Lighting Up Africa: Chinese Development Finance’s Impact on Energy Poverty – Boston University

Lighting Up Africa: The Impact of Chinese Development Finance on Energy Poverty and Sustainable Development Goals

Introduction

Energy poverty remains a significant development challenge in Africa, where over 600 million people, primarily in sub-Saharan regions, lack reliable access to electricity. This accounts for more than 80% of the global electricity access gap. Despite Africa’s abundant natural and renewable resources, obstacles such as inadequate generation capacity, outdated infrastructure, and limited access to affordable energy financing persist.

Role of Development Finance Institutions in Africa’s Energy Sector

Development finance institutions (DFIs) are pivotal in financing energy infrastructure across Africa, particularly where private sector investment is insufficient. Chinese DFIs have been major contributors to energy infrastructure projects since the early 2000s. Their investments raise critical questions regarding:

1. The technological and geographical distribution of generation capacities financed or co-financed by Chinese DFIs.
2. The effectiveness of these investments in reducing energy poverty at subnational levels.
3. The evolution of China’s power finance in Africa and future prospects for supporting the continent’s energy transition.

Research Methodology

A recent working paper by Yan Wang and Yinyin Xu investigates the impact of China’s power finance on energy poverty using a panel dataset covering 850 subnational regions in Africa from 2012 to 2020. The study integrates:

• Power plant unit-level data from the S&P Capital IQ Pro Global Power Plant Database.
• China’s Overseas Development Finance (CODF) Database managed by Boston University Global Development Policy Center.
• Satellite-based computational classifications of energy poverty derived from nighttime light imagery to assess electrification likelihood.

Key Findings and SDG Implications

The empirical results reveal that each additional 1,000 MW of operating power generation capacity financed or co-financed by China increases the average likelihood of electrification in African subnational regions by 0.4 percentage points. This finding remains robust after controlling for other financing sources, geographical factors, and fuel-specific capacity factors.

Energy Access and SDG 7: Affordable and Clean Energy

• Chinese-financed capacity contributes directly to SDG 7 by expanding access to affordable, reliable, and modern energy services.
• Improved electrification supports economic growth (SDG 8) and reduces poverty (SDG 1) by enabling productive activities and improving living standards.

Challenges with Fossil Fuel Dependence and Environmental Sustainability (SDG 13: Climate Action)

Despite progress, a significant share of Chinese-financed energy capacity relies on fossil fuels. In 2020, fossil energy accounted for 51% of the total nominal capacity financed or co-financed by Chinese DFIs, with coal comprising 0.5 GW. This dependence raises concerns about the sustainability of Africa’s energy mix and its carbon footprint, potentially conflicting with SDG 13 on climate action.

Transition Towards Cleaner Energy Sources

• China’s power financing in Africa is gradually shifting towards renewable energy sources such as solar and wind, aligning with SDG 7 targets for clean energy.
• However, coal and gas plants remain significant components of the portfolio, many still in early operational stages.

Balancing Energy Access and Sustainability

The trade-off between expanding electricity access and transitioning to clean energy is a critical policy challenge. Immediate energy needs for economic development often prioritize fossil fuel generation due to:

• Higher upfront costs and technological barriers associated with renewables.
• Lower energy output from renewables at equivalent nominal capacity, requiring greater installed capacity (e.g., replacing 1 GW of fossil capacity requires 2.4 GW of solar or 1.2 GW of wind).

Strategic planning and collaboration are essential to decarbonize Africa’s energy mix while meeting SDGs related to energy, climate, and sustainable development.

Recommendations for Development Partners and Policy Makers

To support Africa’s sustainable energy transition and SDG achievement, development partners including Chinese DFIs should consider the following integrated approaches:

1. Refinancing and Repurposing: Assist host countries in converting aging fossil fuel infrastructure into renewable energy sources.
2. Decarbonization Dialogue: Engage in constructive discussions to explore pathways for decarbonizing coal plants financed by Chinese DFIs, leveraging initiatives like the Green Investment and Finance Partnership (GIFP).
3. Promotion of Renewable Energy: Intensify efforts to expand renewable energy adoption by establishing dedicated project preparation facilities and fostering private sector participation in renewable energy manufacturing to unlock sustainable industrialization (SDG 9).

Conclusion

China’s development finance has significantly contributed to reducing energy poverty in Africa, advancing SDG 7 and related goals. However, the continued reliance on fossil fuels underscores the need for a balanced approach that addresses both immediate energy access and long-term sustainability. Collaborative efforts and strategic investments are critical to ensuring Africa’s energy future aligns with the Sustainable Development Goals, particularly in combating climate change and promoting inclusive economic growth.

Authors: Yan Wang and Yinyin Xu

Read the Working Paper

1. Sustainable Development Goals (SDGs) Addressed or Connected

1. SDG 7: Affordable and Clean Energy
   • The article focuses on energy poverty in Africa and the role of Chinese development finance in expanding electricity access, directly relating to SDG 7.
2. SDG 13: Climate Action
   • The discussion on fossil fuel dependency, carbon footprint, and the transition to renewable energy sources connects to SDG 13.
3. SDG 9: Industry, Innovation, and Infrastructure
   • The article highlights infrastructure development through energy generation capacity financed by Chinese DFIs, linking to SDG 9.
4. SDG 17: Partnerships for the Goals
   • The emphasis on development finance institutions and international cooperation for energy projects relates to SDG 17.

2. Specific Targets Under Identified SDGs

1. SDG 7 Targets
   • 7.1: By 2030, ensure universal access to affordable, reliable, and modern energy services.
   • 7.2: Increase substantially the share of renewable energy in the global energy mix.
   • 7.a: Enhance international cooperation to facilitate access to clean energy research and technology.
2. SDG 13 Targets
   • 13.2: Integrate climate change measures into national policies, strategies, and planning.
3. SDG 9 Targets
   • 9.1: Develop quality, reliable, sustainable, and resilient infrastructure.
   • 9.4: Upgrade infrastructure and retrofit industries to make them sustainable.
4. SDG 17 Targets
   • 17.3: Mobilize additional financial resources for developing countries from multiple sources.
   • 17.6: Enhance North-South, South-South, and triangular regional and international cooperation.

3. Indicators Mentioned or Implied to Measure Progress

1. Electrification Likelihood
   • Measured by the increase in the average likelihood of electrification in subnational regions, quantified as a 0.4 percentage point increase per 1,000 MW of Chinese-financed power generation capacity.
   • Use of satellite-based nighttime light imagery as an innovative indicator of energy poverty and electrification progress.
2. Power Generation Capacity
   • Nominal capacity (GW) of power plants financed or co-financed by Chinese DFIs, including fossil fuel and renewable energy capacities.
   • Capacity factors of different energy technologies (e.g., fossil fuels, solar, wind) to assess effective energy output.
3. Energy Mix Composition
   • Proportion of fossil fuel-based capacity versus renewable energy capacity in the portfolio financed by Chinese DFIs.
4. Policy and Financing Initiatives
   • Engagement in policy dialogues and financing partnerships (e.g., Green Investment and Finance Partnership) as qualitative indicators of progress toward decarbonization and sustainable energy development.

4. Table: SDGs, Targets, and Indicators

Source: bu.edu