Accounting for finance in electrification models for sub-Saharan Africa
Prof. Dr. Bjarne Steffen (ETH Zurich)
Electrifying 600 million people in sub-Saharan Africa by 2030 will require significant investments. Integrated electrification models inform key policy decisions and consequent electricity access investments in many countries. While current electrification models include sophisticated representations of technologies, they often make simplistic assumptions about financing conditions. In this study, we establish realistic cost of capital values reflecting country- and electrification mode (i.e. grid extension, minigrids and standalone systems)-specific risks faced by investors and integrate them into an open source electrification model to illustrate drawbacks of these assumptions. We find that with up to 31.6%, cost of capital for off-grid electrification is much higher than currently assumed. Accounting for finance shifts 190 million people from minigrids to standalone systems in our main scenario, suggesting a more cost-effective electrification mode mix than previously suggested. Upscaling and mainstreaming off-grid finance can lower electrification cost substantially.