The Covid-19 pandemic has delayed the development of the power sector of SSA, therefore to accelerate sustainable investments, governments in SSA must foster private and public cooperation, according to Fitch Solutions.
The research arm of Fitch Ratings indicates that, like other regions across the globe, the SSA region was significantly hit. Noting that one of the main reasons for such an impact is the low level of electrification. Meanwhile, the average level of electricity access in SSA being 50.1 percent as of 2018.
The low electrification rates across the region point to upside risk for investment into non-hydropower renewable technologies. This is due to their low costs, quicker project turnaround times and ease of scalability.
This means these technologies will be well-suited for governments looking to increase electrification rates in their respective markets at more affordable prices. Especially, following the Covid-19 pandemic and the global trend towards more sustainable power sector investment.
Fitch Solutions, however, notes that the non-hydropower renewables will play a relatively small role in the overall SSA power mix over the next decade.
Countries in SSA with increased investments in electricity
Accordingly, by the end of a 10-year forecast period in 2030, Fitch Solutions expect that only Kenya and Namibia in SSA will generate more than 10 percent of their respective power mixes with non-hydropower renewables.
Given that there is a positive correlation between economic development and electricity access, recovery will be difficult and will limit any potential economic diversification. As a consequence, the negative economic impact will portend less fiscal space for the government. Thus, the government will not be able to invest in infrastructure to boost electrification rates in the region.
More generally, there are other contributing factors for the low levels of investment in non-hydropower renewables in the region. As such, a key inhibiting factor is high levels of risk faced by private investors entering the market.
According to Fitch Solutions, for most SSA markets, the ability to pay for electricity is limited by the low income levels of general population and worsened by the lack of diversified economic growth.
With increased levels of state involvement in the power sector, this inhibits the participation of private sector companies. As a result, most markets in SSA rank below the global average for their competitive landscapes per the Power Risk/Reward Index developed by Fitch Solutions.
Among the countries with their competitive landscape per power Risk/Reward Index captured by Fitch Solutions only Ghana, Kenya, Cameroon, South Africa, Namibia, Uganda, Cote d’Ivoire and Zambia scored high in order of attractiveness of market.
Furthermore, this resonates the need for a secure return on investment for private sector players. Also, it is to ensure that the population has affordable electricity in order to have continued growth in sustainable power sector development in SSA.
“Fitch Solutions, therefore, expect that markets where governments prioritise cooperation with the private sector. [This is] through measures such as public-private partnerships,[which] will see the highest level of investment in sustainable electricity generation sources such as non-hydropower renewables over the coming decade.”
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