Africa’s Renewable Energy Potential

Given the amount of greenhouse gases China emits, a byproduct of its 30 years of high-speed economic growth, it is no surprise that it is now investing huge amounts of money into renewable energy sources both domestically and overseas. According to the World Resources Institute, China has at least $40 billion in renewable energy assets spread across the globe. In fact, China was the largest investor in clean energy in the second quarter of 2013, at $13.8 billion according to Bloomberg. A large portion of this investment is going into Africa, a continent with chronic power shortage problems. As China’s economy faces slower growth prospects, its infrastructure and renewable energy companies are looking for new sources of growth. Increasingly, they’re finding them in Africa.

China, much like Africa, uses coal as its main energy supply due to its relative abundance and competitive cost. Even as the world’s factory floor, China produces significantly lower emissions per capita than other major economies; however, China is well aware that it needs to become more efficient domestically to help retain its cost competitiveness and improve the living standards of its citizens. In turn, China is pushing hard to become a key player in the global clean energy economy by weaning itself away from traditional forms of energy such as coal, oil and gas. In fact, one of the biggest challenges facing China is keeping its economic growth steady while lowering carbon emissions in the long run.

One solution is exporting the expertise that China has attained through lifting millions of its citizens out of poverty. Chinese firms have made at least 124 investments in 33 countries’ solar and wind power sectors since 2001, with South Africa being the fourth-largest host country for Chinese renewable energy projects. After building up China’s own capacity, China’s leading companies are answering the call to utilize their capabilities to realize Africa’s tremendous renewable energy potential.

Africa has its own carbon emissions problems, as countries are increasingly forced to cut down forests, natural carbon emissions sponges, to accommodate and urbanize their growing populations. Furthermore, according to the UN, 600 million Africans currently live without electricity. These people are constantly exposed to harmful smoke from burning coal and wood, causing preventable health problems throughout the continent. With China’s rising investment and loans to Africa in the renewable energy sector, the potential benefits of reliable sources of clean energy for Africans are exponential.

As an example, Standard Bank and ICBC recently announced a $2 billion funding support agreement for renewable projects under the 20-year Renewable Energy Independent Power Producer Program (REIPPP). Standard Bank and ICBC will jointly provide debt financing on a project-finance basis to companies that are awarded preferred bidder status under the country’s Renewable Energy Independent Power Producer (IPP) procurement program. ICBC’s entry into South Africa’s renewable energy market is an opportunity to raise awareness about South African investment opportunities for Chinese suppliers. Mired in debt and overcapacity, Chinese solar panel makers may bulk up in Africa after China finishes building one of the largest solar power stations on the continent in Kenya. Without a doubt, Africa will play an important role in Chinese renewable energy companies’ long term global strategy.

The ChinAfrica Econometer is produced by The Beijing Axis, a China-focused international advisory firm operating in four principal areas: Commodities, Capital, Procurement, and Strategy.

For more information, please contact:

Daniel Galvez, danielgalvez@thebeijingaxis.com

www.thebeijingaxis.com