Africa’s energy sector is characterized by significant potential and substantial challenges. The continent is rich in natural resources, with vast reserves of oil, gas, and renewable energy sources such as solar, bio-fuel, wind, and hydroelectric power. However, the exploitation and distribution of these sources remain uneven, resulting in widespread energy poverty.
A large portion of Africa's population needs access to reliable electricity. According to the International Energy Agency (IEA), over 600 million people in sub-Saharan Africa alone live without electricity. Rural areas are particularly affected, with access rates significantly lower than urban regions. Infrastructure deficits pose a major barrier to energy development. Many countries face outdated or inadequate energy infrastructure, leading to frequent power outages and inefficient delivery in the energy sector. Additionally, the financial landscape for energy projects is challenging, with limited access to funding and investment.
When you think the checklist of challenges is exhausted, it includes high prices and supply chain disruptions leading to increased cost of importation, scarce investment in new refineries, poor maintenance, and maximizing the capacity of existing refineries, pipelines, storage facilities, and logistics. In addition, there is the high and increased demand for energy products, foreign exchange scarcity in many African countries, and finally the reluctance to make and implement policies to aid the emancipation and optimal usage of the energy sector.
The Nigerian scenario shows the Nigerian Electricity Supply Industry (NESI) struggling with overwhelming challenges and the critical issues plaguing Nigeria's energy sector, particularly unsustainable gas pricing, inadequate pipeline infrastructure, high generation costs, transmission losses, and financial struggles of distribution companies. The domestic base price of $2.18 per Metric Million British Thermal Unit fails to incentivize gas well development, and the 4,335 km pipeline network is insufficient to supply the 19 thermal plants connected to the grid.(2) Generation costs of $1.5 million per MW are exacerbated by the Transmission Company of Nigeria's inability to transmit all generated power, discouraging capacity increases. Distribution companies face technical bankruptcy due to currency devaluation and high lending rates, forcing them to ration electricity to prepaid, cost-reflective tariff customers. Addressing these multi-layered problems requires a comprehensive approach to improve gas pricing, expand pipeline infrastructure, reduce transmission losses, and ensure the financial viability of distribution companies.
Notwithstanding these obstacles, there is growing momentum towards improving the energy sector in African countries. Despite the role oil and gas has and will continue to play in Africa, global efforts to transition to alternative sources have created a significant investment gap worldwide. In recent years, fossil fuel funding has declined rapidly, while IOCs divest their oil and gas assets, favoring more strategic investments. The International Energy Agency estimates that delivering modern energy to the entire continent will require up to $25 billion in annual spending until 2030, highlighting a significant opportunity for financiers. Investments in renewable energy are on the rise, driven by environmental concerns and the decreasing cost of technologies like solar and wind power. Countries now recognize the need for policy reforms and regulatory frameworks encouraging private sector investment and innovation. International partnerships and initiatives such as the Africa Energy Bank, are vital in addressing these challenges. By providing financing and fostering collaboration, these initiatives aim to enhance energy access, support sustainable development, and drive economic growth across the continent.