Bridging the Energy Gap: The Future of Renewable Investments in Africa

Enable foreign investors to come in, to invest and see that they can take returns out of their countries. In most of the rest of the continent, you don't see such enabling regulations for private sector investments, both in large and in small applications. Right. Now, there has been something within the region, Kenya seems to be a leader with already 80% renewable coverage and great plans for up to 2030. What is it that they have done differently within this region? You spoke about regulatory frameworks. What is it that they have done different? And how can that, some of it be replicated in other parts of East Africa? I think there are two main reasons. The first is obviously the entire investment ecosystem makes it attractive for international investors to come into Kenya. There is a long history of getting returns on the investments. And I'll emphasize the word long history, which other countries don't have. The second is that there's a huge number of startups. So there's a pipeline of projects being created and being put forward to the international investment funds who come into Africa. These two things have combined to create an ecosystem. What has lagged behind but is happening is the creation of manpower, of skills to carry out the renewable energy projects that are needed. Very interesting. I wouldn't have, you know, usually that doesn't come up, that it's an issue of manpower or skills when that transfer or transition is being looked upon. At the same time, one of the schemes that the Kenyan policy framework has been commended on is the feed-in tariff systems and the tax incentives. How do they compare? How have they performed? Why were they a benefit for Kenya? And if you could, how do they compare with premium models, feed-in premium models? For small to micro grids, two larger utility setups. I see you're laughing, you find it. Please carry on. What tariffs do is that they provide certainty to the investor. They know that they're going to get a certain amount of money back. And it allows them to plan accordingly, both planning before the investment and during the time that they own the assets. This is what makes feed-in tariffs very attractive. The next step is that then you start having a premium on what is the tariff. But you need to create the infrastructure that is needed, the manufacturing infrastructure, the EPC, the erection procurement and commissioning infrastructure in order for the next step to occur. When you can actually go in and get advantage of the price reductions that are occurring both in solar and in wind. In my view, you start with feed-in tariffs and then you move into the others. Oh, excellent. Because with feed-in, you're getting sort of fixed rate on returns. And with premium, there is a chance of as consumption goes up and as the overall renewable landscape changes, that there's a chance that you might end up getting higher premiums on that. That is very interesting. Now, when we speak of these higher premiums, all of this starts to sound much more promising. But there's one challenge that seems to not be, you know, it doesn't seem to let go of us, of all of you who are in this space and renewable energy, and that is having to have a fossil backup for grids that are renewable. And how do you strike that balance? Because again, whether it is from the investor point of view or from the government, because again, fossils enjoy better tariffs, I mean, taxes and tariffs actually. You know, this is the million dollar question, because all incentives do lead to more renewables. But what does the distribution company do when the wind is not blowing, when the sun is not shining, particularly during nighttime hours when the wind is not good? Then you have to resort to existing fossil fuel capacity. And if you are, as with all East African countries, if you are in a situation where the energy demand is growing, it's growing during the day and it is growing at night. This means that we need to look at the weighted tariff of solar and wind energy and the fossil fuel. And this is very country specific, but you would need to prepare a national plan on how to reduce it so that batteries can come in. And batteries so that solar plus wind plus batteries is more cost effective than solar plus wind plus fossil fuels. To me, this renewable energy round the clock price is to a very large extent the mana which we are all looking for. Right. Thank you for sharing that, actually. So what currently works for East Africa? I mean, we're talking about a place. Forget about having to do these all three set of solar, wind and fossil. There's actually an energy deficiency. There is literally a first time asset creation that is happening in so many parts of East Africa. So what kind of models work for investors there? OK, this is a tough question, and I'm going to answer it with a little bit of background. You know, this is a question that has bothered policymakers for a long time. Right. What you need to do is to get you and I, people in our daily lives, interested in renewable energy. This can only happen at not when you get electricity to the grid because then you switch on and off and then you don't care where the electricity is coming from, fossil fuels or renewables. But when you've got rooftop solar, when you've got if you're a farmer, you've got solar based pumps. You've got solar cold storages. Right. If you are in a remote community, you've got solar mini grids. That is where the interest begins. And this is where the community then asks the politicians to set up the policies and regulations so that people can invest in these kinds of dispersed solar. So what I'm understanding is that it is most beneficial for investors to come in through these financial mechanisms into small and micro grid, basically off grid. We're not talking about joining the utility grid, is it? Well, last year we had we at the International Solar Alliance had carried out an analysis of African, East African costs. Wonderful. And what we found was that if, you know, typically the way to extend electricity services is by extending the grid. Sure. But if you have to extend the grid for more than 10 kilometers, solar plus battery is cheaper. Excellent. So as we are looking at providing energy access, electricity access to all the people in Africa who don't have electricity, solar mini grids is the answer. We will get investment for it if it is done in large numbers, close to each other so that somebody can invest and can keep a team there for maintenance. This is incredibly interesting. Thank you for pointing that out. The fact that the cost comparison for actually connecting to the main central grid is so much more when as opposed to just going micro grid, unless I suppose when the volumes are really high in terms of consumption and it's a long term game. Thank you for joining us, Mr. Ajay Mathur, the director general of International Solar Alliance.

CNBC Africa is joined by Ajay Mathur, Director General of the International Solar Alliance, to discuss the opportunities and challenges of scaling up renewable energy investments in East Africa. 

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