Will the impact of the Covid-19 pandemic slow down Africa’s energy transition?
The Covid-19 pandemic will undoubtedly pose some wide-ranging implications across all sectors, as resources are diverted towards emergency spending on health, water, social issues, and economic stimulus efforts. In the energy sector, we expect some short-term fiscal, liquidity and operational setbacks to our project portfolio, as well as to energy sector players including independent power producers, utilities, distributed energy services companies and their customers.
Of utmost importance, will be anticipating these challenges, and structuring our interventions to be timely and impactful, to ensure that the momentum on energy access in the continent is not derailed. In the medium-to-long-term, we expect to consolidate the gains made on energy access, and achieve the objectives of SDG 7.
How is the Bank working to alleviate the effects on the sector?
The Bank approved a multi-sectoral Covid-19 Response Facility of up to $10bn, to be deployed across the continent. The immediate focus is to provide rapid support to regional member countries to address the health crisis, and mitigate further financial and socio-economic impacts arising from the lockdown.
In energy specifically, we are working to address the fiscal and liquidity impacts of the pandemic in 2020 and 2021. Firstly, we are reviewing our energy portfolio, and project pipeline, analysing the challenges and feedback from clients, and then designing project-specific responses ranging from liquidity facilities, budgetary support, and enhanced coordination on operations with partners to provide requisite relief in the energy sector.
Secondly, we are mobilising concessional and climate finance funds from our partners to complement the Bank’s resources in order to comprehensively address the immediate needs across energy, health, water and climate nexus. Finally, we are working towards powering health infrastructure, especially in rural areas, through close engagement with public and private sector players in the decentralised energy space.
Where has most progress been made in Africa’s power sector in recent years?
Generally, we have witnessed greater progress and access in the countries that have moved to institute sector reforms and regulatory measures that have resulted in cost-reflective tariffs, increased private sector participation and a generally attractive investment climate. Notably, through unbundling of the power sector, liberalisation of markets, and the rise of independent regulatory authorities responsible for tariff setting.
For example, sector reforms and energy laws in countries like Uganda, Egypt, Kenya, Senegal, Côte d’Ivoire, Morocco, South Africa and Nigeria have attracted significant private sector investments. Generation deficits have been reduced or eliminated, while the transition to sustainable green growth has started. The establishment of regional power markets and mutually beneficial gas and electricity trade have also been helpful.
What needs to be done to attract more investment in power projects?
An enabling policy environment is key to enhancing project bankability, and attracting financing and private sector investments to bridge the continent’s energy financing gap.
In my opinion, achieving this requires a range of interventions including, policy, regulatory governance and institutional reforms; incentives that support innovative financing and technology uptake, and robust knowledge, data and analytics to make informed decisions. It also requires improved and sustained utility performance through technical assistance, capacity building, restructuring and operational improvements.
Energy sector unbundling and liberalisation has resulted in a lot of focus on generation, but not nearly as much on transmission and distribution. These require urgent attention to speed up universal energy access.
Where successful, these measures support transitions to cost-reflective tariffs, establishment of robust energy markets, improvements in transparency and governance, technology uptake, innovation, and appropriate risk allocation. These result in increased investment, stronger private sector participation and competition that drives down the cost of generation and optimises end-user tariffs.
What mechanisms has the Bank put in place to mobilise this investment?
The Bank’s ongoing work with governments and utilities, in collaboration with our partners, entails a combination of technical assistance; advisory support for policy, regulatory, and governance reforms; legal and financial structuring; policy-based budgetary support; sector result-based financing; grants for capacity-building and loss-reduction, and investments in network improvements.
Bank-hosted special funds such as SEFA, and entities such as the Africa Legal Support Facility (ALSF) have been instrumental in our support to IPP and mini-grid programmes, helping governments to negotiate balanced contractual arrangements, and supporting adaptation of IPP and mini-grid frameworks to in-country conditions.
We have also developed a Sustainable Utility Transformation (SUT) implemented in cooperation with several partners, including the Association of Power Utilities of Africa. The SUT supports utility performance through improvements in governance; integrated least-cost resource planning; human capital development; sector reforms; and partnerships.
Finally, we have initiatives such as the Africa Energy Portal, and the Energy Regulatory Index for Africa, which provide up-to-date data and statistics, and track regulatory progress to break-down barriers to investment, and support decision making.
How does the Bank support development of regional transmission and distribution networks?
We view our role as pivotal one that catalyses reliable, affordable and sustainable energy to improve productivity, and support the continent’s ambitions in industrialisation, manufacturing, trade, ICT, agriculture, transport and human capital development across regional markets.
Our strategy on the New Deal on Energy in Africa (NDEA) has a very clear regional mandate to promote regional energy infrastructure and connectivity by funding and implementing generation and transmission projects benefiting multiple countries. With a strategic focus on regionally interconnected power pool projects, we also support technical assistance and capacity building for power pools, as well as regional coordination projects and programmes that enhance cross-border energy cooperation and trade.
As the executing agency for the African Union Commission’s Programme for Infrastructure Development in Africa (PIDA), the Bank is involved in several regional energy projects, including: NELSAP Projects; Ethiopia-Kenya interconnector; Gambia-Guinea-Guinea-Bissau and Senegal interconnection; the Côte d’Ivoire-Liberia-Sierra Leone-Guinea (CLSG) interconnector; the Nigeria-Niger-Burkina Faso-Benin interconnector; and the Guinea-Mali interconnector. Collectively, these projects entail the construction of high voltage interconnection lines totalling over 5,556km in length.
What is your view on how the fossil fuels vs renewables mix should evolve in the future?
Our overall guiding principle under the Bank’s New Deal on Energy for Africa (NDEA) strategy, is to balance our commitment to chart a low-carbon, climate resilient, green growth pathway for the continent, with the urgent need to provide energy access to the nearly 600m Africans who lack access to electricity, and to unleash the continent’s socio-economic and industrial potential through affordable, reliable electricity access.
That means that we support African nations in meeting their obligations to human wellbeing under the Sustainable Development Goals (SDG7, in particular), including eliminating the health impacts of polluting cooking solutions, as well as in meeting their climate action obligations under the Paris Agreement. We have done well in this regard, with renewable energy projects constituting close to 85% of the Bank’s power generation investments since 2017. We have also stopped making new investments in coal.
Africa’s proven natural gas resources were estimated in 2018 to be 509.6 trillion cubic feet, representing 7.3 % of the global reserves. Development of these locally and regionally available gas resources, which represent a viable and cost-efficient alternative to overseas imports, will contribute significantly to Africa’s push towards reliable electricity supply, and sustainable and inclusive green growth.
Further, with increased renewables deployment and grid expansion, gas-based power is vital in anchoring intermittent utility-scale wind and solar power generation, and enhancing system flexibility, reliability and stability.
In addition, our climate finance resources have significantly grown from $1bn (9% of our annual portfolio) in 2016 to $3.6bn (35% of the portfolio) last year. So, in the immediate term, and depending on the specific national and regional energy mix, gas continues to play a critical role in Africa’s energy sector and industry.
Looking further ahead, and especially as solar and wind energy become more competitive, our recent initiatives such as the SEFA Special Fund’s Green Baseload pillar, will help Africa make the full transition through the deployment of “greener” power alternatives to fossil-fuel generation options.
Do off-grid and mini-grid projects have a significant role to play in the energy transition?
Yes. To achieve the goal of universal access and inclusive growth, we need to ensure that we serve the immediate needs of the underserved populations who are removed from the grid even as we work towards the goal of quality, on-grid access.
Under the NDEA, we finance and support mini-grid, off-grid and clean cooking solutions, that provide access to energy, economic opportunities, and contribute to the improvement of the quality of life of Africans.
We have made significant strides by leveraging on recent technological developments and proliferation of mobile money, supporting project preparation, and delivering innovations through our initiatives and instruments, such as the Distributed Energy Service Companies (DESCOs) financing programme, which provides credit enhancement for local financial intermediaries, as well as the Facility for Energy Inclusion’s Off-Grid Energy Fund (OGEF) and the Desert to Power Initiative.
Recently, under the SEFA Special Fund, the Bank has moved to scale up investment in Green Mini Grid (GMG) infrastructure, which is critical for the cost-efficient achievement of universal access. The market development programme for green mini-grids aims to address market barriers and strengthen the ecosystem for the emergence of a thriving green mini-grid sector in sub-Saharan Africa through support to private sector developers and policymakers at the forefront of technical and business model innovation.
What is the African Development Bank’s view on the potential of large-scale hydropower?
The sustainable development of Africa’s significant, yet largely untapped hydropower potential, is critical in the realisation of the continent’s energy access and economic development ambitions. Hydropower also provides critical baseload capacity and contributes to grid stabilisation that allows us to integrate renewables such as wind and solar in the grid.
We are aware that the complex nature of hydropower projects requires extensive planning, ongoing partnership, cooperation and learning especially in the face of evolving, and often disruptive, climate change challenges. Internally, all Bank-supported projects are subject to rigorous Environmental and Social Impact Assessments, including stakeholder consultations.
To further ensure that investments align with the Paris Agreement, the Bank screens its projects for projected climate risks, and ensure that all its projects are based on climate-informed considerations by mainstreaming adaptation and mitigation into their designs.
The Bank also works with member countries, utilities, and regional power pools to ensure that sustainable development of hydropower resources is underpinned by strong policy, legal and regulatory frameworks; development of viable regional power markets, and sustainable and mutually beneficial electricity trade, as well as climate-resilience measures.
The Bank is supporting the development of several large hydropower projects in member countries, including Cameroon, DRC, Rwanda, Burundi, Zambia, Angola and Namibia.
Are you optimistic that Africa will realise the UN SDG7 goal of energy access for all?
Yes. I am optimistic that if we continue collaborating, learning, replicating our successes, taking advantage of technological advancements, effecting the necessary policy and regulatory reforms, expanding private sector participation, moving with urgency and agility, and efficient allocation of capital, then we will make significant progress on universal energy access over the next decade. Some countries are on track to achieve universal access, well before the SDG7 2030 deadline.