Levelling-up Africa’s power markets is a global economic opportunity

The power sector in South Africa has drastically changed in recent months, transformed by the energy transition, the gradual overcoming of loadshedding issues, and the rise of new market players such as aggregators. 

Emboldened by an enabling policy environment, international investors are entering the market to capitalise on the opportunities at hand. This is a good thing for the country – socially, economically, and environmentally. However, what is often overlooked is that it is also only a small part of a much broader pan-African – and even global – story.

Modernisation and reform 

The change which has got everyone talking about African energy infrastructure is the reform of South Africa’s vertically integrated power sector. The introduction of independent power producers (IPPs) began over a decade ago. However, it is more recent government initiatives to effect structural reform in utility networks, such as the Electricity Regulation Amendment Act, that are now driving decentralisation.

 Fast-tracked modernisation of the power market has been accelerated by the crisis of loadshedding, but similar market liberalisation is already evident elsewhere, such as in Kenya, Zambia and Namibia. Quantifying the benefits of such change is rarely straightforward, but the ripple effects trickle through entire economies. 

For example, the shift towards decentralised energy solutions is alleviating pressure on South Africa’s national energy grid, paving the way for a more resilient – and environmentally friendly – energy landscape. The country has now seen over 200 days without loadshedding, and more consistency and predictability for the nation’s power supply means businesses can plan ahead with confidence. 

Meanwhile, the emergence of power traders and aggregators brings more choice and flexibility. And a competitive landscape means market forces can reward and drive demand for more sustainable energy solutions.  

Then there is the social dividend. This is less about affordability, but levelling up energy infrastructure will impact the broader value chain. 

For instance, the first phase of Seriti Green’s 155MW renewable energy wind project in Mpumalanga is expected to create as many as 800 jobs, as well as procurement opportunities and social investment expenditure. 

Stepping stone in the global transition

These examples are emblematic of the challenges facing Africa which power reform can help overcome. The persistent bottleneck caused by insufficient power supply has so far put a hand break on growth across the continent, with around 600 million Africans lacking access to electricity. Levelling up grid connectivity is the catalyst required to unlock serious economic development and social impact.

What remains overlooked however is an opportunity of global proportion. The rush for the continent’s critical raw materials is creating new prospects for energy players. Around 40% of the mineral reserves needed for the global energy transition are located across Africa – such as lithium for electric vehicle technology - and mining hubs are growing at pace. 

At a local level, it’s imperative for businesses to fast-track power supply to mines to meet global demand. For international investors, however, this is a salient reminder of how strategically vital Africa is for the future of the global economy and the transition. 

The scale of opportunity to simultaneously build returns for investors, prosperity in Africa, and encourage sustainable international growth is unprecedented - but it’s also only possible with the right stewardship of capital into critical underlying infrastructure. 

Powering capital access

With pockets of reform emerging across the continent, international investors can feel emboldened - yet nurturing this transformation is not without challenges. 

One issue is currency exchange rates. Many global investors continue to take a cautious view on local currencies, dampening appetite. Meanwhile, preconceptions about regional risk remain a sticky hurdle adding to investor return expectations. 

African entities are typically sub-investment grade, but several investors are taking this too far by showing zero risk tolerance. It’s true that less mature markets demand a risk premium, compared with project financing in Europe for example. But there’s also a danger of overcomplication and missed opportunity. 

Investing in national transformation is a long-term game, relatively few projects reach default, and those that may experience challenges can be restructured. 

And as this market liberalisation unfolds, the need for innovative financing solutions will grow. Energy infrastructure projects by nature can be complex and long-term. This will create an increasing need for flexible and blended finance solutions grounded in local market knowledge. 

Shared problems, common solutions

As the market opens, the transformation journey underway in South Africa is only one piece of a bigger puzzle and now is the moment for international investors to seize initiative. 

It’s all too common to underestimate the ability of power markets to unlock peripheral growth. But across Africa, levelling-up power markets through open market reform is a common solution to shared problems – and not just problems facing African states but the global economy.

Prepared by:
Rentia Van Tonder- Head: Power, Client Coverage, Standard Bank Group