Energy Efficiency Made Simple Vol IV 2015

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Challenges Sub-Saharan Africa is endowed with large, untapped RE resources including, but not restricted to solar, wind and geothermal power sources. An increasing number of solar and wind RE power projects are currently being developed in the region. However, among the utility-scale ones, very few have reached financial close. The main challenges to building large-scale grid-connected RE power projects in sub-Saharan Africa (excluding South Africa) are as follows: The process to negotiate a Power Purchase Agreement (PPA) with the power utility and to achieve the required land permits often takes many years. Opposition from local communities living in the vicinity of such projects is not to be underestimated. Indeed, access to land has been an issue lately for large RE power projects, especially in Kenya and Ethiopia, but also in South Africa. Commercial financial investors will often require sovereign guarantees owing to the low credit-worthiness of power utilities. Certain governments are not capable of providing such guarantees as they can only commit to weak letters of support. This is where the intervention of political and commercial risk guarantees comes • Projects’ bankability • Limited grid capacity • Electricity affordability

into play – at additional costs, with the intervention of development finance institutions and export credit agencies such as the World Bank (i.e. MIGA, IDA, IBRD, IFC), the African Development Bank, as well as the African Trade Insurance Agency. Grid connectivity and an insufficient capacity to integrate variable power, or a lack of understanding of the impact it could create on the grid, are other key restraints that many sub-Saharan African countries are facing (e.g. Ghana which is currently imposing a temporary cap of 150 MW for its large-scale grid-connected solar PV projects). Finally, non-cost-reflective electricity tariffs are often unattractive to private power generator investors. In addition, these tariffs do not provide enough resources to power utilities to make the necessary changes (rehabilitation and expansion) to the grid, often required to accommodate RE power projects. Electricity tariff subsidies prove to be ineffective as most power utilities do not have the adequate means to secure a stable power supply to their consumers. New business models need to be put into place to ensure: • Higher access to electricity • Cost-reflectiveness • Affordability and competitiveness of electricity tariffs across the continent

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ENERGY EFFICIENCY MADE SIMPLE 2015