HomeIndustry SectorsFinance and PolicyFunding electricity access for rural Africa

Funding electricity access for rural Africa

20 March 2013 – The question has been raised whether sufficient funding is being made available to develop access to electricity for rural areas in Africa, or are these projects being overlooked while larger scale urban projects take preference? Due to their relatively small scale, off-grid projects can fail to draw the attention of banks, which are active alongside governments and non-government organisations (NGOs) in other renewables initiatives in the region.

Most traditional financing houses will not look at financing any project that produces less than 40 MW. This means that most small scale renewable projects will not come into fruition unless alternative sources of funding can be found.

An increase in private sector involvement is widely seen as essential to unlocking Africa’s potential in off-grid renewables. A large portion of funding for small scale renewable projects in rural areas is currently being funded solely by development finance institutions.

However, one group that has done rural electrification reports that despite 50% of funding being provided none of the projects it has undertaken have been profitable for it.

Meanwhile, businessman and energy specialist Nick Eastaugh raises the point that the lack of adequate grid expansion, modernisation and penetration is an impediment to expansion of generation in Africa, yet the lack of adequate, reliable generation limits the options for electrification. “Development finance institutions and NGOs are seen to be keener on large scale projects that are inappropriate for the transmission and distribution landscape in Africa as well as in relation to the lack of adequate loads. Small, off grid projects are a stopgap measure, ultimately, as they don’t bring suitable economies of scale for the production of affordable power, and their reliability is often simply not up to snuff.”

He says that until it forms part of a sustainable development program that embraces a bigger picture these hand-outs can at best succeed in the short term and at worst fail. “Structural or limited employment combined with a largely non-existent skills base spread over large and remote rural areas require stakeholder involvement beyond simply a hand-out from philanthropists/interventionists. Unless stakeholders provide a sustainable business development model to go with the funding these will be simply repeats of what we have seen since the 60s/70s. Politically it doesn’t make sense to support rural initiatives and even less so when there is no economic or sustainable employment reasoning. Is the answer to make the poor the beneficiaries of grid-tied utility companies − I think that linked to an inducement to learn new skills this may be an option.”

This topic and more will be discussed at the Clean Power Africa conference and Exhibition, co-located with the 13th Annual African Utility Week, and taking place in Cape Town, South Africa from 14 – 15 May 2013.