By Rory Tait
Head of UK Energy
Renewable and Clean Energy is flavour of the month the world over. It is impossible to move without another Clean Energy Fund being set up to invest in clean technology or renewable developments. What is driving this frenetic activity in this sector? Is it sustainable or a flash in the pan, and how can the African continent benefit from this “green rush” to develop a meaningful and sustainable renewable and clean energy sector?
The development of the Renewable and Clean Energy sector has largely been as a result of individual Government action or, in the case of the European Union, a positive decision to collaborate to combat climate change and in so doing provide the necessary “sticks and carrots” to provide the structures to drive development forward. Increasingly, international cooperation has spanned new opportunities for those wishing to develop projects in the sector, with the most obvious example being the Clean Development Mechanism (“CDM”) arrangement under the Kyoto Protocol allowing industrialised countries with greenhouse gas commitments to invest in emissions – reducing projects in developing countries.
Climate Change, and the challenges it raises for the world’s future, is the largest single driver behind the development and expansion of renewable and clean energy capacity in the world today. The whole sustainable development ethos is embedded within a key rationale of the CDM regime and the wider Kyoto Protocol. The realisation has dawned that at current levels of human activity, we are living a “three planet” existence, meaning that we are using up the equivalent of the resources of three planets. This is clearly not sustainable in the long term or, indeed, in the short to medium term. Ideally we need to reach the position where we are not depleting the natural resources of the planet at a faster rate than they are being replaced. This is a huge challenge and is where the targeted development of clean and renewable technologies and their deployment in suitable environments is key.
As has been alluded to at the start of this article, there is a place for the development of renewables and clean energy projects within Africa and particularly within the context of the CDM regime. There is much appetite for development of such projects as they not only potentially benefit from the CDM regime by earning the developers Certificates of Emission Reduction (“CERs”) which can be imported back by the industrialised nations to offset against their emissions targets but also provide a solution to many of the problems faced in African countries relating to dependence on imports of increasingly expensive oil, rural electrification issues and transmission and distribution losses. One note of caution does need to be raised at this juncture and that is the worrying statistic which has recently been published which states that there are approximately 2000 current CDM projects which are in the validation and registration queue which is causing some projects in the developing world to be delayed.
A key question which needs to be answered is how African nations can go about obtaining the right projects for their individual needs but at the same time availing themselves of the financial and other assistance available through the CDM regime or the attraction of investments from Clean Energy Funds or multilateral financial institutions. A further key issue facing many African states is the chronic shortage of generation capacity on their systems and how this is squared with the desire to be more sustainable in relation to energy supplies.
Required Policy and Regulatory Frameworks
First, an examination is required of the current frameworks in place in African states for the development of clean and renewable energy projects and how these might affect the increased development of such projects; what barriers may affect any such development; and what is being done to encourage such development. This section will deal in turn with each of these issues and will try to draw some conclusions as to what the future may look like.
In a number of African states there are policies in place to encourage the development of renewable and clean energy projects. In South Africa there has been a renewables policy in place since the approval of the White Paper on Renewable Energy in late 2003 and the enactment of the Electricity Regulation Act 2006 (“ERA”). A target of 10,000GWh of power from renewable energy by 2013 was put forward and a number of projects are either underway or currently operational in the hydro, waste gas to energy, solar and wind sectors. One of the key barriers which was recognised in South Africa was the requirement for access to the electricity grid and the ERA has gone some way towards requiring universal access to electricity and the promotion of diverse energy sources. However, it has been recognised that the take up of projects in South Africa has not been as rapid as expected and that the target for 2013 is challenging. The introduction of a Renewable Energy Feed-In Tariff (“REFIT”) is seen as key to encouraging increased development and attracting external finance to the sector in that it will give confidence that a regime is in place which financiers in particular are comfortable with (as the model exists in Germany and Spain to give two examples and is tried and tested and understood).
It is clear that some form of financial or fiscal assistance is very important in relation to project development as well as access to transmission and distribution systems and the opening up of the electricity markets and, where relevant, the unbundling of the ownership of transmission and distribution systems. These issues were dealt with in detail at the recent International Conference on Renewable Energy in Africa held in Dakar and there was a Declaration issued at the conclusion of the Conference which stated inter alia that the African continental target for African governments was to scale up annual renewable energy investments to US$10 billion between 2009-2014 and that there should be a Plan of Action in relation to renewables which should be adopted by African governments with support from international developments partners as well as the private sector.
A follow up to this will be the requirement for appropriate legislation and regulations to be introduced or amended to reflect the intent of the Declaration and to enable the attainment of the targets set.
Barriers Affecting Renewables Development and Steps to Encourage Development
The key barriers to renewables development across Africa appear to be the following three areas- lack of clear policy and regulation; the difficulty in obtaining appropriate financing for renewables projects; and research and technology issues.
Policy and Regulation- this topic has been touched on in relation to the current frameworks which exist in relation to renewables in certain African states. It is clear that certain countries have taken the step of enacting legislation in relation to renewables including South Africa and Morocco. However, there is a need for African states to recognise that the main way to stimulate the development of renewable and clean energy projects is to provide a requirement through legislation to promote renewables. Such legislation could, for instance, include the promotion of rural electrification and renewables in such areas together with appropriate incentives to developers to encourage such developments; the enforcement of such legislation and regulation by independent regulators; and a coherent policy on energy and renewables which is robust and which can be understood by investors in and financiers of renewable and clean energy projects. One way of achieving this is to recognise and work with the international agencies in this area eg UNDP, UNIDO and the World Bank together with the African agencies such as the ADB.
Financing of Renewables in Africa- there is a perceived lack of understanding of the renewables sector by many parts of the finance industry or where there is a degree of understanding then there is a great deal of caution amongst many industry players when considering investments in or funding for renewables projects. Many financiers would cite the lack of robust legislation and regulation governing the sector in many countries as compared with projects which are being developed in, say, the European Union or the USA where there are clear regulatory frameworks in place which give the financiers the comfort they are looking for. On a positive note, there are clearly a number of projects which have either completed and entered into commercial operation in Africa where local and international banks have been confident enough to invest of find such projects. Many have received the assistance of European DFIs who have provided both equity and debt to project in the sector but there again appears to be a gap in the market for the financing of smaller projects although it must be said that developers in the developed world are also struggling to get smaller projects financed. A solution to this may be to engage with the banking sector and to explain what is proposed in individual countries to assist with the development of renewables projects and the regime underpinning assistance to the sector. The DFIs and multilateral agencies could have an important role in assisting countries to encourage investment in and funding of such projects.
Research and Technology- one of the main issues here is the lack of a coherent supra-national plan for renewable energy development and the stimulation of skills learning in the field of renewables on a local basis. There has been historically a lack of institutional support for research into appropriate renewables technology in an Africa-specific context but this is now being tackled through the assistance of organisations such as UNIDO. One of the possible ways of assisting in picking the right technologies for African renewables developments is to assess on a pan-African basis what Africa’s energy requirements are and to assess how best to solve these macro problems through the inclusion of more renewables in the energy mix. Certain technologies are more appropriate for African countries including geothermal and biomass-fuelled projects (particularly in Eastern Africa), biogas and biofuels production. If this assessment if followed through then it is to be hoped that more of the annual estimated US$ 100 billion plus global investment spend on renewables will come to Africa (which currently gets approximately US$ 1 billion).
Steps to Encourage Development
The barriers to development have been well rehearsed in the previous section of this article but what are the individual governments in Africa doing to facilitate development of projects in the Renewable and Clean Energy sector in the light of the issues which have been raised particularly at events such as the Conference on Renewables held in Dakar in April 2008?
It is clear that agencies such as UNIDO are assisting greatly in this area and have put in place a programme for Renewable Energy in developing countries. As a result of this UNIDO has put together a large and technologically broadly-based portfolio of projects in the sector which has included encouraging the development of local capabilities for using renewables technologies in local industrial locations particularly within the CDM regime under the Kyoto Protocol.
Other private sector organisations have become involved in the sector in Africa including the African Biofuels and Renewable Energy Fund which intends to become in the long term a leader in funding Clean Energy development. OPIC has also recently launched a renewable energy fund which could invest in renewable energy projects in Africa.
Countries are now looking carefully at the ways in which the Renewable and Clean Energy sector can be assisted as the countries themselves can see that these developments are vital to ensure a sustainable future, security of supply and a possible solution for the problem of supplies to the rural population. Legislation and regulations are being introduced in the energy sector to enable more development of Renewable and Clean Energy projects and the problems of grid access and market access are both being addressed in a more structured way and on a regional basis as well as on a country by country basis. The number and variety of projects now under construction or being planned in various African countries bears testament to the fact that the removal of perceived and actual barriers to development is taking place as is the increasing interest of external non-African investors and financiers in backing renewables projects.
This article started off on a positive note by emphasising that Renewable and Clean Energy is the sector which is exciting more people than almost any other sector within the energy industry but then travelled through a critique of the problems facing the sector in Africa due to inherent problems of regulatory barriers, financing difficulties and technological issues. However, it is clear from the number of projects in the sector which are being proposed, the Dakar Declaration on Scaling Up Renewables in Africa and the impetus behind the removal of institutional and other barriers to development that Africa means business in this sector and this can only be good news for everyone involved in the sector.