Southern African Countries Facing Enormous Challenges in Developing Energy Infrastructure, Report Says

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Southern African Development Community (SADC) countries are facing enormous opportunities and challenges in developing their energy infrastructure over the next decades to power development and provide access to all.

Currently, the region does not have a sufficient reliable supply of energy and electricity, and what energy is available is not easily accessible by large swaths of the SADC region’s population; eight out of the 16 SADC countries have less than 50 percent electricity access, and some countries, such as Malawi and the Democratic Republic of the Congo, have less than 20 percent access.

In order for SADC to meet the needs and aspirations of its people, there is a need for a significant increase in investments into the energy sector in general and renewable energy in particular.

Energy and electricity underpin the economic development process: investing in renewable energy harnesses some of the region’s strongest comparative advantages in a manner that will ensure greater growth, opportunity, and well-being.

Development Finance Institutions (DFIs), such as development banks, granting agencies, and export credit agencies have a seminal role to play in financing the expansion and structural transformation that SADC’s energy sector requires.

The old business as usual modus operandi is no longer sustainable.

Investments in conventional energy sources do not generate enough employment and direct socio-economic opportunity in the region and do not meet the energy needs at the pace that is required.

Furthermore, they come with significant health and environmental costs.

Perhaps most important is the fact that, as the energy transition gains momentum, conventional energy sources such as coal-fired power plants are increasingly becoming financially uncompetitive due both to the rapid decline in the prices of renewable energy and to the reluctance of international financiers to invest in coal.

Fossil fuels are increasingly at risk of becoming stranded assets – even liabilities – before their full lifetimes are realised, depending on how the international community resolves to address climate change.

Despite increasing concerns from funders regarding fossil fuels, SADC has abundant coal resources, and coal base-load plants are still being commissioned.

In a new report, Boston University’s Global Development Policy Center explores the role of renewable energy financing in Southern Africa, in collaboration with the SADC Development Finance Resource Centre (SADC-DFRC), the SADC Centre for Renewable Energy and Energy Efficiency (SACREEE), the Development Bank of Southern Africa, and the University of Pretoria Centre for Human Rights.

Unarguably, the COVID-19 crisis has revealed many of the inherent fragilities in societies. As countries in Southern Africa recover from the crisis and mobilise to ensure resilience and sustainability are built into their economies, reinvigorating development finance to invest in renewable energy and energy access will be essential for the people and countries of the SADC.

However, the report shows that if SADC countries align the newly-proposed SADC Regional Development Fund (RDF) with ambitious renewable energy targets, and that if local, regional, and global DFIs follow suit, the SADC region could reach full energy access and 53 percent renewable energy capacity by 2040, and be well on its way for zero carbon growth into the future.

Based on the work of the Southern African Power Pool (SAPP), the authors estimate that the SADC region will need to add an additional 60.7 gigawatts (GW) of renewable energy installed capacity in order to achieve the 53 percent target, or 2.8 GW per year to 2040.

Since 2015, the SADC region has been deploying renewable energy at a rate above 1.5 GW annually on average. This leaves a gap of only 1.3 GW, requiring an estimated investment of $2.4 billion per year to 2040 or $52.8 billion in total.

For just 0.3 percent of its Gross Domestic Product (GDP) annually, the SADC region can meet the energy needs of its people in a manner that will bring higher economic growth, employment, and well-being.

At its best, development finance is designed to overcome the barriers to renewable energy investment that are faced by the commercial sector in SADC countries.

As such, it will be seminal to put- ting the region on a cleaner energy pathway. As discussed in this report, the commercial sector is often reluctant to invest in renewable energy in SADC, especially where there is no policy certainty or clear regulatory framework and where there is significant off-taker and other credit risks, high upfront capital costs, and technological challenges.

This report shows how DFIs are playing a key role in the region’s clean-energy transformation because of their longer time horizons, business models that allow them to access grant and other sources of concessional financing, and policy goals.

It should be noted that regional DFIs have different capabilities and only about seven in SADC finance infrastructure and renewable energy.

According to the estimates, over the past decade, DFIs have provided over $10 billion toward renewable energy, or approximately $1 billion per year.

This report finds that just three DFIs represent 61 percent of the renewable energy DFI financing in SADC – led by the China Export-Import Bank, the Brazilian National Development Bank (BNDES), and the Development Bank of Southern Africa (DBSA).

The World Bank, the European Investment Bank, Germany’s KfW, African Development Bank (AfDB), and a host of other multilateral and national development banks operating in the region supply the remainder of that financing.

In addition to providing estimates of the renewable energy needs and potential for SADC over the next decades, this report identifies the barriers to investment in renewable energy and shows how DFIs are uniquely poised to overcome those barriers.

If DFIs coordinate and scale their efforts with respect to renewable energy finance over the next decades, commercial financing will follow and help secure the energy path the region needs for security and prosperity. Based on the analysis in this report, the authors recommend that:

SADC countries commit to achieving 53 percent renewable energy capacity by 2040, and to align the newly proposed SADC Regional Development Fund with the 53 percent renewable energy target.

SADC countries make firm national policy commitments and create enabling environments aligned with the 53 percent target, and likewise align their national development finance institutions with that goal.

Development finance institutions support efforts in preparing and packaging renewable energy projects for financing and implementation to accelerate the attainment of the 53 percent target.

Development finance institutions support rural and off-grid energization efforts to attain universal access.

Global development finance institutions support these renewed efforts by filling the gaps unfulfilled by SADC and its associated development finance institutions, commercial banks and other financial institutions, including on currency risk.

 

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