Africa Accounts for Only 3% of Global Energy Investment – IEA

Africa is home to about 1.2 billion people, making up one-fifth of the global population. But despite this, the continent accounts for just 3 percent of the global energy investment and a mere 2 percent of the world’s clean energy investment.

This is contained in a new report by the International Energy Agency (IEA) titled ‘Financing Clean Energy in Africa‘, which was released recently.

According to the report, this low investment in the continent’s energy puts at risk “the achievement of a host of sustainable development goals and could open up new dividing lines in energy and climate at a time when clean energy transitions are gathering speed in other parts of the world”, most especially in advanced economies as well as China.

Launched by  IEA and the African Development Bank Group (AfDB) at a special event at the Africa Climate Summit in Nairobi, Kenya, with IEA Executive Director Fatih Birol and AfDB President Akinwumi Adesina, the report states that overall energy investment on the continent has struggled in recent years, adding that to meet African development ambitions, as well as international energy access and climate goals, spending on clean energy on the continent needs to more than double by 2030, with nearly two-thirds going to clean energy.

Energy projects in Africa are being affected by some real and perceived risks. This is in addition to  higher borrowing costs following the Covid-19 pandemic and Russia’s war in Ukraine. This means there is a limited pool of affordable capital that energy developers in Africa can tap.

According to the report, the cost of capital for utility-scale clean energy projects on the continent is at least two to three times higher than in advanced economies, noting that this prevents developers from pursuing commercially viable projects that can deliver affordable energy solutions.

“Urgent action is needed to dramatically increase clean energy investment in Africa, which has fallen short despite the immense opportunities,” President William Ruto of Kenya said. “Yet this report is not simply a catalogue of Africa’s challenges. Instead, it is an inspiring testament to the innovative spirit of our continent, with a vast array of solutions emerging from Africa’s entrepreneurial minds.”

“The African continent has huge clean energy potential, including a massive amount of high-quality renewable resources. But the difficult backdrop for financing means many transformative projects can’t get off the ground,” said IEA Executive Director, Birol. “This report, which builds on the IEA’s landmark Africa Energy Outlook 2022, shows what is needed to lower barriers to investment, allowing African countries to tap accessible and affordable solutions to match their clean energy ambitions.”

On his part, AfDB President Adesina said: “The current shortfall in clean energy investment in Africa puts at risk the achievement of a host of sustainable development goals and could open new dividing lines in energy and climate as clean energy transitions gather speed in advanced economies.”

“This report, which makes a compelling case for Africa to receive a bigger share of global climate financing, serves as an informative tool for policymakers in Africa, while best practice cases from the African Development Bank provide valuable insights for developers and capital providers.”

The report’s analysis is based on the Sustainable Africa Scenario developed in the IEA’s Africa Energy Outlook 2022 report. This scenario considers the diverse needs of different African countries and sectors and lays out a pathway to achieve all African energy-related development objectives. This includes those under the UN Sustainable Development Goals, such as universal access to modern energy by 2030, as well as fulfilling all announced climate pledges in full and on time.

To deliver modern energy to all Africans will require nearly USD 25 billion in spending per year to 2030, the report notes. This is  equivalent to the investment needed to build one new LNG terminal a year.

The report is suggesting concessional finance – or funding from development finance institutions and donors. This, according to the report, can serve as a crucial catalyst.  It informed that concessional capital of around USD 28 billion per year is needed to mobilise USD 90 billion of private sector investment by 2030, a more than tenfold increase from today.

Energy poverty

Despite having over 600 trillion cubic feet (TCF) of proven gas reserves and about 125 billion barrels of proven oil reserves, energy poverty continues bedevilling Africa.

About 568 million people on the continent do not have access to electricity and Sub-Saharan Africa’s share of the global population without electricity rose to 77 percent in 2020 from 71 percent in 2018, according to IEA.

In a statement last year, citing its 2022 “Tracking SDG 7: The Energy Progress Report”,  the IEA said that globally, 733 million people still have no access to electricity, and 2.4 billion people still cook with dirty fuels, noting that at the current rate of progress, 670 million people will remain without access electricity by 2030. This, the agency said, will be 10 million higher than was projected in 2021.

According to the IEA, 70 million people globally gained access to clean cooking fuels and technologies during the period under review. However, the  progress made  was not proportional to the rapid  population growth, particularly in Sub-Saharan Africa.

The agency attributed  slowing progress toward universal energy access to the outbreak of Covid-19, which led to disruptions to global supply chains, and diversion of fiscal resources.

“The 2022 edition of Tracking SDG 7: The Energy Progress Report shows that the impacts of the pandemic, including lockdowns, disruptions to global supply chains, and diversion of fiscal resources to keep food and fuel prices affordable, have affected the pace of progress toward the Sustainable Development Goal (SDG 7) of ensuring access to affordable, reliable, sustainable and modern energy by 2030.

Advances have been impeded particularly in the most vulnerable countries and those already lagging in energy access. Nearly 90 million people in Asia and Africa who had previously gained access to electricity can no longer afford to pay for their basic energy needs,” the IEA said.

“The impacts of the Covid-19 crisis on energy have been compounded in the last few months by the Russian invasion of Ukraine, which has led to uncertainty in global oil and gas markets and has sent energy prices soaring.

“Africa remains the least electrified region in the world with 568 million people without electricity access. Sub-Saharan Africa’s share of the global population without electricity jumped to 77 percent in 2020 from 71 percent in 2018 whereas most other regions saw declines in their share of the access deficits. While 70 million people globally gained access to clean cooking fuels and technologies, this progress was not enough to keep pace with population growth, particularly in Sub-Saharan Africa.

“The report finds that despite continued disruptions in economic activity and supply chains, renewable energy was the only energy source to grow through the pandemic. However, these positive global and regional trends in renewable energy have left behind many countries most in need of electricity. This was aggravated by a decrease in international financial flows for the second year in a row, falling to USD 10.9 billion in 2019.”

The agency pointed out that from 2010 to 2019, global annual improvements in energy intensity averaged around 1.9 percent. This, it said, is  less than “the levels needed to meet SDG 7’s targets and to make up for loft (lost) ground, the average rate of improvement would have to jump to 3.2 percent.”

SDG 7 targets  cover energy efficiency. The 2022 edition of Tracking SDG 7: The Energy Progress Report, assessed achievements in the global quest for universal access to affordable, reliable, sustainable, and modern energy by 2030.

“The shocks caused by Covid-19 reversed recent progress toward universal access for electricity and clean cooking, and slowed vital improvements in energy efficiency even as renewables showed encouraging resilience. Today, Russia’s invasion of Ukraine has triggered a global energy crisis, driving huge price spikes that are causing particularly severe impacts in developing economies.

Many of these economies were already in dire financial straits as a result of the Covid-19 crisis, and overcoming these difficulties to get on track for Sustainable Development Goals will require massive and innovative financial solutions from the international community,” the statement quoted IEA’s Executive Director,  Birol, as saying on the report.

Low investment

With increasing low investment in Africa’s energy space, a pertinent question remains how will Africa address its energy challenges and raise funding to finance its energy transition?

Low investment in Africa’s energy sector, particularly in oil and gas, can be attributed to the rising campaigns against exploration and production of fossil fuels, which have made access to credit difficult.

Developing an in-continent funding model has been suggested by key energy stakeholders on the continent to sustain investment in the energy sector.

Speaking on a panel at an industry event in May 2022, the Group Managing Director of Aiteo Eastern E&P Company, Engr. Victor Okoronkwo, said that the global push towards energy transition has put Africa in a dilemma, noting that the challenge it has is how  can it produce affordable and reliable energy whereas meeting the goals of the net-zero target.

“Africa lacks access to energy. So, the question for Africa is what do you pursue? Do you pursue transition away from fossil fuels that will enable you earn the income  and the revenue you need to take your teeming population out of poverty? Or do you focus on trying to follow the global target as set by Paris Accord? That’s the dilemma for Africa,” he said.

Okoronkwo explained that the reserve base of Africa is estimated at over $15 trillion and argued that  “If  Africa follows the journey of net-zero as it’s currently being pursued, we’re going to have a whole of that  (resources) staranded . And then, you’re also going to be stranded on how to move your teeming population out of poverty.”

“Today, more than  50 percent of Sub-Saharan African governments’ revenue comes from hydrocarbon sales. And it’s projected conservatively that Africa needs about $28 trillion to achieve net-zero target by 2050. The question therefore is: does Africa and indeed can Africa mobilise this sort of funding and financing to be part of this game?”, he asked rhetorically.

Citing a study on Paris Accord, he said that the study notes that to achieve  1.5’ Celsius global warming target, “… a third of the current oil reserves, half of the current gas reserves, and nearly 97 percent of the current coal reserves must remain in the ground.”

Okoronkwo noted that applying this to Africa will mean that nearly $7 trillion worth of fossil fuels will be stranded on the continent and asked what will be the justification if these enormous resources get stranded, while many of the growing population on the continent continue to lack access to electricity and clean cooking fuel.

He commended the Nigerian government for adopting natural gas as its transition fuel, and posited that other African countries should converge around Nigeria, and tow its path in adopting natural gas as their transition fuel towards meeting net-zero target.

The Founder/Managing Director of Aftrac Limited, Ms. Patricia Simon-Hart, believes that  there is a direct correlation between poverty and access to energy.

Speaking at an industry event in May 2022, Simon-Hart charged Africa to utilize its enormous hydrocarbon resources for economic growth and development.

She said: “For us in Africa, climate change is real. And at the same time, we also have to, as we see new frontier open, and the resources for Africa are there for us to develop Africa, and reduce poverty through economic development. We also need to use these resources to help create jobs and reduce poverty in Africa.”

Simon-Hart also emphasized on the need for Africa to use its hydrocarbon resources to develop itself and become a global energy hub through formulation of the right policies, adding that the continent’s oil and gas should not be seen as a commodity, but more of a resource for industrialisation.

The Executive Secretary of the Nigerian Content Development and Monitoring Board (NCDMB), Engr. Simbi Wabote, has regretted that the rapid discoveries  of oil in Africa, which should be an opportunity for the continent to address issues around energy poverty and other challenges, is being hampered by the narrative of energy transition being propagated by Europe and the North America.

“The quest for energy transition as being advocated in some European countries and other parts of the world is now taking centre stage. And as this trend progresses, the hydrocarbon resources in Africa are becoming endangered resources,” he warned.

Wabote, therefore, is of the view that with the shrinkage of funding for oil oil and gas projects, finding alternative for funding has become very fundamental to ensure that oil and gas is not abandoned below the surface like many African countries, including Nigeria, abandoned coal.

“The challenge of inadequate energy is partly the reason why Africa is faced today with poverty, conflict, migration, brain-drain and ranks low on human development index. Ironically, the African continent is reputed to hold mass deposit of natural resources, including oil and gas,” the NCDMB boss said at an industry event in  March 2022.

“In the last four decades, the number of African countries producing oil has increased rapidly as new discoveries are made with latest additions being in countries of Mozambique, Senegal, Uganda, Namibia, Mauritania, and South Africa.”