„Hakuna matata” – does this hold true for renewable energy sources in East Africa?

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​published on 15th June 2020

 

The renewable energy markets have grown worldwide over the years – mainly due to the decreasing costs of energy for wind and solar power. PV electricity has reached grid parity at the level of utility companies.

This is no longer a subject of a debate, but a fact. The advantages of renewable energy sources are considerable, as they combine three main aspects of modern society: economic, environmental and social development. In addition to the current challenges related to the coronavirus crisis, the energy sector is still under pressure of decarbonisation, and needs to invest in renewable technologies. This series of articles on the regions of East Africa, Latin America and Southeast Asia provides an overview and assessment of the investment potential there.
The East African region is a leader in promoting renewable energy on the continent, including solar, geothermal and wind power.

We want to show the current state of development of renewable energy in East Africa and its economic and technological potential, and attempt to draw a conclusion for the near future.

 
Economic situation in East Africa and the potential of renewable energy sources

Less than a quarter of the approximately 537.9 million inhabitants of East Africa have access to electricity – this is the lowest electrification rate in the world.


Nevertheless, economic growth in East Africa is higher than in other regions of the continent, having reached almost 7 percent in 2019. Figure 1 shows the gross domestic product („GDP”) of 2018 and the GDP growth projection for 2021. Job creation and ramping up manufacturing will continue to be major priority areas for creating growth and employment across the entire continent. Given the great abundance of natural resources in the region, East Africa is becoming a very attractive location and is a region of great opportunity for renewable energy investors.

The potential of photovoltaics (PV) fluctuates between 1,607 and 1,899 kWh/kWp, and wind speeds are among the highest on the continent. Especially on the coastline of East Africa, the potential for power plants with a capacity factor „CF” of more than 30 percent – up to 30,860 TWh/year – would cover more than 50 times Africa's total electricity demand of 2012. Hydropower resources are also abundant, and because of the Great Rift Valley, the potential of geothermal energy is considerable.

 


Fig. 1: 2018 GDP and expected growth

 

Renewable energy development 2015-2018

Share of renewable energy and installed capacity

Over the years, the development of renewable energies in East Africa has picked up steam. In some countries, the share of renewable energy is already considerable, but low demand compared to industrialised countries should be taken into account. The share of renewable energy sources in the total installed electricity generation capacity (excluding off-grid systems) in 2015 in the East African Community („EAC”) region1 was 65 percent. In the region of the Economic Community of West African States („ECOWAS”), by contrast, it was 28.6 percent and in the region of the Southern African Development Community („SADC”) – 23.5 percent. By the end of 2015, 3 gigawatts („GW”) of grid-connected electricity installed in the EAC region came from renewable energy sources. Figure 2 shows the share of renewable energy consumption by country in East Africa in 2015.

 

 

Fig. 2: Share of RES by country in 2015


 

Small-scale solar projects can be found in most East African countries. The increase in installed capacity from 2015 to 2018 is remarkable, as shown in Figure 3. In 2018, the total installed capacity of solar energy reached 345.4 megawatts („MW”). When looking at the EAC countries, Kenya, for example, has the highest installed capacity for renewable energy (820 MW) and invests primarily in wind power and geothermal energy, followed by Uganda (693 MW), Tanzania (562 MW), Rwanda (78.8 MW), which is developing hydropower and solar energy, and Burundi (33.8 MW). In Tanzania and Uganda, the focus is on hydropower.

 

 

Fig. 3: Installed solar capacity 2015–2018 in MW

 

The installed capacity of hydropower reached 12.461 MW in 2018, making it the most common source of electricity, mainly due to its high capacity factor. Figure 4 shows the total installed capacity in 2018. It can be seen that Ethiopia, Zambia and Mozambique lead the way with 3,817 MW, 2,398 MW and 2,203 MW, respectively.

 

Fig. 4: Installed capacity of hydropower plants 2018 in MW

 


Despite its great potential in the region, geothermal energy capacity will reach overall 670 MW in 2018. The two most important countries with significant geothermal installed capacity are Kenya with 663 MW and Ethiopia with 7.3 MW. However, as a result of initiatives in this region, such as the Geothermal Risk Mitigation Facility („GRMF”) geothermal energy is expected to change. The GRMF was established to finance, facilitate and accelerate the development of geothermal power in East Africa. Its aim is to promote public and private sector investment in geothermal electricity generation.

Wind energy is the second most common source of electricity. The total capacity of this technology reached 681.3 MW. Kenya and Ethiopia have still the largest installed capacity. In 2018, the share of this technology in these two countries was 324 MW and 226.1 MW, respectively. Small capacities are found in Mauritius (10.6 MW), Seychelles (6 MW), Somalia (3.6 MW), Eritrea (0.8 MW) and Madagascar (0.2 MW).

 

Investments and financing

Obtaining secure financing is one of the main difficulties as regards renewable energy projects in Africa.
Currently, there are many funding opportunities that focus on the development of renewable energy sources in Africa. These range from funding from European and international government institutions, to funding from private institutions and banks. Country-specific information can be found on the website of the German Federal Ministry of Economic Affairs and Energy.


Some African countries also have programmes to stimulate the electricity market in the region. Kenya, for instance, has set up the Kenya Climate Fund to finance both larger projects directly and smaller projects through intermediaries such as commercial banks.


For renewable energy projects with a capacity of up to 1 MW, it is also possible to conclude a net metering agreement with the electricity supplier.

 

Conclusion

Most East African countries offer good investment opportunities. However, there are some that stand out from others, such as Ethiopia, Rwanda and Kenya.

Ethiopia offers a range of tax exemptions and customs reliefs. The World Bank has launched the Renewable Energy Guarantees Program („REGREP”) which provides USD 200 million in guarantees of the International Development Association for the development of 1,000 MW of greenfield solar and wind energy projects in Ethiopia.
The Rural Electrification Fund („REF”) covers the full investment costs for the PV system incurred in the process of the electrification of rural facilities such as healthcare facilities and schools. Interest-free loans are granted for five years in the case of Solar Home Systems („SHS”). Within the framework of the „Scaling Solar Program” of the World Bank, several auctions have been held. However, there are currently no specific support programmes for wind power in Ethiopia.

Rwanda’s government supports renewable energy projects by offering a uniform, reduced rate of 5 percent on imports of construction materials. This eliminates the need to pay customs, VAT and other taxes on such imports. Furthermore, equipment for PV projects is exempted from customs duties.

In principle, the East African Community (EAC) – consisting of Rwanda, Burundi, Kenya, Tanzania and Uganda – has agreed to sign a convention which stipulates that no customs duties will be levied on equipment used in PV and wind energy projects. This also applies to batteries for storage of solar energy.

For geothermal projects, the AUC's „Geothermal Risk Mitigation Facility” (GRMF) programme is available in addition to the „Scaling Up Renewable Energy in Low Income Countries” programme.

East Africa is an interesting market: if the offtaker's creditworthiness is secured by government guarantees or other instruments, or even if the offtaker relationship is based on a specific PPA, there is a good chance for a successful market entry. Of course, environmental and social issues should also be approached professionally from the beginning, and project development and, above all, the timetable will not go as smoothly as in Europe due to bureaucratic structures. Nevertheless, it is worth taking a look at it.

 

 

You are also encouraged to register on our virtual marketplace RENEREX which brings together investors and project developers for future projects. You can also subscribe to our REnews-Letter (unless you have already done so) to receive quarterly insights into market reports from around the world.

 

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1 comprising the Republics of Burundi, Kenya, Rwanda, Southern Sudan and Uganda and the United Republic of Tanzania

 

 

 

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