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Kieran Whyte, Partner, Head of the Energy, Mining and Infrastructure Practice, Johannesburg, and Marc Fèvre, Partner, London, Baker McKenzie.
Across Africa, access to energy is hampered by a lack of access to competitive finance, the disastrous state of the continent’s public service infrastructure and the need to adapt energy policy and legislation so that investment can be stimulated. in the field. After COVID-19, new solutions are urgently needed to address the energy crisis in Africa and move to a continent-wide strategy for its recovery and renewal. Such solutions must take into account the energy transition and, in particular, the use of renewable energy, the focus on smart energy technologies and cost-effective solutions, as well as the global drive towards a decentralized, decarbonized and secure energy supply that addresses climate change and stimulates economic growth
To address urgent energy needs across Africa, the African Union Commission (AU) and the International Renewable Energy Agency (IRENA) agreed in May 2020 to work together to alleviate the impact of COVID-19 and to ensure that Africa is able to achieve its development goals. According to the AU, the aim of this agreement was to support the development and adoption of innovative renewable energy technologies, improve access to energy, build more resilient energy systems, mobilize international support including the private sector , develop larger and more robust energy markets, and encourage cross-border trade in renewable energy.
Africa has a role to play in innovating smart energy solutions for a post-COVID-19 world and in ensuring a sustainable and diverse energy mix. Within developing economies, there are growing opportunities to implement new technologies and localized power generation systems that lead to innovation that will change the way the world generates, stores and distributes energy. The combination of increasing cost-effective renewable energies, decentralization of power generation and improvements in energy storage, smart metering and other digital technologies have the potential to revolutionize the way energy is generated and consumed.
Across Africa, new systems and networks can be designed based on future environmental stressors and energy demands, without having to consider the limitations of old infrastructure. With the advanced use of mobile technology in Africa and the lack of existing electricity transmission networks, these developments offer an opportunity for communities in Africa to gain access to energy by bypassing the traditional model of centralized generation and transmission of power.
Long before COVID-19 shed a bright light on the continent’s energy crisis, investors in the energy sector in Africa were looking for opportunities to support innovative energy solutions that can address rapidly changing energy needs and environments. According to a Baker McKenzie report, the Smart Power Revolution – Opportunities and challenges (report), over 40% of global energy companies surveyed said smart power is a key part of their business, and 37% have established at least one smart power related line of business.
In Africa, the most obvious trend has been the transition towards decentralized energy solutions and home solar systems from being a niche sector dominated by NGOs to being seen as a prime investment center by big players. To name a few, Engie, EDF, Marubeni and Mitsui, who have traditionally focused on grid-scale generation, have all invested and bought or developed businesses in this area in Africa.
Instead of a lack of scale being an obstacle to making the market work, companies have developed models for expanding the industry and building businesses or portfolios. To date, these have largely been financed on corporate balance sheets, but bankers are also taking note and studying how to put banking banking structures in place.
It is necessary to examine how to mitigate the short-term impact of COVID-19 on this sector: being in front of consumers has suffered a much heavier impact than generating utility scale. It is vital to ensure that an essential sector for Africa’s post-COVID-19 recovery and renewal is not irreparably damaged by the pandemic. It is helpful that governments across Africa have recognized the need to adapt their legal and regulatory frameworks and have introduced programs and incentives to promote this investment in innovative energy projects.
Multilateral and development finance institutions have been important allies in the development and mobilization of funding in the renewable energy sector in Africa. Not only have they provided project funding, but they have structured successful programs to address some of the political and credit risk issues that have hindered projects in many countries.
For example, Zambia was the first country in sub-Saharan Africa to implement the Scaling Solar program, with the support of the World Bank Group through the International Finance Corporation (IFC). The program facilitates the development of privately-owned industrial-scale photovoltaic projects and enables governments and public utilities to procure solar energy economically and efficiently. The success of Zambian solar PV led to the extension of the program to Senegal. The 2019 tender for scale solar PV in Senegal set a new price benchmark for the region and made solar power the cheapest energy source in Senegal. The extension of the program to Ethiopia has encountered obstacles to currency convertibility, but the IFC is extending the program to Ivory Coast, Madagascar and Togo. Similarly, the GET-FiT program supported by KfW has made it possible to date to develop a series of projects (in particular the management of river hydroelectric projects) in Uganda and Zambia, with the extension to Mozambique and other countries under study.
These DFI / multilateral programs, however, require time and resources to implement and depend on particular structures that cannot be easily implemented without the involvement of these institutions. There remains a need for a more locally driven development of the sector, supported by adequate tools and resources. An example of this would be the Kenya National Electrification Strategy, launched by the Kenyan government and the World Bank and which uses a geospatial tool to identify the least expensive options for securing electricity supply to homes and businesses in Kenya. It also highlights the important role of private sector investment in providing off-grid solutions to remote areas.
If the continent can build on these initiatives and is able to successfully address its energy crisis through the widespread use of renewable energy solutions and smart energy technologies, it will ensure that everyone who calls it home can connect to clean systems, sustainable and cost-effective electricity in the years to come, fueling Africa’s post-pandemic recovery in the process.
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