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Solar Investment Booms in Sub-Saharan Africa

According to the U.S. Agency for International Development, two out of three sub-Saharan Africans, approximately 600 million people, do not have access to electricity, instead relying on costly, environmentally unfriendly, and unhealthy forms of energy such as diesel generators and kerosene lamps and stoves.  With many sub-Saharan African countries receiving a high number of days per year with bright sunlight, the area is a prime candidate for the development of solar energy resources.  This fact has not gone unnoticed, with both private and governmental parties making investments in the development of solar energy in this region in the last 1-2 years.

Government-sponsored Initiatives.  On June 30, 2013 in Cape Town, South Africa, President Obama announced Power Africa — an initiative to unlock the substantial wind, solar, hydropower, natural gas, and geothermal resources in the region and enhance energy security, decrease poverty, and advance economic growth.  This initiative seeks to leverage U.S. strengths in energy technology, private sector engagement, and policy and regulatory reform, and the resources of the World Bank, the African Development Bank, African governments, and the private sector to add clean, efficient energy generation capacity in six focus countries —  Ethiopia, Ghana, Kenya, Liberia, Nigeria, and Tanzania.  As discussed in our blog post of August 8, 2014, the White House announced in August a significant expansion of Power Africa to achieve a goal of 30,000 MW of additional capacity to reach 60 million households and businesses across the continent, and $6 billion in new private sector commitments from investors such as Citigroup, Standard Bank and Standard Chartered Bank.  The Government of South Africa has also launched its own Renewable Energy Independent Power Producer Procurement Program (REIPPPP) to help South Africa achieve its energy generation goals and contribute to socio-economic and environmentally sustainable growth.  This program offers government contracts to independent power producers for the development of specified renewable energy resources.

New Private Sector Investments.  In addition to government programs, private investors are making new investments in the region, particularly in the off-grid solar sector.  For example, SolarCity has joined up with venture firms Vulcan Capital and Omidyar Network to invest $7 million into Off-Grid Electric, a Tanzania-based company providing solar lighting services in Africa.  Similarly, Bloomberg Philanthropies recently announced that it is offering $5 million in low-interest loans to Little Sun, a social enterprise which will help bring solar energy to off-grid Sub-Saharan Africa with low-cost solar lamps, which will replace lamps using kerosene.  Even Google is getting on the renewable energy bandwagon in Africa, investing $12 million in the $260 million Jasper Power Project, a 96-megawatt (MW) solar photovoltaic (PV) facility to be built near Kimberley in South Africa’s Northern Cape Province.

Benefits for the local economy.  In addition to the benefit of developing an environmentally friendly source of electricity, these projects stand to provide valuable employment opportunities in the local economy.  Indeed, the Jasper Power Project is expected to create approximately 300 construction and 50 permanent jobs in a region experiencing high rates of unemployment, as well as providing rural development and education programs by setting aside a portion of total project revenues for enterprise and socioeconomic development.  Similarly, the U.K.’s Blue Energy, which is building what is expected to be Africa’s largest PV power plant in Ghana, expects that the project will employ 500 local construction staff and a further 200 local people for continued operation and maintenance.  Some estimate that another 2,700 indirect jobs would be created from related construction and operations activities.

Although these projects and investments are in their early stages, there is great potential for Africa to improve its citizens’ access to electricity through these investments in renewable energy technology.

© 2019 Covington & Burling LLP

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Covington’s tax group advises multinational clients on their most significant and challenging tax issues. Our members have extensive government experience, including senior positions at the U.S. Department of Treasury, Internal Revenue Service, and the U.S. Senate. Combined with our talents, focus and creativity, we provide bespoke solutions for sustained tax minimization in an increasingly regulated world. And, in disputes with the tax authorities, we secure favorable results by efficiently resolving matters as early in the administrative process as possible, and, where...

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