ENGLISH ONLY – Africa Energy Sector and the Challenge of Energy Transition.

1. Introduction

According to the International Renewable Energy Agency (IRENA), energy transition is a pathway toward transformation of the global energy sector from fossil-based to zero-carbon by the second half of this century. At its heart is the need to reduce energy-related CO2 emissions to limit climate change. The energy transition will entail the reduction of fossil fuels in the energy mix in preference of renewable energy resources.

Sub-Saharan Africa has vast oil and natural gas resources, which have been reliable sources of government revenue for decades. Due to its geographical position and renewable resource endowments, the region as a whole may be able to profit from the global shift from oil and gas to renewable energy. However, individual countries will feel the impact of the shift in different ways, therefore, there will be the need for each country to develop energy transition strategies that will enable it to maximally benefit from its renewable energy resources. Africa’s energy landscape is changing, but not in a uniform direction. New discoveries of oil and gas are accompanying the expansion of renewable energy generation.

The quest for global energy transition is driven by Sustainable Development Goal seven which aims for universal access to affordable, reliable, clean, and modern energy. Achieving the goal requires urgent action on climate change that could radically transform the global energy system. This transformation is expected to have a dramatic effect on mineral-exporting countries. Exports of crude oil and natural gas account, on average, for 70 percent of government revenues in the major oil producers like Angola, Cameroon, and Nigeria; significant potential future producers of natural gas include Mauritania, Mozambique, Senegal, and Tanzania. As global oil and gas demand begin to decline permanently with progress in the global energy transition, Africa oil and gas producing countries will need to adapt to new market conditions. For the moment, however, they still have some time to manage an orderly transition away from fossil fuels. The global shift toward renewable energy and clean energy technologies will provoke a strong reduction in global demand for oil and natural gas. Given that nearly 50 percent of sub-Saharan Africa’s export value is composed of hydrocarbons, the global energy transition may have profound effects on its economies.

2. The Challenge of Energy Transition in Africa

There are two critical challenges for energy transition in Africa and they are mutually reinforcing. These are modernization and expansion of energy infrastructure. Modernization relates to the effective exploration and exploitation of the continent’s vast endowment of renewable energy resources, including biomass, wind, solar, and hydro-power potential. It also implies moving away from the use of inefficient and hazardous forms of energy and towards the deployment of modern fuels and sources of energy for cooking, heating, and lighting. In the hydrocarbons sector, both resource and labour productivity need to be enhanced. Expanding energy infrastructure is about bringing to scale adapted technologies to meet the energy needs of a growing population of 1.2 billion people, of which only 30 percent have access to reliable electricity.

There is a global shift in the energy mix, away from fossil fuels and towards clean sources of energy. In Africa, however, a closer look reveals a different picture. On the one hand, there is an expansion in energy generation from renewables in most African countries. For example, the Taiba Ndiaye Wind Project in Senegal will generate 158-megawatt of additional capacity. In Ghana, the Nzema Solar Power Station project will increase Ghana’s electricity generating capacity by 6 percent and nearly 100,000 homes will benefit from clean energy; Morocco, is deploying about 1.5 gigawatts of solar and wind capacity across the country to meet its goal of increasing the share of renewables in its energy mix to 42 percent; and South Africa has signed contracts worth US$4.6 billion, to produce 2,300 megawatts of electricity from renewable sources. On the other hand, there is the exploitation of the abundant hydrocarbons resources in Africa. In recent years, there has been a wave of oil and gas discoveries in many African countries. According to the 2014 Africa Energy Outlook, 30 percent of global oil and gas discoveries made between 2010 and 2014 were in sub-Saharan Africa. A number of countries that were previously net energy importers will become energy exporters in the future due to increasing oil exports. Therefore, energy transition is complex issue that has important ramifications for the structure of economies and future development prospects, particularly in Africa. Climate change is an essential aspect to it, but so are many other key aspects of the sustainable development goals, such as economic development through powering productive industries in rural areas and modernizing agriculture to promote the overall improvement of economic welfare of the African people.

3. Policy Option for Energy Transition

The policy option for energy transition is the implementation of strategies that will develop the continent’s energy resources in a way that allows their economies to grow strongly, sustainably, and inclusively. Energy transition presents Africa with a unique opportunity, which is the possibility of becoming the first continent to develop its economy primarily by using energy efficiency, renewables, and natural gas, all of which offer huge untapped potential and economic growth and development. For example, Africa has the richest solar resources on the planet, but has installed only 5 gigawatts of solar photovoltaics (PV), accounting for less than one percent of global capacity. With the right strategy, solar could become one of the continent’s leading energy sources. Meanwhile natural gas development is likely to be consistent with Africa’s drive for industrial development and the need for reliable electricity supply. Today, the share of gas in sub-Saharan Africa’s energy mix is among the lowest in the world. But that could be about to change, especially considering the fact that Africa is home to more than 40 percent of global gas.

Despite a shift to modern and more efficient energy sources, the continent’s current policy settings are not adequate to put it on track to meet its development needs and provide reliable and modern energy services for all. Effective energy policy choices are essential to deliver Africa’s inclusive growth ambitions (such as those contained in the region’s Agenda 2063 strategic framework), and to help meet other major sustainable energy and development goals. Energy demand in Africa grows twice as fast as the global average, and Africa’s vast renewables resources and falling technology costs drive double-digit growth in deployment of utility-scale and distributed solar photovoltaics (PV), and other renewables, across the continent. With the growing appetite for modern and efficient energy sources, Africa could emerge as a major force in global oil and gas markets.

Africa should pursue regional cooperation strategy that will attract international support for African countries to navigate the challenges of energy transition. To this end, the African Union Development Agency (AUDA) has initiated a technical cooperation arrangement with the International Renewable Energy Agency (IRENA) and the International Atomic Energy Agency (IAEA) for the development of the African Continental Power Systems Master Plan (CMP). The initiative is aimed at establishing a long-term continent-wide energy planning process. IRENA and IAEA will lead the development of an electricity master plan that allows African countries to source electricity from a wide-range of competitive, clean energy sources. It will also create beneficial socioeconomic opportunities by increasing interregional access to affordable African renewable energy resources within the continent, fostering investment opportunities, employment creation and ultimately contributing to the region’s sustainable development.

4. Concluding Remarks

Africa as a whole is facing the double challenge of tackling climate change and coping with its consequences on production, growth, and employment in all economic sectors. While adaptation efforts are already in place, and will continue to be needed, preventing the worst possible impacts of climate change is also critical. At the same time, however, an increasing number of governments across Africa consider a sustainable energy transition as a central aspect of their climate strategies. In this regard, the challenge is developing energy policies and strategies that will enable energy producing countries to achieve an energy transition that delivers sustainable and inclusive growth through public policy frameworks that are conducive to the exploitation of both hydrocarbons and renewable energy resources. Enabling policies that promote regional cooperation and the support of international institutions will enable African countries to meet the challenges of energy transition.

Ametrade has always been at the forefront of supporting and promoting energy development in Africa through its various energy, oil and gas conferences that builds the capacity of energy professionals and government officials. The events are usually designed to showcase the continent’s vast strategic energy resources for private investment promotion for the continents socioeconomic growth and development.

Article written by, Dr. Babafemi O. Oyewole, Lead Oil & Gas Industry Expert, Ametrade Ltd