West Africa is set to be a renewable energy powerhouse, Masdar and PwC find

West Africa has the potential to become a global hub for renewable energy,according to a new report (pdf) by UAE renewables player Masdar and PwC Middle East. The region — which has one of the lowest electrification rates and highest electricity costs in sub-saharan Africa — could reach a renewable energy capacity of 2 TW, enough to cover the region’s basic energy needs while mitigating carbon emissions and subsequent climate impacts. West Africa needs over USD 540 bn in power sector investments by 2050, including nearly USD 230 bn for its network and storage infrastructure, the report found.

REFRESHER- Africa will be the hardest hit by climate change: A report by the World Meteorological Organization (WMO) released during the Africa Climate Summit in Kenya highlighted that the continent will be hit the hardest by climate climate change, with threats to food security, ecosystems, and economies that is likely to trigger displacement and migration as well as aggravate conflicts over diminishing resources.

Bankability is West Africa’s biggest hurdle: West Africa’s energy sector has been labeled “unbankable” due to a large number of West African governments being debt-distressed while their subsidized state utility companies remain cash constrained, the report stated. The high reliance of the utility sector on government backing, particularly in countries with below investment grade credit ratings, has become a deterrent for international private investors.

Setting up the needed infrastructure is no easy feat either: “To support a higher share of renewables in the energy mix, the existing grid infrastructure needs to be upgraded and automated, new transmission and distribution infrastructure needs to be installed, including mini-grids and off-grid solutions, and storage and thermal-based generation solutions must be deployed,” the report noted.

Some countries have opted to liberalize its energy sector to attract private investors, but to no avail: Key power markets in West Africa, such as Nigeria, Ghana, Côte d'Ivoire and Senegal, have taken steps towards liberalization by allowing private-sector investments in generation and distribution, according to the report. While these countries have allowed power purchase agreements with the private sector, it has also led to uncompetitive tariffs that are not reflective of the cost of generation, transmission and distribution, and thus increasing offtake risk and dependence on government subsidies.

Masdar and PwC outlined green policy recommendations for West Africa: Some key suggestions outlined in the report to support West Africa’s green transition include: reducing government subsidies provided to traditional power utilities (except for the most economically vulnerable consumers); reorganizing national utility companies and making them more financially transparent; offering incentives to attract foreign investment such as tax exemptions on imported manufacturing components for green projects as well as income and dividend tax exemptions; launching initiatives like net metering, mini-grid creation, and supportive regulatory frameworks; and creating government guarantee mechanisms to avoid sovereign risk.

And argue that sovereign wealth funds have the resources needed to decarbonize the region: Masdar and PwC are encouraging governments in West Africa to roll out market reforms that are “crucial to unlocking mobilizing capital, supporting individual projects, meeting last-mile investment needs, and expediting financial close and delivery” in order to attract sovereign wealth funds, which have the financial resources to provide the needed investments.

Masdar has already ventured into West Africa:Masdar aims to accelerate climate finance into Africa’s renewables, advocating for collaboration among public, private, and development capital to unlock the continent's potential. The renewable energy giant signed an agreement with the Ivory Coast’s Mining, Petroleum and Energy Ministry in March to explore the development of a solar power plant with a capacity between 50 MW and 70 MW. Infinity Power Holding — a JV between Egypt’s Infinity and Masdar — and Germany’s Conjuncta signed an MoU with Mauritania to build a mega green hydrogen plant in the West African country earlier this year.

Growing interest in the region: The UAE’s Amea Power is set to build a 50 MW solar power plant in the Ivory Coast after signing a concession agreement and a 25-year power purchase agreement (PPA) in January. Plans are also underway to install the first 1.5 MW commercial-scale ocean thermal energy conversion (OTEC) floating platform, with UK-based ocean energy company Global OTEC signing an MoU with France-based heat-to-electricity provider Enogia to develop key subsystems for the project.

It’s not only the West region of Africa that will need to step up its green investments: To bring Africa up to the world's electricity access average, an estimated additional 2.35 GW of renewable generation is needed by 2050, equivalent to an annual investment of approximately USD 50 bn in renewables alone between 2026 to 2030, Masdar’s report outlined, citing PwC and Strategy&’s 2022 Africa Energy Review.