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Energy disruption will bring African growth narrative home

Energy disruption will bring African growth narrative home

By Rentia van Tonder, Head of Power at Standard Bank – New disruptive technologies are changing the way that energy generation and distribution is understood and funded in Africa.

These changes have profound implications, far beyond the energy sector. African policy makers, governments, banks, investors and global funders need to take stock of these changes and re-look at how energy is conceived and managed on the continent.

The good news is that technology-driven change is likely to see Africans play a far larger role in building, shaping and benefitting from energy on the continent.”

New technologies are set to expand access to energy beyond Africa’s urban centres. This holds the potential to include Africa’s extensive rural population in meaningful economic participation, sustaining the African growth narrative for generations to come.

Small, easy-to-install, home solar, for instance, is making energy affordable to rural populations, and challenging banks to come up with less costly – and digitally delivered – funding solutions, geared to individuals seeking access to energy – and the economic opportunities that this brings.

When new storage technologies, currently attracting heavy early-phase funding from US investors, is added to the mix, individuals will also be able to store – and potentially even sell – their own energy.

Since the bulk of Africa’s rural population has, historically, been excluded from Africa’s limited and urban-focused grids, home technologies delivering and storing affordable and privately owned off-grid solutions, also have the potential to take energy generation and supply off government balance sheets.

This will mean that the days of building vast generation and distribution networks are likely not to dominate as in the past. Instead, the future will see smaller, localised, and even privately-owned off-grid generation, storage, distribution and sale of energy. This will involve a far wider mix of technologies and suppliers – and a far wider range of funding and payment mechanisms.

Making renewables part of a diversified energy mix also provides utilities a way of continuing to attract funding – by using new technologies to sustainably diversify their generation and supply networks, including off-grid and end-user funding elements.

Other opportunities for African utilities include regional integration of generation and distribution. Selling and supplying energy cross-border to multiple markets significantly reduces the risk and cost of funding utility debt on the continent.

If regional integration is blended with renewables and off grid, banks stand a much better chance of being able to help utilities better manage long term sustainability given the flexibility.

As such, this disruption comes at exactly the right time in Africa.

In today’s less predictable global environment the funding of large long-term energy projects is seen as risky. In Africa too, perceived risk is a growing challenge, particularly when it comes to funding existing energy utilities and traditional large power generation and distribution projects – especially those based on coal and also hydro. As global investment mandates increasingly include sustainability criteria, traditional sources of African energy, like coal, may struggle to find funding.

Smaller, renewable, off grid solutions, supported by new storage capabilities offer sustainable alternatives that pose less risk and have shorter and cheaper construction and delivery periods. They can also be, funded in local currency through affordable end-user payment structures – rather than via hard currency-based long term debt.

All this reduces risk.

In response to these rapid technology-driven changes, both African energy policy as well as the way bank’s structure – and fund – energy projects is likely to undergo significant change.

For now, development finance institutions (DFIs) have taken the lead in funding smaller, more innovative, off grid renewable – and largely community-based – projects.

Augmenting these new technologies with supportive government policy and innovative banking and funding solutions holds the potential to expand and sustain growth in Africa. This will allow Africa to truly begin setting and driving its own development agenda – and growth story.

Standard Bank is working quickly across its 20 African markets to understand the full implications – and potential – of these developments for African growth.

To date much of the African growth narrative has revolved around population migration into urban centres. As young and new urban populations access energy, finance and consumer goods in Africa’s rapidly expanding metropoles, new opportunities, markets and industries develop. If the growth that this trend has driven could be replicated amongst Africa’s vast rural population – through the provision of affordable energy off grid, Africa’s growth potential gets significantly bigger and much more sustainable.

This also means that the continent’s growth narrative becomes a lot more locally, rather than globally, driven. For instance, African Banks will become more relevant in funding the small, the local and the private.

The good thing about all this change is that the generation and distribution of energy in Africa will become less costly. Also, if supported by the right government policy, energy generation and distribution costs can be removed from government budgets. This will free up national budgets for the provision of essential services.

While Africa’s energy landscape is being severely disrupted by new technologies, this disruption, if managed correctly, presents exciting opportunities for Africa’s economies and people.

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