Provide capacity building and business advisory support to key value chain actors to
scale-up production and build out fuel, stove and appliance distribution.
J.3 - Support research and data
collection at country level
Support analysis and data collection to identify proven policies, and regulatory and
business models that encourage market development, paying attention to safety
practices, consumer acceptance, health, gender and economic viability.
Support research to adopt a synergistic approach to electricity and clean cooking
access, to analyse co-beneits in planning, cost of energy, electricity delivery business
models, and the role of utilities.
J.4 - Support innovative
inancing to attract public and
private investment into clean
cooking solutions
Introduce results-based inancing to use public resources to incentivise market
development in a set of pilot countries.
Facilitate up-front inancing needed by clean cooking supply-side entrepreneurs,
especially for women entrepreneurs.
Facilitate inancing to establish and stimulate the demand side aordability challenges,
including by expanding pay-as-you-go models.
Leverage funding from multilateral development banks (MDB) and institutions to attract
private sector investments in the clean cooking sector including through supporting
dedicated fund structures, such as Spark+.
Provide targeted subsidies linked to health and climate impacts, particularly for poor
communities and low-population-density areas.
J.5 – Create consumer demand
for clean cooking
Fund national social campaigns to raise awareness on clean cooking and gender norms,
and facilitate behavioural change interventions to support uptake of clean cooking
technologies through working with relevant line ministries.
82
ANNEX A. Key principles for reliable, aordable
and sustainable distribution of electricity
Universal energy access cannot be achieved without an in-depth rethinking of electriication policy at distribution
level. Finding viable business models for rural distribution in low-access African countries presents a major
challenge from a political, social, and regulatory perspective for decision makers. Responding to this challenge
requires meeting four key principles:
• Inclusiveness (leaving nobody behind). Inclusive electriication within a designated region requires there
to be a responsible distribution entity that assumes real – not just formal – responsibility for serving all
customers, irrespective of their level of demand under basic quality conditions. Power sector regulation
in most countries requires the incumbent distribution utilities to provide universal service but, given
the existing diiculties, this legal requirement is not enforced. By contrast, inclusiveness is at the core
of the integrated distribution framework (IDF). For instance, it can be included as a hard condition in a
territorial concession contract.
• Mixed electriication modes. Distribution should take advantage of all possible delivery modes in order
to fulil their universal electriication objective and selectively consider grid extension, mini-grids and
solar home systems (SHS). Geospatial planning tools have shown great promise in providing decision-
makers with cost-eicient electriication strategies exploiting all three modes of electriication.
• Permanence (continuity in time).Distribution policy should be planned for the long term, based on
inancially and socially sustainable business models that can last for decades. This indispensable
component of sustainability requires a long-term vision and commitment as well as strong, continuous
political support.
• Flexible partnerships. Distribution companies should be open to developing partnerships with public or
private structures capable of providing adequate technical, managerial and inancial support. External
support will be decisive to achieve both universal energy access and a high quality of service for all.
The IDF is designed to enable meeting these four requirements and attracting private capital into viable
distribution activities. Dierent versions ofIDF can be implemented depending on the particular conditions of
each country. The IDF has the following key features:
• For any geographical area there must be an entity with the explicit obligation of providing universal
electricity supply, through any electriication mode, and with the aim and ability to ensure continuity.
The entity that holds these responsibilities must play a central role in the future power sector, and holds
an important place in its structure. This entity does not necessarily have to supply all customers, but it
would have the default obligation of supply, with some required minimum level of performance.
• The necessary managerial, inancial, and operational changes in the incumbent distributor will be
achieved through some form of partnership with an external entity. In most cases the partnership
would adopt the format of a concession with a private sector entity, with some inancial guarantee
support from a DFI, and the explicit agreement of government and regulatory authorities to create the
appropriate legal and regulatory conditions. Local companies, mini-grid developers, and standalone
system vendors could also be involved. Other options are possible under the IDF umbrella. Each country
will need a tailor-made design.
• The remuneration scheme should recognise the dierences between the traditional distribution
company’s physical network assets and operation activities (strict distribution network activity or
“carriage”) and its consumer interaction activities (the retail activity or “content”).
• Consumer engagement is a critical component of the IDF, which will change public perception and
customer mindsets regarding the electricity supplier. A satisfactory quality of service is a necessary
condition for any attempt to introduce cost-relective taris and to address unpaid bills and illegal
connections.
• Rural distribution will depend on some form of subsidy. The economic viability of rural distribution in
developing countries is unachievable, and has never been achieved in any developed or developing
country, without any form of subsidy. There are multiple strategies for reducing the required subsidies:
− Planning for least-cost electriication modes;
− Improving consumer satisfaction and increasing prepaid metering to reduce illegal connections
and unpaid bills
83
− Cross-subsidising taris of lower-income households by other loads that can absorb some price
increases, such as high-consumption residential, commercial, and industrial customers
− Bringing back to the grid those C&I customers that defected because of poor reliability or excessive
cross-subsidisation
− Standardising supply equipment and demand appliances with an emphasis on eiciency
− Creating activities around electricity access to stimulate additional residential demand, plus
productive uses and community activities that need electricity, which would increase useful
demand and prosperity, and reduce per-unit supply cost.
84
ANNEX B. Capacity building resources
and programmes
The following presents an inventory of the educational institutions and EUAfrica collaborative agreements
on capacity building programmes in the energy sector, and potential initiatives at academic, corporate and
institutional levels.
The Florence School of Regulation (FSR) brings over 15 years of experience in training on energy sector regulation
for professionals of regulatory commissions and energy companies. It currently runs several presential, on-line
and hybrid courses, ranging in duration from 9 months to a few days, as well as workshops and other short-
term high impact events. The FSR’s online learning platform can be adapted for almost any kind of educational
material and course format. The FSR has an experienced team of instructors and strong connections with other
institutions around the globe. The FSR, in collaboration with the Enel Foundation, is organising and inancing a
5-month capacity building hybrid course for executives of the African power sector, starting in the irst semester
of 2020. Among their lagship courses, the FSR proposes: Fundamentals of the power sector (Regulation for
SDG7; Regulation of the power sector); Fundamentals of the gas sector; Regulatory delivery; Highlights of the
energy sector in Africa for senior energy professionals.
The MEDREC
163
association has experience with Capacity Building and attempts to expand associated activities
in SSA countries.
The ENEL Foundation has a programme called Open Africa addressed to young professionals in the energy
sector, in collaboration with the FSR.
The South African Renewable Energy Technology Centre (SARETEC)
164
trains solar technicians, mostly women.
SARETEC’s programme is embedded in universities and can be involved with other universities across Africa.
The École des Mines, France, and the Energy Training Foundation
165
in South Africa have been teaching courses
in economics and regulation in francophone African countries.
Politecnico di Milano (PoliMI) is conducting several educational and leadership training activities for energy
sector professionals and students, including: 1) An Energy and Development track, with a focus on energy system
in Africa, in the Master of Science in Energy Engineering, since 2011, 2) The Emerging African Innovation Leaders
programme (alongside PoliTO), has developed a set of online MOOCs, are available alongside others on PoliMI’s
Open Knowledge platform. 3) EUAU joint Ph.D. programme to promote native research and coordination within
the Horizon2020 Long Term EUAU Partnership on renewable energy, 4) Speciic training on energy planning,
impact evaluation for energy projects and energy scenarios have been delivered in a number of African countries.
The Energy Charter Secretariat develops a Technical Assistance programme for ministry oicials to conduct
3-month trainings about the Energy Charter Treaty. The Treaty involves 54 signatories and oers predictable
and transparent investment framework for the energy sector, leading all signatory countries to share a minimum
level of policy principles.
Various donor institutions oer technical assistance, such as Get.Invest Finance Catalyst, GIZ to speciic
programmes such as NESP in Nigeria, ARE with AfDB on rural electriication, among others.
The EU, through the Technical Assistance Facility of the SEforAll initiative has also provided technical assistance to
government institutions (Ministries, utilities, etc.) on policy, legal, regulatory aspects. Complementary or additional
capacity building programmes are needed based on existing and recently accomplished donor-led initiatives. The
AEEP has also indicated it has the mandate and ability to provide/support capacity building programmes.
The University of Cape Town has been running a training course on power sector regulation for professionals of
African utilities and institutions for several years.
166
In West Africa, the ECOWAS Commission through ECREEE, WAPP and ERERA, launched the West Africa Clean
Energy Corridor (WACEC), which aims to promote RE generation but also support cross-border trading of RE
power. It has a strong capacity building component. Currently this component focuses on building the technical
163
http://www.medrec.org/En/Sta_11_70
164
https://www.saretec.org.za/
165
https://energytrainingfoundation.co.za/
85
capacities of utilities, regulators and Ministries of issues related to grid integration of variable renewable energy,
PPA design, resource assessment, national and regional generation and transmission planning.
167
Similar eorts
are also being conducted in the EAPP and SAPP regions under the Africa Clean Energy Corridor (ACEC). Both
Corridors have received political endorsement at the highest level, notably by the African Union.
168
These
capacity-building eorts need to be deepened with the support of other partners, to cover more areas and to
go on for longer. At the moment, the implementation of the Clean Energy Corridors is done in partnership with
other development partners including IRENA and GIZ, including the regional utility centres of excellence as a
way to ensure long-term sustainability.
RES4Africa leads capacity building trainings and executive seminars in African countries that include theoretical
and hands-on courses on technical, economic, policy, and business-related aspects of large-scale and
decentralised renewable technologies. Through its capacity building activities, RES4Africa Foundation oers
participants a multi-disciplinary knowledge across the renewables value chain (investors, EPCs, engineering
service, consultancies, academia, etc.) which also includes comprehensive insights on how to foster RE
investments in Africa. RES4Africa capacity building activities include: 1) The Advanced Training Course on
technical, regulatory and inancial RE topics 2) The Micro Grid Academy (MGA), a new capacity building platform
located in the KPLC Institute of Energy Studies & Research.
Fondazione Eni Enrico Mattei (FEEM) has various research and training programmes devoted to sustainable and
aordable energy for all, especially in developing countries. Promoting awareness and supporting local policies
is part of its mission. FEEM carries out training sessions, hands-on workshops, theoretical and practical lectures
in sub-Saharan African countries (such as in Kenya and Ghana) with the aim of promoting growth, ownership and
empowerment in the energy sector. Eni has promoted the Eni Award since 2008 to encourage scientiic research
within the international scientiic community, promoting research and technological innovation in the ields
of energy and environment. Young Talents from Africa Prize is intended to support the research of four young
African researchers, oering them the opportunity to attend a PhD course in an Italian university.
The Pan African University Institute for Water and Energy Sciences (PAUWES)
169
, is one of the ive hubs of
the Pan African University (PAU), hosted at the University of Tlemcen in Algeria. PAUWES, as academic and
scientiic arm of the African Union, holds a unique position in understanding the Pan-African dimension
of scientiic problems, and it gathers excellent know-how to tackle the challenges faced in dierent African
countries with regards to water, energy and climate change. Consequently, PAUWES is developing strategies for
tapping into the advantage of its Pan-African perspective without losing focus of speciic national and regional
problems. PAUWES’ mandate includes among others the replication and dissemination of best practices on the
continent while developing strategic networks on the continent and beyond. PAUWES educational and research
programmes in energy include: Two masters’ programmes in energy (engineering and policy tracks) that cover
dierent aspects of the energy access value chain with a focus on renewable and clean energy technologies
and an online postgraduate programme on Minigrid, Digitalisation and Entrepreneurship (MDE), delivered in
partnership with the Global e-Schools and Community Initiative (GESCI).
170
The PAUWES Mini-grid Digitalisation Entrepreneurship Learning Alliance (PAUWES – MIDELA) is a further
component of the programme built on the open content model of the courses and curriculum and provide a
framework allowing universities and training institutes joining the alliance to have free access to courses and
modules of the programme, and adopt the entire curriculum or individual modules in their respective curricula
or replicate the programme in their respective institutions.
SolarPower Europe’s Emerging Markets Task Force focuses on developing structured partnerships with local
associations in Africa (such as newly-funded AMER in Mozambique) to promote the strengthening of strong local
industry platforms and support capacity and skills on association management, policy and regulation, and advocacy.
171
166
https://www.google.com/
url?sa=t&rct=j&q=&esrc=s&source=web&cd=15&cad=rja&uact=8&ved=2ahUKEwjA0Iroh5kAhVcVBUIHRk5DVgQFjAOegQIARAB&url=https://
www.gsb.uct.ac.za/power-reform-regulation&usg=AOvVaw23eTH9fG2YUO3Md93kl3OU
167
http://www.ecreee.org/procurement/development-strategy-solar-energy-corridor-under-west-africa-clean-energy-corridor-wacec
168
https://au.int/sites/default/iles/newsevents/workingdocuments/33313-wd-africa_clean_energy_corridor_west_africa_clean_energy_
corridor_e.pdf
169
http://pauwes.dz
170
https://gesci.org/
171
See https://www.solarpowereurope.org/priorities/emerging-markets/
86
ANNEX C. The Africa-Europe High Level Platform
for Sustainable Energy Investments in Africa
The SEI Platform brings together stakeholders from the public and private sectors, as well as from academia
and think thanks, to provide recommendations on how to leverage public and private investments in sustainable
energy in Africa for human development and sustainable growth
In the continuous quest to achieve the aspirations of its Agenda 2063, based on inclusive and sustainable growth,
the African Union resolutely commits to engage its partners to address challenges of energy to “harnessing all
African energy resources to ensure modern, eicient, reliable, cost eective, renewable and environmentally
friendly energy to all African households, businesses, industries and institutions, through building the national
and regional energy pools and grids”.
172
The SEI Platform simultaneously aligns with key objectives contained in Agenda 2063, the strategic, ifty-year
vision produced by the African Union in 2013, called “The Africa we want”.
173
Moreover, the recommendations
from the “Cairo declaration” resulting from the AUSTC meeting in April 2019 are also taken into consideration.
Honouring this vision, the African Union Commission in its engagements with the SEI Platform underlined the
following aspects as requiring particular attention:
- “One Africa” – working towards regional integration;
- Address challenges of implementation of the electricity markets (technological, economic, inancial);
- Investigate new models of de-risking projects with inancial partners;
- Work with a constant appreciation of how electricity contributes to economic and human development.
Three working groups with experts from the public and private sector and from both Africa and Europe, more
than 50 people in total, were constituted to carry out the work of the SEI Platform and produce a report to be
released at the Africa Investment Forum in Johannesburg in November 2019.
174
These working groups had the
following respective mandates:
• Make assessments and recommendations regarding the impact of dierent business models for
sustainable energy investments in job creation and inclusive sustainable growth, prioritising access to
electriication in rural areas and clean cooking (WG1);
• Provide recommendations on policies, regulatory, market and business climate improvements, and
reforms for removing barriers to scaling-up sustainable energy investments, to adopting technological
advancements, and to supporting pan-African sustainable energy integration (WG2); and
• Strengthen business to business partnerships and networking in support of sustainable investment.
aiming at boosting internal growth, intra-African trade and exports from African countries.
Additionally, each Working Group´s mandate included the investigation of two cross-cutting issues which aect
each of the group’s overarching topics:
i. Access to inance.
ii. Skills along the energy value chain.
The working groups gathered physically on four occasions, three in Europe and one in Africa. These meetings
allowed in-depth, facilitated discussion within the working groups and jointly in plenary meetings. A series of
electronic meetings linked the physical meetings.
The Platform worked under the leadership of Dr Kandeh Yumkella, custodian of the process, as assisted by DG
DEVCO and DG ENER oicials from the European Commission. The Africa-EU Energy Partnership (AEEP) lent
support on liaison, planning, drafting and management of the Working Groups. A secondary group of experts
provided peer review.
172
https://au.int/sites/default/iles/documents/33126-doc-04_the_key_agenda_2063_lagship.pdf
173
See https://au.int/agenda2063/sdgs
174
A list of all experts appears in Annex D
87
ANNEX D. Members and participants to the SEI
Platform meetings
The members of the working groups of the platform were:
African Development Bank (AfDB), Africa Europe Energy Partnership Secretariat (AEEP), Africa GreenCo, African
Union Commission, Alliance for Rural Electriication, Bakulu Power, Conseil de Coopération Economique,
ECOWAS Centre for Renewable Energy and Energy Eiciency (ECREEE), EDP Renewables, ENEL SpA, ENI SpA.
Entsol Tz Ltd, Energy Charter Secretariat, European Bank for Reconstruction and Development (EBRD), European
Commission (EC), European Investment Bank (EIB), Eurochambers, Florence School of Regulation, Fondazione
Eni Enrico Mattei, French Environment and Energy Management Agency (ADEME), Girae BioEnergy, Global
O-Grid Lightning Association (GOGLA), Global Solar Private Limited, GIZ/ Get Invest, GVE Projects, Iberdrola
Renewables, International Energy Agency (IEA), International Renewable Energy Agency (IRENA), Kreditanstalt
für Wiederaubau (KfW), Mediterranean Association of National Agencies for Energy Management (MEDENER),
Moroccan Agency for Sustainable Energy (MASEN), Pan African University PAUWES, Pan African Chamber
of Commerce and Industry (PACCI), Politecnico Milano, Regional Centre for Renewable Energy and Energy
Eiciency (RCREEE), Res4Africa Foundation, Renewable Energy and Energy Eiciency Partnership (REEEP),
Siemens Gamesa, Solar Power Europe, Women's Entrepreneurship in Renewables (wPower Hub)
With the participation of:
African Association for Rural Electriication (Club-ER), Africa Finance Corporation (AFC), African Forum for Utility
Regulators, Akuo Energy, Africa Renewable Energy Initiative (AREI) IDU, BASF New Business GmbH, Clean Cooking
Alliance, ENTSOE, Energy Commission of Nigeria (ECN), Hivos, International Solar Alliance, International Initiative
for Sustainable Development (IISD) – GSI, Konexa, Ministry of Petroleum and Energy of Senegal (MPE), Ministry of
Energy of The Gambia, Modern Energy Cooking Services (MECS), National Agency for New Technologies, Energy
and Sustainable Economic Development (ENEA), Nigerian Electricity Regulatory Commission (NERC), Tony Blair
Institute (TBI), Universitad Politecnica de Madrid, World Bank, World Health organisation (WHO)
