Global Courant
Africa’s energy sector comes into the blink of an eye after a tumultuous three years in which the impact of a global pandemic and energy security crisis following the Russian invasion of Ukraine hit the incomes of the poorest people, sent energy costs soaring and investment flows to a standstill came .
The good news is that a continent blessed with abundant renewable energy resources – solar energy in particular – should be well placed to benefit from the global build-up of a new wave of investment in clean energy technology.
“Clean energy moves fast – faster than many people realize. This is evident in investment trends, where clean technologies are using less and less fossil fuels,” said Fatih Birol, executive director of the International Energy Agency, at the launch of the IEA’s World Energy Investment Report in May.
“For every dollar invested in fossil fuels, about $1.7 is now spent on clean energy. Five years ago, this ratio was one to one. A shining example is investment in solar energy, which will surpass investment in oil production for the first time,” he said.
As always, Africa’s need to secure a share of this global investment is urgent given the urgent need to accelerate efforts to achieve universal access to electricity across the continent. Despite significant progress over the past two decades, there is still a long way to go. Just over half of sub-Saharan Africa’s population still has no access to electricity, a figure that rises to more than 70% for people in rural areas, according to recent World Bank data.
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Private financing flows
There is optimism that Africa’s vast renewable energy resources can really help overcome the continent’s energy deficit as industrial supply chains recover from the pandemic and technology costs fall.
Crucially, parts of Africa are no longer pioneering areas for renewable energy developers. Countries such as Egypt, Morocco, South Africa, Senegal and Kenya play host to major solar and wind developments. Their track record helps investors spare more of the continent.
Support from multilateral development banks (MDBs) and development finance institutions (DFIs) continues to support investment in many types of energy projects across much of Africa, but private finance is flowing, even if it is more evident in some parts of Africa than others.
This is partly driven by the increasing sophistication of Africa-based clean energy and other low-carbon companies, which offer ever-improving investment opportunities, as well as a growing network of Africa-based lenders, specialist funds and other financial sector institutions that know where to invest best targeted.
Another driver is the use of innovative international lending mechanisms, such as blended finance initiatives, where low-cost financing and guarantees from MDBs and DFIs are designed to provide a more secure platform for private investment.
Not everyone thinks DFI financing is making the expected difference in boosting private investment, especially in some poorer African countries, where solar power is struggling to scale up. Governments are too poor to boost the momentum of DFIs, while consumers are too poor to pay even for relatively cheap electricity. The hope is that renewable energy will become affordable for more people in the coming years due to falling costs.
Platform for growth
In the past, some governments viewed renewable energy development as a hindrance to economic growth rather than an aid. They were suspicious of what they viewed as attempts by developed countries to force expensive green technologies on countries that could not afford them and would benefit little economically. That picture is changing.
Costs are now comparable to fossil fuels in many parts of Africa and it is becoming increasingly clear how countries can harness the potential of renewable energy to boost the wider economy, going beyond lighting, heating, air conditioning, stoves and refrigerators to work.
The International Renewable Energy Agency (IRENA) estimates that if Africa pursues an ambitious energy transition, more than 12 million new jobs related to the transition could be created across Africa in 2019-30, with a further 3 million by 2050, of which the most in renewable energy sources. energy efficiency, power grids and energy storage. These would more than offset the loss of approximately 2.2 million jobs in the fossil fuel industry by 2050. Millions of additional jobs would then be created by the stimulus to the wider economy – the energy transition has the potential to be a vote winner for governments.
A key factor in attracting investment in large-scale solar and wind projects is to provide commercial customers with the flexibility to use excess intermittent renewable energy when not needed elsewhere, or to build renewable energy projects dedicated to specific industrial projects of to provide power. Egypt is the North African leader in this, building some of the continent’s largest solar farms to power hydrogen fertilizer plants and other infrastructure in the industrial zones close to the Suez Canal.
On the other side of Africa, South Africa is charting a similar course, but has the additional task of completely overhauling its energy infrastructure to reduce its over-reliance on coal-fired power stations for supply. That task is progressing, albeit more slowly than renewable energy developers would like. They say bureaucratic red tape is slowing the rollout of solar projects and contributing to power shortages caused by breakdowns in the country’s creaking coal-fired energy infrastructure.
The energy transition also offers more opportunities for jobs and the economy. Africa is home to some of the most important minerals, such as cobalt, on which the production of batteries for electric vehicles (EVs), telephones and much other technology depends. The benefits of developing domestic EV and battery production, rather than just exporting raw materials without any added value, are obvious. Whether the required investments will materialize outside Africa’s more developed economies remains to be seen.
In an effort to ramp up production, the Democratic Republic of Congo and Zambia hope to develop electric vehicle and battery manufacturing in special economic zones under an agreement with the African Export-Import Bank (Afreximbank) and the Economic United Nations Commission for Africa.
Upstream boost
African countries with upstream resources are also on the other side of the power consumer energy equation. While energy importers struggled to pay rising fuel bills amid the hydrocarbon price hike caused by the war in Ukraine, African oil and gas exporters were able to sell their products for more and potential investors found their hydrocarbon reserves more favourable.
Namibia, a backwater for so long upriver that struggled to generate interest in its upstream area, has become an investment magnet for the majors, following major discoveries in recent years. Mozambique started exporting liquefied natural gas (LNG) in November 2022, while Mauritania and Senegal will join the club of hydrocarbon producers in the near future.
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However, it is far from easy sailing for African oil and gas producers as foreign companies and their government lenders in their country carefully assess lending to the sector in light of green energy targets and environmental requirements. , Society and Governance (ESG). For example, the future of Mozambican LNG projects and the EACOP oil pipeline from Uganda to the Tanzanian coast is currently at stake due to uncertainties.
Those countries with gas reserves now face a choice of how to maximize their economic advantage. In practice, this means a focus on export, while part of the gas is also used for much-needed domestic power generation and lucrative industrial processes.
Sustainable development is the mantra here, meaning a measured approach to developing domestic gas consumption to promote economic growth alongside spending on renewable energy and related industries. Mauritania is an example of this balancing act, which this year will become a gas exporter from its offshore resources, while at the same time pushing for the development of gas-based industries, such as ammonia production, as well as a green hydrogen industry, powered by its abundant solar energy sources.
Traditional producers remain top exporters
Longer-established upstream provinces, such as Angola, are also benefiting from the hunt for alternatives to Russian oil and gas, although the emphasis here is more on maximizing developments close to existing offshore energy infrastructure than on frontier developments.
Nigeria is still vying with Angola and Algeria to become the continent’s largest oil producer, despite fluctuating production levels in recent times. In deep water, Shell and TotalEnergies continue to develop their Bonga and Egina projects. Meanwhile, local companies are trying to rejuvenate production in the shallow waters around the Niger Delta now that the majors have left.
Bola Tinubu’s inauguration as Nigeria’s president in May has raised hopes that the country’s foreign investment climate will improve. Tinubu is credited with facilitating the economic renaissance of Lagos where he was governor. He has also said he will scrap fuel subsidies, which have long been seen as a precondition for a renewal of the country’s energy sector.
The challenges of the energy transition are great wherever you are in the world, and they are made all the more complex in Africa by poverty, lack of infrastructure and patchy investments. But there is no lack of determination to make the clean energy revolution happen on the continent in a way that promotes economic growth and benefits everyone.
