As Africa looks to recover and improve energy access following the slowdown due to the pandemic, here are the five areas of the African electricity market space that policymakers should focus on in 2022.
- Energy Transition – Following the commitments at the Conference of Parties (COP26) event last year in Glasgow, Scotland, African governments united against the global lobby for defunding fossil projects, calling for an energy transition that is fair and just. While the rhetorics of the event has begun to die down and commitments are now facing drastic turnarounds, it is important, African leadership prioritises the industrialisation of the continent using its available resources. While Africa accounts for only 4% of global emissions, it remains the least developed continent globally and stands a chance to be highly impacted by climate change due to extreme poverty, poor access to energy. Despite being richly blessed with a vast array of natural resources, there has been no significant impact on the continent’s development. In seeking affordability for energy transition plans, global superpowers are proposing the reclassification of natural gas and nuclear power as ‘green energy’ against the commitments made at the COP26 event. With the reclassification, Africa gets another chance to utilise its available resources for the energy transition in a manner that puts the continent’s development first.
- Green Hydrogen – Green hydrogen is hydrogen generated from renewable energy sources containing significantly lower emissions. Africa has huge potentials for renewable energy development, and in turn, green hydrogen development. Therefore, the scramble for green hydrogen investments in Africa promises to boost economic activities or several countries. Northern Africa, Namibia and South Africa are positioned to become global green hydrogen hubs. With the demand for green hydrogen projected to grow as the world transitions to cleaner energy sources, maximising these investments opportunities for the development of Africa should be at the forefront of these discussions.
- Infrastructural Investments – Energy infrastructure has remained one of the biggest challenges hindering electricity access for millions on the continent. Many Africans without energy access live in rural areas with little to no economic activities; investors are therefore unwilling to fund critical projects in these areas where Returns on Investments (RoI) are not guaranteed. Investments in infrastructure to bridge access gaps require huge financing options; African governments should explore Public-Private Partnerships (PPP) and other financing options provided by institutions, including the African Development Bank (AfDB) and African Export-Import Bank (Afreximbank). Kenya is taking the lead, announcing the continents first PPP Independent Power Transmission (IPT) project, which promises to pioneer the growth of private sector participation and investment in the transmission sector.
- Electricity Tariffs – African electricity markets are mostly government-owned, and over time, due to tariff subsidies put in place by these governments, a large number of consumers have been desensitised to the reality that electricity is indeed an essential commodity just like petrol. Poor Government funding for critical projects has resulted in poor electricity coverage and an inability to meet the growing demand for electricity on the continent. African governments are becoming increasingly incapable of sustaining subsidy programmes as the global energy prices soar, making commercially viable tariffs inevitable. While some electricity markets (e.g. South Africa) are in the process of implementing tariff increments, other markets have reduced consumers tariffs (Kenya) despite recording huge revenue losses. Therefore, it is imperative that African leadership deploys other strategies to deal with tariff affordability issues while ensuring that electricity markets remain commercially viable.
- Regional Electricity Markets – With the Africa Continental Free Trade Area (AfCFTA) implementation, improving regional electricity access has become critical for competitive economic trade on the continent. Over the years, electricity markets across Africa have pooled together to form regional electricity markets to boost regional electricity trade. For example, the Southern African Power Pool (SAPP) has facilitated successful electricity trades between twelve member states, including South Africa, Mozambique, Zambia, and Namibia. The West African Power Pool (WAPP) is currently carrying out several infrastructural projects to expand the electricity trade in the region. Africa needs to work together in harnessing the potential offered by the regional electricity markets for the continent’s development.
There you have it, the African energy space has great potential, but its potential is only as great as the efforts of its stakeholders.