Impact of cost, returns and investments: Towards renewable energy generation in Sub-Saharan Africa

Abstract

Despite the importance of cost of capital and expected returns from investing on renewable electricity generation in Africa on one hand and the implications of such investments on economic, social and environmental factors on the other. These concepts are not well understood by non-finance and finance actors respectively. Studies that analyze renewable energy-growth nexus at regional and global level are lacking. Instead, existing studies emphasize on individual countries or panel of countries. The paper undertakes comparisons of costs and returns of selected renewable energy technologies in Africa and presents estimates of its impact on Africa's economic growth between 1990 and 2014. Even with abundant renewable resources and well performing technologies measured using levelized cost of electricity and expected internal rate of return, investment on renewable electricity generation is quite low. Findings from Autoregressive Distributed Lag approach and cointegration established a long run relationship among hydro power generation, carbon emissions and electricity consumption. Error Correction Model results suggest that investment in renewable generations excluding hydro power generation is boosted by economic growth, so long as development of such renewables corresponds with lesser carbon emissions. To accelerate renewable development, SSA countries will need to deploy initiatives that enhances national economic growth.