New disruptive technologies are changing the ways energy generation and distribution is being understood and funded in Africa, says Rentia van Tonder, head of power at Standard Bank.
She said these changes have profound implications far beyond the energy sector.
“African policy makers, governments, banks, investors and global funders need to take stock of these changes and re-look at how energy is conceived and managed on the continent,” she said. “The good news is that technology-driven change is likely to see Africans play a far larger role in building, shaping and benefitting from energy on the continent.”
Affordable energy for rural populations
Van Tonder explained that new technologies are set to expand access to energy beyond Africa’s urban centres. “This holds the potential to include Africa’s extensive rural population in meaningful economic participation, sustaining the African growth narrative for generations to come,” she said.
She used small, easy-to-install home solar systems as an example and said these made energy affordable to rural populations, and challenge banks to come up with less costly, digital funding solutions. She said these solutions should be “geared to individuals seeking access to energy and the economic opportunities that this brings”.
Opportunities presented by new technologies
When new storage technologies are added to the mix, individuals will also be able to store and potentially be able to sell their own energy, she said.
Since the bulk of Africa’s rural population has historically been excluded from the continent’s limited and urban-focused grids, home technologies delivering and storing affordable and privately owned off-grid solutions, also have the potential to take energy generation and supply off government balance sheets, van Tonder believes.
She said this will mean the days of building vast generation and distribution networks are not likely to dominate, like in the past. Instead, she said “the future will see smaller, localised, and even privately owned off grid generation, storage, distribution and sale of energy”.
She added that this will involve a far wider mix of technologies, suppliers, and range of funding and payment mechanisms.
Renewable energy
Van Tonder believes that making renewables part of a diversified energy mix will provide utilities with a way of continuing to attract funding.
She said other opportunities for African utilities include the regional integration of generation and distribution. “Selling and supplying energy cross-border to multiple markets significantly reduces the risk and cost of funding utility debt on the continent,” she said.
“If regional integration is blended with renewables and off grid, banks stand a much better chance of being able to help utilities better manage long term sustainability given the flexibility,” she added. “As such, this disruption comes at exactly the right time in Africa.”
Funding
In today’s less predictable global environment, van Tonder said the funding of large long-term energy projects is seen as risky.
She explained that in Africa too, perceived risk was a growing challenge, particularly when it came to funding existing energy utilities and traditional large power generation and distribution projects, especially those based on coal and also hydro.
“As global investment mandates increasingly include sustainability criteria, traditional sources of African energy, like coal, may struggle to find funding,” she said.
“Smaller, renewable, off grid solutions, supported by new storage capabilities offer sustainable alternatives that pose less risk and have shorter and cheaper construction and delivery periods,” she added. “They can also be, funded in local currency through affordable end-user payment structures, rather than via hard currency-based long term debt.”
Structure and funding to change
In response to these rapid technology-driven changes, van Tonder said both African energy policy and the way bank’s structure and fund energy projects is likely to undergo significant change.
She said that for now, development finance institutions (DFIs) have taken the lead in funding smaller, more innovative, off grid renewable and largely community-based projects.
“Augmenting these new technologies with supportive government policy and innovative banking and funding solutions holds the potential to expand and sustain growth in Africa,” she said. “This will allow Africa to truly begin setting and driving its own development agenda and growth story.”
Van Tonder added that while Africa’s energy landscape is being severely disrupted by new technologies, this disruption, if managed correctly, presents exciting opportunities for Africa’s economies and people.