BusinessDay

COP26: How African countries can attract more solar investments

Nigeria and other African countries will be on the high this month as world leaders gather for another once-in-a-lifetime opportunity to hit the reset button on the climate crisis and make new commitments to save the planet.

No doubt, the renewable sector will hear strong appeals from countries, multinationals and investment houses to put more money on the table to finance more environmentally friendly energy.

According to a monthly trade publication launched for the international photovoltaics (PV) industry, the climate change conference means more billions of private and public dollars stand ready to invest in solar and other renewable energy projects in Africa.

“Governments should focus on lifting barriers holding back such investments, both for large-scale power plants and distributed solar plants,” the report noted.

High electricity costs

Africa’s businesses suffer from the world’s highest electricity costs, and the continent is the only region where the share of renewables in the energy mix has been at a standstill since the signing of the Paris Agreement six years ago.

According to the International Energy Agency (IEA), the share of hydropower, solar, and wind on the continent’s electricity generation is still below 20percent.

As a result, Africa has become even more dependent on coal, natural gas, and diesel to meet its fast-growing demand for power – fuels that recently have doubled and even tripled in price.

To reverse this precarious development, the PV industry report noted that Africa should aim to triple annual investments in low-carbon energy to at least $60 billion per year.

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“Africa’s governments should study the lessons learned from South Africa and Egypt, and make it easier for businesses to invest in solar energy production for their own needs,” the report noted.

Subsidies

The PV industry report noted that subsidized diesel prices and grid tariffs are also a barrier to solar investments, but fortunately less so than before.

The cost of diesel in Egypt and Nigeria, for example, is USD 0.5 – 0.6 per liter, about half the price in the U.S. and China, and less than a third of the price in Europe.

“Only by eliminating fossil fuel subsidies and making sure tariffs cover all costs can governments ensure that solar energy projects will become fully competitive. There are more efficient ways than fuel subsidies to protect the poor and vulnerable parts of the population,” PV industry report noted.

Currency

The report further raised concern about forex scarcity which is also a major issue, especially since African countries need to attract billions of dollars in foreign investments.

“Foreign investors are generally not set to uptake currency risk,” the report noted.

The report cited countries such as Nigeria, Mozambique, Zimbabwe where access to the U.S. dollar is highly restricted, making foreign investments almost prohibitive.

“A liquid currency market and a stable and transparent foreign exchange policy are vital for countries seeking solar investors,” the report concluded.

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