African regional integration and renewable energy – May 2013

According to the June 2012 World Bank report on Energy in Africa no fewer than 25 African countries face an energy crisis, but at the same time Africa is well endowed with energy resources, many of which remain untapped.  According to the United Nations Industrial Development Organization (UNIDO) Session of Heads of States and Governments of the African Union held in Ethiopia in February 2010, Africa continues to face critical challenges related to its energy sector, characterized by a lack of modern energy services (particularly in rural areas), poor infrastructure, low purchasing power, low investments and over-dependence on traditional fuel sources (like firewood) to meet basic energy needs.

At the 2013 Africa Energy Indaba Conference, Happy Masondo of LEXAfrica member Werksmans participated in a panel which debated whether regional integration could be a key facilitator assisting African countries to import and export electricity between countries.

There are numerous examples of regional integration agreements on the African continent including the Southern African Development Community (SADC), the Economic Community of West African States(ECOWAS), the Intergovernmental Authority on Development (IGAD) and the Economic Community of Central African States (CEMAC).

Most industry experts believe that the solution to the African energy crisis lies in improving cross-border electricity trade, improving existing utility companies, improving access to electricity on a large scale and by the deployment of large scale renewable energy systems. The UNIDO report argues that in view of their modular nature and availability at the local level, renewable energy technologies can contribute to sustainable development in Africa.

Unfortunately, there are numerous examples in Africa of a failure to harness abundant energy resources:

• for instance, a recent study and report by Nottingham Trent University has shown that Libya could generate enough renewable power to meet its own demands and (by exporting electricity) meet a significant part of world energy demand;
• There is currently minimal interstate energy trade between African countries, despite the existence of regional agreements;
• Similarly, a recent report shows that Namibia currently imports over half of its total electricity needs while its Kudu gas fields remain untapped;
• The Inga hydroelectric project in the Demographic Republic of Congo (DRC) has a potential capacity of 40 000 megawatts, equal to current entire installed capacity of South Africa (Africa’s largest economy); and
• The Lake Turkana wind power project in Kenya aims to provide 300 megawatts of wind power and, at 600 million Euros, is the largest single private investment in Kenya’s history. The project will be Africa’s largest wind farm.

What is needed – it seems essential that:

1. appropriate renewable energy technologies should be carefully identified and selected;
2. appropriate market development conducive for private sector participation is also a critical ingredients in untapping the overwhelming resources found in countries such as Libya, DRC and Namibia;
3. regional economic relationships should promote flexible financing mechanisms and flexible policy making to quickly scale up renewable energy technologies; and
4. The regulatory environment should make renewable energy projects attractive to potential investors while policy decisions must facilitate ease of entry into renewable energy sectors on the continent of Africa.

South African LEX Africa member Werksmans has been actively involved in several renewal energy products in South Africa including advising SunEdison with regard to two USD314 million solar projects in South Africa and a twenty year power purchase agreement with South African para-statal Eskom.

Pieter Steyn, Chairman of LEX Africa and a director at Werksmans notes that “Africa has traditionally been seen as a source of more traditional resources like minerals, oil and gas.  Africa’s energy potential is increasingly recognised and provides a new very significant investment opportunity“.