Africa offers $193 billion renewables opportunity, study shows

Bloomberg | Sub-Saharan Africa offers a US$193 billion opportunity to invest in renewable energy and transmission by 2031, with returns a multiple of those in Europe and the US, according to a new study.

Utility-scale wind, solar, storage and transmission projects across a number of African countries may yield an internal rate of return of 15 percent to 21 percent, significantly above the cost of capital and yields on sovereign bonds, the study compiled by Wood Mackenzie Ltd. showed. Returns in the US and Europe are a little more than 5 percent.

“Africa represents a significantly underserved market,” the researchers wrote in the study that UK government agency MOBILIST and South Africa’s Revego Fund Managers sponsored. “Renewable-energy assets across the region also tend to be at earlier stages of development, offering growth upside.”

Almost 600 million people in the region, or about half the population, have no access to electricity. While that provides African governments with an expensive problem to solve, the lack of electricity infrastructure is also an opportunity for new projects to focus on renewable energy.

Of the investment opportunity, national and micro-grids require US$66 billion, the researchers said. They expect 11,000 kilometers (6,835 miles) of transmission-line rollouts annually by 2031, compared with 6,355 kilometers (3,949 miles) last year.

While South Africa, Nigeria and Kenya offer the largest solar-power markets, Uganda offers the best returns on renewable-energy projects, the study showed. Still, capital costs are higher than those in Europe and the US.