Renewable energy in Africa: Huge opportunity at huge cost

Sustainable energy initiatives in Africa are likely to soon be a huge opportunity for investors hoping to push for renewables and drive development in the region. Renewable energy sources like solar, wind, and hydropower are set to grow progressively and could make up a remarkable 95% of all installed power in the continent by 2050.

Africa’s energy demand is on track to double by 2050, driven by both population growth and the rising tide of industrialization. However, by embracing more efficient technologies, the increase in energy consumption can be curbed by half, while electricity usage is expected to grow six fold by 2050.

Investments of $2.9 trillion in green energy sources and infrastructure from now until 2050 would be required to unlock the full potential of renewable energy in the continent. That is according to a report from McKinsey & Company, which mapped the potential for renewables in Africa.

The share of installed electricity capacity accounted for by renewables is expected to rise steadily across the continent, reaching 65% by 2035 and almost 95% by 2050. Compared to hydropower, solar and wind energy will expand quicker, making up around 70% and 20% of installed capacity by 2050, respectively, with hydropower contributing 10%.

Between now and 2030, the global demand for gas is likely to increase significantly and investment in African gas could go a long way to helping meet that demand. Countries in North Africa with gas resources can take advantage of geographic proximity to Europe to export liquefied natural gas (LNG). Some projects already in development, for example in other parts of African, like Tanzania and Nigeria.

According to the report, the development of renewables in Africa could result in a 45% reduction in energy emission intensity there by 2050.

It is anticipated that by 2050, the annual required investments will exceed $160 billion, of which 43% will go toward hydrogen, 38% toward renewable energy, and 17% toward minigrids and power transmission and distribution.

The construction of infrastructure for electricity presents further investment opportunities. By 2050, transmission and distribution of electricity would require a total expenditure of almost $400 billion.

Egypt, Morocco, Nigeria, and Senegal are set to extend their transmission and distribution networks by a total of 120,000 kilometers. After 2030, green hydrogen and renewable energy are expected to skyrocket, providing financial institutions with an early opportunity to participate in Africa's green energy transformation.

Hydropower accounts for 45 gigawatts (GW), primarily in sub-Saharan Africa. By 2050, installed capacity is predicted to increase fourfold. Despite their current tiny capacities of about 15 GW and 12 GW, respectively, solar and wind power are expected to develop dramatically by 2050, with the former increasing by up to 100 times and the latter by up to 35 times.

A previous report by PwC noted much the same: Africa will need to produce far more energy in the years to come and that big investments are needed to ensure that new energy will be renewable.

Egypt is already headed towards become a regional energy hub. The country signed a $9 billion contract with Siemens to help develop gas power plants, with ambitious plans to export gas to Europe by constructing a lengthy pipeline through Cyprus and Greece.