Investing in Africa Renewable Energy

Fossil Fuels and Nuclear are Officially Too Expensive

Written by Brian Hicks
Posted November 14, 2014

africasolarAfter everything we know about coal's damage to the environment –the smog, air pollution, and acid rain--  why do we still burn it to generate electricity?

It's a silly question, because you probably already think you know the answer. We burn coal because it's cheaper than other fuels.

At least, that's the common myth.

The truth is, it's not that simple. Energy pricing is extremely complex, and America's continuing use of coal is a nuanced walk through history and trade policies.

As a blanket statement, saying “coal is cheapest” is incorrect.

For example, when that blanket statement is applied to the United States, does that include Hawaii, where coal has to be shipped in from places like Colorado?

To burn Colorado coal in Hawaii, it has to first be shipped 3,200 miles, and the cost of those freight trains and cargo ships affects the price.

The hard fact is that coal is not cheapest in Hawaii.

That's why Hawaii's energy mix leans most heavily on petroleum. Shipping coal and natural gas is so costly that Hawaii actually relies more on renewables than it does either of them.

This brings us to the important point.

The complex cost of a resource isn't even the only factor that determines whether a country will use it.

According to a recent study, renewables of all types have surged ahead of fossil fuels in several regions of the world.

The Bloomberg New Energy Finance Climatescope 2014 report says clean energy offers costs on par (or better) with fossil fuels in a handful of countries across Africa, Asia, Latin America, and the Caribbean.

This is important because it shows how renewables and fossil fuels are at a point where they're equally viable in young markets, and it shows renewable energy investors where they need to look when managing their portfolios.

The Study

The Climatescope ranking is put together to answer a question: What makes a country attractive for clean energy investment?

It compares 54 data points under four main headings about each country. It includes factors like market size and conditions, government policies, clean energy penetration, price of clean energy, cost of debt, and carbon policies, to name just a few. Each of these points is ranked on a 0-5 scale.

This isn't to say the top-scoring nations are the cleanest. Quite the contrary. China is actually the highest-scoring country on the list, and we all know about China's frightening coal smog problem.

China is one of the two top producers of carbon emissions in the world –along with the United States-- and it creates more than a third of the greenhouse gases sent skyward.

However, the environment in China is the most favorable in the world for clean energy businesses. It might be a major polluter, but it's also got the best financial institutions in clean energy, best value chains by clean sector and the best clean energy service providers. It's also the largest manufacturer of wind and solar equipment in the world, and the market with the greatest demand for these products.

Of course, the markets where demand is rising the fastest are the smaller, less developed countries. The study found that between 2008 and 2013, smaller nations had a growth rate of 143% while more developed, wealthier nations had an 84% growth rate.

The study attributes this trend to the fact that small-scale renewable projects offer the most efficient way to provide energy to people who live off the grid.

What it means

Think about it; there are 600 million people in Sub-Saharan Africa living off the grid.

That's an immense market just waiting to be developed.

In fact, the International Energy Agency's World Energy Outlook says it's the least-electrified region of the entire planet.

The Sub-Saharan electrification rate is just 30 percent, while the world average is 80 percent. The rural electrification rate in Sub-Saharan Africa is a pathetic 14 percent.

It's been known for quite some time that distributed generation using renewable energy is really the only viable way to generate power in this region.

The Power Africa Initiative has a goal to double access to electricity in this region, and to date has scored commitments from the private sector to supply nearly 10,000 MW of capacity. This includes a 1,000 MW geothermal project in Ethiopa from Reykjavik Geothermal, 500 MW of wind in Kenya, and 10 MW of mini-hydro in Tanzania. Nigeria, meanwhile, has made the difficult transition to full-scale privatization of the electrical generation sector more than eight years after initial legislation passed.

So while US states continue to battle over distributed solar, it is one of the few unquestionably right options for Africa.