Africa’s booming renewable energy market is sitting on a hidden risk that could wipe out much of the upside returns that investors expect from the popular small to mid‑size solar‑plus‑battery plants.
Frederik Theron, chief operating officer of Sustain Group, warns that investors modelling returns of 8% to 15% on mid-scale projects are, in practice, often seeing only 5% to 8%.
Theron, who has worked on around 100 projects in 17 African countries, was speaking at the second African Root Cause Analysis (RCA) annual conference held recently in Stellenbosch. He argued that investors, engineers and policymakers have been cutting and pasting European and American technology into African operating conditions and assuming it will behave the same way.
“When we talk about Africa’s energy transition, we like to tell ourselves a comforting story. Familiar presentation slides show exponential growth curves for solar and wind, staggering gigawatt statistics, and smooth lines showing unit costs falling below the utility tariff. On paper, it looks like a one–way bet and the returns, at least in the spreadsheet, keep investment committees happy,” he said.
Things just don’t add up
Theron says over the past decade, installed gigawatts have climbed sharply, and in recent years growth in global renewable capacity has actually exceeded growth in electricity demand, displacing older coal, hydro and even some nuclear assets.
While Africa appears as a small player on these charts, with roughly 2% of installed capacity, it already accounts for an estimated 50 to 60% of growth, driven by markets such as South Africa, Egypt and Morocco.
However, once researchers began tracking imported panels, inverters and other hardware, rather than relying only on officially reported, grid-connected capacity, they discovered far more technology coming into the continent than the statistics suggested.
Theron shared that the implication is a vast, invisible layer of behind‑the‑meter systems on homes, shops, farms and factories that are never reflected accurately in utility data.
“For an investor, that distorts everything. Your demand forecasts, your tariff expectations, even your assumptions about grid stability and curtailment risk are based on an incomplete map of what is actually connected,” Theron explained.
When global financial models meet African realities
Drilling down on his earlier points, Theron explained that solar‑plus‑battery projects in the 500 kW to low double‑digit megawatt range are of particular interest to investors.
“They sit exactly at the junction between grassroots electrification and the intermediate industrial capacity Africa needs if it is going to move beyond survival economics,” Theron said. What’s more, as battery prices fall, solar‑plus‑battery can now credibly compete with both utility tariffs and diesel, even when delivering power after dark.
Theron shared that in Europe, a 10 to 25 MW renewable project might secure debt at about 3.8 to 6.4%. The cost of capital is higher but still broadly compatible with modelled returns of 8 to 15% in South Africa. This is helped by the Renewable Energy Independent Power Producer Procurement Programme or REIPPPP (the Government bidding programme for private‑sector renewable power) experience.
Across much of sub‑Saharan Africa, however, baseline rates climb towards 12%, and developers borrow at around 15% and are pushed to target 30% returns just to balance the risk.
“In that structural squeeze, optimism becomes a business model. You start leaning a bit too hard on resource models, degradation assumptions and operating costs, just to get the numbers to close,” he explained.
Tackling the root cause
Theron believes the root cause of this investment gap is a failure to embed materials risk and skills realities into the final investment decision (FID) stage.
Instead, developers import European and American design codes, a commoditised Chinese hardware stack, and global datasets, and then treat these as universal.
Theron explained that plants across the continent are seeing one to seven percent additional annual losses purely from adverse environmental conditions.
Batteries over‑perform in high temperatures but age faster and panels also suffer when operating above 35°C. What’s more, other equipment is subjected to decades of heat, dust and humidity, but this degradation is rarely priced into initial designs.
In addition, currency depreciation inflates the cost of imported spares and services, while a persistent operations and maintenance (O&M) skills gap undermines early detection and response.
Theron is adamant that the industry must move beyond what he refers to as “cut‑and‑paste engineering”.
“If we are serious about risk intelligence then materials risk cannot remain an afterthought in operations. It has to be embedded at the point of investment decision. That means asking, at FID, how the specific solution will perform in African heat, dust, currency regimes and skills realities, not what the European spreadsheet says,” Theron advised.