Why scaling investments in small-scale and decentralised renewables is critical for Africa’s clean energy future

15 November 2022

With climate finance dominating the agenda at COP27, investors are faced with the difficult question of where best to put their money. Here, Camco’s Ben Hugues makes the case for why Arica’s burgeoning small-scale and distributed renewable energy industry is ripe for investment.

 

Africa’s demand for energy is set to increase exponentially over the coming years as the continent pursues universal electrification and continued economic growth. But such is the scale of Africa’s energy transition that unless it happens without increasing greenhouse gas emissions, it will single-handedly derail global efforts to tackle climate change and keep us on course for a climate catastrophe. In short, it is imperative that Africa’s energy future is powered by low-carbon solutions.

As we head towards the business end of COP27, it is too early to tell what the major outcomes from the conference will be. But with Nicholas Stern’s new report last week claiming developing countries would need USD2 trillion in climate finance every year by 2030 to fund their clean energy transition and cope with extreme weather impacts, there is no doubt about the scale of climate finance’s role in mitigation and adaptation efforts.

While securing investment is one thing, how to deploy it is something else entirely. Despite unequivocal evidence that humankind must break its addiction to fossil fuels to stave off an existential threat from climate change, investment in Africa’s energy sector continues to favour centralised, fossil-fuel powered grid systems.

 

Aside from exacerbating climate change, supporting large-scale centralised power plants as the go-to solution for all of Africa’s energy access challenges is short-sighted and fails to consider the context of the continent’s energy needs. In many instances, rolling out the national grid is the least effective way of providing first-time energy access, particularly in rural areas where connecting to the grid tends to be slow and expensive.

 

Instead, smaller, decentralised renewable energy solutions - such as solar home systems and solar mini-grids, or even small rural IPPS - very often present an easier, faster, and increasingly cheaper alternative. They also typically provide a more reliable source of quality electricity, improve local air quality and support countries’ national climate action targets set out in their Nationally Determined Contributions (NDCs).

 

There is little doubt that the African grid of the future will require a mix of clean technologies, with different financing needs. But right now, there is simply not enough finance finding its way into these types of small-scale solutions, meaning that despite all of its promise, the sector is struggling to scale.

 

The main reason for this is that, to date, most potential investors have been reluctant to fund small-scale renewables in Africa due to a range of factors, from small ticket sizes to both the perceived and actual front-end risks of renewable energy projects. At the same time, many developers also rarely have the start-up capital to clear the first hurdles towards financial close and often lack the necessary expertise or capabilities to successfully finance their projects.

 

But Africa’s energy sector is rapidly evolving, with new and innovative business models coming to the market that deserve the right form of investment. Since its inception in 2015, the Camco-managed Renewable Energy Performance Platform (REPP) has been financing these industry pioneers and in doing so has become one of the leading investment platforms for small-scale and distributed renewable energy across Africa today.

 

From the outset, Camco has understood that Africa’s small-scale and distributed energy sector required a different form of funding than the traditional independent power producer (IPP) model. As a result, we have been innovating within recognisable finance structures and taking the calculated risks that many investors fear to take to help get the nascent sector off the ground.

 

And it’s working. To date, REPP has supported 38 active projects in 18 African countries that have connected more than one million people to electricity for the first time, installed 30.4MW of renewable energy capacity with a further 350MW in development, and avoided approximately 82,500 tonnes of greenhouse gas emissions.

In the main, however, these projects are isolated success stories and the sector has so far been unable to scale. Despite its potential to transform the livelihoods of hundreds of millions of people in Africa while simultaneously helping to ensure the continent’s energy transition is a low-carbon one, the sector faces a huge funding gap. With the platform’s current deployment phase coming to an end in 2023, Camco has been busily working on how REPP can be extended, building on its proven successes and many lessons learned to provide a blended finance solution for delivering the transformational impact started by REPP further and faster.

If you are an investor interesting in find out more, please get in contact at info@camco.fm.

This article originally appeared on ESI Africa.

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