Just a few decades ago, renewable energy was only on the agenda of a few ecologically conscious visionaries. Today, our future is unimaginable without a tremendous expansion of it. This is especially true for Africa, where, first, climate conditions are evidently favourable for renewable energies, most obviously for solar technology. Second, the technology is convenient for the challenges the continent faces in energy provision.
Only every second person has access to a reliable and stable supply of energy, with a much lower rate in rural areas. Grid extension to connect every village in Africa is expensive. Technical solutions such as systems that provide energy at household levels — “off-grid” solutions — such as insular energy grids in villages are more viable and cheaper alternatives.
The global community has pledged to guarantee energy access for everyone. This will only be possible if renewable energy plays a role. In this sense, renewable energy contributes to social justice. The 2018 report of Poor People’s Energy Outlook shows how they, in particular, are affected by a lack of access to energy supply.
The United Nations Development Programme calculates a sum of $51-billion a year until 2030 to guarantee energy for everyone. Today, only half of this amount is invested. Governments have initiated transformation processes with respective policies. Feed-in-tariff mechanisms, auction programmes or subsidies are promoted in line with renewable energy policy frameworks.
But the construction pace is slow and funding is scarce. Public and private sector funding is required to accelerate energy transition in African countries. But investors shy away for two reasons: they fear political or economic risks in Africa and they fear unknown renewable energy technologies.
The international community has, in recent years, reacted by initiating numerous programmes to spur investments in renewable energy in Africa so that a diverse and complex landscape of financing programmes has developed. Within the United Nations Framework Convention on Climate Change negotiations, the green climate fund has recently started operations to channel climate finance to Global South countries for adaption and mitigation strategies.
The World Bank has developed its programme — Scaling Solar — in pursuit of the goal of creating viable markets for solar projects. Another programme, GET FiT, can be traced back to a Deutsche Bank initiative and is now being realised with the help of several European donors.
The effect has been remarkable. In Uganda, GET FiT has mobilised $450-million in investments directed at increasing national energy production by about 20%, which guarantees energy supply for roughly 200 [Thin space] 000 households. Regarding the Scaling Solar programme, two solar plants are being built in Senegal with a capacity of 30 megawatts each, which makes it the cheapest energy source in the country.
The driving idea behind these projects is to establish an institutional and regulatory framework so that reluctant investors feel secure enough to invest in renewable energy in Africa. This is what finance experts call derisking: a guarantee for returns on investments against possible risk scenarios, for example expropriation, the non-payment of financial obligations or civil unrest. The concept of derisking is considered to be the key component of every financing programme in the renewables sector in Africa.
Taking a closer look at the idea of derisking, we can trace the concept back to the financial industry during the colonial period. Private businesses were crucial in the subordination of the foreign territories, in the extraction of natural resources and the exploitation of labour. These companies did not rely on their capital alone.
It was common for corporations to receive state assistance in their overseas market expansion. Governments provided public guarantees with fixed rates of return so that private investors were insured against risks in the colonies.
Britain’s colonial government, for example, guaranteed private investors a return of minimum 5% on their investments in railway construction in India. In other words, tax payments were used to pay off investors, if a certain rate of profit had not been reached by the investment itself.
Derisking is based on a shared perspective viewing Africa as a bleak, backward and savage place. The Congolese philosopher, Valentin-Yves Mudimbe, author of the seminal book The Invention of Africa: Gnosis, Philosophy, and the Order of Knowledge (African Systems of Thought), holds the view that this idea of Africa was created by the West and has colonial roots.
But the idea of derisking does not only appear in colonial disguise. The current, established financing landscape follows a similar pattern in the clear distribution of roles. Funding comes from the Global North and flows to the Global South. This bears several problems. First, the unilateral flow of money creates dependencies and forces African countries into a subordinate position. Returns from the renewable energy projects are expatriated rather than being reinvested in the continent and the profits flow back to the investors in the North.
Second, contemporary finance creates negative effects for energy markets in Africa. An example from Senegal illustrates this. During field research on renewable energy for small enterprises in Senegal, I met Lamine Ndiaye, a pioneer in renewable energies, and discuss the role of global finance for the local energy market. He welcomes the recent extension of renewable energy in Africa. “However”, he continues, “Scaling Solar will sell electricity at a price of less than four eurocents/kWh [kilowatt hours], which will kill the sector. No other actor will be able to sell at that price and it risks becoming the referential price.” Local actors will be priced out of the market.
Indeed, developers of renewable energy projects based in the Global North import almost everything — from the technology used to the skilled workforce to construct the plants. This risks excluding African enterprises and preventing value creation on site.
Boniface Mabanza, a philosopher, theologian and academic from the Democratic Republic of Congo who works in Germany for the Ecumenical Service on Southern Africa focusing on apartheid and post-colonialism, argues that African perspectives are neglected in the latest initiatives, which discover the African continent as a profitable investment location.
He thinks that African countries should reject the programmes that promote private investments until they are able to regulate them.
Mabanza’s view is that the regulatory environment benefits foreign investors rather than leading to substantial transformation on the continent.
The programmes aimed at strengthening private investments in the renewable energy sector in Africa are at a deadlock. Although funding for the much needed energy transition is urgently needed, the programmes do not seem to respond to local needs. Financing that seriously includes local actors and their views is required.
Ownership and participation should not be just empty words on policy papers. The local population needs to be heard and must materially benefit from the investments.
Why not give each household a share in the renewable energy plant and let a local democratic body decide upon the reinvestments? As long as renewable energy financing prioritises profit returns over climate change mitigation, the continent will bear the consequences of the climate crisis.
This article was first published on the Open Democracy website
- Beyond the digital cold war: Technology and the future of US-African engagement under Biden
- Competition for campaign contributions results in the rich paying too little tax
- Jonas Gwangwa embodied South Africa’s struggle for a national culture
- ‘SA can’t leave its shift to a low-carbon future to chance’
- Funding a vaccine will tax our limits