Despite progress in recent years, deep inequalities persist in the global just energy transition. Today, over 3 billion people – 80% of them in Africa – live in energy poverty, while the world’s wealthiest 5% consume more energy than the poorest half of the global population combined.
As the international community places mounting pressure on Africa to transition to clean energy alternatives, the continent is grappling with daunting energy challenges, with approximately 600 million Africans lacking access to electricity and 900 million without clean cooking fuels and technologies.
The expert speakers discussed the structural barriers hindering Africa’s just energy transition, along with investment opportunities that lie therewithin – from renewables to energy storage and grid infrastructure to climate finance and carbon trading.
- Moderator: Sanjeev Gupta, Executive Director & Head of Financial Services, Africa Finance Corporation
- Kola Karim, Group Managing Director/CEO, Shoreline Energy International
- George Shenouda, Africa Lead, Development & Investment, Masdar
- Representative from COP28 UAE
- Ashish Ranjan, CTO Wind, Infinity Power
- Amadou Wadda, Senior Director, Project Development & Technical Solutions, Africa Finance Corporation
Sanjeev Gupta: The power crisis in Africa, specifically the lack of electricity, is a major issue affecting a significant portion of the population. With estimates ranging from 700 million to 1 billion people out of a total population of 1.3 billion lacking access to electricity, this problem hindering industrialization and development. Without energy, there can be no industrialization, and without industrialization, job creation and economic growth are severely limited. This power crisis needs to be addressed urgently to drive progress and advancement in Africa.
The people working in Africa face an existential crisis due to the lack of power supply. They compare this crisis to a war and stress the urgency of addressing it. The demand for energy in Africa is immense, with a billion people waiting to be provided with power. On the other hand, the continent possesses abundant renewable resources that could be harnessed to meet this demand. This aligns with the climate agenda, as Africa has the potential to tap into these resources.
Africa has abundant resources to generate power, including natural gas, coal, and oil. Despite coal being seen unfavourably, it remains a viable option. gathered a group of individuals who collectively represent different perspectives on the power challenge in Africa. This includes project developers, financiers, promoters, and government representatives. The purpose is to address and discuss solutions to the power conundrum in Africa.
What is the COP28’s perspective on Africa’s energy transition?
Africa presents numerous opportunities and, despite being responsible for only 3% of global emissions, is focused on adaptation, resilience, and investment rather than mitigation. The importance of investment in Africa is a key topic at the heart of Cop28.
The conversation at Cop28 Presidency is focused on the country risk and economic crisis in Africa, and how it relates to investible projects. The finance team is exploring voluntary carbon markets to monetize Africa’s biodiversity and create carbon projects. This presents an opportunity for Africa to collaborate with the UAE and GCC countries, as they have their own carbon registry and initiatives. The energy transition is also a key topic at Cop28, with the conference aiming to address this challenge.
The burden of achieving a realistic energy transition that considers the socio-economic impact falls on the expertise of developed countries. It involves more than just switching to clean energy sources and decarbonizing the supply; the demand for energy must also be decarbonized. This requires developed countries, as well as importing countries, to take responsibility and commit to green initiatives. It is not enough to ask oil-producing countries to reduce production; the developed countries must engage in purchase agreements and invest in projects that promote sustainability. This is essential for a successful energy transition, and it is important for businesses to understand and support these initiatives.
Sanjeev Gupta: What is Masdar’s engagement on the African continent and how it fits into the overall narrative of the UAE?
George Shenouda: The UAE has been investing in Africa for decades Masdar, the UAE’s renewable energy champion established in 2006, has been delivering projects in Africa for over a decade. Masdar has invested close to US$2 billion and committed to two gigawatts of capacity directly and through its subsidiaries. This investment has been ongoing and was highlighted at the Africa climate summit in Nairobi in September.
The COP28 presidency has announced a UAE-led financing initiative for Africa, with a commitment of US$4.5 billion to accelerate renewable energy deployment on the continent. Masdar, a key player in this initiative, will be joined by other strategic participants such as the Abu Dhabi Fund for Development. Masdar aims to deploy ten gigawatts of renewable energy in Africa by 2030, investing close to US$2 billion of their own equity and seeking an additional US$8 to US$9 billion in financing. Access to finance and favourable conditions will play a crucial role in enabling the deployment of renewable energy across Africa.
Sanjeev Gupta: How do you develop and bring projects to bankability so that investors queue up?
Amadou Wadda: There are challenges of working on infrastructure projects in Africa due to the diverse regulatory environments and political instability. The first example is a bridge project in the Republic of Cote d’Ivoire, which took 12 years to develop due to a military coup and subsequent political crises. The project had to go through multiple environmental assessments and compensation processes. Finally, two years later, the project was implemented and is now operational. The second example is a wind farm project in Djibouti, a country with no previous experience in independent power producer projects. The government needed guidance in negotiating the necessary documentation as they were accustomed to contracting directly with engineering, procurement, and construction companies. Despite these challenges, the importance of understanding and adapting to the unique circumstances of each African country to successfully execute projects.
The success of IPPs (Independent Power Projects) in Africa, focused on two specific cases. The first case involved the introduction of a new model of IPP, where the contractor solely purchased power from the project. This model took four years to complete, showcasing the efforts and commitment involved. The second case, currently under construction in Senegal, took only 18 months to develop. This was achieved by adopting pre-existing, tried, and tested templates from previous IPPs. Despite the challenges faced in Africa, including different country regimes, all these projects successfully reached financial closure, with two already commissioned and the third one 60% complete. This demonstrates the potential and growth opportunities for IPPs in Africa.
Sanjeev Gupta: Share some of your challenging stories and what you want to change in Africa?
Kola Karim: The population of Africa with 65% of the continent’s population being under the age of 30, presents an opportunity for trade and economic growth. However, a lack of infrastructure, particularly in terms of electricity penetration and transportation, poses challenges for businesses. Despite these obvious problems, there is are many opportunities for investment and development in Africa.
Regarding leadership, in the past 20 years, Africa has experienced a significant shift towards democratic structures. In the last three years, the continent has witnessed the establishment of stable democratic systems, which is a positive development compared to the political landscape of the 70s and 80s.
There are many growing financial institutions within the continent, such as the African Finance Corporation and the African Bank, which are focused on supporting Africa’s development. There is also a rise in African entrepreneurship, with individuals who understand how business is conducted on the continent and are seizing opportunities for growth. An example of this is a US$2 billion rail project that aims to connect African countries for trade under the African Free Trade Agreement. This project is essential as it enables countries to collaborate and trade effectively.
The uranium from Niger is mainly transported by road, leading to a significant military presence in Nigeria to ensure its safety. Currently, it takes seven days to transport the uranium via road, but with the completion of a rail line, this time could be reduced to 16 hours from Maradi to the port of Lagos. The total cost of the project is estimated at US$2 billion, and the aim is to energize the corridor along this route. To achieve this, the African Finance Corporation has been engaged as international financial institutions may not fully understand the dynamics of the continent.
African Finance Corporation have partnered with other international financiers for a project located 120km from Cotonou. The project is already at 120km out of a total of 467km, with only one year of work completed so far. This shows effective coordination and the determination to get the job done. The leadership and promoter of the project understands how to make it successful, and the financial institution knows how to put the necessary financing together. This is a significant improvement from 15 years ago when the financial institutions in Nigeria and West Africa were not strong enough to finance large projects like this.
The financial institutions in West Africa and Africa have shown significant improvement and maturity, with single obligor limits ranging from US$350 million to US$500 million. This demonstrates that African financial institutions are capable of handling large-scale transactions. However, they require supportive partners like the African Finance Corporation and individuals with knowledge of the continent to guide them. In the past, projects such as a 20-megawatt power plant faced unnecessary delays due to bureaucratic obstacles, like conducting an Environmental Impact Assessment (EIA) for the sake of protecting birds. This is a clear example of how Western perspectives and lack of understanding can hinder progress in Africa. It is necessary to shift this mindset and focus on empowering the African people and driving economic growth.
Sanjeev Gupta: How can we use technology to create that exponential leap for Africa?
Ashish Ranjan: Egypt has been a pioneer in renewable energy, especially wind power. They started wind power projects over two decades ago, but the turbines were much smaller compared to today. Just a few years ago, wind power projects in Egypt had rotor diameters of only 50m or 60m and generated 2 to 3 megawatts per unit. However, now they are installing much larger turbines with rotor diameters of 80m and generating seven megawatts per unit.
There are significant changes in the technology landscape, particularly in Africa. Despite the narrative that Africa faces numerous challenges in deploying technology within time constraints, there have been successful initiatives. Similar advancements are happening in the solar space as well, where the market is rapidly evolving.
The focus in the solar industry is shifting towards pricing, but there is still importance placed on the technology aspect. Africa is taking the lead in localizing the supply chain and developing high-value technological solutions. One example of this is the manufacturing of tempered glass used in solar modules, which are difficult to transport from China. Africa has the potential to become a hub for producing this glass, and this transition is already underway.
The technology landscape is currently undergoing steps towards increasing solar energy capacity in Africa. However, the current installed capacity is only around 50GW to 60GW, while the potential for solar energy in Africa is over ten terawatts. This highlights the significant gap that technology needs to bridge to reach the potential capacity. Although work is in progress, there is still a long way to go.
Sanjeev Gupta. How can Africa tackle the significant burden in terms of complying with environmental, social, and governance (ESG) frameworks when seeking funding or investment?
There is a challenge with the deployment of funds agreed upon in the Paris Agreement. Less than half of the US$100 billion commitment from developed countries to developing countries, including Africa, has been received. Additionally, many multilateral development banks (MDBs) are reluctant to provide financing in Africa, which is unfortunate considering their role. It seems contradictory to expect commercial institutions to extend financing when MDBs themselves are not willing to do so.
There is a gap of understanding. Westernized institutions who are based far away attempt to extend finance without understanding the dynamics or business models of the local countries. They suggest that locals should conduct due diligence and credit assessment to advise financial institutions instead. The focus should shift from debt-to-equity investment.
There is a need for investable projects and structures that attract equity investments instead of accumulating more debt. The ESG parameters are vital for Africa, even if the companies are not emitting significant amounts of emission. This is because the governance aspects of transparency, integrity, and visibility are crucial for multinational financial institutions conducting due diligence on African companies. The focus is shifting from solely credit risk management to encompassing financial audits and clarity on the ESG perspective as well.
The importance of understanding and incorporating physical climate risk into financial risk return strategies is being recognized by multinational financial institutions. Many of these institutions, including asset management and equity firms, now have ESG targets, and even CEOs are being evaluated based on their ESG scores. African companies that fail to appreciate the significance of transparency and adherence to global ESG trends may face difficulties in accessing global capital finance and attracting investments. It is crucial for them to consider this not just as a burden, but to be globally competitive and attract international investments.
Sanjeev Gupta: Whilst climate challenge and its impact on societies and the environment is understood, a nuanced approach is needed, particularly in Africa where development is a priority. Balancing the development needs of Africa with the ability to meet climate-related targets is essential. In any energy mix worldwide, oil and gas will continue to have a significant presence even after 50 years.
George Shenouda: The composition of Africa’s energy mix currently comprises predominantly of non-renewable sources, with renewables making up a small portion excluding hydroelectric power. Therefore, the issue of incorporating renewable energy into the mix is still a distant concern. However, it is a problem that will need to be addressed in the future. What is more pressing, in the African context, is to reinforce the existing infrastructure and implement large grid upgrade projects.
The conventional power sources will still play a role in the energy mix, while decarbonizing hard-to-abate sectors through solutions like green hydrogen. The UAE is investing in renewable energy while also continuing to invest in oil and gas, recognizing the need for a balance in the long term.
The concept of “net zero” does not imply complete elimination of traditional power sources, but rather achieving a balance between various energy sources. It is likely that conventional power will continue to be part of the energy mix while renewables gain prominence, supported by new technologies like battery storage.
Sanjeev Gupta: Gas should be considered as a transition fuel on the African continent, while we work towards more sustainable alternatives. Moving away from gas completely is not feasible at this point, as it would impede efforts to solve Africa’s power issues.
Amadou Wadda: Africa is blessed with approximately 7.5% of the world’s gas resources, which allows it to potentially generate double the current energy capacity on the continent. Nearly 50% of the population lacks energy access, however, Africa’s contribution to greenhouse gas emissions is less than 4%, indicating that it is not the main cause of the problem.
The problem Africa faces is the need for industrialization to create employment opportunities. The continent has significant gas reserves that can be utilized without causing major emissions compared to other sources. This transition to net zero emissions is important, but given Africa’s current stage of development, gas should serve as a transitional fuel until renewable energy can be scaled up. The European Commission’s classification of gas as a source of green energy is seen as a positive move.
Last year, while I was in South Africa, there was a significant increase in the exportation of coal to Western Europe. This was due to the insecurity of energy caused by the Ukraine-Russia conflict, which resulted in the supply of gas to Europe being squeezed. South Africa, with its abundant coal reserves, was able to take advantage of this situation. However, despite being promised billions to transition to renewable energy sources, South Africa still faces the dilemma of energy security when there is a threat to its current resources.
African leaders are rallying support to unite their voices and find a pragmatic solution for achieving net zero emissions. They are emphasizing the importance of localization, with a focus on utilizing Africa’s abundant transition metals. Currently, these metals are mined in their raw form and shipped to Asia, particularly China, to produce solar panels, cells, batteries, and electric cars. However, African leaders believe that this processing and manufacturing can and should be done within the continent itself.
African leaders are now considering adopting circular economies within the continent to benefit from local production and reduce CO2 emissions. They propose that raw materials, such as mining resources, should be processed within Africa to avoid pollution caused by shipping large volumes to countries like China. It has been revealed that the shipping industry alone is ranked as the sixth highest polluter worldwide, highlighting the urgent need for a change in approach.
There are two strategies to reduce ship travel frequency and create employment in Africa. Firstly, by localizing the manufacturing or processing of mining products within the continent, the need for shipping these goods can be significantly reduced. Secondly, the youth population in Africa presents an opportunity to utilize the Africa Continental Free Trade Agreement. This agreement can enable the marketing and distribution of manufactured goods within the continent’s free trade zone, thus generating employment opportunities for African youths.
African leaders are promoting the narrative that they are seeking investment rather than aid. They want investors to come to Africa as partners and take advantage of the opportunities available. Investing in Africa not only benefits the investors but also helps reduce emissions. This is because the battery minerals produced in Africa can be used for electric cars, aiding developed countries in their efforts to decarbonize.
Sanjeev Gupta: Are there threats to oil and gas investments?
Kola Karim: In 2019, one of the biggest issues was the global push for net zero emissions. Financial institutions worldwide made the decision to no longer provide funding for oil and gas investments. This created a problem because the natural decline of producing wells is between 5 to 10% per year. With global consumption at 100 million barrels per day, a 20% cutback would occur if the 5% decline is considered.
The gap in production of oil impacts global oil prices. Currently, there is a shortage of 20 million barrels and countries like Saudi Arabia and the UAE are being relied upon to fill this gap. However, even with their increased production, there is still a shortage of 7 to 8 million barrels. The recent events in Russia and Ukraine have further contributed to this shortage. As a result, global oil prices are expected to remain high for the next 2 to 3 years. African leadership needs to address this issue.
Africa needs to prioritize its natural resources and leaders need to make decisions that will benefit their countries. Nigeria is as an example, highlighting the discrepancy between Western nations, which are advancing in the fourth industrial revolution, and Africa, which is still trying to catch up. There is a need for fairness and justice in benchmarking Africa’s progress.
The circular economy in Africa presents an opportunity to create more job opportunities for the continent’s youth and stimulate economic growth. However, it is crucial to address the issues of insecurity, hunger, and lack of employment opportunities to prevent people, particularly the youth, from wanting to migrate out of Africa in search of a better life. By focusing on job creation and sustainability within the continent, we can enhance economic stability and retain the talent and potential of African youth.
Nigeria has a significant amount of natural gas, which has the potential to make it an alternate supplier to Europe. However, this potential remains untapped because Nigeria lacks the funds needed for its development. The government is partly to blame, but the reality is that the natural resources are present.
Sanjeev Gupta: What about Green Hydrogen?
Ashish Ranjan: The energy industry is aware of the growing trend of green hydrogen policies around the world. However, less than 2% of the projects have secured funding. This is due to the early stage of development and the market’s ongoing learning curve in finding the optimal approach.
The shift to green hydrogen involves replacing electrons with molecules, but electrons remain crucial for making green hydrogen, ammonia, and methanol cost-effective. They contribute 50% of the overall Capex of green hydrogen. To optimize renewable energy usage in this process, solar and wind power are essential.
The renewable energy sector, particularly green hydrogen, focuses on utilizing solar and wind resources for energy production. Countries like Morocco, Egypt, and Mauritania possess abundant solar and wind potential. However, they face their own challenges in utilizing these resources effectively. Despite these challenges, there have been numerous projects and initiatives announced in recent times to harness and use solar and wind energy in these African countries.
The future of energy is shifting towards green hydrogen, and Africa is expected to play a major role due to its abundant resources, particularly hydrocarbons. Like the Middle East’s dominance in traditional hydrocarbons, Africa is positioned to be a key player in renewable resources like solar and wind for green hydrogen production. This shift signifies the global transition from fossil fuels to sustainable energy, and Africa’s vast potential in renewables makes it a significant contributor to this new era.
Audience Ques 1: How can Africa solve the problem of corruption in political leadership?
Kola Karim. The main problem in African politics lies with educated and enlightened individuals who have not taken an active role in sponsoring and supporting capable leaders. The continent needs good governance, which can be achieved through a structured route map and active participation. In Western nations, leadership is not manufactured overnight but follows a structured process. To achieve anticipated growth and security in society, more people must sponsor and support deserving candidates for leadership positions.
Audience Ques 2: Africa is abundant in natural assets. What is being done regarding economic innovation solutions that can unlock it?
There are known solutions for issues such as debt swaps, voluntary carbon markets, blended financing insurance, and integrating insurance into the financial system, but the key lies in successfully executing these solutions. The COP28 Presidency has the power to advocate for funds and financial instruments, but their adoption relies on the cooperation of world members and major institutions endorsed by the MDBs, who also have a significant reform agenda to address in this regard.
Taking action and sending a message is important, as demonstrated by the consortium of UAE companies investing in Africa. We hope this will encourage other countries, including developed ones, to do the same. The funding gap is frustrating. There is a need for investment and equity financing rather than grants. There are solutions available, but they need to be adopted and taken seriously by multinational companies.
Audience Ques 3: How do we understand and mitigate risks?
Amadou Wadda: I was part of an OECD working group that conducted a comparative study on project development in Africa, the US, Western Europe, and China. The aim was to understand why it takes a long time to develop projects in Africa. The group showcased their developed projects and experiences, giving significant recommendations. One example, in Senegal, benefited from the outcome of the study. The speaker questioned how risk is being mitigated and projects are being accelerated towards financial closure, emphasizing the need for standardization of documentation.
Lawyers are often able to negotiate power purchase agreements (PPAs) for extended periods of time, dedicating significant time and effort to drafting and negotiating various clauses. For instance, the force majeure clause alone can take up an entire month of negotiations. However, it is peculiar that despite the extensive negotiations, the outcome tends to be the same as previous projects.
There are two key issues in the financial approach. The first issue is the need to start negotiations from scratch each year, leading to the same result. The second issue involves finding innovative financing methods, as traditional lenders take a long time with their approval processes. To overcome this, an all-equity financing model was used in Djibouti to begin construction and allow lenders to later refinance the equity. This strategy resulted in starting construction a year ahead of schedule, reducing risk. It’s about being innovative in how you shorten the development timeline.
Audience Ques 4: Is there is a shift in the perception of rating agencies about Africa?
George Shenouda: The credit rating agencies impact risk assessment and real assets in Africa can be used to create value. There are innovative solutions emerging to help add megawatts to the ground in difficult jurisdictions with low credit ratings. Instead of relying on conventional financing methods, one can directly provide energy to consumers or big mining companies with proven reserves and clear value on international markets. This approach addresses both the impact of credit ratings and the utilization of real assets. The sovereign credit challenge in Africa, and how it affects the credit perception, highlight the need for Africa to leverage its natural resources.
Financial institutions are also becoming more comfortable with commercial structures that exploit the interconnectivity of African markets. The presence of positive regulatory frameworks in some jurisdictions and energy requirements in others allows for the development of interconnected grids. This has led to the emergence of innovative solutions and increased popularity. Smart capital will always find a way to be deployed if there is real interest from investors in Africa.
Final Thoughts
There is currently limited engagement from African businesses at Cop28 and we invite African businesses to engage with us. There are many initiatives and projects available for engagement, not necessarily limited to being presented at Cop28.
George Shenouda: Africa is a crucial player in finding a global energy solution, as it offers various resources and opportunities for green energy. We need to recognize Africa as an investment destination and is a vital part of our growth strategy at Masdar. A tailored approach is needed to invest in Africa, with adapting capital allocation to meet specific needs of the continent. By creating opportunities, people will be encouraged to stay and contribute, creating a self-fulfilling cycle of growth and development.
Amadou Wadda: The African Finance Corporation (AFC) has proven that there are bankable projects available for investment in Africa, dispelling the misconception that such projects are scarce. The AFC has successfully developed and made projects bankable for investors, leading to a growing pipeline of projects on the continent.
Kola Karim: Talking about Africa’s opportunities is not enough; action is needed. Attendees of this event have the knowledge and understanding of the continent’s potential and resources. Your involvement is crucial to make a difference, by echoing what you have heard in this room tonight.
The young people in Africa are determined and will not accept failure. Ignoring the problem is not an option, as it affects everyone in the long run. The advent of mobile telephony has changed the global dynamics, and it is up to everyone to take responsibility and contribute towards Africa’s development. The time for Africa to act is now.
Ashish Ranjan: Africa is the leading continent in terms of energy and will continue to grow in the future. Egypt’s Infinity formed a joint venture with Masdar called Infinity Power, which today is the largest African pure play renewable platform focusing on solar and on shore wind technologies. The company’s portfolio has recently expanded from 300MW to 1.3GW. We have a strong belief in Africa’s potential and have set a goal to become a multi gigawatt company by 2030, scaling multiple times the current capacity. We see a limitless future in Africa.