Economies of Scale in Electricity Generation from Renewables in West Africa

Abstract

The rapid expansion of renewable energy technologies in West Africa presents both opportunities and challenges for addressing energy poverty and achieving sustainable development. Meanwhile, large-scale deployment continues to be hindered by the high costs associated with electricity generation from renewable sources. Therefore, understanding the role of economies of scale in driving cost is critical in guiding policy and investment decisions. This thesis investigates the impact of project size on the Levelized Cost of Electricity (LCOE) in solar Photovoltaic and On-shore wind energy projects across West Africa. Utilizing 2020 project-level data from the H2-Atlas Africa, the analysis employed regression with both log-linear and parabolic specifications. Country and regional dummy variables were included to capture spatial variations. The results show a statistically significant inverse relationship between project capacity and Levelized Cost of Electricity for both solar PV and Wind Energy projects, confirming the presence of economies of scale. However, the quadratic models reveal divergent scale-cost dynamics: for solar PV projects, the cost relationship suggests the Levelized Cost of Electricity (LCOE) rises at smaller scales due to financing and regulatory barriers but falls once projects reach utility-scale deployment. For wind projects, costs initially decline with capacity but rise beyond a threshold, indicating diseconomies of scale linked to grid absorption limits and logistical challenges. These findings indicate that project scaling can reduce costs but only under supportive conditions. Policy implications are clear: governments should encourage optimal project sizing, expand grid infrastructure, and reduce financing barriers for full exploit. Overall, economies of scale must be complemented by institutional and infrastructural reforms to unlock Africa’s renewable energy potential.