Energy and net zero emissions on the African Continent
People are increasingly recognising the entrepreneurial opportunities on the African continent, evidenced by the growth across the regions various emerging markets. These opportunities entail some risk, but are available to those who are willing to seek them out. With this economic growth comes growth in the demand for energy to make business happen.
According to a recent World Bank study, meeting Eastern, Western, Southern and Central (why not just say “Sub Saharan” – good question, read more) Africa’s future energy needs will cost approximately US$40.8 billion a year over the next 2 decades, equivalent to 6.35% of Africa’s gross domestic product . The estimated energy generation capacity will need to expand significantly to meet Africa’s energy needs – for example, McKinsey estimated that by 2040 there will be a required generation capacity of 1570 TWh per annum. If one was to take Africa’s 2013 power generation capacity of 42 TWh; then the energy generation system will need to quadruple in just over 20 years. That is approximately 7GW per annum to meet the region’s growing energy demands (both suppressed & current).
Below is a snapshot of the current energy mix for East, West, Central and Southern Africa. Energy planning has traditionally been a centralised function performed by government and, at least for the provision of bulk infrastructure, continues to be reliant on centralised government planning. In many instances a country’s energy sector is considered to be a public-private good. Working in tandem with the public sector is often required to comprehend and access entrepreneurial opportunities within a growing energy sector. The good news is the African power mix is generally supportive of the concept of Independent Power Producers (“IPPs”). The World Bank noted that currently 126 IPPs are present in 18 countries across Sub-Saharan Africa. Together, they account for more than 13 % of the subcontinent’s total installed generation capacity — 25 % if South Africa is excluded. This is a notable share of total generation, given that most IPP investment has occurred in the past few years.
In 2015, investment in renewables in developing countries (USD 156 bn) exceeded that in developed countries (USD 130 bn). Renewables investment in developing countries is growing whilst developed markets appear to have stagnated and are beginning their decline. China, India & Brazil account for up to 70% of the growth in developing nation renewable investment – the remaining 30% included Africa, Mexico and Chile. These figures exclude small scale renewable investment (e.g. projects funded by energy users themselves, and built on rooftops or land provided by individual consumers of the small-scale renewable energy).
A number of countries are taking decentralisation a step further, where the traditional “on grid” energy systems are being leapfrogged by “off grid” renewable energy ones. It is similar to the process that mobile phone networks have achieved to date in many African countries: removing the need for ever installing bulk, fixed line telecommunication infrastructure. Where there is little or no centralised energy grid, off grid renewable energies are doing away with the need to install bulk, centralised energy grids, especially for small to medium scale energy needs.
“The concept of base load is actually an outdated concept,” said Harald Winkler, the director of the Energy Research Centre at the University of Cape Town. “Eskom [South Africa’s power utility] was built around big coal and to a lesser extent big nuclear — big chunks of base load power. It’s really myopic in terms of where the future of the grid is going to go. We’re going to see in South Africa and the rest of the world much more decentralised grids.”
Within this decentralisation trend, entrepreneurial opportunities abound and innovation will occur, placing further pressure on market incumbents (usually state owned monopolies) unless they are able to adapt (unlikely if they are large, state-owned utilities) or ensure their continued market share through regulation (more likely). For example, in South Africa (with a centralised planned and implemented grid), small scale renewables are being seen as a threat, taking revenue streams away from municipalities who use the sales of electricity to supplement their coffers. Some municipalities are embracing change and implementing tariffs through NERSA – South Africa’s state energy regulator). However, the defensive mentality towards the fracturing grid needs to change if municipalities are to remain relevant in the energy landscape. There has been some response from South Africa’s national government on this score to assist municipalities to understand and adapt to the impact of declining revenue in the wake of more customers dropping off the grid. The creation of an Independent Systems & Market Operator (“ISMO”), which has been debated and proposed in parliament for the past few years, would loosen Eskom’s monopoly grip over power generation and distribution in South Africa. The ISMO would buy energy from Eskom and private IPP’s, and re-distributed to municipalities (i.e. removing one step of the value chain from Eskom, leveling the playing field a little and eliminating conflicts of interest, while protecting all players from potential market abuse). Eskom and the Department of Energy were supportive of ISMO during the 2010-2015 power outages, which was mirrored by support for the Renewable Energy IPP procurement programme (REIPPP). However, with the stabilisation of the energy scenario and new generation units coming online, Eskom’s support of ISMO and REIPPP has abruptly dissipated.
There are a number of examples of where entrepreneurs and governments are looking more to the centralised, grid structure as the future of shared continental and intercontinental energy resources. For example, regionally there is the Southern African Power Pool that facilitates the cross-border exchanges of energy within the the Southern African Development Community (SADC). Further plans are to expand to inter-regional sharing of energy resources through continental grid connections through the AfDB’s/AU Programme for Infrastructure Development in Africa (PIDA). On an intercontinental scale, there are a group of entrepreneurs considering the potential of linking Japan, China, South Korea, and Russia via a concept called the “Asian Super Grid”. Some have critiqued the wildly ambitious plan to utilise renewable power generation capacity in one area to fuel the energy demands of another using a worldwide transmission network. However, if achieved, it would mark a new era in global connectivity and geopolitics.
For the foreseeable future, it is likely that we will see a combination of large utility scale power sources connecting to centralised grids being complemented by decentralised, fractured grids with renewable backbones. The decision of which way different parties will go depends largely on issues such as location, values, political connections, ideology and practical, case-by-case analysis. There is no doubt that we are living in an age where monopoly of parastatals is being eroded based on the rise of decentralised renewable energy and storage technology.
It is somewhat a catch 22 scenario – decentralisation of energy grids requires political drive and foresight, as decisions on the energy systems within a country have far reaching impacts. REIPPP and similar programmes are being widely replicated in Zambia, Namibia, Ethiopia and others. Government procurement programmes can result in existing technologies and approaches being easily replicated thereby allowing for shared risk between investors and government representing the public. But this is not necessarily the most supportive of pioneering technologies, however it can help with large scale and fast implementation of renewable energy. A stumbling block to such programs are the ‘golden handshakes’ associated with fuel supplies which are often more lucrative than renewable deals, but nevertheless the uptake is on the rise.
“African nations do not have to lock into developing high-carbon old technologies. We can expand our power generation and achieve universal access to energy by leapfrogging into new technologies that are transforming energy systems across the world.” wrote Kofi Annan, former secretary-general of the United Nations, in a report last year.
A number of innovations in the energy access and generation landscape are worth mentioning in relation entrepreneurial opportunities:
- Pay-as-you-go energy systems are taking off in East Africa alongside the possibilities of small/medium scale embedded generation. More localised (South African) examples include the Solar Turtle.
- Energy efficiency solutions are also coming to the market including South African innovations like the GeyserFlicker and the Lightie.
- South African born Elon Musk’s company Telsa has released new solar roof tiles coupled a new and improved home storage unit – the “Powerwall 2”. In addition, Telsa’s advances in providing utility scale battery technology for energy grids is turning small islands energy secure. Here in South Africa technological advances in utility scale battery storage including the implementation of innovative solutions like molten salt batteries or vanadium-flow batteries.
- The use of innovative finance (e.g. bitcoin & blockchain technology) for the provision of solar power – e.g. the SunExchange. More broadly, financial markets for crowd sourcing finance for off grid energy is has been the subject of consideration. The use of fin-tech to reduce the gap between utilities and customers could be game changing for a number of low-emissions and climate resilient business models.
In closing the future of renewables looks promising on the African continent – the costs are decreasing, the technology is improving and large-scale finance is making itself available to counter decades of subsidies propping up the fossil-fuel industry. Fossil fuels, nuclear and alternative energy will continue to be an important component of the global energy matrix, with active debates about which are the most appropriate technologies to be used as “bridges” to get us to a ecologically sound future for the human species on Earth.
Trump-appointed US Secretary of State Rex Tillerson noted in 2016 that the science and technology had not yet achieved the breakthroughs needed to compete with fossil fuels. “Until we have those, just saying ‘turn the taps off’ is not acceptable to humanity,” he said. “The world is going to have to continue using fossil fuels, whether they like it or not.” (the Guardian). That is an objective statement of fact – we cannot flip the switch on fossil fuels tomorrow. However, we live in a world where the deck is unfairly stacked in the favour of fossil fuels, with governments across the world spending $88 billion every year supporting exploration – more than double what the oil and gas companies are investing (ODI).
Another objective statement of fact is that global emission guardrails that would give a likely chance of staying within the 2°C limit, include a peaking of emissions by 2025, a halving of all greenhouse gas emissions by mid-century; carbon neutrality in the second-half of the century followed by net zero emissions by 2100 (Fifth Assessment Report by the International Panel on Climate Change, UNEP Emissions Gap Report 2014.).
What is clear is that if there is no fundamental shift away from the use of fossil fuels as our primary energy source, it is unlikely we will be able to maintain this global emission guardrail and we move into a very uncertain future. Decentralised, small and utility scale embedded renewable energy generation is one trend that, coupled with innovations in fin-tech and battery storage, has the potential to be a game changer.
However, the take home message: our energy systems have to diversify their inputs to insure we have a viable planet to exist on by mid-way through this Century. The quicker the better.