Roundtable 1 Working Paper – Renewables

THE AfCFTA AND TRANSFORMATIVE INDUSTRIALISATION ROUNDTABLE SERIES

ROUNDTABLE 1

THE AFCFTA AND OPPORTUNITIES FOR RENEWABLE ENERGY AND INDUSTRIAL TRANSFORMATION WORKING PAPER 2022 Cape Town

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Contents 1. Introduction: Africa’s climate and energy challenge........................................................................... 2 Solving energy deficits and mitigating climate change: Renewable energy solution and opportunities............................................................................... 2 2. P rogress in greening of Africa’s energy systems................................................................................. 5 3. Barriers to green energy development in Africa.................................................................................. 7 4. Energy transition enablers........................................................................................................................ 9 5. Beyond the nation-state: The role of regional cooperation in green energy transition............. 11 5.1 African continental free agreement and green energy transition ...................................... 11 5.2 Prospects and requirements evolving renewable energy regional value chains ............13 6. The role of international cooperation in green energy transition...................................................15 7. Building Africa’s renewable energy future: Conclusion and policy recommendations...............17 8. References...................................................................................................................................................18

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1. Introduction: Africa’s climate and energy challenge Energy is key to transformation, industrialisation and inclusive growth in Africa. Nevertheless, many African countries suffer severe energy poverty, with the continent being the home to about 60% of the global population without access to electricity Corfee-Morlot, 2019)1. Energy poverty on the continent directly contributes to other forms of poverty, including poor industrial and social development (Adeniran & Onyekwena, 2020).

At the same time, due to geographic positioning, high commodity-dependence/low levels of development, and low adaptive capacity, countries on the continent are on the frontline when it comes to impacts of climate variability and change emanating largely from unsustainable energy use (Lopes & Te Velde, 2021). Indeed, climate shocks have, in recent years, caused major economic disruptions across Africa, threatening to undo the continent’s modest development gains and cause a slip into increased levels of extreme poverty (IRENA, 2022)2 As populations grow and living standards improve, energy demand in African economies is expected to nearly double by 2040, even with energy efficiency measures (IRENA,2019). For industry, energy demand is projected to triple by 2030 from the 2013 value of 3.5 EJ (IRENA, 2015). However, even today, the continent’s ambition to accelerate an industrial expansion is hampered in many countries by unreliable energy supply – more than 30 African countries experience regular outages and load shedding, with opportunity costs amounting to as much as 2% of their GDP (IRENA, 2015). About 41% of African firms identify poor or no electricity supply as a major constraint in their operations, and without addressing these challenges,

they will only intensify with increasing energy demand (Energy for Growth, 2019; cited in KfW et al., 2021; IEA, 2019). Achieving the African Union’s Agenda 2063 and fulfilling the Sustainable Development Goals requires addressing the fundamental challenges of energy access, energy security and climate change.

Solving energy deficits and mitigating climate change: Renewable energy solution and opportunities Meanwhile, the imperatives of climate change, energy poverty and energy security to underpin the development and industrial strategy have made the widespread adoption of renewables and related technologies an essential solution, especially during the past decade (IRENA, 2021). For African countries, the transition to renewable energy systems promises to deliver vast socio-economic benefits; improving energy access, creating jobs, boosting energy security, reducing GHG emissions and enhancing resilience to climate change impacts (KfW Development Bank et al., 2021).

The continent’s current energy resource mix, based heavily on non-renewable fossil fuels, has failed to provide populations throughout Africa with complete, reliable and ultimately sustainable energy and has thus exacerbated socio-economic inequalities (including gender and rural-urban divides), impacted contributed to a lack of energy security, hindered industrial development and increased unemployment (IRENA, 2022). The lack of modern energy services drives overdependence on biomass

1 According to the International Energy Agency (IEA), over 600 million people in Africa have no access to electricity and a further 900 million cannot access clean cooking energy. However, these figures mask the significant variations across countries; access to electricity is as low as one percent in countries like South Sudan while countries like Egypt, Algeria, Libya and Tunisia can boast almost 100 percent access, reflecting differences in state capacity, quality and effectiveness of existing policy and institutional frameworks, and the ability of countries to tap into global knowledge and resources across the continent.

2 In Southern and East Africa, Cyclone Idai in 2019 affected over 3 million people, caused over $1.4 billion of damage to physical and productive infrastructure and $1.39 billion in losses. In Mozambique intense and frequent droughts, floods and storms have affected the livelihoods of 70% of the population. In Zambia, for example, a severe drought in 2015 led to a drop in output at the largest hydropower plant, resulting in power blackouts.

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energy – mainly firewood and charcoal for cooking – which drives deforestation and environmental degradation – particular indoor air pollution with adverse health impacts, especially for women and young children (KfW et al., 2021).

Additionally, fossil fuel dependence has been a key source of vulnerability to market cycles in international energy prices among both energy exporting and importing countries, resulting in fluctuations in government revenues and general price levels and threatening long-term socio-economic stability (IRENA, 2022). In short, clean, indigenous and affordable renewable energy solutions offer the continent the chance to achieve its economic, social, environmental and climate objectives.

Thankfully, opportunities for African countries to pursue sustainable energy pathways have never been greater. Policy drivers, technology developments and international cooperation have moved these technologies from niche to mainstream, especially in the past decade.

Landmark global agreements, such as the 2015 Paris Climate Conference and falling costs of renewable energy, have made the imperative of green energy transition in Africa very

compelling. The Covid-19 pandemic has also increased the public’s awareness of the impact of systemic crises such as climate change and the need to transition to cleaner low-carbon energy and build the resilience of our economies. The demonstrated resilience of renewables-based electricity systems (with a high share of solar and wind) during the pandemic has further cemented their role in decarbonising economies worldwide. Combined, these developments are shifting renewables from niche to mainstream, even as the most traditional players have come to embrace their immense promise (IRENA, 2021).

From biomass, geothermal and hydropower to solar and wind power, the continent has vast renewable energy resources (Lopes, 2019).

As latecomers to industrialisation, there is an opportunity for African countries to leapfrog fossil fuel technologies to more sustainable energy technologies as part of an economic recovery strategy, thus, avoiding a potential fossil-fuel lock-in and playing a leading role in global action to shape a sustainable energy future (Lopes & Te Velde 2021; IRENA, 2019).

Fortunately, renewable energy technology is expanding rapidly throughout the continent,

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with some countries already reaping benefits from proven renewable energy technologies.

However, the availability of cost-effective technologies and green energy resources alone are not sufficient to drive a comprehensive energy transition across Africa. Seizing the opportunity requires strong political will for sector reform, including a coherent, unified approach to the promotion of renewable energy and energy access, and an effective approach to dealing with the political-economic and distributional challenges, such transformations engender (KfW et al., 2021).

Whereas many African states have introduced renewable energy legislation and policy instruments, their design, as well as their application and efficiency, vary considerably – with several countries affected by strong path dependencies or single-issue policies, which severely limits their capability to embark on a green transition (Müller et al., 2020). Individually, most African countries lack the financial, technical and human capacities needed to fully implement a green energy transition (Adeniran & Onyekwena, 2020). This calls for a collective commitment, and greater regional collaboration and policy coordination across the continent to strengthen the speed and effectiveness of such a strategic shift to increase energy access and enhance contributions to climate change mitigation among African countries.

Drawing on discussions organised under the “AfCFTA and Transformative Industrialisation Webinar Series”, this policy brief examines how the recently adopted African Continental Free Trade Agreement (AfCFTA) can be leveraged to accelerate Africa’s transition to renewable energy. The brief also examines how international cooperation can be used to fast-track energy transition by overcoming the inefficiencies of bilateral development assistance. The rest of the paper is structured as follows: Section 2 examines the current state of green energy transition in Africa. The barriers to renewable energy development on the continent are set out in Section 3. Section 4 then outlines enabling measures for an inclusive renewable energy transition. The role of regional integration in driving green energy transition is explored in Section 5. Finally, Section 6 and Section 7 respectively examines the role of international cooperation and provides the conclusion and policy recommendations.

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2. Progress in greening of Africa’s energy systems The past decade saw transformative changes in global energy systems, marked primarily by an unprecedented transition to renewable energy (particularly wind and solar). From 2011 to 2019, global installed capacity grew sevenfold for solar PV and approximately threefold for wind energy (Ritchie et al., 2020; cited in WEF, 2021). Global investment in the energy transition rose to almost $500 billion in 2020 from less than $300 billion per annum in 2011, and eight out of the world’s 10 largest economies have committed to achieving net-zero emissions by mid-century (Bloomberg, 2021; World Bank, 2020; cited in WEF, 2021).

For Africa, the trajectory of the energy transition journey over the last decade has been a positive one, even as the region remains the most challenged globally in access and security (WEF, 2021). In 2019, 20% of the total installed electricity generation capacity on the continent was from renewable sources (see Table 1), indicating a 4.3% increase over the previous year (IRENA, 2020).

While hydropower accounts for the largest share of installed renewable energy capacity, its relative share has been declining as other renewable energy technologies become more competitive. This trend is projected to accelerate without investments in refurbishing existing hydropower plants (KfW et al., 2021).

Sub-regionally, while renewable energy sources dominate Central and East Africa, fossil fuels make up the largest share of installed electricity generation capacities in Northern, West and Southern Africa. Nationally, many African countries, particularly Morocco, Senegal, Egypt, South Africa and Kenya, are demonstrating encouraging trends in terms of adding new renewable energy capacity, with South Africa leading the continent with an installed renewable capacity of 19,000 MW. In relative terms, however, Central Africa has the highest share of renewables installed - with 72%, mainly from hydropower (ibid).

Table 1: Share of installed renewable and fossil fuel generation capacity in Africa (2019)

Energy Type

Capacity (MW)

Fossil fuels & Nuclear Natural gas

107,928

Coal

48, 289

Diesel & fuel oil

22,668

Nuclear

1,940

Renewable energy Hydropower

35, 754

Solar

7,234

Wind

5,753

Bioenergy

1,626

Geothermal

830

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Figure 1: Share of renewable energy in the generation mix by country and region

Source: KfW et al., 2021

Overall, however, in terms of its size and population, Africa is well behind the rest of the world with regard to renewable energy deployment.

For instance, in 2019, two-thirds of the new electricity generation capacity added globally was renewable. However, a mere 2% of this new generating capacity was in Africa.

However, according to some estimates, 97,000 MW is only a portion of what will be required to meet Africa’s growing energy demands by 2050. More starkly, the commitment of 97,000 MW of installed capacity equals 190% of the installed renewable energy capacity in 2019 (KfW et al., 2021).

Meanwhile, African countries are still investing in energy from fossil fuels. According to a study by the German MCC Institute, countries such as Nigeria, Egypt, South Africa and Zimbabwe may be on the verge of expanding their coalfired power generation capacity. While such plans are impeded by international pressures, it is estimated that about 15,000 MW in new coal capacity is being actively pursued (Steckel et al., 2020; cited in (KfW et al., 2021). Similarly, African countries with natural gas reserves such as Nigeria, Tanzania, Tunisia and Mozambique are also expanding their natural gas generation capacity (Multiconsult, 2018)3.

Yet, with abundant renewable energy resources and increasingly cost-competitive technology solutions, the potential exists for African countries to meet their growing energy demand in an economically viable manner while offering significant opportunities for job creation and industrial development. Importantly, energy-poor and underserved populations could get universal access to electricity. Indeed, the continent’s estimated potential to generate renewable energy from existing technologies is 1,000 times larger than its projected demand for electricity in 2040. This means that the continent has more than enough renewable energy potential to meet its future demand.

Additionally, renewable energy, particularly green hydrogen, could replace the continent’s exports of coal, oil and gas, and this potential is far from fully harnessed at this point.

Some 45 African countries have committed (under the Paris Agreement) to expanding renewable energy to 97,000 MW of installed capacity, about half of which is unconditional that is, they do not depend on external support.

3 But natural gas is considered to provides cost-competitive, flexible electricity that improves security of supply and also provides balancing power for integrating variable energy sources and it is also not subject to the same financing restrictions from international donors, export credit institutions and financing institutions as coal is.

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3. Barriers to green energy development in Africa To realise their renewable energy potential, African countries need to take advantage of cost-effective technologies and double up investments in the sector. It is estimated, for instance, that the continent’s current average annual investments in energy systems need to double by 2030 – to approximately $40-65 billion if sustainable and reliable energy for all is to become a reality (KfW et al., 2021). It is argued, therefore, that the investments made to address the severe economic consequences of the Covid-19 crisis in Africa must spur the continent’s transition towards a sustainable energy future; otherwise, the continent risks a relapse into unsustainable economic patterns.

However, even as the transition to renewable energy in Africa has become need of an hour, there are existing common structural barriers

to renewable energy development that, when unaddressed, will impede a sustainable energy future (KfW et al. 2021; Amir & Khan, 2022). These include i) a lack of capacity in key institutions, which leads to weak sector planning and management; ii) weak or absent regulatory and legal frameworks, which makes private investment in renewable energy expensive, and in some cases unviable; iii) electricity grids with high loss rates and limited capacity to absorb variable renewable generation; iv) in some instances, the high costs of decentralised solutions such as mini-grids; and v) financially unsustainable grid and service providers (e.g., utilities and mini-grid operators) that are unable and/or not incentivised to expand access, undertake required maintenance or invest in guaranteeing the security of supply (KfW et al., 2021).

Box 1: Barriers to low carbon electricity sectors and universal energy access in Africa

Barriers to low carbon electricity sectors • High risk makes raising financing for renewable energy projects difficult and costly • Regulatory and legal frameworks for private sector investments are lacking • Integrating large amount of renewable energy is challenging in the absence of power system flexibility • Fossil fuel plants currently under construction will have economic lifetimes beyond 2050 • Electricity is wasted due to high T&D losses and energy inefficiencies • Existing hydropower operates at reduced capacity due to lack of maintenance and reinvestments Barriers to universal energy access • Economic incentives for utilities to connect new customers are limited • Raising financing for grid expansion and electrification is challenging • Off-and mini-grid options are often not economically sustainable • Electricity supply is often unreliable • High connection cost prevent customers from connecting • Relevant authorities have limited capacity for electrification

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While these structural barriers to universal energy access and renewable energy transition are common among African countries, each country has its own political ambition and socio-economic starting point that will take them down different paths in the energy transition4. In the end, the actual pace and eventual outcomes will be partly determined by each country’s current dependence on fossil fuels, existing levels of industrial productivity, evolving technology choices, and the depth and diversity of domestic supply chains (IRENA, 2020)5.

non-African countries. During 2018, three-quarters of patents related to the renewable energy sector were filed in just four countries (China, the United States, Japan and Germany). To date, few African countries have managed to successfully integrate the high-value-added segments of renewable energy value chains and generate associated employment (IRENA, 2022). As a result, many African countries remain consumers rather than producers of low-carbon technologies, limiting the creation of jobs and other socio-economic benefits relating to construction, operations and maintenance.

Currently, however, feedback loops and synergies between energy, industrialisation and development are apparent throughout the continent as the design and manufacture of most renewable energy equipment, along with high-value service inputs, reside in a handful of 4 Suggesting the need for a differentiated approach to universal, reliable electricity access and a low-carbon future 5 Other relevant factors will include regional and national transition plans, institutional structures, capabilities and policy ambitions, as well as the political will and commitment required to overcome systemic opposition to reform efforts that challenge existing political economies.

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4. Energy transition enablers The prerequisites for the transformation of the African energy sector are largely in place.

Crucial factors, in addition to know-how and technology, are the political and regulatory environment. Technology solutions are abundant, cost-competitive with fossil fuels, and are ready to be deployed. The necessary elements, such as stable energy systems, reliable regulatory and financial policy frameworks, ambitious policy goals and appropriate markets (including regional ones), however, need to be realised by addressing barriers to renewable energy development outlined above.

Building on the structural barriers identified above, the figure below presents seven energy transition enablers that should be available if African countries are to make universally accessible and resilient, modern, decarbonised power sectors a reality by 2050.

Figure 2: Energy transition enablers and the barriers (universal and sectoral)

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Table 2: Energy transition enablers and the barriers they address Energy transition enabler

RE transition barrier(s) it addresses

Universal access barrier(s) it addresses

Cost-reflective tariffs and financially sustainable service providers: Below, cost-reflective electricity tariffs reduce incentives and finance to connect new consumers, drive underinvestment in generation and the grid and increase off-taker risk for private electricity generators.

- High risk makes raising financing for renewable energy projects difficult and costly - Existing hydropower operates at reduced capacity due to a lack of maintenance and reinvestments

- Economic incentives for utilities to connect new customers are limited - Raising financing for grid expansion and electrification is challenging - Electricity supply is often unreliable

An environment conducive to private sector investments in renewables: RE developers in Africa face structural barriers and risks that make it difficult, costly and in some cases, impossible to raise the required debt and equity to scale up investments in renewable energy across Africa.

- High risk makes raising financing for renewable energy projects difficult and costly - Regulatory and legal frameworks for private sector investments are lacking

- Raising financing for grid expansion and electrification is challenging - Off-and mini-grid options are often not economically sustainable - Electricity supply is often unreliable

Technologies and structures for energy efficiency and system flexibility: Integrating variable RE requires power system flexibility combining enabling technologies, market design, system operation and business models

- Integrating a large amount of variable renewable energy is challenging in the absence of power system flexibility

- Electricity supply is often unreliable

Strong policy and regulatory frameworks, competent institutions and liberalisation: Weak policy and regulatory frameworks, insufficient short- and long-term power system planning, a lack of transparency in terms of decision-making, insufficient regional integration and policy consistency across countries and shortfalls in institutional capacity are key structural barriers to energy transition in many African countries.

Targeted technical support and capacity building. Liberalisation of electricity sectors through unbundling utilities to allow for private sector participation in electricity generation are viable solutions

- High risk makes raising financing for renewable energy projects difficult and costly - Regulatory and legal frameworks for private sector investments are lacking - Electricity is wasted due to high T&D losses and energy inefficiencies

- Relevant authorities have limited capacity for electrification

Affordable access and innovative business models: High upfront cost of individual connections often prevents potential consumers from getting access, despite living in proximity to the grid. Innovative business models and targeted efforts to reduce consumers’ upfront costs or provide payment plans are an important Robust grids coupled with competence in operations and maintenance: Poor technical state of many African electricity grids and the lack of preventive maintenance results in high T&D losses. Investments in transmission and distribution, including interconnectors for regional electricity trade, are indispensable enablers in achieving universal access and realising renewable energy’s potential.

Raising financing for grid expansion and electrification is challenging High connection costs prevent customers from connecting

- Integrating large amounts of renewable energy is challenging in the absence of power system flexibility - Electricity is wasted due to high T&D losses and energy inefficiencies - Existing hydropower operates at reduced capacity due to a lack of maintenance and reinvestments

Decommissioning fossil fuel generation - Fossil fuel plants currently capacity: Fossil fuel plants currently under under construction will have construction will have economic lifetimes economic lifetimes beyond 2050 well beyond 2050. Avoiding investing in any additional fossil fuel-based generation assets and phasing out existing ones, possibly with international support, is crucial

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- Raising financing for grid expansion and electrification is challenging - High connection costs prevent customers from connecting

- Electricity supply is often unreliable

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5. Beyond the nation-state: The role of regional cooperation in green energy transition Individually, many African countries are already taking important steps to put in place the energy transition enablers outlined above.

Countries such as South Africa and Morocco are, for instance, promoting technological innovation with hydrogen and many others are also making or enabling large investments in solar PV and wind generation.

At the continental level, there are also initiatives such as the AU‘s Programme for Infrastructure Development in Africa (PIDA) in place providing support and coordinating national efforts. In addition, several bilateral, regional and multilateral initiatives and programmes have been started to address energy-related challenges in Africa.

What emerges, however, is that these efforts remain fragmented and insufficient. Indeed while the plethora of institutions, programmes and initiatives afford the testing of several approaches, many of them overlap (in terms of objectives and content), creating inefficiencies underscoring the need for streamlining such efforts.

Indeed, while many African states have introduced renewable energy legislation and policy instruments, their design, as well as their application and efficiency, vary considerably – with several countries affected by strong path dependencies or single-issue policies, which severely limits their capability to embark on a green transition (Müller et al., 2020)6.

and effectiveness of such a strategic shift to increase energy access and enhance contributions to climate change mitigation among African countries. In this context, a key question that has been highlighted in the policy discourse concerns the prospect of the recently adopted African Continental Free Trade Agreement (AfCFTA) for fast-tracking the transition on the continent transition (Adeniran & Onyekwena, 2020).

5.1 African continental free agreement and green energy transition The AfCFTA, by consolidating small, poor, and fragmented African countries into one strong market, changes the dynamics in terms of access to funding, human capital, and technology for the green energy sector. Thus, the AfCFTA can potentially reduce individual country constraints and strengthen innovations to fast-track and enhance the process of transitioning towards clean and sustainable energy.

Indeed, in the context of the AfCFTA and the opportunity it affords for regional economic integration, there would be far greater benefits from a regional approach to greening the essential energy infrastructure, industrial structures, and major trade flows that span each region (ECA, 2016a; ECA, 2016b).

Individually, most African countries lack the financial, technical and human capacities needed to fully implement a green energy transition (Adeniran & Onyekwena, 2020).

Combined with the fragmentation national and regional energy transition efforts, this calls for a collective commitment and greater regional collaboration and policy coordination across the continent to strengthen the speed 6

As is the case for Nigeria and Angola

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Box 2. How the AfCFTA can change the dynamics of energy transition barriers • With a large and diverse market, investing in the region’s energy sector would be more attractive. These funds would then accelerate the introduction and use of more advanced technologies exploiting the continent’s endowment of renewables – solar energy, geothermal, wind, hydropower and biomass, among others to achieve increased energy generation and economies of more significant scale.

• Free movement of labour will lead to increased knowledge sharing, an expansion in skilled labour available for green energy development and an enhanced capacity to create, innovate and adapt green technologies to the local context.

• Indirectly, by increasing trade, generating welfare gains, reducing poverty and boosting economic growth, the agreement could improve available public and private resources for energy financing.

• Similarly, through increased competition that regional integration creates, the agreement could also push countries to implement better domestic energy policies, including reallocating resources from unproductive activities like subsidies on fossil fuels.

Meanwhile, a regional approach to addressing the African energy deficit is not new; regional power pools already exist, through which African countries manage power generation and distribution. As of 2019, these power pools had a combined installed capacity of 33.8 gigawatts (GW), 28% of which is produced through renewable energy technologies (primarily hydropower).

Table 3: Regional power pool in Africa Power pool/ Region

Population (Million)

GDP ($ billion)

Installed capacity in GW (% renewable)

North Africa

96

395

3.2 (10%)

Southern Africa 169

628

10.7 (19%)

East Africa

415

515

11.9 (63%)

West Africa

348

625

5.1 (24%)

CAPP

126

129

2.9 (24%)

Despite the potential of the regional power pools for increasing energy access and driving energy transition, they have not lived up to expectations, owing to limitations from insufficient investment in infrastructure, poor regulatory and institutional arrangement/space, and mistrust due to political-economic constraints.

The AfCFTA, directly and indirectly, addresses these challenges, which will both improve the prospect of regional power pools succeeding, as well as accelerate efforts toward green energy adoption (Adeniran & Onyekwena, 2020).

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First, AfCFTA intends to scale investment in regional infrastructural projects, and given that renewable energy is a significant component of regional power pools, this can accelerate the transition to green energy. With protocols for cooperation on investment, intellectual property rights and competition policy, the AfCFTA provides for national and continental investment as well as support for existing investment promotion agencies like the Programme for Infrastructure Development in Africa (PIDA).

Thus, for the many small and poor African countries, barriers to investment access will be reduced through multilateral frameworks for trade and investment negotiations.

Second, under the AfCFTA, member countries are obligated to align local laws with broad regional plans. As such, unified energy sector interventions and better coordination of the reform agenda could promote several initiatives, including a more sustainable and environmentally-friendly energy route for growth.

Thirdly, the AfCFTA mandates members to publish trade-related regulations and procedures; this provides greater transparency. In addition, the provision of a dispute resolution framework further helps ease the fears of smaller economies, on the assumption that an inclusive and transparent framework would be prioritised under the AfCFTA to ensure the interests of different energy stakeholders in the region are adequately aligned.

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In summary, the AfCFTA holds substantial promise for addressing Africa’s dual-energy problem of poor energy access and fossil-dependent energy system. It is worth emphasizing, however, that not all of the outlined benefits are guaranteed or assured as they depend on the successful implementation of AfCFTA. In effect, the green energy transition implies that the possible momentum and support that can be gained through AfCFTA are dependent on the concerted implementation of the agreement by member countries (Apiko, et al., 2020).

5.2 Prospects and requirements evolving renewable energy regional value chains The development of green industries can be a core part of energy transition efforts in Africa, driving structural economic transformation and reducing various forms of (structural, technological and single commodity trade-related) dependencies (IRENA, 2015). In fact, to realise the full socio-economic benefits of the energy transition, far-sighted policies will be necessary to broaden and strengthen Africa’s currently limited industrial base as part of a broader effort to diversify economies and reduce dependence on the export of unprocessed commodities (IRENA, 2022).

Africa is home to many of the mineral resources that are critical in driving global energy transitions – including manganese, copper, lithium, cobalt, chromium and platinum. The Democratic Republic of the Congo, for instance, is one of the world’s largest cobalt producers, accounting for two-thirds of global cobalt production, while South Africa is the world’s largest producer of platinum and manganese – producing 70% of the world’s platinum (IEA, 2019; IRENA, 2022).

Box 3:Africa’s reserves and production of RE technology-relevant minerals Bauxite: Guinea Copper: DRC, Zambia Cobalt: DRC, Madagascar, South Africa Graphite: Mozambique, Tanzania, Madagascar Iron ore: South Africa Lithium: Zimbabwe Manganese: South Africa, Gabon Nickel: South Africa, Zimbabwe, Botswana Phosphate rock: Morocco, Algeria, South Africa, Egypt Titanium: South Africa, Mozambique, Madagascar

Global demand for these essential components of renewable energy technologies is already rising fast and will soon snowball, but the degree to which African countries will benefit from this emerging demand will depend on the extent to which countries can develop processing capacity further up the value chain. It is only when economic activity moves from the mere export of raw materials to higher-value products that countries can maximise the potential for local job creation and improved livelihoods.

Currently, local manufacturing of equipment like wind turbines and solar panels is less prominent on the continent and will continue to be so. African countries can develop suitable industrial policies, support skill-building and find ways to localise value creation domestically or regionally. In fact, considering the limited domestic market of most African economies, regional value chains will be required to achieve needed economies of scale in renewable energy and associated industries.

As the African Development Bank notes, the continent’s industrialisation does not only depend on its capacity to produce efficiently and in large volumes but also on its trade linkages within the region and with other regions of the world (AfDB, 2015). For instance, the SADC region, despite being rich in a vast array of energy resources, has failed to fast-track progress towards electricity sustainability and regional industrialisation mainly due to a lack of regional integration (TIPS, 2017; as cited in TIPS, 2019).

The Covid-19 crisis, which severely disrupted cross-border supply chains, has underscored the importance of diversifying and regionalising renewable energy supply chains to

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build the long-term resilience of renewable energy deployment against exogenous shocks.

Integrating local suppliers in regional supply chains can enhance their productivity and avoid fragmented industries. Regional coordination is needed to foster synergies among various countries and regions, expand economies of scale, and promote the development of resilient regional supply chains. The creation of regional clusters and supply chains in the renewable energy sector offers the potential of leveraging local capabilities and setting local firms on a competitive path through economies of scale and cost reductions. Integrating local suppliers into regional or other supranational supply chains can enhance their productivity (UNCTAD 2021; IRENA, 2022). Promoting industrial complementarity can prevent duplication of efforts in the same activities, and avoid the fallacy of assuming that something which is true in one country is also true in neighbouring countries operating in the same regional markets (IRENA, 2022).

The existing regional initiatives structure around regional power pools notably provides the necessary building blocks for regional integration to meaningfully help countries meet their energy challenges. However, this cannot be left to utilities and regulatory bodies alone.

In the context of the AfCFTA, several avenues exist for regional institutions to play a driving and supporting role to achieve inclusive governance of the sector and leveraging countries’ resources and capabilities to evolve regional production networks (TIPS, 2019).

At the national level, what is required are industrial policies – a set of incentives and rules,

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business incubation initiatives, supplier-development programmes, support measures for small and medium enterprises, and promotion of industrial clusters that bundle innovation.

Together, they can create the structural underpinnings for viable local supply chains. This will require infrastructure spending (for basic public goods such as electricity, roads, and telecommunications), programmes to bolster local firms’ access to finance and information and boost their capacities along the value chain, and finely tuned local content incentives and requirements (to facilitate spill-over effects and support local value creation).

Industrial policy design must be based on better data and empirical analysis of each country’s economic structures. The first step is to understand how existing capabilities can be leveraged and enhanced. In the longer term, the objective shifts to creating new capabilities in industries related to renewable energy with the help of well-crafted technology transfer policies aligned with education and training strategies.

Local content policies might be more effective if formulated in the context of intra-regional trade and industrial strategy in Africa. Intra-regional specialisation in different segments of the renewable energy value chain can exploit the complementarity of assets across the region. African regions have complementary strengths, from critical minerals abundance to manufacturing capacity, as well as proximity to important trade routes. Such an approach would support the acquisition of new comparative advantages and provide opportunities for economic diversification across Africa.

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6. The role of international cooperation in green energy transition It is estimated that the average cost of reducing emissions in developing economies (including Africa) is about half the level in advanced economies. Thus, while all countries need to bring down emissions, clean energy investments in emerging and developing economies are deemed a particularly cost-effective way to tackle climate change. This is because where clean technologies are available and

affordable – and financing options available – integrating sustainable, smart choices into new buildings, factories and vehicles from the onset is much easier than adapting or retrofitting at a later stage (IEA, 2021). It is for this and many other reasons that development assistance from advanced countries is highly touted as important to achieving a net-zero emission feature.

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Box 4: Key areas for driving green energy under Europe-Africa partnership Special financing modality for green energy: Through the official development assistance, the bulk of EU’s funds flows to the energy sector in Africa, with a particular focus on renewable sources. However, large-scale impact requires reinforcing power pools for greater regional integration. A significant challenge with most power pools is the limited access to funding, especially in terms of infrastructure investment connecting countries. Such a green energy transition strategy would help in motivating the interests of other top donors (US and China) and the private sector, whose support can develop alternative regional approaches or mitigate barriers to green energy transition created by domestic policy and politics.

For Africa, beyond intra-continental cooperation, countries can collectively benefit from a vigorous multilateral approach. A key trend that has also been the focus of policy discourse is the evolving Africa-EU Partnership. The European Commission’s Comprehensive Strategy with Africa proposes first among its five key pillars an African partnership for green energy transition – a partnership for green transition and energy access (EU, 2020)7. Given that the EU is far ahead in green energy development and transitioning, such forms of cooperation can draw on the experiences of European countries, provide promised climate mitigation and adaptation funding, and ensure that lessons and technological solutions are shared across African regions, countries and communities.

Past experience suggests that the European Commission’s Comprehensive Strategy with Africa can strengthen the green energy transition in Africa through existing bilateral efforts at a country-to-country level, efficiency demands mainstreaming through regional integration. In this regard, key areas in which the Europe-Africa partnership can be deployed to accelerate the African green energy transition are special financing modality for renewable energy, institutional knowledge sharing, and technical and innovation sharing.

Institutional knowledge sharing: The EU is at the forefront of the global energy transformation process with three major phases that Africa will also experience in its quest for green energy – transition from fossil fuels (oil and coal) to renewable energy; regional approaches to green energy transition; and policy and institutional frameworks in economic unions and regional integration. The proposed green energy action plan under the new framework has several weaknesses – including the lack of information and knowledge exchange, and the possible role of triangular cooperation in the green energy transition. The increase in trade and economic relations between African countries and other regions, especially in the global south, provides an opportunity for coordination of support between different actors.

Technology and innovation sharing: One of the most crucial elements in the green energy transition is access to green technologies which has been emphasised in the Europe – Africa partnership with the objective of ‘strengthening scientific capacities in Africa by providing access and local adaptation to technologies’.

It is, however, a concern that African countries’ reliance on imported technologies and expatriates for the development of their green sector is not compatible with the type of green energy that is suitable for the EU or other regions.

7 The others are: 2) A partnership for digital transformation; 3) A partnership for sustainable growth and jobs; 4) A partnership for peace and governance; and 5) A partnership on migration and mobility.

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7. Building Africa’s renewable energy future: Conclusion and policy recommendations The African Union’s Agenda 2063 sets out the goals of mitigating climate change, broadening the policy space for sustainable development, eradicating poverty within a generation and building shared prosperity through social and economic transformation. Universal access to energy and transition to clean, affordable and sustainable energy is essential to achieving these goals. There has been some progress over the last decade, but there is still more to do as energy poverty is high and investments in renewable have been relatively low and distributed unevenly across the African continent, concentrated in a handful of countries.

An inclusive and just energy transition can only be achieved by bringing under-invested countries into the fold. This requires the mobilisation of resources on an unprecedented scale while overcoming unique contextual barriers through strong policy and institutional underpinnings.

In addition, recent disruptions, whether caused

by Covid-19 or the climate, have challenged the resilience of the energy transition. In the decade ahead, boosting the resilience of the energy transition through regional approaches will become increasingly critical. All stakeholders – from national governments and regional institutions to multilateral develop-

ment partners – have a part to play in delivering a balanced, resilient transition that continues to speed up progress regardless of disruptions and opposition.

National government: Domestic actors have a role to play in aligning their policy and regulatory frameworks with regional requirements.

Specific interventions include support with domestic resources (land, finance, inputs) to encourage regional infrastructure linkages and appropriate legal measures to encourage local and foreign entries into the green sector.

Regional Institutions (African Continental Free Trade Area Secretariat and AU): Gains and burdens, from a regional approach to the energy transition, are not expected to be shared equitably. A framework for compensating possible losers will be crucial to ensure broader support for the renewable energy transition.

Development partners (EU): A shift in development assistance to encourage a regional approach in transiting to green energy in Africa is required when regional solutions prove more efficient and cost-effective.

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8. References African Development Bank [AfDB]. (2015).

Growth, Poverty and Inequality Nexus: Overcoming Barriers to Sustainable Development. Available at https:// w w w. a f d b - o r g . k r/w p - c o n t e n t / uploads/2016/07/ADR15.pdf ECA. (2016). Greening Africa’s Industrialization, Economic Report on Africa. Available here ECA. (2016). Inclusive green economy policies and structural transformation in selected African countries. Available here IRENA. (2019). Scaling up renewable energy deployment in Africa: Impact of IRENA’s engagement. Available here KfW Development Bank, GIZ, & IRENA. (2021).

The renewable energy transition in Africa: Powering access, resilience and prosperity. Available here Lopes, C. & Te Velde, D.W. (2021). Structural Transformation, Economic Development and Industrialization in Post-Covid-19 Africa. Available here Müller, F., Claar, S., Neumann, M. & Elsner, C. (2020). Building Africa’s renewable energy future: Recommendations for a just transition. SAIIA Policy Briefing 212.

Available here World Economic Forum [WEF]. (2021).

Fostering Effective Energy Transition.

Available at https://www.weforum.org/ reports/fostering-effective-energy-transition-2021

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