In the first article of our new 'Africa Energy' series, Head of ESG and Sustainability Natalie Stafford examines the energy infrastructure challenges the continent must address to harness its potential for transitioning to green energy.
Africa has a massive and untapped potential for green energy generation. According to the International Energy Agency, the continent holds an estimated combined 60% of the world’s best solar, hydropower, wind and geothermal energy sources. This is often pointed to as a significant potential contributor towards the global energy transition, as governments and companies seek homegrown renewable energy supplies to meet growing regulatory demands and maintain a stable and local source of power.
But herein lies a twofold problem for the continent. Firstly, there is still insufficient investment in energy generation projects on the continent. For example, Africa has 40% of global solar energy generation potential, but generates less than 1% of global production. Secondly, and relatedly, alongside any plans for energy generation, investors and governments need to take a serious look at energy infrastructure – both transmission and storage. There is no point in bridging Africa’s energy generation gap unless there is also the infrastructure to support it at the same time.
Energy supply across Africa is intermittent, and a focus on renewable energy sources alone will not improve consistency of supply. The scale and geography of the continent mean a large amount of energy will be generated in regions often far from population or industrial centres where it is needed. Ironically even some of those areas with the highest concentration of energy transition related mining activities, like the DRC, are the ones facing the largest energy deficits. A glut of energy production is virtually useless unless it can be stored and transmitted.
The lack of energy infrastructure hampers investment flows into energy generation projects. And this in turn hampers wider economic growth and affects many of the other potential investments across the continent that private capital is waiting to flow into. Whether technology and data centres, or telecommunications or light manufacturing – they all need efficient facilities and will be reliant upon a reliable energy supply.
The challenge of energy infrastructure is starting to be noticed. At Africa Climate Week last year, the COP28 presidency announced a USD 4.5 billion commitment to developing clean power in Africa – critically part of it was targeted to address key energy transition barriers, including the continent’s infrastructure deficit.
But increasing energy generation and access requires more than just funding. Policy and institutional challenges and capability gaps need to be overcome, and sustainability and ESG considerations need to be factored into every project to avoid falling foul of regulatory or reputational issues.
Energy supply across Africa is intermittent, and a focus on renewable energy sources alone will not improve consistency of supply.”
Key challenges facing Africa’s energy infrastructure
An opening up of transmission markets
Of all energy investments into the continent in the last decade, it is estimated that only 0.5% went to transmission networks. One of the biggest challenges is the presence of vertically integrated state utilities which have traditionally dominated African economies but have largely been a watchword in inefficiency and corruption. The most effective tool to encourage inward investment into transmission is the decoupling of these utilities. Those countries best able to attract investment are those who have made a head start in liberalising their markets and reviewing their regulatory environments to make them more attractive investment environments.
Those countries best able to attract investment are those who have made a head start in liberalising their markets and reviewing their regulatory environments to make them more attractive investment environments.”
South Africa has already embarked on the liberalisation of its energy market and, along with Namibia, it is no surprise that they are seeing some of the biggest investments into not just energy generation, but also infrastructure. Other countries making notable progress include Morocco and Kenya. Already, this is attracting the interest of development finance institutions (DFIs).
It has been estimated that Africa needs GBP 50 billion of annual investment if it is to reach universal electrification by 2050. But this investment needs to be appropriately scaled. Everything from off grid solutions to large-scale main grid infrastructure development, including those which cross borders, needs to be on the table, some of which can be achieved through innovative forms of finance. Lower cost projects not connected to the grid are, for example, generally easier for private capital to be deployed. These projects often have the potential to scale significantly and returns can be greater, but they attract currency risk for investors with revenue usually generated in the local currency. Larger scale projects on the other hand can struggle to attract the requisite funding. In both cases the answer falls to blended finance structures, still largely reliant on DFIs and other concessionary capital. As the energy transition gathers pace, it is anticipated that opportunities for private capital will also grow.
As the energy transition gathers pace, it is anticipated that opportunities for private capital will also grow.”
Some of the most interesting solutions lie in ‘electricity power pools’. Five such regional pools already exist across the continent, theoretically allowing areas to export surplus power to neighbouring regions affected by chronic power shortages. Again, these pools are hit by the challenges of lack of infrastructure and maintenance. The members of the power pools are also predominantly traditional government utilities, which struggle to attract investment due to inefficiencies and long development cycles.
There is talk of an even larger grid extending across 12 African states, from South Africa right up to Niger and Mali. But in reality this requires not just investment into sophisticated grid technology and storage, but political agreement and regulatory alignment between respective governments. Neither will be easy to achieve and certainly won’t be having any material impact on the continent’s energy infrastructure any time soon.
Batteries as a viable storage solution
Some of the biggest renewable opportunities in Africa lie in wind and solar. Unlike the often large and disruptive infrastructure projects associated with hydropower and geothermal, wind and solar energy are comparatively lower cost, cleaner and quicker to get up and running. Supplies are potentially bountiful, particularly in northern and eastern Africa for wind, and desert geographies like North Africa, Namibia and the Sahara for solar, but will always be intermittent. Rather than reverting to traditional energy sources during their down time, it makes much more sense to focus on building storage capacity to balance supply and demand.
Battery energy storage solutions (BESS) are considered the key technology to driving forward Africa’s storage capacity. BESS functions like a battery in collecting energy from wind or solar panels, or from the electricity network, storing surplus power when electricity is being generated and then drawing from the electricity stored when the system is in deficit. These are electrochemical infrastructure assets comprising lithium-ion batteries. BESS is built into some solar and wind projects, and there are already some large BESS either under construction or already built. Perhaps best known is the Kenhardt BESS built by Scatec to provide 225MW of storage capacity to the South African national grid, with similar projects expected in Mozambique and Senegal, with the latter closest to completion in 2025.
In late 2023 there was welcome progress in hastening investment in Africa’s energy storage when the global BESS Consortium was announced. This group of 11 countries, including Egypt, Ghana, Kenya, Malawi, Mauritania, Mozambique, Nigeria and Togo, committed to expand the use of BESS in low- and middle-income countries. All participants have agreed to reach a goal of 5GW of BESS by the end of 2025. Member governments will be supported in their objectives by a range of international partners providing funding and technical assistance and it is intended that the 2025 goals will offer a roadmap for more ambitious targets in future years.
Yet, there is still not enough BESS, even at the tendering and feasibility stages, to meet the current pipeline of storage demand in Africa. Challenges persist around costs, supply chains and sustainability.
At this stage, projects with a battery component still require either a high tariff for the power, or subsidies to keep the tariff affordable. A recent study by the International Institute for Sustainable Development on BESS in South Africa, highlighted how even in this country, considered the most advanced in its BESS across Africa, cost, or access to affordable capital, is still a prohibitive barrier for investors. The cost of batteries themselves is gradually falling. Lithium-ion battery costs themselves have fallen by 90% since 2010. Costs are expected to be competitive by 2030 at around USD 80/kwh, but this is still some way off.
Even in [South Africa], considered the most advanced in its battery energy storage solutions (BESS) across Africa, cost, or access to affordable capital, is still a prohibitive barrier for investors.”
A BESS supply chain presents a unique challenge for Africa, but it is one that will have to be tackled, given the domestic manufacturing industry for batteries in Africa is nascent at best, and even then is focused on lead rather than lithium batteries. Any attempt to localise production would need to be a continent-wide priority, but there is no indication of an appetite for this. In the meantime, BESS projects in Africa face stiff competition from other larger and more developed projects elsewhere in the world for a limited resource that many are seeking. Jurisdictions with more developed regulation and larger projects are at the front of the queue for sourcing, resulting in uncertainties around delivery and longer lead times for African projects. Geography causes similar practical challenges. Many BESS projects in Africa will be in more remote locations, which creates obstacles for repairs or replacement, and manufacturing warranties are more limited for those projects further from a hub. This can make the risk of an Africa project from a supplier and financier perspective prohibitively high.
Batteries also pose significant sustainability challenges. Whilst ultimately supporting the energy transition and drive to net zero, paradoxically they rely on the extraction of lithium, a usually water-intensive process known to result in GHG emissions, biodiversity loss and water pollution. Localised social issues are also associated with extraction – from human rights abuses and child labour in the DRC, to infringements on the rights of indigenous peoples in Argentina.
Whilst ultimately supporting the energy transition and drive to net zero, paradoxically [batteries] rely on the extraction of lithium, a usually water-intensive process known to result in GHG emissions, biodiversity loss and water pollution.”
Additionally, there is no clear consensus on end-of-life management and policies for batteries. There is currently no lithium-ion recycling facility in Africa so if batteries are to be disposed of safely there are significant fees associated with export, as well as logistical challenges of how many of these batteries can be transported on one vessel, in addition to health and safety issues and fire hazards. If energy infrastructure in Africa is to meet its objectives and do so sustainably, plans and policies will need to be put in place to consider all aspects of the lifecycle of this infrastructure.
Governmental barriers persist
The development of energy infrastructure is still at a comparatively early stage in Africa, so it is perhaps unsurprising that there is a lack of regulations or policies in this area. But this creates significant uncertainly for developers seeking financing. It is hoped that international and multilateral support, such as through the BESS Consortium, will help to push this up the agenda and encourage policymakers to develop clear, consistent and supportive regulatory frameworks to enable investment. There are early models for success where a government prepared to reform can attract the support it needs, whether through DFIs, private financing or public-private partnerships. Quick wins include the streamlining of permitting processes, quicker tendering processes, subsidies or tax breaks where appropriate, multilateral engagement to consider resource pooling, and a longer-term view on modernising grids. Even where these plans cannot be put in place yet, policy roadmaps would go some way to showing investors which governments are taking the opportunity seriously and where they should be allocating their capital.
Sustainability is a core consideration
The regulatory and reputational scrutiny of energy infrastructure investments in Africa is now a significant part of the decision-making in any project. This is particularly salient when multilateral organisations are leading the investments, with experienced ESG teams scrutinising plans, programmes and standards. We know from our experience working on investments across the continent that it is these (high) standards which drive the approach of partners and private capital as well.
Any energy infrastructure project will have an immediate and significant impact on its surrounding environment and ecosystem. Environmental degradation is virtually inevitable depending on where projects are sited and biodiversity is going to be impacted, just at a time that requirements to tackle this part of the Environmental pillar of ESG are growing, with the new Taskforce on Nature-related Financial Disclosures (TNFD). For larger projects, there may be community displacement, or the impact on the environment can trigger social unrest. If the developer has failed to obtain the necessary social licence to operate, unresolved ESG issues left unchecked can drain time, money and good will from a project initially intended to be of benefit to the community.
The supply chains for energy infrastructure projects will be expected to comply with high ESG and ABC standards, specifically the level of rigour expected under the forthcoming CSDDD (Corporate Sustainability Due Diligence Directive). European investors will fall under the CSDDD and will be placing supply chains under scrutiny on both environmental and human rights grounds. Battery mineral supply chains are particularly vulnerable, where the rush for minerals, in often challenging geographies, has resulted in serious concerns around corruption, land degradation and human rights abuses, including on the African continent itself.
There are a number of ESG standards and frameworks to be considered for energy infrastructure projects. The most relevant will be those focused on the sector itself, to account for its unique ESG challenges. For example, the Global Battery Alliance recommends four areas for cooperation and consensus: harmonisation of due diligence and voluntary standards; harmonisation of the whole value chain to reduce material footprint; financing of the sustainable scaling of critical minerals value chains; and, the social and environmental licence to operate as a core principle of any project. But all this is still voluntary. It will be down to investors and developers themselves to ensure their projects support energy access and decarbonisation, as well as sustainability.
Conclusion
Africa faces a unique challenge. It has to simultaneously improve access to energy continent-wide, whilst also prioritising decarbonisation. This is a tough ask. But with the right approach the continent can look to bridge the enormous gulf between energy potential and energy generation. Energy infrastructure needs to be considered right alongside any energy generation project. The challenges for infrastructure are more complex and the funding hard to obtain. This necessitates not just policy and institutional support from the jurisdictions in which they are to be located, but also multilateral support, particularly where there is technical expertise, ESG experience or concessionary funding available.
