26 February 2012

Africa's Green Energy Revolution

Photo: United Nations Environment Programme
Solar panels in Tunisia.


As a global community we have to address two major issues: demographics and climate change. With respect to the former, the global population is expected to grow from seven to nine billion by 2050, while Africa's population is expected to double during the same time period from almost one billion to 2.1 billion. This means Africa's labour force will be in excess of 1.1 billion, overtaking China and India.

With respect to climate change, the continent with the lowest green house gas emissions - Africa - stands to lose the most if temperatures increase by more than 2 degrees centigrade. The continent is also expected to be affected by health related problems, such as malnutrition, flood related fatalities and malaria. While Africa will not be able to combat climate change in other parts of the world, the continent is very well positioned for a green revolution, a term I do not use lightly.

Why? Access to energy, ideally clean and renewable energy, is essential for sustainable economic growth and there is a positive correlation between consumption of energy and per capita income. Africa's electricity usage per capita is 124kWh, one-tenth that of other developing countries, with 600 million people in rural Africa living without access to electricity. Currently 70-90 percent of primary energy supply is derived from biomass which has grave ecological implications. For example, Malawi, based on the current rate of deforestation, could be devoid of forests in ten years.

The energy security issues in Africa are, based on my observations, a major impediment to prosperity. The CFO of a major African mining company summed it up. When I asked him what was his major concern he instantly said: "The energy security issues in the region.": In addition to traditional biomass, Africa's major sources of energy are diesel and kerosene. Entire mines are powered by diesel, an energy source that is becoming increasingly costly and unreliable. This means that while the average cost of energy from coal is around $0.09 per kWh, most consumers pay around $0.30 to $0.50 per kWh due to the high cost of diesel and kerosene.

This high cost base changes the economic model for the introduction of clean and renewable on and off grid solutions. This economic reality is very different from that of Germany and other European countries that introduced feed-in-tariffs in the 1980's to stimulate and subsidize the renewable energy supply, whether in the form of solar, wind or other sources of clean energy. Given the low cost of energy derived from fossil fuel and nuclear sources, the renewable energy sector would not have developed without these government subsidies. Moreover, the sector remains vulnerable to the volatility of carbon markets and changes in government policies, as is evidenced in Spain where the solar energy sector has collapsed due to austerity measures.

Africa is very different and can become a model for the supply of cost-effective clean and renewable energy without relying on government subsidies. While many African countries have made tremendous efforts to introduce feed-in tariffs, larger projects - 50MW or more - can be cost effective against the high base cost mentioned above without reliance on government subsidies. South Africa is an exception, due to the fact that coal-based electricity supplies have been at less than $0.09, and the country is taking steps to stimulate the clean energy sector through generous subsidies.

Africa has 20 percent of the world's land mass and plenty of sun. Land is cheap and numerous countries are prime locations for installation of solar photovoltaic power plants augmented by clean gas or other more traditional energy supplies. With the right investments, proactive off-takers and conducive legal and regulatory frameworks, we can experience a continent that is clean and energy efficient. African countries can replace their diesel usage with solar, hydro, wind, clean coal and gas and their kerosene and biomass with solar and other more efficient uses of biomass. The developments in telephony took many industry experts by surprise, and the mobile phone changed the face of Africa.

The green energy revolution in Africa will confound the sceptics as have an even greater impact in creating sustainable growth on the continent.

Herta Von Stiegel is CEO of Ariya Capital.

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