PWC – Accelerating Renewable Energy Investment in West Africa

The West African region possesses a renewable energy capacity of 2,000 Gigawatts (GW), enough to meet the energy needs of its population. However, the region has one of the lowest rates of electrification, with 220 million people lacking access to power. Additionally, West Africa experiences some of the highest electricity costs in sub-Saharan Africa. To address this issue and decarbonize the economy, there is a need for pro-investment policies to accelerate renewable energy projects in the region. One of the challenges in financing regional energy investment is the debt distress faced by many West African governments and the financial constraints of government-supported or subsidized utilities. The dependence of utilities on government support hampers attracting international private investments, especially when governments have low credit ratings. West Africa requires over $540 billion in investment in its power sector by 2050, including substantial funding for network and storage infrastructure. To increase the share of renewables in the energy mix, existing grid infrastructure should be upgraded and automated, new transmission and distribution infrastructure should be installed, and storage and thermal-based generation solutions should be implemented. Key power markets in the region, such as Nigeria, Ghana, Côte d'Ivoire, and Senegal, have implemented liberalization measures to encourage private sector participation. However, the tariffs in these markets are not cost-reflective, resulting in increased offtake risk and government dependency. The paper recommends tariff liberalization, unbundling of utilities, increased financial transparency, liberalization of distributed energy markets, and the implementation of competitive tendering programs. The paper also suggests leveraging initiatives such as the US Inflation Reduction Act and the European Green Deal to attract investment in renewable energy. Sovereign wealth funds (SWFs) are seen as potential sources for financing and executing the transition to a decarbonized energy sector in West Africa. Market reforms are crucial for mobilizing capital, supporting individual projects, and facilitating financial close and delivery. However, credible project aggregation and development vehicles are needed to underwrite project risks and create attractive investment opportunities for SWFs. The success of these efforts depends on the recognition of the importance of reform by governments and market participants.