Across Africa, over 600 million people live without access to electricity. Meanwhile, energy demand is expanding alongside the rapid growth of African economies.
Yet increasing access is not the only energy challenge facing the continent: For many rural Africans that already have access to electricity, reliability is not guaranteed. In 2022, just 43% of Africans had a supply that worked most or all of the time. This unreliability has negative knock-on effects on local economies and livelihoods — and on the economic empowerment of women — while increasing demand for devices that run on polluting fuels, like diesel generators.
Addressing this growing demand for electricity is essential for Africa’s growth — as is transitioning to renewable energy sources. Research suggests the clean energy transition could boost the region’s GDP by 6.4% by 2050, and executing this transition has become a high priority for most countries across the continent. It’s also a core focus of the United Nations’ Sustainable Development Goals (SDGs), with the goal of bringing affordable, renewable energy access to all by 2030 underpinning several other SDGs, including health, education, gender equality, employment and, of course, climate action.
It’s clear that unlocking clean energy access is key to Africa’s future economic and sustainable development, and it has made substantial progress toward that goal. With its considerable renewable energy resources — including an estimated 60% of the world’s top solar sites, along with ample hydropower, wind, geothermal and other clean energy sources like green hydrogen — the region has a realistic pathway to energy prosperity.
However, only 2% of renewable energy investments have been channelled to Africa in the past decade, amounting to just US $60 billion out of $3 trillion invested globally. For Africa to reach its renewable energy potential — and for the world to meet its target of achieving universal access to clean and affordable energy by 2030 — the continent will need to receive $25 billion in yearly investment by 2030.
But for that to happen, it will need to leverage the right financial resources. In the article below, I’ll discuss the current state of energy access in Africa, and explore an innovative approach to catalytic carbon finance that could enable it to lead the global shift toward clean energy.
The state of energy access in Africa
At a community level, facilitating energy access has a myriad of benefits. It can allow communities to reduce their exposure to pollution from indoor, kerosene-fueled cooking devices, preventing detrimental health conditions. It can enable them to charge mobile phones and power small electrical devices, supporting entrepreneurial pursuits. Households can safely power electric lamps, supporting children in their education. Women can free up the time they would otherwise spend labouring over inefficient manual devices, supporting their financial empowerment in society.
What’s more, in a world of increasing climate volatility, electricity can also power life-saving early warning systems, helping communities adapt to climate change. Rural households with access to radios, TVs and fully charged mobile phones have a direct line of communication in the event of extreme weather or other disasters, helping them to better prepare and reducing the potential for more destructive impacts.
Yet as of 2023, the main electricity grid only serves around 40% of the African population. Expanding centralised grid infrastructure, which already faces issues of inefficiency and unreliability, to reach rural populations across vast land areas is economically non-viable.
An affordable solution lies in the development of distributed renewable energy, including off-grid solar power centred on standalone home systems and mini-grids. Leading organisations, such as the International Energy Agency and International Renewable Energy Agency, have in recent years advocated for the growing deployment of these energy sources in rural African communities. Additionally, studies have shown that off-grid solar in particular is the fastest and cheapest way to bring low-carbon electricity to millions of vulnerable people in Africa.
Though this might be the case, both rural communities and clean energy companies are faced with cost barriers. For the companies, community outreach and roll-out of the solar devices is complex and expensive. Plus, they typically depend on borrowed capital to fund the units up-front, which brings associated debt burdens. Meanwhile, people in these communities, many of whom are below the poverty line, must find a way to pay for access — something that often requires multi-year payment plans to put productive use appliances or household solar systems within financial reach.
To advance the deployment of off-grid solar infrastructure and drive forward Africa’s renewable energy potential, innovative financing mechanisms must be utilised to bring down these costs — for both company and customer.
Financing renewable energy with catalytic carbon finance
This is where the catalytic potential of carbon finance comes in. Carbon finance is based on the sale of carbon credits: financial instruments generated through verified carbon dioxide savings achieved by projects focused on renewable energy, reforestation, energy efficiency or other emissions-reducing activities. These carbon credits can be purchased by companies or governments struggling to meet their voluntary or mandated decarbonisation commitments, effectively offsetting their unavoidable carbon emissions.
By leveraging the financial benefits of carbon credits, clean energy companies can unlock the upfront, affordable capital required to both make their businesses viable and access hard-to-reach customers. They can also ensure that the families receiving their off-grid solar systems benefit from the cost savings enabled by the sale of carbon credits.
Energy companies can utilise carbon finance in numerous ways: to subsidise the costs of their products, making them more affordable for customers; to insulate clean energy businesses against the risk of customers defaulting on their payment plans; to provide working capital financing, ensuring that solar systems are affordable; or to further scale the roll-out of off-grid solar by investing in greater sales and/or technical teams, helping to reach “last mile” customers profitably. Carbon finance can also open up other forms of finance, allowing companies to move away from the burden of debt financing and towards cost-effective scaling.
However, accessing carbon finance requires companies to validate and verify (according to the carbon standard being used) the emissions impacts of their off-grid solar projects — a process known as registration. Registering a project via a carbon standard is costly, and for many energy companies it is not financially viable, either due to their small size and scale, or to the fact that many standalone projects produce low volumes of greenhouse gas emission reductions.
So, what’s the solution to these challenges?
A new carbon finance model based on collaboration and aggregation
At EcoSecurities, we have developed a new approach to registering carbon finance projects, adapted from work done by the UNFCCC’s Clean Development Mechanism, which can be leveraged by distributed renewable energy companies throughout Africa to build economies of scale and advance energy access.
It is a collaborative approach, aggregating diverse solar projects from multiple companies across several regions under a single umbrella (called a “Program of Activities”). Different projects and companies can be added under this umbrella structure, allowing them to streamline their approach to registration, significantly reducing the costs inherent to this process.
For instance, imagine that a solar mini-grid company working to incorporate carbon finance into its business model wants to join a Program of Activities: EcoSecurities adds them as a project participant, after which we take responsibility for establishing the project’s feasibility and baseline setting, developing the overarching project design document, and managing the ongoing monitoring, reporting and verification of the company’s emissions data. We work with the business closely to obtain this data — which must show where the mini-grids are located and their size and operating hours — then we use the data to calculate its emissions impact. This enables the business to provide evidence that these emissions reductions have taken place, according to the carbon standard that is being used. Validation and verification bodies also audit this information, and carry out randomised site visits to further confirm the accuracy of the reported information.
This approach minimises the up-front administrative costs associated with registering a carbon finance project, while maximising the opportunity for scale. While each company’s off-grid solar project will have unique attributes (for example, productive use or home solar systems), their operational and demographic characteristics will be comparable, allowing for simplified and consistent monitoring, reporting and verification of the emissions impact of these aggregated activities.
The Program of Activities model is built with expansion in mind. EcoSecurities can simply add new companies, seamlessly integrating them without requiring a full, costly individual registration of each off-grid solar project. For example, if a series of off-grid solar home systems were being installed across Uganda and Kenya, the energy companies could work with EcoSecurities to bring these different projects together under one Program of Activities. The necessary verification and reporting processes that accompany carbon projects would be spread across this group, by taking samples from each of the integrated projects. Once the solar systems are installed and being used, the participating clean energy companies would each be able to generate carbon credits from their own respective customers.
The ability to add further companies and aggregate activities with this model streamlines the process and enhances its scalability, while reducing registration costs — making it an optimal structure for achieving widespread impact in the off-grid solar sector. Plus, it makes rural, hard-to-reach populations more economical for energy businesses to access, helping to kick-start economic growth and opportunities within these communities — while insulating companies against the potential payment defaults that may occur among more financially constrained customers.
Looking ahead
Countries in Africa must meet their growing energy demands while committing to non-fossil fuel energy sources. This is not just to curb the worst impacts of climate change; greater access to clean, reliable energy is the linchpin of the SDGs.
The energy transition also has the potential to open up new clean energy export opportunities for the continent. This can already be seen in Morocco, which is advancing its exports of green hydrogen through investment in both large-scale solar and wind power and energy storage facilities. The country has a goal of exporting 10 terawatt hours by 2030, capturing up to 4% of global green hydrogen demand.
But financing remains a key obstacle to the widespread pursuit of these opportunities across the region. With the investment landscape in much of Africa typically framed as high risk, additional pathways to secure capital must be considered to ensure that the energy transition and achievement of sustainable development can continue to progress at pace.
Carbon finance can be a catalyser, allowing businesses to kick-start critical off-grid power deployment. Innovative structures, like these aggregation models, can allow it to be accessed by many, supporting a thriving renewables sector.
Peter Simiyu is the Regional Director, Africa at EcoSecurities.
Photo courtesy of Corrie Wingate Photography/SolarAid.
Publisher: Source link
