A new Rocky Mountain Institute (RMI) study, 'Creating a Profitable Balance: Capturing the US$110 Billion Africa Power-Sector Opportunity,' shows that status quo energy systems could cost African nations up to US$180 billion over the next decade, more than 2.5 times the 2016 gross domestic product of Kenya. If thoughtful action is taken, it is possible to save US$110 billion over the next decade — but only through better planning.
On a continent where more than 600 million people lack access to reliable electricity, reform is necessary, so resources are not wasted. The current project-centered investment approach makes it difficult for governments and development partners to make informed investment decisions. The consequence is often higher energy costs than are necessary, because of costly or poorly-aligned investments.
Instead, governments and their partners should focus on developing well-planned electricity systems in which investments in generation and transmission align not only with each other, but also with people’s demand.
"Procuring power is a necessary element of increasing energy access and driving economic development, but it is far from sufficient. Holistic planning and implementation that includes the full range of supply and demand side solutions, their interactions, and critically, productive use programs that allow homes and businesses to realize the full benefits of electricity, is critical,” said Eric Wanless, Africa energy program senior director at the RMI.
Two factors were cited as key contributors to capacity imbalance:
- A fragmented, project-focused approach that does not consider whole power system dynamics, including bottlenecks in transmission and distribution (T&D).
- Overly optimistic demand forecasts that are not accompanied by strong programs to create productive demand for power.
Key Recommendations for Investors
- Challenge project developers to clearly articulate how their project fits into the overall system need and what steps they are taking to reduce risk in addition to securing government guarantees and/or take-or-pay contracts.
- Encourage and support governments in developing a transparent, collaborative, and regular planning process if none exists or if those that do exist aren’t informed by on-the-ground realities.
- Diversify investments in the power sector to include critical T&D and enablers of regional trade and integration, and encourage governments to do the same.
The RMI Africa program currently operates in Ethiopia, Malawi, Nigeria, and Uganda. It focuses on increasing access to and the productive use of sustainable electricity.