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Affordable, clean energy for all Africans? IEA says it’s a simple equation

01 July 2022 Keiron Greenhalgh

Universal access to modern energy across the African continent requires an investment of $25 billion a year in a transformation that would lean heavily on solar PV deployment, and equates simply to the cost of building one large LNG terminal, according to the International Energy Agency (IEA).

The path to this goal involves stimulating more investment, including through international support; building out the continent's solar PV resources; and "stronger national institutions … laying out clear access strategies," the Paris-based IEA said in its Africa Energy Outlook 2022 report.

"The new global energy economy that is emerging offers a more hopeful future for Africa, with huge potential for solar and other renewables to power its development—and new industrial opportunities in critical minerals and green hydrogen," IEA Executive Director Fatih Birol said in a statement accompanying the 20 June report.

As part of the study, the IEA laid out a roadmap to universal access to electricity by 2030 and full implementation of Africa's climate pledges, which the watchdog named its Sustainable Africa Scenario (SAS).

Solar is key change agent

Universal electricity access would involve connecting 90 million people a year, triple the rate of recent years, it said, noting that at present, 600 million people, or 43% of the Africa's total population, lack access to electricity, most of them in sub‐Saharan nations.

The way the IEA sees it, electricity is the backbone for remodeling of African life, with refashioning enabled largely by upscaling renewable generation. It noted Africa is home to 60% of the best solar resources globally, yet only 1% of installed solar PV capacity.

Solar PV—already the cheapest source of power in many parts of Africa, according to the agency—is expected to be cheaper than all other sources of electricity throughout the continent by 2030. Renewables, including solar, wind, hydropower and geothermal, would account for over 80% of new power generation capacity through 2030 in the SAS.

Installed capacity in Africa would almost double under the scenario from 260 GW in 2020 to 510 GW in 2030, it said, with solar PV accounting for 125 GW of the increase. In rural areas, where over 80% of the electricity‐deprived live, minigrids and stand‐alone systems, mostly solar based, are the most viable solutions, it added.

That newbuild will be required because the IEA sees African electricity demand surging by around 75% from 680 TWh to 1,180 TWh in 2030 in the SAS—an average growth rate of 5% per year.

Meantime, universal access to clean cooking fuels and technologies by 2030 requires shifting 130 million people away from dirty fuels each year, it said, noting that 970 million Africans lack access to clean cooking fuels.

Liquefied petroleum gas is the leading solution in urban areas, but recent price spikes are making it unaffordable for 30 million people across Africa, the agency said, pushing many to revert to traditional use of biomass, which can lead to a rise in indoor air pollution and a consequent deterioration in health.

Bridging the gap

To implement changes such as those called for in the outlook, more needs to be done to bridge the gap between developed and developing countries' share of clean energy investment, the IEA said in a separate report issued on 22 June on spending around the globe in the renewables sector.

While global clean energy investment is now "well above" where it was at the time the Paris Agreement was signed in 2015, the increase has been concentrated in advanced economies and China, it said. The relative weakness of clean energy investment across much of the developing world is "one of the most worrying trends revealed by our analysis," the report added.

Policy frameworks will also help, the IEA said, and the International Renewable Energy Agency (IRENA) agrees. In January's Renewable Energy Market Analysis: Africa and its Regions report, IRENA suggested African leaders should team up to develop a policy framework to improve the investment climate.

"A 'green deal' tailored to the African context could provide the institutional and programmatic framework needed to mobilize resources and policy action at the appropriate scale," the report said.

"It would combine the objectives of achieving climate goals, fostering economic development and jobs creation, and guaranteeing social equity and welfare for society as a whole," according to IRENA. The idea is inspired by the EU's Green Deal, a set of policy initiatives aimed at achieving net-zero emissions by 2050 and creating new jobs during the energy transition for the trade bloc.

Hydrogen's role

As in the EU, a holistic plan for renewables would tie in with a green hydrogen boom that would also boost fertilizer production and Africa's ability to feed itself, especially as supplies of nitrogenous fertilizer are becoming harder to come by.

Africa has huge potential to produce green hydrogen, the IEA said, using its rich renewable resources. A number of low‐carbon hydrogen projects are underway or under discussion in Egypt, Mauritania, Morocco, Namibia, and South Africa, it noted.

These projects are focused primarily on using renewables‐based power to produce ammonia for fertilizer. For instance, Mauritania's AMAN green hydrogen and green ammonia production project comprises 18 GW of wind capacity and 12 GW of solar capacity.

Greater ammonia production is important because Africa has significant exposure to variations in global prices of food commodities, as it is highly dependent on imports, according to the IEA. According to United Nations Food and Agriculture Organization data, the continent is importing over 30% of its cereal needs, while in North Africa the share tops 50%. The precariousness of that situation was highlighted in first quarter of 2022 as the global food price index rose to the highest levels ever recorded

The war in Ukraine also boosted prices for mineral nitrogen‐based fertilizers, as natural gas is used to produce ammonia and urea. Africa has taken the brunt of such price strength as urea accounts for around 60% of mineral nitrogen‐based fertilizer consumption and about half of the apparent consumption is imported, the IEA said.

US Secretary of State Anthony Blinken told a G7 summit 27 June he was determined to fix this problem. A lack of access to fertilizer means many low-income countries are significantly reducing their production, he said in a speech, adding that President Joe Biden had committed $500 million to boost US fertilizer output and launched a challenge to raise $100 million for new research on increasing efficiency as well as developing alternatives.

Further help for the developing world was announced at the summit in the German city of Schloss Elmau. The Partnership for Global Infrastructure (PGII) was formally launched, with Biden announcing the US aims to mobilize $200 billion for PGII over the next five years. Together with its G7 partners, the US aims to mobilize $600 billion by 2027, the White House said. Biden's efforts will be channeled into four "priority pillars," one of which is tackling the climate crisis and bolstering global energy security.

Show us the money

Much of the money for Africa's energy transition and fight against global warming will come from the public sector. November 2021's COP26 climate summit in Glasgow saw pledges to help with building cooling and adaptation funding among others.

Multilateral development banks must make increasing funding flows to Africa an absolute priority, the IEA said in its outlook. To mobilize the amount of investment envisioned in the SAS, the banks will need to increase concessional finance to Africa and use it more strategically to better leverage private capital, it added.

But financing renewable and grid investments faces "headwinds," the agency said, adding that over half of sub‐Saharan Africa's utilities are currently unable to "cover their operating costs due to high network losses, under‐pricing, and poor revenue collection mechanisms." Many are facing the threat of insolvency, it warned. As a consequence, traditional regulatory frameworks are incapable of de‐risking projects so as to attract international finance, it said.

Africa's energy future requires stronger efforts on the ground that are backed by global support, it said, noting that the COP27 climate summit in Egypt in late 2022 would provide a crucial platform for African leaders to work globally to identify ways to drive these changes.

Some private funds will be available too. On 20 June, Harith General Partners announced plans with power provider Anergi Group to establish the Pan-African Renewable Energy Fund to accelerate renewable energy adoption across Africa. Anergi currently has a 1.4 GW generation portfolio in Ghana, Kenya, Nigeria, and South Africa.

The $300-million fund will be key to bridging the energy access gap across the continent, while contributing to the just transition of energy by accelerating Africa's move to low-carbon economies in a socially responsible manner, they said.

However, low-to-middle income countries may not have the needed access to the billions in private capital promised at COP26 for reaching net-zero climate goals, especially if they do not enjoy investment-grade ratings, due to an "an expectation mismatch," Jay Collins, vice chairman of Citi's Banking, Capital Markets and Advisory group, said at a 23 April briefing organized by Foreign Policy magazine.

That makes the situation somewhat bleaker, because demand for energy services in Africa is set to grow rapidly and maintaining affordability remains an urgent priority, the IEA said in its African outlook. As the continent's population and incomes grow, demand for modern energy expands by a third between 2020 and 2030 in the SAS, it said. However, under existing subsidy schemes, it added, current price spikes risk doubling energy subsidy burdens in African countries in 2022—an untenable outcome for many facing debt distress.

"It is morally unacceptable that the ongoing injustice of energy poverty in Africa isn't being resolved when it is so clearly well within our means to do so," said Birol.

Posted 01 July 2022 by Keiron Greenhalgh, Senior Editor

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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