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23 May 2022
AFRICA’S ENERGY TRANSITION — ASPIRATIONS VERSUS REALITY
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AFRICA FACES A PARALLEL IMPERATIVE OF PROVIDING ELECTRICITY ACCESS TO MILLIONS OF CITIZENS CURRENTLY DEPRIVED OF IT, AND ALSO TO ALIGN WITH THE GLOBAL TRANSITION TO A NET ZERO FUTURE - AN ARTICLE BY PATRICIA TILLER, PARTNER AT HUNTON ANDREWS KURTH
Africa is home to one-sixth of the global population, yet the continent accounts for less than 6% of global energy consumption and produces only 2% of global emissions.[1] The continent faces a parallel imperative of providing electricity access to millions of citizens currently deprived of it, and also to align with the global transition to a net zero future.
The global access to electricity deficit is increasingly concentrated in Sub-Saharan Africa with World Bank data estimates suggesting that over half of the region’s population remain without access to regular electricity.[2] A significant proportion of households continue to rely on conventional forms of energy—such as charcoal and firewood—as their primary source of energy for cooking. African businesses—from micro-enterprises to agriculture to industry—are similarly held back by the lack of a reliable, affordable energy supply.
When examining the evolution of human energy use, we have seen gradual shifts rather than sudden transitions. Coal displaced wood and oil displaced coal. In many respects, the aspirations for climate change seen at the 2021 United Nations Climate Change Conference, more commonly referred to as COP26, and the goal of the Paris Accords[3] and the UN Framework Convention on Climate Change[4] have sought to replace fossil fuels with renewable energy on an accelerated timetable rather than a natural shift. For Africa to meet this accelerated timetable, stakeholders must balance the economic and technical changes required to achieve the goals of the Paris Accords. Africa must transform the way it generates and uses energy to reduce emissions while also meeting growing energy demand and providing energy access for the poor.
Africa’s net zero expectations
African nations have committed to inclusive, sustainable economic growth and development in Agenda 2063: The Africa We Want.[5] Renewable energy targets for West and Southern Africa focus on the power sector. West Africa targeted a 48% increase in the share of renewables in the electricity mix by 2030. In Southern Africa, the target is 39% by 2030. North African countries have joined other members of the League of Arab States in setting a target of a 12% share of renewables in generated electricity.
Some countries have already established energy transition programmes. For example, under the leadership of the Economic Community of West African States (ECOWAS), all 15 countries in West Africa have developed National Renewable Energy Action Plans, with clear targets in terms of access and deploying renewable energy capacities by 2030.
Most countries in North and West Africa have integrated some form of renewable energy target into their national energy plans, predominantly focused on the power sector. Central Africa has the fewest countries with rural electrification plans based on renewables. To date, 45 African countries have set targets for, and announced activities to support, renewable energy expansion in their Nationally Determined Contributions (NDCs).
Shortfalls in public and private funding
The practicality of the timeline proposed in the Paris Accords has been brought into question due to the lack of mandated support and financing required to meet the commitments of the Paris Accords for an effective energy transition in Africa.
Wealthy nations have pledged to channel $100 billion annually to developing nations, to help them adapt to climate change and mitigate further rises in temperature.[6] The Paris Accords aimed for a balance between mitigation projects (i.e., projects to reduce greenhouse-gas emissions) and adaptation projects designed to assist people in adapting to the effects of climate change; however, only $20 billion went to adaptation projects in 2019, with under $10 billion allocated to mitigation projects, indicating a lack of balanced support to date.[7] Public investments in renewable energy have also been unevenly distributed, with most of the financing directed toward African nations with advanced regulatory frameworks and strong economic environments. The financial promises made by developed nations are vital to Africa’s energy transition and the gradual rate at which these promises are being fulfilled is detrimentally affecting Africa’s ability to achieve its energy goals.
Overall, the investments required to meet Africa’s growing demand for renewable energy are far greater than the funds available from public sources. Present levels of financing for energy access are not enough to achieve universal access by 2030, as targeted by Sustainable Development Goal 7.1, which seeks to ensure universal access to affordable, reliable, and modern energy services.[8]
Private investment in Africa’s energy transition has also fallen short of the investment required for Africa to realistically meet its goals. Globally, energy transitions have been financed predominantly by the private sector, with public finance accounting for just 14% of direct investments.[9] In Africa, however, projects often cannot attract private capital owing to inherent political, legal, and economic risks. Of the $2.8 trillion invested in renewables globally between 2000 and 2020, only 2% went to Africa, despite the continent’s enormous renewable energy potential and its need to bring modern energy to billions of citizens still lacking access.[10] Many countries in sub-Saharan Africa have limited or no creditworthy off-takers, and/or constrained government support, which leads to an unavailability of guarantees. Without host government support (guarantees), there is often an inability to obtain requisite insurance (political risk), making private funding for projects even more difficult. Local enterprises continue to face challenges in accessing financing, with investments concentrated in a few companies.
Both public and private financing will need to increase to reach the funding levels needed to achieve universal access as promised in the Paris Accords.
The role of natural gas in Africa’s energy transition
In several African countries, traditional biomass fuels continue to dominate the overall energy supply and natural gas reserves remain indispensable. As the world pushes towards a net-zero emissions future, natural gas can help bridge the gap and stand in where other fossil fuels have failed. Increasingly, it is becoming evident that gas-to-power may offer the transition that Africa needs in order to ultimately, and realistically, reach its Paris Accord commitments. This approach differs to a sudden and complete switch to other cleaner fuels, such as hydrogen or renewable power.
Gas resources have been identified in 14 countries in sub-Saharan Africa, with Nigeria accounting for 81% of proven reserves. Several undeveloped fields in Mozambique and Tanzania account for 62% of total contingent resources. Other African countries without their own reserves could benefit from developing infrastructure for importing natural gas to support local demand, which will require ongoing investment in natural gas infrastructure.
By transitioning to net zero by using natural gas instead of coal or oil, and focusing on reducing emissions during production and processing of natural gas, African nations may have a more realistic chance at reaching their Paris Accord commitments. The continued use of natural gas as a transition fuel could be particularly successful in the industrial sector. A switch from coal to gas in the industrial sector has been shown to reduce the net carbon emissions by 25%, without considering further reductions in emissions that will come from more environmentally friendly production and processing methods, and capturing CO2 emissions from burning off natural gas.
Gas-to-power in Africa is not without its challenges. Gas supply issues and contractual agreements not being honored by producers have affected the commercial viability and operational performance of gas-to-power. In Ghana, for example, the gas-to-power chain is not functioning on an economically sustainable level due to issues including revenue collection at the customer level, and revenue not flowing back up the chain to gas suppliers. Limited capacity and availability of power transmission and distribution systems also present a possible constraint to the success of gas-to-power projects and increasing the availability of energy throughout Africa, even with natural gas, will require investment in the entire value chain.
Policy constraints
A fundamental cause of the delay in Africa’s energy transition centers on the political and regulatory framework needed to support a net zero goal.
For a transition to zero-carbon to succeed, the transition must be tailored to each national and local context. The transition must consider each country’s readiness, capacities and needs in partnership with national and regional institutions. Attempts to conduct ambitious electricity sector reforms have sometimes failed because they challenged the political economy or threaten the economic foundation of a nation. In Nigeria, for example, oil production and the supporting activities are vital to the economy. Despite oil production representing a relatively small proportion of the gross domestic product (approximately 9%), crude oil sales made up one-third of the government’s budget revenue and about 90% of the nation’s export earnings. Nigeria must develop and strengthen other industries to fill the gap left by reduced oil production before it can effectively phase out the production of this fossil fuel.
Africa’s energy transition must also consider its varied political landscape. It is crucial that governments demonstrate the political will to overcome these challenges and follow through with comprehensive reform to create an enabling environment for an energy transition. Further regional cooperation may assist to achieve the reforms needed, including initiatives such as the African Single Electricity Market, designed to link the South African Power Pool, the West Africa Power Pool and the East African Power Pool.
Broad regulatory reforms are also needed. Ensuring the reliability of power supply requires predictable tariffs, including affordable end-user tariffs, and a strong governance framework throughout the entire energy value chain to ensure there is no undue siphoning of revenue at each stage of the process. Several African nations are yet to implement the regulatory reforms needed to achieve these criteria, and a lack of legal and institutional capacity required to implement these reforms will hinder the energy transition. Regulatory reforms that promote access to energy, de-risk private sector investments, and that strengthen and modernize the grid would all support low-cost, low-carbon, climate-resilient electricity sectors.
Africa’s economic ability to address energy poverty in an energy transition
The effect of the energy transition on economic activity naturally differs across Africa. A just and inclusive energy transition underpinning Africa’s socioeconomic development goals will be incomplete without tackling the widespread access deficit.
In Sub-Saharan Africa, less than half of the population has reliable power at home. Electricity tariffs remain high across the continent, especially when compared with other developing regions. Together with poor reliability, tariffs remain one of the main barriers to achieving universal access in Africa.
Additionally, limited progress on clean cooking has been achieved, with progress mostly in the form of liquid petroleum gas. Charcoal remains the most common fuel in urban areas, while in rural areas the use of firewood prevails. Any energy transition strategy must reckon with the socioeconomic aspect of charcoal. Though unsustainable, the sector provides livelihoods for many millions of Africans.
Many of Africa’s public utilities are in financial distress. As they struggle to cover their operational costs, the utilities cannot finance the desired renewable energy projects or maintain and operate electricity infrastructure. This forces utilities to rely on extensive public subsidies, which may not be sustainable in the long-term. All these factors impede development and economic growth. In many ways, these factors have directly resulted from the organizational structures of the fossil fuel era not properly aligning the cost, price and value dimensions of energy. A comprehensive rethinking of power system structures is needed to avoid misalignment in the energy value chain that will create barriers that hinder Africa’s ability to address universal access to electricity.
Moving forward—building functional, competent institutions
Developing and implementing national policies to promote universal electricity access while also pursuing low-carbon development in Africa’s power sectors is a dual priority at every stage of the energy transition—one that will require competent institutional support and oversight.
By building stable, predictable enabling frameworks, identifying a pipeline of viable projects and offering targeted de-risking instruments, African governments and their development partners can facilitate the public and private sector investments necessary to achieve Africa’s energy transition. Until reliable, affordable, and sustainable modern energy reaches every household, farm, enterprise, school and clinic in Africa, the continent’s socioeconomic development objectives under the Paris Accords will remain unfulfilled.
The global access to electricity deficit is increasingly concentrated in Sub-Saharan Africa with World Bank data estimates suggesting that over half of the region’s population remain without access to regular electricity.[2] A significant proportion of households continue to rely on conventional forms of energy—such as charcoal and firewood—as their primary source of energy for cooking. African businesses—from micro-enterprises to agriculture to industry—are similarly held back by the lack of a reliable, affordable energy supply.
When examining the evolution of human energy use, we have seen gradual shifts rather than sudden transitions. Coal displaced wood and oil displaced coal. In many respects, the aspirations for climate change seen at the 2021 United Nations Climate Change Conference, more commonly referred to as COP26, and the goal of the Paris Accords[3] and the UN Framework Convention on Climate Change[4] have sought to replace fossil fuels with renewable energy on an accelerated timetable rather than a natural shift. For Africa to meet this accelerated timetable, stakeholders must balance the economic and technical changes required to achieve the goals of the Paris Accords. Africa must transform the way it generates and uses energy to reduce emissions while also meeting growing energy demand and providing energy access for the poor.
Africa’s net zero expectations
African nations have committed to inclusive, sustainable economic growth and development in Agenda 2063: The Africa We Want.[5] Renewable energy targets for West and Southern Africa focus on the power sector. West Africa targeted a 48% increase in the share of renewables in the electricity mix by 2030. In Southern Africa, the target is 39% by 2030. North African countries have joined other members of the League of Arab States in setting a target of a 12% share of renewables in generated electricity.
Some countries have already established energy transition programmes. For example, under the leadership of the Economic Community of West African States (ECOWAS), all 15 countries in West Africa have developed National Renewable Energy Action Plans, with clear targets in terms of access and deploying renewable energy capacities by 2030.
Most countries in North and West Africa have integrated some form of renewable energy target into their national energy plans, predominantly focused on the power sector. Central Africa has the fewest countries with rural electrification plans based on renewables. To date, 45 African countries have set targets for, and announced activities to support, renewable energy expansion in their Nationally Determined Contributions (NDCs).
Shortfalls in public and private funding
The practicality of the timeline proposed in the Paris Accords has been brought into question due to the lack of mandated support and financing required to meet the commitments of the Paris Accords for an effective energy transition in Africa.
Wealthy nations have pledged to channel $100 billion annually to developing nations, to help them adapt to climate change and mitigate further rises in temperature.[6] The Paris Accords aimed for a balance between mitigation projects (i.e., projects to reduce greenhouse-gas emissions) and adaptation projects designed to assist people in adapting to the effects of climate change; however, only $20 billion went to adaptation projects in 2019, with under $10 billion allocated to mitigation projects, indicating a lack of balanced support to date.[7] Public investments in renewable energy have also been unevenly distributed, with most of the financing directed toward African nations with advanced regulatory frameworks and strong economic environments. The financial promises made by developed nations are vital to Africa’s energy transition and the gradual rate at which these promises are being fulfilled is detrimentally affecting Africa’s ability to achieve its energy goals.
Overall, the investments required to meet Africa’s growing demand for renewable energy are far greater than the funds available from public sources. Present levels of financing for energy access are not enough to achieve universal access by 2030, as targeted by Sustainable Development Goal 7.1, which seeks to ensure universal access to affordable, reliable, and modern energy services.[8]
Private investment in Africa’s energy transition has also fallen short of the investment required for Africa to realistically meet its goals. Globally, energy transitions have been financed predominantly by the private sector, with public finance accounting for just 14% of direct investments.[9] In Africa, however, projects often cannot attract private capital owing to inherent political, legal, and economic risks. Of the $2.8 trillion invested in renewables globally between 2000 and 2020, only 2% went to Africa, despite the continent’s enormous renewable energy potential and its need to bring modern energy to billions of citizens still lacking access.[10] Many countries in sub-Saharan Africa have limited or no creditworthy off-takers, and/or constrained government support, which leads to an unavailability of guarantees. Without host government support (guarantees), there is often an inability to obtain requisite insurance (political risk), making private funding for projects even more difficult. Local enterprises continue to face challenges in accessing financing, with investments concentrated in a few companies.
Both public and private financing will need to increase to reach the funding levels needed to achieve universal access as promised in the Paris Accords.
The role of natural gas in Africa’s energy transition
In several African countries, traditional biomass fuels continue to dominate the overall energy supply and natural gas reserves remain indispensable. As the world pushes towards a net-zero emissions future, natural gas can help bridge the gap and stand in where other fossil fuels have failed. Increasingly, it is becoming evident that gas-to-power may offer the transition that Africa needs in order to ultimately, and realistically, reach its Paris Accord commitments. This approach differs to a sudden and complete switch to other cleaner fuels, such as hydrogen or renewable power.
Gas resources have been identified in 14 countries in sub-Saharan Africa, with Nigeria accounting for 81% of proven reserves. Several undeveloped fields in Mozambique and Tanzania account for 62% of total contingent resources. Other African countries without their own reserves could benefit from developing infrastructure for importing natural gas to support local demand, which will require ongoing investment in natural gas infrastructure.
By transitioning to net zero by using natural gas instead of coal or oil, and focusing on reducing emissions during production and processing of natural gas, African nations may have a more realistic chance at reaching their Paris Accord commitments. The continued use of natural gas as a transition fuel could be particularly successful in the industrial sector. A switch from coal to gas in the industrial sector has been shown to reduce the net carbon emissions by 25%, without considering further reductions in emissions that will come from more environmentally friendly production and processing methods, and capturing CO2 emissions from burning off natural gas.
Gas-to-power in Africa is not without its challenges. Gas supply issues and contractual agreements not being honored by producers have affected the commercial viability and operational performance of gas-to-power. In Ghana, for example, the gas-to-power chain is not functioning on an economically sustainable level due to issues including revenue collection at the customer level, and revenue not flowing back up the chain to gas suppliers. Limited capacity and availability of power transmission and distribution systems also present a possible constraint to the success of gas-to-power projects and increasing the availability of energy throughout Africa, even with natural gas, will require investment in the entire value chain.
Policy constraints
A fundamental cause of the delay in Africa’s energy transition centers on the political and regulatory framework needed to support a net zero goal.
For a transition to zero-carbon to succeed, the transition must be tailored to each national and local context. The transition must consider each country’s readiness, capacities and needs in partnership with national and regional institutions. Attempts to conduct ambitious electricity sector reforms have sometimes failed because they challenged the political economy or threaten the economic foundation of a nation. In Nigeria, for example, oil production and the supporting activities are vital to the economy. Despite oil production representing a relatively small proportion of the gross domestic product (approximately 9%), crude oil sales made up one-third of the government’s budget revenue and about 90% of the nation’s export earnings. Nigeria must develop and strengthen other industries to fill the gap left by reduced oil production before it can effectively phase out the production of this fossil fuel.
Africa’s energy transition must also consider its varied political landscape. It is crucial that governments demonstrate the political will to overcome these challenges and follow through with comprehensive reform to create an enabling environment for an energy transition. Further regional cooperation may assist to achieve the reforms needed, including initiatives such as the African Single Electricity Market, designed to link the South African Power Pool, the West Africa Power Pool and the East African Power Pool.
Broad regulatory reforms are also needed. Ensuring the reliability of power supply requires predictable tariffs, including affordable end-user tariffs, and a strong governance framework throughout the entire energy value chain to ensure there is no undue siphoning of revenue at each stage of the process. Several African nations are yet to implement the regulatory reforms needed to achieve these criteria, and a lack of legal and institutional capacity required to implement these reforms will hinder the energy transition. Regulatory reforms that promote access to energy, de-risk private sector investments, and that strengthen and modernize the grid would all support low-cost, low-carbon, climate-resilient electricity sectors.
Africa’s economic ability to address energy poverty in an energy transition
The effect of the energy transition on economic activity naturally differs across Africa. A just and inclusive energy transition underpinning Africa’s socioeconomic development goals will be incomplete without tackling the widespread access deficit.
In Sub-Saharan Africa, less than half of the population has reliable power at home. Electricity tariffs remain high across the continent, especially when compared with other developing regions. Together with poor reliability, tariffs remain one of the main barriers to achieving universal access in Africa.
Additionally, limited progress on clean cooking has been achieved, with progress mostly in the form of liquid petroleum gas. Charcoal remains the most common fuel in urban areas, while in rural areas the use of firewood prevails. Any energy transition strategy must reckon with the socioeconomic aspect of charcoal. Though unsustainable, the sector provides livelihoods for many millions of Africans.
Many of Africa’s public utilities are in financial distress. As they struggle to cover their operational costs, the utilities cannot finance the desired renewable energy projects or maintain and operate electricity infrastructure. This forces utilities to rely on extensive public subsidies, which may not be sustainable in the long-term. All these factors impede development and economic growth. In many ways, these factors have directly resulted from the organizational structures of the fossil fuel era not properly aligning the cost, price and value dimensions of energy. A comprehensive rethinking of power system structures is needed to avoid misalignment in the energy value chain that will create barriers that hinder Africa’s ability to address universal access to electricity.
Moving forward—building functional, competent institutions
Developing and implementing national policies to promote universal electricity access while also pursuing low-carbon development in Africa’s power sectors is a dual priority at every stage of the energy transition—one that will require competent institutional support and oversight.
By building stable, predictable enabling frameworks, identifying a pipeline of viable projects and offering targeted de-risking instruments, African governments and their development partners can facilitate the public and private sector investments necessary to achieve Africa’s energy transition. Until reliable, affordable, and sustainable modern energy reaches every household, farm, enterprise, school and clinic in Africa, the continent’s socioeconomic development objectives under the Paris Accords will remain unfulfilled.
[1] https://www.climatewatchdata.org/ghg-emissions
[2] https://data.worldbank.org/indicator/EG.ELC.ACCS.ZS?locations=ZG
[3] https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement
[5] https://au.int/en/agenda2063/overview
[6] https://www4.unfccc.int/sites/ndcstaging/Pages/Home.aspx.
[7] Organisation for Economic Co-operation and Development. Climate Finance Provided and Mobilised by Developed Countries: Aggregate Trends Updated with 2019 Data (OECD, 2021).
[8] https://www.un.org/sustainabledevelopment/energy/
[9] https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jan/IRENA_Market_Africa_2022.pdf
[10]https://bioenergyinternational.com/energy-transition-central-to-africas-economic-future-afdb-irena-report/