THE BLOG
01/25/2016 08:57 am ET Updated Dec 06, 2017

"New Deal for Energy" a Big Deal for Africa, Off-Grid

Last week at the World Economic Forum in Davos, the President of the African Development Bank (AfDB), Dr. Akinwumi Adesina, unveiled details of a hugely ambitious "New Deal for Energy in Africa", which, if fully implemented, has the potential to fundamentally reshape the continent. The New Deal, billed as a "transformative partnership" including the Africa Energy Leaders Group, the Sustainable Energy Fund for Africa, SE4All, the U.K.'s Energy Africa Campaign and Power Africa, between now and 2025 aims to use public-private partnerships for innovative financing to add 130 million more on-grid connections, a 160% increase, and 75 million off-grid connections - a stunning 20 fold increase from today. It also aims to increase access to clean cooking for 130 million households.

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This announcement is an unequivocal acknowledgement of the role that energy access will play in the economic growth of Africa and should be loudly applauded; for the recognition of the mandatory collaboration among key partners, particularly among donors; for setting out a clear prioritization of energy access in the AfDB's agenda, an area that the bank has been weak on in the past; and for its clear articulation of the political will and financing innovations that will be needed to achieve such levels of access.

For the off-grid sector, this is a resounding endorsement that decentralized renewables - mini-grids (using hydro, biomass, solar and wind) and rooftop solar - can address energy access issues at scale. Across Africa and Asia a quiet revolution has been taking place, with 100 million now served by off-grid solutions. However, the 37% off-grid, 63% on-grid target in the New Deal does not represent either the fastest or least-cost option to achieve universal energy access. In fact, this is the mirror opposite of the IEA projections that >64% of rural electrification would be delivered by off-grid solutions.

Dr. Adesina stated that the New Deal would cost $40-70 billion per year, finance that - if derisked - could be supported by the more than $1 trillion in African pension funds, ending fuel subsidies or a crackdown on illicit finance flows. Yet this is 2-3 fold increase in Africa's 2014 energy supply investment ($22 billion) which, given population growth, has had little impact on the numbers still unelectrified (more than 600 million). Given myriad competing priorities, will this high level of investment be achieved and, more importantly, does it have to be? Research shows that achieving universal energy access is possible at a cost smaller by an order of magnitude. A decentralized renewable approach would cost as little as $70 billion in total.

Nevertheless, the prominence of off-grid solutions within the New Deal is a clear and much welcomed step. One only needs to look at the speed at which investors, donors and private sector companies have committed to support Rwanda's goal to connect 22% of its population with off-grid solutions by 2018 to see the power of targets. National goals and the inclusion of decentralized renewables at the planning stage of national policy send clear market signals to investors and businesses. Increased financial support will similarly unblock the bottlenecks of the sector's high upfront capital costs.

Yet a major challenge remains regarding the pace at which this financial support actually flows to energy projects, service companies and consumers. Many off-grid enterprises are ready to deliver energy access in Rwanda, but despite large financing commitments, including from the Green Climate Fund and the Scaling Up Renewable Energy Program, there is no money in the market for them to access. Energy access via decentralized renewables can be achieved at an impressive rate, yet only if enterprises can get out of the starting blocks. We need great innovation in the pace at which money moves from commitment to energy services.

As Dr. Adesina noted, for the hundreds of millions in the dark, energy can not come soon enough. Africa's modernization, he said, "all starts with the need for electricity".

(This article was jointly written with Christine Eibs Singer)