AFRICA INSIGHTS3rd Edition, May 2020

ENERGY TRANSITIONS IN SOUTH AND EAST AFRICA:

THE POTENTIAL AND IMPACT OF RENEWABLE

ENERGY AS A CATALYST FOR CHANGE

Contents

03 Foreword

04 Current state of play in relation to global energy generation

05 Framing our thinking: What is the energy transition?

06 COVID-19: Staying the course for the decade of decarbonisation

09 A shifting global context

10 Energy transition dynamics on the African continent

14 Energy investments and gender in the Global South

15 Conclusion

16 Key contacts

Click here to read Africa Insights, 1st edition, March 2020: COVID-19 - Economic Impact on East and Southern Africa

Click here to read Africa Insights, 2nd edition, April 2020: Post Covid-19 Crisis Pathways: Choices for Africa's Enduring Economic Recovery

Research by Megan Davies, Erica Johnson, Nthabiseng Mohlakoana and Nina Callaghan, Centre for Complex Systems in Transition, Stellenbosch University in collaboration with Bowmans

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Foreword

One of the effects of the COVID-19 pandemic is an anticipated decrease in global energy demand for 2020 to a 70-year low. Understandably, this raises concerns about the recovery prospects of economies reliant on energy revenues, including the major economies in Sub-Saharan Africa.

The outlook is not universally bleak, however, as this third edition of Africa Insights reveals.

While doing their research, our partners at Stellenbosch University’s (SU’s) Centre for Complex Systems in Transition found clear signs of an accelerating global energy shift: the balance of power, while still lying with fossil fuels, is tilting towards cleaner, low-carbon energy, especially renewables.

As this shift gains momentum, African economies that are heavily reliant on fossil fuel extraction could find they have as much to gain as to lose. The SU researchers believe that while many jobs will be lost in Africa’s coal fields and oil wells, other mining sectors will face a substantial boom – many of the mineral resources needed for clean energy technologies are found in Sub-Saharan Africa.

While exploring the opportunities and challenges that accompany the energy transition, this edition also investigates the impact the pandemic itself is having on this shift. Contrary to what some might expect, COVID-19 is driving rather than slowing the trend towards energy sustainability.

It is equally clear, though, that energy transitions entail more than substituting one form of energy with another. They go hand in hand with major changes across the energy system, with far-reaching ramifications for other economic sectors.

In short, fundamental change may well lie ahead, possibly even the potential transformation of the foundations of industrial civilisation.

If you wish to discuss the combination of change and opportunity in African energy, please feel free to make contact with one of our managing partners whose details have been included at the end of this publication. Robert LeghChairman and Senior Partner

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Current state of play in relation to global energy generation

An estimated 6% drop in global energy demand for 2020 is a result of lockdown measures aimed at containing the COVID-19 pandemic.

Fuels like coal, oil and gas have taken the most drastic tumble in the wake of the global economic

crisis catalysed by the virus. The International Energy Agency (IEA) predicts that energy demand will drop to levels not seen in 70 years because of the COVID-19 pandemic.

Advanced economies are seeing even bigger declines, the United States losing up to 9% demand while the European Union hovers at around 11%. This lack of demand has precipitated a record annual drop in carbon emissions of almost 8% to reach levels not seen since 2010.

The IEA says the pandemic is driving a shift towards cleaner energy, with wind, solar PV, hydropower and nuclear to reach 40% of global electricity generation this year, 2020. Renewable energy (RE) is the preferred choice because of lower operating costs, access to grids, greater number and diversity of job opportunities along the RE value chain, as well as answering developmental and climate priorities.

Investment in renewables has exceeded investment in fossil fuels every year since 2009. By 2019 total annual investment in renewables was nearly USD 300 billion, twice total investment in fossil fuels and nuclear combined.

Nearly all the major financial institutions have taken decisions to withdraw from the coal sector, as have some of the largest coal majors. Renewable energy is now cheaper than fossil fuels per KWh in most countries around the world. Even the price of storage has dropped dramatically (up to 73%) in the last five years and achieved a phenomenal 232% growth.

It would seem renewables are a wise choice as governments puzzle over plans for economic recovery post the COVID-19 crisis. A report by the International Renewable Energy Agency touts aggressive investments in RE as a threefold win. It could tackle the climate crisis, quadruple jobs in the RE sector to 42 million over 30 years and deliver global GDP gains of UDS 98 trillion by 2050.

We can understand then that an entire set of incumbent institutions over the social, political and economic spectrum will need to shift while a new generation of institutions is created. An energy transition is not merely a shift from one fuel source and technology to another, but entails a number of different transitions in parallel or even at different times.

Organisational structures and behavioural routines are an intrinsic part of the shift to low-carbon energy. Now with so many systems in flux during the COVID-19 pandemic, opportunities for this movement become a lot more likely, beyond only the logic of market forces.

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Energy demand will drop to levels

not seen in 70 years because of

the COVID-19 pandemic.

Framing our thinking: What is the energy transition?

Throughout history, energy has shaped human society. It is fossil fuels, the likes of coal, oil and gas,

that have powered modern civilisation since the advent of the Industrial Revolution.

As such, fossil fuels are deeply entangled in the socio-technical systems that conduct contemporary life, the complex interactions among people, their behaviours and technology with its accompanying infrastructures.

Fossil fuels have made possible the political institutions, infrastructure configurations, cultural practices and economic systems that have, on the whole, advanced human wellbeing but simultaneously catapulted society towards critical ecological thresholds.

On the one hand, fossil fuel-dependent economies have supported economic growth that has for example, alleviated global poverty levels, extended service delivery and created livelihood opportunities for populations across the globe. However, this fossil fuel-induced economic growth has contributed massively to rampant resource consumption, environmental degradation and indeed, has provided the resource base for structural inequality.

Now more than ever before, the deep-seated structural vulnerabilities of fossil fuel-dependent economies across the world, have been revealed and amplified by the COVID-19 pandemic.

Energy transitions entail more than merely the substitution of one form of energy with another. They also imply major changes across the three domains of the energy system, namely heating and cooling, transport and electricity production. The reconfiguration of these interconnected components of the energy sector comprises changes in energy flows and markets, energy technologies and energy-related policies.

Energy transitions entail more than merely the substitution of one form of energy with another. They also imply major changes across the three domains of the energy system, namely heating and cooling, transport and electricity production.

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COVID-19: Staying the course for the decade of decarbonisation

Evidence for this is seen in a number of key empirical trends; most significantly, investment in new RE

capacity has exceeded investment in new fossil fuel and nuclear combined.

Declining Energy Return on Energy Invested (EROI) of fossil fuels reduces the economic viability of incumbent fossil fuel-dependent energy systems. This EROI scenario tells us that over time more energy (and money) is needed to extract the same quantity of fuel. Another transformative trend impacting global energy systems is international climate commitments, most notably the Paris Accord that drives decarbonisation agendas of both industrialised and developing economies.

In light of these developments, it is possible to observe significant and unprecedented changes in the global energy system, that is the shift from fossil fuels towards RE infrastructure.

Together with the Sustainable Development Goals, the Paris Agreement has a unifying effect, galvanising national efforts to reach climate targets around collectively determined goals. 2020 has been heralded as the start of the decade for decarbonisation and, prior to the onslaught of the COVID-19 pandemic, the world was on a trajectory to massively reorient investment towards a low-carbon future.

The crisis decision-making adopted during the COVID-19 pandemic could be extended to address the climate emergency.

The prospects for this reorientation of the global energy system are demonstrated by extensive public and private investments in RE which hit USD 272.9 billion in 2018, far outstripping investments in new fossil fuel generation. The power sector has experienced the bulk of the changes, with the transport and heating and cooling sectors of the energy system lagging behind in terms of enabling policies and resultant investment.

In 2019, worldwide investment in renewable energy reached USD 282.2 billion. The power sector has experienced the bulk of the changes, with the transport and heating and cooling sectors of the energy system lagging behind in terms of enabling policies and resultant investment.

In 2018 capacity investment in renewable energy infrastructures in the power sector was triple the global investment in new fossil fuel generation. Additionally, as illustrated on page 7 (top), a total of 181 GW of new renewable energy capacity was added to the global energy system in 2018.

It was also reported that global renewable power capacity grew to around 2378 GW by 2018, but that the rate of new capacity additions was levelling off following a number of successive years of growth.

As such, the estimated share of renewable energy in global electricity generation reached 26% by the end of 2018. This development, illustrated on page 7 (bottom), amounts to net capacity additions for renewable energy that were far higher than for fossil fuels and nuclear combined.

The composition of the global energy system is undergoing rapid and important transformation.

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Annual Additions of Renewable Power Capacity, by Technology and Total, 2012-2018Source: Renewables 2019 Global Status Report

Share of Renewables in Net Annual Additions of Power Generating Capacity, 2008-2018Source: Renewables 2019 Global Status Report

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0%

50%

100%

Non-renewable share Renewable share

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

0

20

40

60

80

100

120

Solar PV Wind power Hydropower Bio-power, geothermal, ocean power, CSP

2012 2013 2014 2015 2016 2017 2018

Note: Solar PV capacity data are provided in direct current (DC).

Total renewable power

200

150

100

50

Additions by technology (Gigawatts)

Total ad

ditio

ns (G

igaw

atts)

Added in 2018181 Gigawatts

Extensive investment has corresponded with precipitous price reductions, in particular for solar PV and wind.

Investments in renewable energy are becoming increasingly attractive as advancements in technology and changes in fuel costs bolster their competitiveness. The pace of such developments has resulted in significantly larger cost declines in solar PV and wind. Arndt et al report that the levelised cost of energy (LCOE) from solar PV and wind decreased by 81% and 62% respectively, between 2010 and 2017. On their own terms, investments in renewable energy are emerging as clear winners.

Nonetheless, as climate projections demonstrate, the pace and scale of current decarbonisation efforts need to be vastly increased to curb an unabated rise in global temperatures and halt catastrophic ecological destruction.

Now, faced with an impending global recession, the COVID-19 pandemic could further undermine the possibility of reaching 2030 decarbonisation targets if this results in a reduction in investments in RE. However, almost all economic recovery plans envisage an increase in investments in RE.

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The COVID-19 pandemic has called for the unprecedented mobilisation of public and private resources towards the collective effort of saving lives and preserving livelihoods.

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A shifting global context

Social distancing policies and multi-faceted healthcare and economic interventions have

triggered cascading socio-economic effects.

Disruptions triggered by the COVID-19 pandemic are reflected in the energy sector with vastly reduced energy consumption and demand, disrupted global supply chains and subsequent price reductions across all world regions. These have come on the back of a flailing oil market following the recent Russia-OPEC price wars and the sustained contraction of the international coal industry.

Declines in Energy Returns On Energy Invested (EROI) are reflective of the structural weaknesses exacerbated by the pandemic. EROI is a critical measure of the performance of any given energy resource since it indicates how much energy is required to extract energy from any particular resource.

The higher the EROI ratio is, the more surplus energy can be directed towards fulfilling societal functions. The EROI of fossil fuels at the beginning of the 20th century hovered around 100:1, which practically meant that a single unit of energy was used to extract a hundred times that amount.

So, in the case of oil, it took one barrel of oil to extract 100 barrels in the 1930s. However, since then, the EROI of fossil fuels, such as oil, coal and gas, has reduced significantly, such that recent estimates indicate the EROI of fossil fuels sits between 6:1 and 3:1. Inevitably, this drives prices upwards over time. This, in combination with declining price of rivals (e.g. gas), ironically results in the oversupply crisis that now exists.

Recent market shocks have exacerbated these longstanding fissures and the COVID-19 pandemic has only pushed the energy sector to the brink. So, while the pandemic might have thwarted the short-term prospects for the energy transition, a window of opportunity is presented to reconfigure strategies to bounce forward to resilient, sustainable and just development trajectories. Renewable energy is well-positioned to drive this socio-technical transformation.

The potential for radical socio-technical transformation sits between the widespread deployment of low-carbon, clean technologies and energy efficiency measures, together with the systematic dismantling of fossil fuel infrastructures and the elimination of subsidies.

This will result in stranded assets and financial losses for companies, and indeed entire economies, invested in the current energy system. Many of these economies are located in the developing world, including many African countries that produce resource inputs to the fossil-fuelled global economy.

Economic stimulus packages must be configured to protect against the pandemic’s potential short-term subversion of the energy transition. Instead, measures to stimulate investments in infrastructure can support governments’ efforts to tackle the immediate crisis and simultaneously support climate action.

Energy transition dynamics on the African continent

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.

Secondary recycling Primary recycling

Recycling

Preparation(dismantling, crushing, separation)

Productionwaste

Productionwaste

Productionwaste

End-of-lifeproducts, waste

Collecting

Frameworkconditions

Geological resources

Exploration Development MiningOre

processing

End-product(e.g. aircraft) Components Semi-products Purification Metallurgy /

refining

Minerals/ Metals Value ChainSource: IRP, 2019

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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. Figure 4 and figure 5 illustrate the widespread potential for solar PV and on-shore wind capacity development.

Photovoltaic Power Potential, Sub-Saharan Africa (Solar Resource Map)Source: World Bank Group

Daily totals: 3.2 3.6 4.0 4.4 4.8 5.2 5.6

Yearly totals: 1168 1314 1461 1607 1753 1899 2045kWh/kWp

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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.

Mean Wind Speed, Sub-Saharan AfricaSource: Wind Resource Map, 2020

Mean Wind Speed @ 100m - [m/s]

2.5 2.75 3 3.25 3.5 3.75 4 4.25 4.5 4.75 5 5.25 5.5 5.75 6 6.25 6.5 6.75 7 7.25 7.5 7.75 8 8.25 8.5 8.75 9 9.25 9.5 9.75 10

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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 USD 1.2 billion in 2006 to USD 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.

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According to the IEA in 2017, globally, the population access rate to electricity is relatively low at 43% and that lack of access and use of clean energy for cooking remains a big challenge.

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Energy investments and gender in the Global South

Around 3 billion people still depend on solid fuels and in many parts of the African continent, over

900 million people still use solid biomass, like wood, charcoal, peat and animal dung, for cooking.

A significant number of people are exposed to harmful pollutants due to energy poverty and suffer from the effects of indoor air pollution which is responsible for up to 4 million premature deaths per year.

In order to overcome energy poverty, energy investments are used to facilitate the realisation of the Sustainable Development Goals (SDGs), a strategy to ensure that there is access to affordable and clean energy (SDG 7).

This strategy is incomplete without addressing gender balance, according to energy researchers and advocates for women’s involvement in the renewable energy sector. One of the indicators that the energy sector is male dominated is the finding that women are listed in less than 11% of patent applications related to this sector. Women make up only 22% of the labour force in the oil and gas sector and about 32% in the renewable energy sector.

Researchers argue that gender-sensitive policies and training and skills development for women in the RE sector improve sustainability and maximise socio-economic benefits, as well as help realise SDG 5 relating to gender equality.

Women are also the primary energy users in households, as well as the ones who spend inordinate amounts of time collecting fuel for cooking, heating and lighting, which is detrimental to well-being, safety, health and access to education.

Being energy vulnerable has so much to do with gender. Including women across the RE sector from

research into policy-making and industry value chains will broaden decision-making around investment priorities and project design, while stimulating microenterprises that are known to be driven mainly by women.

ENERGIA, the gender and sustainable energy network, advocates that, ‘post COVID-19, economic recovery plans must include equitable access to and control over sustainable energy services for women and men as an essential right to development'.

Beyond the right to equitable access to services, it is important to ensure that current opportunities arising in the energy sector due to COVID-19 mitigation-oriented funding are equally accessible to men and women.

Considering that the bulk of home and child-care responsibilities is taken up by women, this places them at the disadvantage of not having enough time and other resources to participate in seeking opportunities in the energy sector. There is therefore a need for a call for more gender-sensitive procurement policies, especially during the COVID-19 pandemic.

Locking down economies in response to the pandemic has had a devastating effect on the more than 85% of workers employed in the informal sector in Africa. Coupled with the inability to purchase food for their families, they are also not able to purchase energy services such as electricity or fuels such as paraffin and gas. Those depending on traditional sources of energy are not able to collect wood or access charcoal due to lockdown restrictions. Women who usually walk long distances to collect wood have become fearful of breaking the lockdown laws, and have ended up relying on even more dangerous materials such as plastic for their cooking and heating needs. This can increase the likelihood of respiratory illness which is a vulnerability in this pandemic.

Conclusion

The introduction of a new energy technology does not itself make an energy transition, even when it is the least cost option and a win for climate change. Add to this complexity a pandemic that has slowed down global systems, and the stubborn, often stifling premises of transition now have a whole new spin to them.

To date the content of the transition discussion has been to change the supply-side elements of the energy system, but COVID-19 has recalibrated that conversation. With energy demand potentially reset and on a different trajectory, bottlenecks or gaps in the energy supply chain highlight that the industry is facing a structural change, hastening and bringing forward choices that incumbents had considered to be decades away.

If the pandemic response continues for longer than 18 months, the change in the consumer patterns will become permanent, structurally shifting the context. This potentially enables the longer lasting energy transition to occur, a lot earlier than previous voluntary transition pathways had sketched.

Blended climate finance is one way to start the new technology programme before the decommissioning of fossil fuel plants can start. It is a scenario of seeing the new emerge before the old can finally be shut down, and enrolling business, politicians and citizens along the way.

IRENA leaders support this kind of scenario, framing African countries responses to COVID-19 as both a short and long-term priority, acknowledging that an improved capacity to respond to the pandemic could catalyse a host of other capacities.

IRENA Director-General Francesco La Camera says, ‘renewable energy can cost-effectively supply the critical power needed in Africa’s rural communities to supply health centres, facilitate the provision of clean water, support agriculture and facilitate other productive sectors. Such measures are critical to the continent’s ability to deal with the pandemic.’

The energy transition from fossil fuels to RE will entail a fundamental re-ordering of socio-technical systems, in turn transforming the foundations of industrial civilisation. Coupled with the ways COVID-19 is unravelling obdurate conditions across energy, economic and social systems, this kind of transition is ever more possible – and desirable.

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Key Contacts

ALAN KEEPManaging Partner Johannesburg, South Africa T: +27 11 669 9348E: alan.keep@bowmanslaw.com

FAZIL HOSSENKHANManaging Partner Moka, Mauritius T: +230 5421 3032E: fazil.hossenkhan@bowmanslaw.com

To view profiles of our lawyers, please visit www.bowmanslaw.com

WILBERT KAPINGAManaging Partner Dar es Salaam, Tanzania T: +255 76 898 8640E: wilbert.kapinga@bowmanslaw.com

ERNEST WILTSHIREManaging Partner Kampala, Uganda T: +256 31 226 3757E: ernest.wiltshire@bowmanslaw.com

RICHARD HARNEYManaging PartnerNairobi, Kenya: Coulson Harney LLP T: +254 20 289 9000E: richard.harney@bowmanslaw.com

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