Inspired by Barack Obama's Power Africa Programme, the UK’s ‘Energy Africa’ campaign will tackle the low level of electricity access in Africa. However, unlike the U.S. Power Africa initiative, the U.K.’s Department for International Development's (DFID) campaign is focused solely on off-grid solar solutions –an attractive opportunity across Africa and in many other locations worldwide.
Together with African governments, investors, businesses, NGOs, think tanks and donors, DFID will work to increase investment in off-grid energy and accelerate the delivery of solar energy systems to households across Africa. On May 10, 2016, Sierra Leone became the first country participating to sign a compact with the UK, formalizing its agreement to support off-grid solar development in the country with UK Government support. Further compacts will follow, with Ethiopia, Ghana, Nigeria and Somalia and other countries.
It is estimated that traditional, grid-based investment is capable of reaching only 40% of the world's population, leaving 500 million people without electricity access by 2030. The majority of these would-be electricity customers who live in rural areas, where grid connection is costly (and possibly unfeasible) but solar potential is high. As the price of solar panels drops and tracker and battery technology drops, off-grid solar is becoming an increasingly viable alternative.
The off-grid market is sizeable (nearly 22% of the world's population lack access to electricity) and isn't going away (the number of persons without access to electricity has not decreased significantly in recent years, and the World Bank estimates the number may actually rise in the coming decades). As Energy Africa and Power Africa, along with other similar initiatives, pledge capital and human resources to off-grid development, traditional barriers to entry will fall away and it is a prime time for innovators, investors and project developers to move into the sector in Africa.
Challenges developers have faced in the sector include:
- lack of policy support and political will at a national level (Governments have tended to focus on larger power projects that provide electricity to industrial or urban areas);
- a bias by Governments and citizens towards grid connections or extensions, notwithstanding high cost and low reliability of centralized systems in grid edge locals;
- the need to educate potential users of the longer term financial savings and other benefits, including health and environment, of solar power over diesel, kerosene or batteries; and
- lack of adequate funding for developers or appropriate financing strategies for customers faced with upfront costs.
Governments, civil society and donor-funded institutions are better placed to overcome those barriers than companies. Programmes such as Energy Africa, and the bilateral agreements between developed and emerging markets (such as the UK and Sierra Leone) that they foster, formalize commitments to policy action, the improvement of market conditions and the co-ordination of multi-donor support: all necessary steps to increasing the delivery of off-grid solar projects in Africa.
For instance, the Government of Sierra Leone intends to provide power to an additional one million people by 2020 and to all of Sierra Leone's population by 2025. It has commitments to eliminate import duties and VAT on qualified internationally certified solar products and to introduce household solar to all 149 chiefdoms in the country within the next 18 months. Sierra Leone is positioning itself as a leader in promoting renewable energy - both for investors and its citizens. For developers, that commitment will likely crystallize into a number of publicly procured or negotiated opportunities, firstly in Sierra Leone, and then elsewhere.
Our lawyers are familiar with solar projects in Sierra Leone, having developed the project agreements for a 25MW site, the first to receive Government approval in the country. We continue to advise on that development process. Having worked on off-grid developments in other emerging markets, we are also familiar with the legal structures required to facilitate development in the sector. Working with its network of local partner or "best-friend" firms in Africa, our team can help guide you through the legislative, regulatory and policy framework that governs renewable energy sector in various African jurisdictions.
We work with a variety of clients, meaning we are aware what elements of a project agreement are critical to its bankability (whether funded by commercial banks or donor funded institutions), and it being approved by government.