What's the cost of greening Africa's power sector? - Energi og Klima

What’s the cost of greening Africa’s power sector?

McKinsey on Africa power sector: With 150 billion US dollars, CO2 emissions can be cut one third by 2040.

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McKinsey recently published a study on the growth potential of the sub-Saharan electricity sector, «Brigther Africa». The study projects that sub-Saharan Africa will consume nearly 1,600 terawatt hours by 2040, four times what was used in 2010.

By 2040, sub-Saharan Africa will consume as much electricity as India and Latin America combined did in 2010, but 20-30 percent of the continent’s population will still not have access to electricity.

McKinsey estimates that if every country carry out the most cost-effective expansion of their power sector, the investments needed to 2040 would be $490 billion of capital for new generating capacity, plus another $345 billion for transmission and distribution.

In this Reference scenario, the share of natural gas in power generation increases from 6 to 44 % in 2040, at the expense of coal that drops from 51 to 23 % in terms of marketshare, see Exhibit C.

Source: McKinsey "Brighter Africa", February 2015
Source: McKinsey «Brighter Africa», February 2015

McKinsey also submitted an alternative scenario called the High-renewables case, marked by a significantly faster expansion of wind and particularly solar PV. If sub-Saharan Africa aggressively promotes renewables, it would obtain a 27 percent reduction in CO2 emissions from power generation. However, the consultants estimate that this «green scenario» would require additional capital spending of about $150 billion, or 18 percent more capital spending than in the Reference scenario.

Source: McKinsey "Brighter Africa", February 2015
Source: McKinsey «Brighter Africa», February 2015

As McKinsey recognise, a strong push for solar and wind would not only lead to less emissions, but also reduced long-term fuel cost. In addition, solar PV also has the advantage that installations can be ramped up rapidly to meet the growing power demand. No other source of electricity has this flexibility.

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The McKinsey study highlights the importance of the ongoing discussions on improved climate finance to «bridge» the financing required to enable the realization of the high-renewable scenario. In addition to strengthening the financing mechanisms at the UN level (Green Fund, «CDM+», a.o), national development banks and export credit agencies can play a vital role in this area, as is currently being discussed in Norway. (See article (in Norwegian)).

The potential can be illustrated by an example: If for example the Norwegian Export Credit Guarantee Agency (GIEK) were enabled to underwrite the financing of hydropower, solar and wind parks in Sub-Saharan Africa countries with an exposure of up to say 50 Billion NOK, this could lead to more than 100 Billion NOK in total additional investments in renewables in less developed countries. Such financing could again result in an additional generation capacity of 8-10 GW. And because the new renewable power mainly would replace fossil fuels, the result would be annual reductions of CO2 in the range of 7-8 million tons CO2.

The main challenge facing developing nations is the competition for scarce funds and government guarantees. Therefore, capital-intensive investments in low-carbon energy tend not to be prioritized when competing with needs that are more urgent. On the road to a global climate deal in Paris later this year, rich countries should be called upon to extend guarantees or introduce other forms of risk-sharing with privately financed renewable energy providers investing in long-term renewable energy projects in developing countries.

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