Bowmans: Energy transition dynamics on the African continent

Posted on: 11 June, 2020 at 9:38 AM

As fossil fuel industries face existential threats, the implications of an energy transition will have far-reaching ramifications for the African continent. Major economies in sub-Saharan Africa are heavily reliant on revenues generated from the extraction and export of oil, gas and coal. Nigeria and Angola are the continent’s first and second biggest oil producers respectively while South Africa, Nigeria and Zimbabwe are leading coal producers.

An energy transition will mean that jobs will be lost in the coal fields and oil wells but other mining sectors will see a substantial boom. As demonstrated by the International Resource Panel’s Mineral Resource Governance in the 21st Century and their 2019 Global Resource Outlook, the demand for materials and resources is only set to increase as the low-carbon transition gains momentum.

Many of the mineral resources required for advancements in clean energy technologies will be sourced from resource-endowed African countries, including Zambia, the Democratic Republic of Congo and the Republic of Congo. These countries produce large quantities of the world’s inputs needed for solar panels, wind turbines and batteries including cobalt, nickel copper, iron, cement, lithium and other rare minerals.

The International Resource Panel is confident that low-income countries can use this growing demand in Africa’s extractive industry as an opportunity to advance sustainable development. The IRP believes economic growth, decent work, cleaner and more affordable energy, climate action and industrialisation are achievable through the extractive industries when managed by multi-stakeholder governance frameworks.

The graph below illustrates a minerals and metal value chain that shows the possibilities for industry growth that can be local, regional and transnational.

Cement is another development material that is a primary input for renewable energy plants. Increased demand will create opportunities for regional industries as cement has long-distance transport limitations.

The region also boasts remarkable distributed renewable energy resources and is unimpeded by legacy energy systems that are predominantly centralised. In particular, solar and wind energy capacity presents a significant opportunity in the African context.

Countries across sub-Saharan Africa thus face crucial policy decisions to leverage these interconnected dynamics. Importantly, these need to be in direct response to regional socio-economic and development challenges.

There have been steady increases in electricity access resulting from electrification programmes initiated by a number of national governments across the region. Despite this progress, electricity access in sub-Saharan Africa is considerably lower than what it could be, factoring in levels of income and the electricity grid footprint, according to a 2019 report by the Africa Development Forum.

Around 43% of the African population had access to electricity in 2016. This translates to more than 600 million people living without electricity across the region; 80% of those living in rural areas. Then chair of the Africa Progress Panel in 2015, Kofi Annan, made a striking comparison to illustrate this, remarking how sub-Saharan Africa’s electricity consumption is less than that of Spain.

As such, energy transition dynamics are complicated by the fact that Africa is both a heavily-endowed region with respect to resources, but severely deprived in terms of access to clean, affordable and sustainable energy.

With Africa’s 1.2 billion population projected to double by 2050, economic growth and the demand for energy will necessarily surge. According to IRENA, energy demand across the region is expected to double by 2040.

Much like the window of opportunity presented at the global level, the possibility to accelerate and steer energy transition processes across the region to advance interconnected climate and development agendas must not be missed.

Significant investments to support a low-carbon transition are already well underway. According to Muller et al, renewable energy capacity on the African continent almost doubled from 22,93 GW to 38,28 GW between 2007 and 2016. Indicative of the massive investments in the developing world, between Africa and the Middle East, investments rose from $1.2 billion in 2006 to $19 billion in 2017.

Policy plays a critical role in attracting these investments. Out of the 53 African countries that have committed to Nationally Determined Contributions (NDCs) as part of the Paris Agreement, 45 contain quantified renewable energy targets.

The key opportunity for configuring energy transition pathways that are responsive to socio-economic development demands across the region is the application of a mix of diverse renewable energy technologies, enabled by integrative policy mixes. Herein lies what the Africa Progress Panel referred to as the potential for ‘leapfrogging’.

Given their variable and distributed nature, renewable energy technologies hold enormous potential for countries in sub-Saharan Africa. On the one hand, the deployment of utility-scale infrastructure alongside the expansion of grid infrastructure can serve growing centralised or grid-connected power demands with few emissions and lower costs. On the other hand, renewable energy technologies present novel opportunities for rural electrification through off-grid applications.

Critically, as Africa enters its urban age, appropriate and diverse infrastructure configurations must be prioritised.

This article is an excerpt from Bowmans’ latest Africa Insights report. Download the full document.

Bowmans is a leading corporate law firm with a highly skilled team, track record and geographical footprint to provide both upstream and downstream services to the private equity sector in Africa.