AS the world accelerates its race towards a net zero emissions future, there is an increasing focus on developing countries and their financial inability to meet such net zero targets that define a successful energy transition.
Africa in particular is home to 17 percent of the world’s population but it produces less than 5 percent of global annual emissions. Notwithstanding South Africa’s anomalous GHG emissions profile, Africa only accounts for 3 percent of the globe’s cumulative emissions.
When it comes to commitments towards net zero emissions, 35 out of Africa’s 54 countries have stepped up. But, at an estimated cost of $2.8 trillion just to transition Africa’s current energy base by 2050, the required investment level is out of reach for most countries.
This message was reinforced at COP26 through the calls for increased international financial support from developed nations.
The recent PwC Africa Energy review goes further to outline a double challenge for Africa – addressing the energy transition from fossil fuels to greener sources is in many ways at odds with addressing stark energy poverty challenges, in line with Sustainable Development Goals.
The review posits four different scenarios which could play out in Africa’s energy transitions and asks what is the risk of the continent becoming isolated from global markets and eventually stranded?
International exploration of Africa’s oil and gas reserves continues
The review specifically concentrates on Africa’s fossil fuel inventories, showing a downturn in production, consumption and export between 2019 and 2020. This reflects the impact of the COVID-19 pandemic on large projects which were either delayed or cancelled. Global investment pressure also resulted in the rapid exit and disinvestment in portfolios.
Though companies starting exploration and development projects, planned capital expenditure in 2020 to 2021 fell from $90bn pre-Covid-19 to $60bn.
On the other hand, Africa’s renewable energy sector shows an uptick in generation, capacity and forecast. Renewable projects on the continent are increasing, with an annual growth rate of 21 percent between 2010 and 2020. Total installed renewable capacity in Africa has grown by more than 24GW since 2013.
The current total renewable capacity is at 58GW with hydropower contributing 63 percent and the continent’s capacity is expected to increase by the end of 2021 with solar and wind projects in Egypt, Algeria, Tunisia, Morocco and Ethiopia coming online.
The forecast to 2050 estimates 27.32 exajoules (EJ) of additional renewable generation would be needed in Africa’s energy mix to compensate for the declining use of fossil fuel. This presents a significant increase from the current renewable generation of 1.79EJ.
Africa does not have the money to fund an energy transition
To achieve net zero by 2050, Africa needs to invest around $180bn in a clean energy mix and reduce its current annual CO2 emission of 1,62million kilotons. But, investment in low-carbon energy systems in Africa lags global pace. Developed nations may have committed to $100bn in global climate finance commitments, but the allocation to Africa falls well short of what is needed to meet global targets.
These fiscal constraints across Africa create a challenge. Private partnerships, public-private partnerships and blended finance are becoming increasingly important, but these need strong public sector governance and innovative financing instruments.
Africa’s fossil fuel reserves are estimated at more than $15.2 trillion based on current market value. In sub-Saharan Africa, almost 50 percent of export value is derived from fossil fuels with an estimated contribution to GDP from Africa’s current oil, coal and gas production at around $156.2bn. The global energy transition is putting this crucial income source at risk.
James Mackay, PwC director: energy strategy and infrastructure said, ‘Ensuring a sustainable planet is not a cost-benefit assessment. That said, Africa must carefully consider the economic impact of a transition away from fossil fuels and associated revenues in context of the affordable pace of development and growth of the renewable energy sector.
‘More than a third of African nations are very dependent on fossil fuel commodities for state revenue, foreign current reserves and local economic activity. An unfunded and rapid shutdown of this sector would place significant fiscal strain and hardship on Africa.
‘On the other hand, too slow a transition may see Africa lag global markets and emissions reductions targets. Developed economies must play and active role in Africa to ensure a global win-win outcome.’
Leaving fossil fuels in the ground means Africa misses out on potential, much-needed forex
To achieve the 1.5°C global warming target under the Paris agreement, studies suggest that almost a third of current natural gas reserves and nearly 90 percent of current coal reserves should remain in the ground. Applying this to Africa leaves a potential 6.7tn of fossil fuel stranded on the continent.
Adopting renewable energy boost employment opportunities on the continent through the creation of new skills and capacity. Of particular relevance to Africa is the potential to boost non-energy jobs through broader economic activity in rural communities where improved energy access through minigrids and off-grid solutions has an impact on economic productivity.
In the report PwC fines four potential scenarios that could materialise as Africa progresses the energy transition:
- (i) Assisted but rushed;
- (ii) Collaborative and measured;
- (iii) Business as usual; and
- (iv) Stranded and strangled.
All these scenarios are dependent on several factors including: the speed of global net-zero adoption; foreign funding available to Africa; and the level of Africa’s economic growth, which will include fossil fuel export revenue.
‘There is no doubt that the energy transition in Africa will be a complex journey with no single blueprint to solving Africa’s challenges. ‘Game Theory’ outlines scenarios for decision making under uncertainty and how the outcome of individual participants depends on the actions of all. The global energy transition must prioritise the planet and all nations rather than identifying winners and losers.
‘Africa will have no choice but to adapt to this new world, but to avoid a growing “fault line” between the developed and the developing world, greater focus on equitable policy, markets and investment is clearly required,’ said Mackay.