A blog of the Africa Program
As Sub-Saharan Africa faces an urgent need for renewable energy, China鈥檚 experience and overcapacity in wind and solar seem like a perfect match. But market hurdles, financing gaps, and shifting investment models tell a more complicated story. With new momentum from the 2024 FOCAC, could Africa finally see a renewable energy boom?
When I stepped into the bustling exhibition hall at in Cape Town in May 2024, I was surprised by the riot of colorful banners featuring Chinese characters. A whopping 40% of the exhibitors at one of Africa鈥檚 largest energy and power conferences in Cape Town were from China鈥攎ore than any other country.
Perhaps it should not be surprising. China is not only Africa鈥檚 , but also its since 2000. Chinese construction companies have built of Sub-Saharan Africa鈥檚 (SSA) hydropower plants.
Since electricity access rates in SSA, however, the growth in these renewable investments has been dwarfed by Chinese government loans for large . China鈥檚 smaller-scale private wind and solar investments also have struggled to expand in SSA.
To accelerate the region鈥檚 clean energy transition (and their own bottom line), Chinese renewable energy companies need to adopt new financing models, as well as explore innovative local and international partnerships in SSA. The (FOCAC) may have opened just such an opportunity in this space.
China鈥檚 overcapacity in renewables and SSA鈥檚 energy hunger should be a perfect match. Over the past decade, China has achieved striking domestic in wind and solar, with companies accruing abundant experience . In 2023, China鈥檚 domestic solar production capacity global demand. And fierce domestic competition has driven Chinese private wind and solar producers and developers to seek international markets.
Xi Jinping the construction of new coal plants in 2021. So became a new policy focus in the Belt and Road Initiative (BRI), featured in recently published to green Chinese overseas investment. Policy incentives and investment opportunities also have driven a surge of Chinese wind and solar projects in but a similar boom .
Despite its needs, Sub-Saharan Africa is finding that its access to is limited. While the region generates less than of the world鈥檚 renewable electricity, its governments are exploiting their vast renewable potential. But the markets and financing hurdles are considerable.
The 2021 set guidelines to increase Chinese renewable investments. Unfortunately, both the COVID-19 drag on China鈥檚 economy and concerns over a debt crisis in SSA Chinese energy financing in 2021 and 2022. Lucas Engel, a data analyst at the Global China Initiative in Boston University鈥檚 Global Development Policy Center, observes that while there are 鈥渁 number of new renewable energy projects,鈥 they 鈥渞emain a 鈥 of overall investment.
A recent co-authored by Wei Shen, a research fellow at the Institute of Development Studies, delved deeper into the market obstacles that hinder Chinese renewable projects in SSA. Previously, most Chinese companies operating in SSA鈥檚 energy sector were state-owned enterprises (SOEs) undertaking (EPC) work. These companies were contractors working for the project developers (usually monopolistic state utilities in the host country) to construct renewable energy systems. Many SOEs secured development financing from Chinese policy banks for these large-scale SAA infrastructure projects. These contracts are normally government-to-government based transactions鈥攐r part of Chinese concessional loan packages.
The shift from fossil fuels to wind and solar energy investments in SSA involves a from EPC+Finance to newer mechanisms, such as the . Many SSA governments, including South Africa, created the renewable framework to solicit competitive bids from private companies to build and manage renewable energy projects. (State utilities remain the electricity purchasers). Thus, EPC+Finance is no longer a strong fit for this new model.
Shen noted that 鈥渁 20 MW renewable project is considered pretty big in many SSA markets, but considered too small for Chinese SOEs to reach economies of scale.鈥 And while some Chinese private renewable companies are more competitive in the IPP models, they lack the required experience about the SSA market and local contexts. Prominent companies in the renewable market (such as and ) have opted to remain as technology providers, and show limited interest in engaging in project development in the SSA region.
Most private Chinese companies also have limited access to financing from Chinese policy banks鈥攎ainly CDB and CEXIM鈥攁s compared to SOEs. And the prevailing and political instability across the SSA region make these banks hesitant to finance large-scale projects including renewable energy systems.
What鈥檚 changing now? The 2024 FOCAC seemed to chart a clearer path, with 30 reaffirming China鈥檚 commitment to renewable investment in Africa. The updated action plan adopted at the forum emphasized a shift from megaprojects to initiatives, aimed at fostering . What鈥檚 more, SOEs are actively working to expand their roles within the IPP model, including a recent agreement signed at the in Namibia.
This new momentum provides an excellent starting point for China to better align its overseas investment portfolio with Africa鈥檚 growing renewable energy needs. The Chinese government could build on this further by introducing flexible financing products including and other innovative de-risking instruments. China鈥檚 Ministry of Commerce and the BRI International Green Development Coalition might also help companies navigate overseas markets by publishing guidelines and offering capacity-building training. Additionally, Chinese companies can expand financing sources and explore new project opportunities by partnering with international and SSA multilateral development banks. For companies hesitant about large-scale project financing, collaborating with international and local businesses in SSA can provide more EPC opportunities and operational roles. There may even be paths to scale distributed solar solutions, if the Chinese government incentivizes private firms to explore similar opportunities in SSA鈥檚 .
Xiaokang Xue was a summer 2024 research intern at the China Environment Forum. Originally from China, he is a senior at Brown University, concentrating in Environmental Science and Applied Math-Economics. He studied abroad at the University of Cape Town in spring 2024. His research focuses on international climate policy, development finance, and South-South cooperation to address climate change.
This post was originally released to New Security Beat, the blog of the 浪花直播 Center Environmental Change and Security Program and has been cross-posted to Africa Up Close by request and with permission of ECSP.
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The Africa Program works to address the most critical issues facing Africa and US-Africa relations, build mutually beneficial US-Africa relations, and enhance knowledge and understanding about Africa in the United States. The Program achieves its mission through in-depth research and analyses, public discussion, working groups, and briefings that bring together policymakers, practitioners, and subject matter experts to analyze and offer practical options for tackling key challenges in Africa and in US-Africa relations. Read more
