Why Africa could have some of the cheapest electricity in the world, but doesn't

Africa is more than twice as sunny as the Netherlands, has 90 times more people, and is nearly 800 times larger. But the continent’s total solar power capacity last year was less than that enjoyed by the Dutch. This year, finally, imports of solar panels into the least electrified and poorest continent are brightening Africa’s energy story.

Outside North Africa, South Africa and a few other wealthier and better-served countries, the electricity grid is minuscule compared to demand. Lack of sufficient, cost-effective, consistent power holds Africa’s human development and economy back. As the climate heats up, the absence of air-conditioning damages people’s health and prevents them from working and learning effectively.

The continent does not lack for energy resources, with major gasfields in the north, west and east, coal in southern Africa, huge hydroelectric potential, strong wind in northern Africa and along the southern coast, and tremendous solar – particularly across the deserts of the Sahara, Namib and Kalahari. Africa could have some of the cheapest electricity in the world.

But investment in power plants and, particularly, grids has been weak. Legacy hydroelectric plants built between the 1950s and 1970s, such as the Aswan High Dam in Egypt, Kariba between Zambia and Zimbabwe, and Bamendjing in Cameroon, are not enough to meet demand, and struggle with increasingly unreliable rainfall and river flows.

Solving this problem has been held back by poor policy at home and abroad.

Subsidies to consumers and political and economic turbulence make investment in large power stations and transmission lines a poor prospect, raising the cost of capital. Low population densities make it costly to reach remote areas. In turn, this makes the electricity produced much more expensive than it needs to be, so it is unaffordable for ordinary people, and too expensive to drive industrialisation.

To supplement its inadequate grids, Africa employs about 100 gigawatts of diesel generators, more than two-thirds of them larger units for industries, mines or big commercial establishments. They are expensive, noisy, polluting and prone to breakdown. An unfortunate but necessary stopgap, they are not enough to drive an industrial take-off.

Meanwhile, financing policies from Europe and the big international institutions ban most fossil-fuelled based power – even relatively clean gas that could displace diesel. Excluding carbon fuels is all very well – but the environmental benevolence doesn’t stretch to ensuring renewables are built. Outside the more advanced markets in North and South Africa, the continent’s other 48 countries have only 1 per cent the installed solar capacity of Europe.

This year, something has changed. Climate think tank Ember estimates that Africa’s monthly imports of Chinese solar panels – which represent the vast bulk of global supply – leapt by more than five times from 2022 to this August. That single month saw 1.74 gigawatts arrive. If this rate keeps up through the rest of the year, and if the panels turn into actual installations, the continent’s total solar capacity will double.

China’s massive export capacity, and the stiff tariffs imposed on it by the US, have produced a flood of cheap photovoltaic panels elsewhere. Panel imports by countries such as Algeria, Botswana, Eritrea, Liberia and Sudan have leapt from almost nothing to significant amounts overnight. Nigeria has overtaken Egypt as the continent’s second-biggest importer. The panels shipped over the past 12 months into Sierra Leone will raise the country’s electricity output by more than 60 per cent once installed.

The solar boom has spread beyond the usual suspects to countries that were definitely not in the industry’s address book. Abu Dhabi-based Global South Utilities inaugurated a 50-megawatt plant in Chad last week. Angola wants to build sub-Saharan Africa’s biggest solar farm, at 370MW.

However, such projects aside, the panel imports that have fed this rush seem to be destined more for distributed use, serving a single home, building or community. Outside the trendsetters of Egypt and Morocco, Africa’s biggest existing solar farm is only 175MW, a tenth the size of the Al Dhafra plant in Abu Dhabi.

Numerous African countries are launching smaller projects of a few tens of megawatts each. For example, Zambia’s target of 1000MW of solar power mixes larger and smaller facilities, and 200 solar mini-grids to serve rural areas. The share of Zambians with electricity has risen to 50 per cent, from 30 per cent in 2017, but powering the rest needs local solutions.

Solar does not generate all the time, of course, and is limited in the rainy season of central Africa. Some electricity is better than none, and it can save on diesel during the day. But to be truly a foundation of a modern energy system, solar needs to be combined with batteries, wind, hydroelectric, natural gas and, in countries such as Kenya, geothermal, to provide reliable power year-round.

Mini-grids are a good start for rural electrification. However, they must eventually be combined into a national grid. Power exchange, as in the 12-country Southern Africa Power Pool, can further balance out seasonal and geographic variations, but needs a massive expansion of grids and trading mechanisms.

Financing African solar power projects is still expensive. While Middle Eastern renewable ventures might be able to raise debt at interest rates of about 4.5 per cent, financiers for Africa may demand around 11 per cent. This pushes up the cost of the delivered electricity substantially. If countries can develop track records of reliable payment, this debt premium should ease.

This solar surge has important implications. It provides an additional outlet for excess Chinese manufacturing capacity. Africa’s solar imports are still small on a global scale but, given its potential and its needs, it could be an almost inexhaustible market. Installation rates will rise further as developers gain confidence and expertise. Some countries that have not yet joined the boom, such as Libya, Cameroon and Gabon, may see the light.

Cheaper and more reliable power could help drive take-off in manufacturing and technology businesses, the crucial drivers of sustainable economic growth. For now, some serendipitous combination of Chinese manufacturing, local entrepreneurship, and a melange of financing sources, has lit the fuse on Africa’s solar take-off.