The complex role China plays in Africa's energy transition

China is the largest investor in Africa's new energy market

Originally published on Global Voices

When touring some East African countries (EAC), like Burundi, Uganda, South Sudan, Somalia, and others, it is common to find village schools, town roads, hospitals, homes, and many more places without electricity. Students must revise their lessons by torchlight, some hospitals and clinics struggle to preserve temperature-sensitive medicines, including vaccines, and citizens navigate daily life without reliable electricity.

This is a common issue across East Africa, where insufficient electricity supply suppresses development, as well as the quality of education and healthcare. Currently, no country in East Africa has achieved full electricity coverage, and there are significant differences in electricity supply between countries. Kenya currently has the highest electricity coverage (the access rate compared to demand), reaching 75 percent in 2018 while Burundi had only 10 percent electricity coverage the same year.

At the same time, Africa has abundant geothermal and solar resources, giving it natural advantages for its energy transition. With the help of renewable energy, affluent countries such as Kenya and Rwanda are expected to achieve universal electricity coverage by 2030.

Kenya is the main beneficiary of Chinese renewable projects in the EAC member states. Environmental conservationist and green energy champion Steve Omondi, whose community is a renewable energy beneficiary through China-Kenya cooperation told Global Voices in an interview: “China has financed and built large solar and wind farms across Kenya, helping expand renewable energy access, particularly in rural areas.” He adds that renewable energy has accounted for nearly 90 percent of the electricity generation in Kenya as of 2022.

China's role in helping Africa obtain renewable energy

Over the past few decades, China has become the largest investor in Africa's new energy market, with large-scale hydropower, solar, and wind projects worth billions of dollars attempting to turn the continent's clean energy potential into reality.

According to a report from the African Climate Foundation, from 2010–2020, China's investment in Africa's renewable energy sector had an average annual growth rate of 26 percent, primarily through solar, hydropower, and wind technologies. Based on a Chinese government report from its One Belt One Road initiative, in 2022, China made an additional direct investment of USD 3.4 billion in Africa. By the end of 2022, China had established more than 3,300 overseas enterprises in Africa, with a total direct investment exceeding USD 40 billion.

Lei Bian, a policy fellow at The London School of Economics and Political Science told VOA news that “Chinese overseas renewable energy investments aim to deliver China's international climate commitments of accelerating the energy transition away from fossil fuels in Africa, China's largest trading partner.” Meanwhile, China also benefited from the collaboration in terms of economic development and energy security.

Most of China's direct investment (FDI) in Africa is carried out through the Export-Import Bank of China (CHEXIM) and the China Development Bank (CDB). However, this investment isn't without controversy. Studies have shown that China's direct investment in Africa over the past few decades has had a negative correlation with local sustainable development. This is largely because China's expanding investments have increased pollution through projects such as road construction and natural resource extraction.

Many “Belt and Road” initiative projects have prioritized the power sector in Africa. In Kenya, the Chinese state-owned enterprise Jiangxi International Economic and Technical Cooperation Co., Ltd. (中国江西国际经济技术合作有限公司) and Kenya's Rural Energy Authority (REA) jointly built one of the largest photovoltaic power stations in Garissa town. This project was supported by part of the Belt and Road Fund established by China in 2018, which allocated 6 trillion Kenyan shillings (KES) to help expand Africa's infrastructure construction capacity.

China has helped to build over 80 big power facilities for Africa. Most are hydro, wind or solar power plants, like the Noor Ouarzazate Solar Complex, the world’s biggest solar power station, and the Garissa solar power plant, East Africa’s largest photovoltaic power station. https://t.co/g3Muj1knjy

— Chinese Embassy in Kenya (@ChineseEmbKenya) January 7, 2021

In addition to providing funds, China has increasingly offered technical support in recent years. The funding for the Garissa photovoltaic power station came from loans provided by the Export-Import Bank of China, while the Chinese company undertaking the project was responsible for the entire process, including design, procurement, construction, installation, and training. The power station has an installed capacity of 54.66 megawatts and can meet the electricity needs of 70,000 households, totaling more than 380,000 people in Kenya.

The paradox of energy overcapacity in African countries

Numerous independent studies have shown that China is facing an overcapacity in its energy sector. The sector is producing more goods than the market can absorb, which then end up being exported at lower prices to other markets. China has invested decades of time and billions of dollars in building its production lines and technology in the solar, wind, and hydroelectric industries. Africa has emerged as seemingly the ideal marketplace for these products. 

As China exports its green energy technology globally and sees its demand surge in Africa, some competitors in the US and EU are concerned about China's dominance in this field. US Treasury Secretary Janet Yellen has indicated that China's overcapacity threatens emerging industries in the US and warned that “flooding the market with cheap goods” could undercut competition. Meanwhile, in June 2024, the EU began imposing additional tariffs of up to 38 percent on electric vehicles exported from China to EU countries.

The Chinese government has consistently denied claims of “overcapacity” and has cited the International Energy Agency's “Global Electric Vehicle Outlook 2023,” which estimates that global demand for new energy vehicles will reach 45 million units by 2030. If China maintains an annual production growth rate of 20 percent, it will produce 34.352 million new energy vehicles by 2030, still below global demand.

According to Oxford Economics’ analysis, there is preliminary macro evidence to support the current geopolitical narrative of China's overcapacity. However, there is no compelling evidence that China is undermining global manufacturing competitors with unfair pricing.

Likewise, Africa is grappling with its own overcapacity issues, with studies showing severe overcapacity in Ethiopia, Ghana, Kenya, and Rwanda. These countries have installed capacities exceeding peak demand by more than 50 percent, yet many households still lack electricity. The main reasons for this paradox vary from country to country but mainly stem from overly optimistic forecasts of real demand by national energy ministries alongside mismanagement within energy bureaucracies.

Another reason for Africa's overcapacity issues can be traced to private investors. For example, Kenya Power, a public distribution company, purchases electricity from private companies at high prices that far exceed what it can sell, leading to high electricity costs for citizens. The significant involvement of the private sector and signed Power Purchase Agreements (PPAs) with private Chinese companies have exacerbated this situation.

Africa's opportunity

Many African leaders view speculation about China's energy overcapacity as an opportunity that might encourage China to shift its supply chain production to Africa.

Although China has been increasing its investments in African countries under the Belt and Road Initiative, a large portion of Africa's exports to China still consist of raw materials such as crude oil, copper, cobalt, and iron ore. These products accounted for more than half of the total import value in 2022. Currently, investment in the new energy manufacturing sector, mainly in the electric vehicle field, is still largely concentrated in relatively wealthy African countries like Egypt, Morocco, and South Africa.

Some African financial experts are suggesting that China should consider relocating part of the supply chain of this industry to Africa, rather than merely viewing the continent as a source of raw materials.

The Chinese and African markets seem poised to complement each other in a symbiotic partnership, however, some barriers remain. While Africa's energy glut can be solved by lowering the cost of access, the challenge will be in ensuring that the procurement relationship between private companies and governments is transparent and fair and that the energy transition does not damage the original ecosystem. 

Written by Ruohan Xie, Desire Nimubona