Reliable electricity is essential for economic progress, but it remains a challenge in sub-Saharan Africa, where 75% of firms face outages. At BII, investing in power is an important part of what we do, with 24% of our portfolio in the power sector. Fossil fuels are major contributors to global carbon emissions and climate change, which is why we invest in low-carbon alternatives. Our climate change strategy and 2022–26 technical strategy ensure that our investments align with economic development pathways consistent with net zero emissions and climate resilience.
This study, by independent evaluators from Itad and Steward Redqueen as part of the FCDO–BII Evaluations and Learning Programme, uses detailed modelling to assess how various power generation technologies support our ambitions to boost reliable power and accelerate the green transition in different country contexts. It models how adding 1 megawatt of power to the grid using different technologies affects gross domestic product (GDP) and greenhouse gas (GHG) emissions in six African countries.
There are several valuable insights from the research:
- Investing in technology to accelerate the transition to reliable, clean power is essential. Sustained economic growth powered by clean energy requires renewable energy that is more affordable and storage systems which can readily dispatch power to address outages. The impact of battery energy storage systems for solar power at peak times in South Africa highlights the need to reduce the cost of these technologies. For us, this underlines the importance of equity and concessional finance to strengthen the supply of bankable projects and demonstrate the business case for increased investment. For example, we have backed Scatec’s development of solar and battery storage facilities in South Africa to contribute 1.1 gigawatt hours (GWh) of dispatchable power to the grid, and we have backed similar projects through Globeleq in Mozambique.
- Investments that diversify the energy grid are crucial for strengthening climate resilience, particularly in countries reliant on hydropower and vulnerable to climate change-related weather events such as drought. In Kenya, the study found that diversifying away from hydropower, for example through other renewable energy sources, enhances resilience in dry years.
- Investments in power transmission can be more cost-effective for reducing outages and GHG emissions than investments in power generation. Investing in electricity networks is also key to diversifying energy sources and increasing the sustainability and economic efficiency of the power system. The Kenya case study found that, with large regional variations in outages, investment in transmission reduced outages and emissions more cost-efficiently than investments in generation. We invest in transmission through Gridworks, which provides equity finance to develop projects in transmission and distribution (T&D), and off-grid electricity across Africa, for example the Amari Power Transmission project in Uganda to improve electricity supply to industrial users.
- Investments to improve economic efficiency and reduce peak demand could offset the need for investment in generating capacity. Although not directly addressed in this study, the results suggest that investing in system efficiencies (such as digitalisation of the grid) and demand-side management (such as smart meters) can reduce demand at peak times and improve the overall economic efficiency of the power system.
As with all models and underlying datasets, there are limitations which need to be considered when interpreting the results. Critically, in addition to the limitations identified in the report, the model only considers supply-side interventions and does not adequately assess the impact of investing in T&D and regional interconnectors. Further analysis of this wider set of technological options for demand-side management and other system improvements would enhance understanding of their impact.
Similarly, the modelling does not consider key economic and financial risks, such as transition risk (the risk of long-term infrastructure assets becoming stranded as countries transition to a low-carbon economy), dependency on fossil fuel imports, and volatile fossil fuel prices. It assesses short-term reliability of the power system but not the optimal addition of generation technologies to meet growing electricity demand over time.
The analysis sometimes identifies investment in fossil fuels as the most effective investment. However, this is based on historical cost data for generation and storage technologies and does not include social benefits of technological advances in renewable power and storage systems, which have only recently started to become cost-competitive with fossil fuels as a source of dispatchable power. With continued technological advances, the costs of battery and other storage technologies are likely to decline further in the relatively near term.
In our view, when considering the broader range of risks associated with fossil fuels, potential opportunities for power systems, and the imperative to support countries transition to net zero, renewable power systems that improve reliability (including storage technologies and improved T&D systems) are the right choice. This is also consistent with our fossil fuel policy, whereby we only invest in lower-emitting fossil fuel technologies when the investment aligns with a country’s development pathway to net zero emissions by 2050 and contributes towards the power system’s net zero transition.
Overall, the report provides useful, practical analysis of the interactions between differing generation technology options. It highlights that more reliable power systems can increase GDP by many times the investment’s capital cost in a just a few years, suggesting that the right investments can pay off quickly from a societal perspective.
Our role as an investor in new and emerging power generation technologies, as well as in T&D infrastructure, is critical for reliable power supply on the African continent. Our ability to be involved at an early stage of project development through our equity investments sets us apart from our peers and is something we will continue to build on. We hope that the findings of this report will be useful to other investors and stakeholders considering the range of issues that are relevant to their power sector investments and financing approaches.
