Experts at a panel discussion organized by Africa-EU Energy Partnership (AEEP) have noted that financial stress, including inflation and currency crisis, have led to the bankruptcy of many clean energy companies despite the potential for grid extension with large-scale wind and solar photovoltaic power procured through well-designed auctions to provide affordable electric power to a significant portion of Africa’s population.
According to Emma Gordon, an Energy and Investment analyst at the International Energy Agency (IEA), the pandemic, inflation, and the currency crisis have led to an increase in the number of people without access to modern energy. Furthermore, she notes that the financing needs to meet universal energy access goals outlined in the Paris agreement will increase due to the fact that around 75 million people worldwide who recently gained access to electricity are now likely to lose the ability to pay, with 100 million potentially reverting to traditional biomass for cooking. The majority of those affected are in Sub-Saharan Africa.
An AEEP report on 2022 financial flows into Africa released last week found that more than 20 African cross-border interconnector projects are between the pre-feasibility and construction stages, but many are advancing too slowly.
The report noted that European funds were significant contributors and committed €4.6 billion ($4.9 billion) to T&D projects in Africa between 2014 and 2020, most of which were directed toward large-scale grid projects.
Gordon observed that during 2020-21, procurement of grid connections was quite resilient, backed by a promising project pipeline before the pandemic, which has since slowed, and African utilities lack the funds for these projects.
“Most utilities in the region tend to have massive operational losses, and these have been climbing further since the pandemic. These risks will likely remain over the next few years, given the high debt and inflation,” she said.
grid’s bankruptcy woes
According to Gordon, the off-grid space faces even stronger headwinds as inflation has hit consumer demand, and prices of key components used to manufacture solar PV modules, batteries, and inverters are rising very sharply.
“The cost of solar, hybrid, and mini-grid has increased by at least 20% from pre-pandemic levels. The average market price for a new solar home system has increased by around 30 percent since 2020. Sales of large solar home systems in 2021 were nearly 1/3rd lower than their 2019 peak, with the largest declines seen in East Africa.
These costs put firms under financial pressure, further exacerbated by local currencies depreciating against the dollar used to finance energy projects. The majority of the firms in the off-grid space risk bankruptcy in the next three years if current financial conditions continue,” she said.
A recent AEEP research found that on-grid electricity from large-scale wind and solar PV power plants procured in well-designed auction systems (at the wholesale level) can be up to 30 times cheaper than electricity from distributed energy systems (solar home systems ). It can also be up to 15 times cheaper than electricity generated by mini-grids.
