Africa is hungry for energy. Only 24% of sub-Saharan Africans have access to electricity and the energy generation capacity of Africa (excluding South Africa) is only 28 Gigawatts, equal to that of Argentina alone. The demand is only set to rise with increasing population, urbanization and economic productivity. Because of little installed capacity, there is low energy consumption and access. Even those connected to a power grid experience an average of 54 days of power outage a year – that’s darkness for 15% of the year.
The African commercial sector has been forced to resort to using expensive generators to make up for this gap in energy supply. But, generator power is very costly and is, on average, a staggering four times the price of grid power. Businesses that operate in Africa work with much higher operational costs than their counterparts elsewhere – this is not only true for business in power heavy sectors but also for general businesses such as banks and supermarkets. Energy is a disproportionately large expense for business in Africa.
Affordable and clean energy is one of the 17 Sustainable Development Goals because energy is crucial to economic development. Countries with low electrification rates have lower GDP per capita and are less developed. The basic logic is that increased energy access leads to improvements in healthcare, education, life expectancy and economic opportunities. Light is what keeps rural medical clinics open for the woman who goes into labour late in the night. It allows students to study and businesses to stay open after the sun goes down. These factors all lead to increased national productivity which is a precursor to economic development.
The irony of Africa’s energy poverty is that Africa is actually very rich in energy resources but most of the energy potential on the continent is unexploited. Research by McKinsey found that Africa’s potential energy generation capacity is up to 1.2 terawatts excluding solar and more than 10 terawatts including solar. Solar – which Africa has in abundance – can provide almost 10 terawatts of new energy! The table above shows Africa’s generation capacity by energy type as well as notes the countries rich in the particular resource. Renewable energy will play an important role in Africa’s energy mix in the coming years. It is estimated that by 2040 more than 25% or Africa’s total energy will come a variety of clean sources – geothermal, hydro, solar and wind. This is a more than four-fold increase from only 5% in 2013.
There is a great opportunity in Africa’s power sector but it will be costly to utilise these opportunities and structures need to be put in place to incentivise development of the sector. National governments have a large role to play in ensuring that this development occurs; government policy will need to prepare the market for private investors and promote regional integration to enhance savings on capital spending.
The views expressed in this article are those of the author alone and not the World Economic Forum.
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