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Africa’s Renewable Energy Potential: Real Estate’s Road to Clean Energy
There is no doubt Africa is a continent with incredible potential for clean energy. Renewable energy and other energy efficiency technologies are reaching grid parity, and becoming increasingly cost efficient. This fact, combined with the need for sustainable energy sources to lead the way in the future in the battle against climate change, suggest that the time to invest in renewable energy projects is now. This is particularly important considering the real estate sector in Africa, for which the high cost of energy is massively inhibitive. Indeed, high energy costs affect operational margins so much that they hinder the potential of investment across building projects. Notwithstanding the impact on “customer experience” with how unreliable the current energy supply can be, owners and developers have to find alternative ways to build and operate hotels, commercial buildings, public sector developments, and residential projects, but are faced with numerous challenges when considering renewable energy sources.
The first challenge is very simple. Before anything else, it is necessary to understand the local renewable energy market, which is – although of considerable size – very young.
Another important barrier is understanding the Returns of Investment (ROI) of any clean energy investment. This is particularly relevant to the larger investments, such as the installation of solar panels. There are concerns over the reliability of renewable energy sources, and up until now, such projects have been thought of, correctly, as taking an extremely long time before they actually pay off and become a worthwhile investment. This links into another challenge for potential investors and that is the long term potential of adopting a renewable energy technology. The worry here is that a given technology will be adopted only to find an alternative source readily available at a lower cost soon after. The fear is, of course, is that you end up investing in a legacy technology that ends up being outstripped and bettered by the next generation before you have had time to benefit.
The final challenge we will touch on is the issue of storage. Taking solar panels once more as an example, surplus solar energy generated in the daytime will need to be stored for use at night, i.e. when there is no sun, but still a demand for energy. The batteries required for this level of storage often dominate the overall cost of renewable installation, rather than the renewable technology itself. Combine these costs with the extremely high interest rates on loans in African countries (18% – 24% in Kenya for example) and you certainly have an incentive to run the opposite direction from clean energy.
But despite these challenges, clean energy and sustainable solutions are still – without a doubt – the way forward for the African real estate sector.
Information exchange and education could give interested parties the knowledge to act within the market and raise awareness, so that more individuals and organizations recognize the importance of sustainability in the future. When more people are aware of the opportunities available in the clean energy market, more people can take action and invest, adopt, and advise. This serves to encourage innovation and improvement in the market as clean energy businesses compete to offer the best products and services, leading to even more efficiency.
Illustrated by the example of a hotel adopting solar panels, the following scenario can be outlined: With the knowledge they gain from education, the hotel owner learns that it is important to measure their own energy efficiency. They recognize the need to act, and they know where to look in the market for the best product or service to help them. They invest in solar panels and adopt solar energy as their main source of energy for general operations. They continue to improve and update their energy efficiency measures throughout the hotel, leading eventually to continuous improvements as well as learnings. As the market leader, they set an example for other hotels, who soon take similar action.
But where should this exchange of information and education come from? The government will play a critical role; the right government policy is necessary to facilitate even off-grid solutions. In Kenya for example, President Uhuru Kenyatta has just passed legislation limiting bank lending and deposit rates.
Institutions such as development banks, think tanks, and research facilities all can and should have a major impact too. Continuing with Kenya, the French development agency AFD have recently offered Sh3.9 billion to CFC Stanbic and Co-operative Bank for onward lending to investors in renewable energy.
Generally speaking, there needs to be more open discussion and more written commentary to provide confidence in the sector. Real Estate owners are increasingly recognizing the importance of clean energy and are taking steps to measure their own sustainability, but they need to feel confident that they will take the right actions in adoption. Conferences, exhibitions, and other events are a very useful way of facilitating this commentary and this action, as well as providing networking opportunities for the relevant characters in the market.
The inaugural Sustainable Buildings Africa conference will take place in 2017, addressing the key players in African real estate covering a wide range of topics to encourage and enable action and innovation. Before then, there is a workshop in Rwanda run alongside the renowned Africa Hotel Investment Forum which will include an interactive discussion on the overall market, measuring sustainability and financing green projects.
If you are interested in the African energy scene, particularly clean energy for real estate, please get in touch with partnering blog author of this month, James Winsbury, to hear more about the industry leading workshop in Rwanda and the inaugural Sustainable Buildings Africa conference in 2017. James has been working with Africa Event Services for the past six months as Research and Programme Manager, speaking directly with the key players in energy markets across the African region. He has also had the chance to interact with the key real estate players through AES’ partnership with Bench Events, producers of the Africa Hotel Investment Forum.