Empowering Africa: The Impact of China’s Power Finance on Energy Poverty

Energy poverty is a pervasive and persistent development issue in Africa. Despite the continent’s rich natural resources, the “resource curse” remains a reality for countries with insufficient generation capacity, aging power plants, weak institutions and a lack of affordable energy finance. Additionally, the continent faces crippling energy deficits driven by urbanization and industrialization, coupled with limited fiscal space to support low-income users.

At the same time, there is a need to enhance access to electricity while ensuring that this expansion does not rely on fossil energy. As fossil fuels remain the primary source of electricity generation, the continued industrialization will inevitably lead to worsening air quality and increased health risks.

Since the early 2000s, China has actively participated in Africa’s energy revolution. How has China’s power finance impacted energy poverty in Africa? What is the spatial and technological distribution of China’s overseas development finance in the energy sector in Africa? Has China’s power finance alleviated energy poverty at the subnational level?

Using a panel dataset covering 2012-2020 across 850 subnational regions in Africa, a new working paper by Yan Wang and Yinyin Xu examines the effectiveness of China’s bilateral energy support in Africa. The authors highlight three pathways through which Chinese development finance institutions (DFIs) can engage with Africa’s energy sector: 1) refinancing and repurposing aging fossil fuel capacity; 2) exploring the phasedown of existing coal plants; and 3) promoting renewable energy to enhance Africa’s participation in global value chains in renewable manufacturing.

Main findings:

• Between 2012-2020, China-financed power generation capacity in Africa was effective in combating energy poverty at the subnational level.
  • Specifically, each additional 1,000 MW of operating capacity financed or co-financed by China leads to a 0.4 percentage point increase in the average likelihood of electrification. This positive and significant effect remains robust after controlling for several variables.
• The progress in electrification has still largely been driven by fossil fuels. 
  • In 2020, fossil energy had a nominal capacity of 0.6 GW, representing 51 percent of the total operating capacity financed or co-financed by Chinese DFIs that year. Of that, 0.5 GW came from coal-fueled plants. Hydropower was the second-largest contributor, accounting for 45 percent of total capacity. 
• Progress in reducing energy poverty through renewable sources, such as wind and solar, was relatively limited during the observed period. The renewable generation capacity needed to replace and expand the existing fossil fuel-centric electricity infrastructure remains substantial.

Ultimately, the authors note that, to better understand the green transition of China’s overseas infrastructure investments, future research on renewable energy projects could offer clearer perspectives on China-Africa development cooperation as well as good practices for knowledge sharing and institutional changes.