Seeking answers to Africa's energy trilemma

Posted on 12 March 2014

Balanced energy policy and engaged entrepreneurship are essential elements to enabling Africa’s development, says WEC Secretary General Christoph Frei.

Africa’s energy sector has long been working to widen energy access to unlock the continent’s vast potential. Energy access remains a critical priority for this dynamic region.

Globally, 1.2 billion people – equivalent to India’s population – do not have access to energy. Of this, 589 million, or nearly half, are in sub-Saharan Africa.

About 80 percent of Africa’s energy-poor are in off-grid rural locations. A solution is as urgent for Africa’s rural poor as it is for its rapidly developing economies and cities. Among the world’s 20 fastest-growing countries, eight are African.

Energy is as critical to development as it is to economic growth. Progress is being made globally. The UN secretary-general’s Sustainable Energy for All initiative, under the leadership of Kandeh Yumkella, has for the first time placed energy at the centre of the development agenda. We are also seeing progress in energy taking its rightful place in the post-2015 Millennium Development Goals.

However, given rising energy demand and population growth, we are not doing enough to get us to universal energy access in the next few decades.

Globally, between 730 million and 880 million people, predominantly in sub-Saharan Africa, could still be without access to electricity in 2030; this could decrease to between 319 million and 530 million people by 2050, according to our World Energy Scenarios.

This outlook must be addressed by strengthening the energy policy framework to unleash entrepreneurial solutions, combined with skills development and targeted financing mechanisms.

Climate change is another priority. Africa is particularly vulnerable to the effects of climate change and the conflicting demands within the “energy-water-food nexus”, although it has been responsible for only a relatively small amount of global carbon emissions.

As international leaders continue to deliberate on a global climate framework by 2015, the inconvenient truth is that current technologies, policies and innovation are not enough to meet our climate goals.

The current recessionary context makes things worse. As a consequence, climate framework uncertainty has, for the first time, in recent years been replaced by energy price volatility as the top concern among world energy leaders.

This is the finding of our latest World Energy Issues Monitor study, published on February 18. In contrast, African energy leaders are increasingly concerned about global climate framework uncertainty, along with concerns about energy access and affordability.

However, it is not all bad news. Renewable energy, and in particular solar, could help light up African homes and power its industries in rural areas and beyond while minimising emissions, and this at ever decreasing costs. Indeed, renewables will become increasingly significant globally, and especially in Africa.

In sub-Saharan Africa, renewables (excluding hydropower) could grow to provide between 7 percent and 8 percent of the region’s energy supply in 2050, from today’s negligible 0 percent share. This is a significant level of uptake for a world so used to fossil fuels.

Fossil fuels will still be dominant by 2050, but we see renewables attracting investments of about $780 billion (R8.4 trillion) in the same time horizon. We expect strong developments in solar energy, with investments of at least $580bn.

Hydropower could also play a significant role, as reflected by the World Bank’s recent statements. Market access models for renewables such as currently implemented in South Africa are a critical aspect of such development.

Other, newer forms of energy resources can help improve energy security in Africa. Unconventional forms of energy such as shale gas have revolutionised the energy markets. They still are a game-changer globally and have good potential in Africa. For example, South Africa’s shale gas industry is in its infancy and is assessing the potentially huge opportunity to evolve the country’s gas infrastructure to maximise its trilemma benefits.

This investment potential is promising, but more needs to be done to unlock it. Capital is extremely sensitive to perceived political and regulatory risks.

Moreover, the growing pressures on public finances in most countries mean that public funds will not be available to substitute or augment the private financing of energy.

For energy to play an enabling role for development and growth, we need balanced energy policy and engaged entrepreneurship. We need robust, predictable and transparent policies that give markets the freedom to exercise choices in innovation, technology and investment.

The concept of the “energy trilemma” – the triple challenge of energy security, environmental sustainability, and energy equity or access – provides a solid framework for every country to assess its own political risk and work towards balanced, predictable and stable policy and institutional frameworks.

The reality is that there is little agreement between investors and governments on the nature, price, and value of risks. It is therefore critical to improve the understanding of risk and how to price it.

In the absence of such understanding, investment will not flow. This is why governments, industry, and finance must engage in an open dialogue about their uncertainties, needs and priorities.

There is no one single energy solution for all countries. Regional priorities, opportunities and constraints vary greatly, and Africa must define its own path.

We may be at a tipping point at which we can bring together a consensus to deliver the opportunities that modern, clean energy systems can provide. But leadership will be required if we are to get real about the challenges and opportunities of providing sustainable energy for all.

– Christoph Frei is the Secretary General of the World Energy Council. 

This editorial was originally published in Business Report, the South African financial newspaper, on 10 March 2014.