Solar Energy in Africa: Towards A Bright Future?
In the next 30 years, the size of the African population will double, eventually reaching 2.5 billion inhabitants in 2050. Today, the pace at which new electricity production capacities are being commissioned is lower than the population growth. Therefore, the number of people without access to electricity (645 million Africans today) will continue to increase until 2025, if not 2040. In order to meet these tremendous needs, it is essential to increase the pace at which electricity production is being developed.
However, the significant future emissions that would result from the massive adoption of thermal production means to supply electricity to the 2.5 billion people who will live in Africa in 2050 would be an environmental disaster, which a global climate policy should aim to avoid through the adoption of carbon-free technologies.
Solar energy: a tailor-made solution for Africa
Electricity produced from photovoltaic solar energy is a promising solution, which would perfectly suit the needs of African countries:
- The continent receives more hours of bright sunshine than any other continent.
- Solar energy is competitive compared to thermal solutions.
- It is simple to operate and can be built quickly.
- It adapts to the reality on the ground, from the solar kit equipping an isolated fireplace, up to the gigantic solar farm supplying entire cities.
- It can operate off-grid, and therefore immediately supply isolated rural populations without having to wait for the often long and costly deployment of high-voltage lines.
A few setbacks to overcome
However, to date, only very few projects have been implemented in Africa. This failure is due to three main factors:
- Existing financing tools are not adapted to the very capital-intensive nature and small size of solar power plants. Since most of their cost is concentrated on the initial investment, which is then absorbed over several decades, solar projects require long-term visibility. Guarantees must therefore be granted to companies wishing to invest in solar energy in Africa, in order to cover this initial cost. However, the guarantee tools that we have today are incompatible with the specificity of solar power plants, particularly because of their small size.
- The indiscriminate subsidy policy pursued by a few states and development banks generates a price signal, which is certainly very attractive, but artificial. Subsidized initiatives in the field of solar energy have negative side effects: they set unreachable reference prices, thus preventing the emergence of any other privately funded projects in the region. They therefore discourage private developers from continuing to take risks by undertaking new projects in these countries.
- Finally, the almost systematic use of tenders to identify and select solar projects poses certain problems. On the one hand, the cumbersome procedures, which are disproportionate to the size of most projects, lead to longer deadlines and higher costs. On the other hand, anticipating price reductions for solar panels, candidates are encouraged to underbid. As a consequence, the winning projects are often not economically viable and never see the light of day.
Institut Montaigne formulated nine recommendations aimed at overcoming these three obstacles, in order for solar energy to finally be able to fulfil its great potential.
Adapting funding to the capital-intensive nature and small size of solar projects
- Proposal 1 - Promoting planning efforts, which is a prerequisite for the development of solar energy, in particular by adapting regulatory frameworks to the specificity of solar projects.
- Proposal 2 - Facilitating access to funding. In particular, setting up standardized documentation that would be available freely and accepted by all parties, and reducing the cost of examining applications by adapting donor requirements to the size of projects.
- Proposal 3 - Reducing the cost of funding: facilitating access to credit enhancement tools (guarantees, insurance) and making concessional loans accessible to these projects.
Restricting public subsidies when they create market distortions
- Proposal 4 - Verifying that no private project is located in a given area before considering the implementation of a public project there.
- Proposal 5 - Limiting artificial price signals as much as possible: avoiding subsidies (for studies, land, connections, etc.) likely to discourage private investment.
- Proposal 6 - Promoting better collaboration between public and private funds: targeting public funds on projects that do not attract private funds, such as medium- and low-voltage network infrastructure, the provision of credit enhancement tools for public counterparts or support for capacity building.
Limiting the almost exclusive use of tendering, especially in contexts of immature markets and for small projects
- Proposal 7 - Favoring mechanisms adapted to the size of projects and the context of immature markets.
- Proposal 8 - Supporting the first developments, by providing states and decision-makers with the expertise they may lack, and then by organizing the transfer of skills in order to create a genuine sustainable industrial sector.
- Proposal 9 - Once the market is more mature, gradually considering tendering mechanisms but limiting them to large-scale projects.