In this final instalment of the judgments on the past year and predictions for 2021 series, we spoke to Daniel Kitwa, Energy Access Finance Advisor, Africa Minigrid Developers Association (AMDA), Kenya.
Judgement: What developments surprised you during 2020?
Despite a broad agreement that energy plays a catalytic role in various aspects of human life such as education, health care, livelihoods and jobs, there was a slow response in COVID-19-related concessional financing support for off-grid energy support to wade through the pandemic.
Various consumer impact surveys conducted assessed the impact of COVID-19 to off-grid energy consumers. However, much of these insights did not drive positive policy behaviour by decision-makers.
In some countries, like Kenya, 2020 saw previous supply-side benefits like import duty exemptions on solar assets reversed in subsequent legislation passed – government cited the need to grow revenues following the reduced economic outlook.
Predictions: What trends do you anticipate for 2021?
For this year, I expect to see a number of trends taking shape. Some of these may be cross-cutting across the African continent while some may be more specific to regional or country-level geo-economics.
From a financing perspective, I expect to see more financial flows into the continent around themes like trade, clean energy and climate change. This would be driven by the expected focus on clean energy, climate change and sustainability by a US-led Joe Biden government who affirmed in his campaign that he willll re-join the Paris Climate Agreement.
Additionally, Britain has been keen on fostering more commercial partnerships with African economies following Brexit. For instance, this could have more traction in commonwealth countries like Kenya. Given UK’s focus on renewable energy and climate change, it is plausible to expect funding around these themes as well.
Further to this, I expect to see more investment activity by commercial investors given that most of them halted new investments in 2020 and opted to provide more liquidity to their existing portfolio companies affected by the pandemic.
This change in approach can possibly be triggered by investors’ realisation that the current situation is a new normal; hence the need to incorporate this new level of risk into their investment strategies.
The other trigger could be around the expectation of a COVID vaccine. This might make investors more bullish to deploy more capital. I also expect new donor funding programmes to be launched focusing on continuing themes like results-based financing while also focusing on aspects such as demand stimulation, and energy provision for health centres.
Nonetheless, given the slowed forex inflows due to reduced exports and tourism in some African markets, may lead to continued instability of local currencies relative to hard currencies like the dollar – so inflation rates would increase in some countries. This obviously affects the cost of financing of infrastructure projects like energy.
The higher cost of financing also creates a natural demand for insurance and credit enhancement products for such projects. Additionally, there may be some supply backlogs of some products. However, this might not exceed Q1 as we expect manufacturers and importers to catch up if no subsequent waves of the pandemic don’t trigger countrywide lockdowns, which could re-disrupt the value chain again.
During 2021, we can expect to see more moves toward decentralised energy by commercial consumers – this trend has already begun quite strongly in Kenya. Most of this decentralised innovation will manifest around self-generation by setting up captive power plants or taking advantage of hybrid/net metering models to manage power bills.
I also expect to see more activity in West Africa around deployment of decentralised energy solutions. In Nigeria, 2021 will see continued efforts by the regulators to put pressure on distribution companies to deploy smart metering technologies to address customer service concerns and improve collections as part of ongoing policy reforms.