Renewable Energy Market Analysis: Africa and Its Regions

By International Renewable Energy Agency IRENA

The report lays out a pathway to a renewable-based energy system and shows that the transition promises substantial gains in GDP, employment, and human welfare in each region of the African continent.

• Language: English
• Publisher: IRENA
• Release date: Jan 1, 2022
• ISBN: 9789292604745

Book preview

© IRENA 2022

Unless otherwise stated, material in this publication may be freely used, shared, copied, reproduced, printed and/or stored, provided that appropriate acknowledgement is given of IRENA as the source and copyright holder. Material in this publication that is attributed to third parties may be subject to separate terms of use and restrictions, and appropriate permissions from these third parties may need to be secured before any use of such material.

ISBN: 978-92-9260-417-2

eBook ISBN: 978-92-9260-474-5

CITATION: IRENA and AfDB (2022), Renewable Energy Market Analysis: Africa and Its Regions, International Renewable Energy Agency and African Development Bank, Abu Dhabi and Abidjan.

Available for download: www.irena.org/publications

For further information or to provide feedback: [e-mail]

ABOUT IRENA

The International Renewable Energy Agency (IRENA) serves as the principal platform for international cooperation, a centre of excellence, a repository of policy, technology, resource and financial knowledge, and a driver of action on the ground to advance the transformation of the global energy system. A global intergovernmental organisation established in 2011, IRENA promotes the widespread adoption and sustainable use of all forms of renewable energy, including bioenergy, geothermal, hydropower, ocean, solar and wind energy, in the pursuit of sustainable development, energy access, energy security, and low-carbon economic growth and prosperity.

www.irena.org

ABOUT AFDB

The African Development Bank Group is Africa’s premier development finance institution. It comprises three distinct entities: the African Development Bank (AfDB), the African Development Fund (ADF) and the Nigeria Trust Fund (NTF). On the ground in 41 African countries with an external office in Japan, the Bank contributes to the economic development and the social progress of its 54 regional member states.

www.afdb.org

DISCLAIMER

This publication and the material herein are provided as is. All reasonable precautions have been taken by IRENA to verify the reliability of the material in this publication. However, neither IRENA nor any of their officials, agents, data or other third-party content providers provides a warranty of any kind, either expressed or implied, and they accept no responsibility or liability for any consequence of use of the publication or material herein.

The information contained in the publication does not necessarily represent the views of IRENA or all of its Members. The mention of specific companies or certain projects or products does not imply that they are endorsed or recommended by IRENA or AfDB in preference to others of a similar nature that are not mentioned. The designations employed and the presentation of material herein do not imply the expression of any opinion on the part of IRENA or AfDB, concerning the legal status of any region, country, territory, city or area or of its authorities, or concerning the delimitation of frontiers or boundaries.

FOREWORD

Africa is at a crossroads. For many of the people of this vast and diverse continent, access to affordable, clean and sustainable energy remains an aspiration. The need for better and more abundant energy is evident in many walks of life, from households relying on dirty fuels for cooking and farmers lacking energy to harvest their crops, and from health clinics struggling to power operating rooms to businesses contending with power outages. Climate change is fast adding new challenges in the form of extreme weather events, rising temperatures and more variable rainfall.

We know that renewable energy can help to resolve many of these social, economic, health and environmental challenges. Renewables are key to overcoming energy poverty, providing energy services without damaging human health or ecosystems, and enabling sustainable socio-economic development. As this report shows, a transition to a renewables-based energy system in Africa promises substantial gains in GDP, employment, and human welfare in each of the continent’s constitutive regions.

Although Africa’s share of global renewable energy investments and capacity installations remained relatively small over the past decade, the continent can draw on a vast wind, solar, hydro, and geothermal resource potential. Falling costs are increasingly bringing renewables within reach, whether through grid extension, mini-grids or stand-alone applications.

A profound energy transition centred on renewables and energy efficiency is increasingly understood as not only feasible but essential for a climate-safe future in which sustainable development prerogatives are met. In fact, a sophisticated understanding of the intimate connections between the energy system and the economy at large is essential in designing policies, along with an appreciation of the ways in which both are linked to the world’s ecosystems and human wellbeing.

Experience around the world gives us a strong sense of what it takes to succeed. As this report makes clear, African policymakers can draw on a wealth of experience in planning, financing, and deploying renewable energy projects, and integrating them into energy systems. But as is true in other parts of the world, it is critical that each African country play to its own strengths and understand its weaknesses, whether in terms of its industrial capacities, commodity and trade dependencies, or skills base. Countries can and must learn from each other. Intra-regional and broader international cooperation can overcome drawbacks any individual country may face on its own.

A wide-ranging challenge demands a comprehensive policymaking approach. This report illuminates the array of policy areas that may contribute to a successful energy transition. But rather than picking policies selectively, they all need to be part of an overarching, holistic framework that is more than just the sum of its parts.

The growing discourse on a Green Deal in places like Europe and North America has spotlighted the importance of a bold, systemic approach. A Green Deal will of necessity look different in Africa, tailored to its own circumstances. But the key point is its transformative nature: pursuing synergies in resolving pressing social, economic, health, and environmental issues, recognising that because market-driven approaches alone will not suffice strong public interventions are needed, and placing people at the centre of the transition.

The objectives of Africa’s energy transition are far-reaching economic diversification; the creation of decent jobs; environmental stewardship and climate resilience; and universal access to affordable, reliable, sustainable and modern energy. A comprehensive policy package, as detailed in this report, must be underpinned by strong institutions and adequate financial resources, assisted by international collaboration, and supported by communities on the ground.

This report offers policymakers and the interested public a wealth of data, insights, and policy recommendations. It is my hope that it will also prove to be an inspiration, helping to spark the energy transition and driving the continent’s sustainable development.

TABLE OF CONTENTS

Foreword

Acknowledgments

01 BACKGROUND AND SOCIO-ECONOMIC OVERVIEW

1.1 THE ECONOMIC CONTEXT

1.2 TRADE, COMMODITY DEPENDENCE AND INDUSTRIAL DIVERSIFICATION

1.3 DIFFERENCES BETWEEN ENERGY IMPORTERS AND EXPORTERS

1.4 HUMAN DEVELOPMENT AND THE SUSTAINABLE DEVELOPMENT GOALS

1.5 CONCLUSION

02 AFRICA’S ENERGY LANDSCAPE

2.1 ENERGY IN AFRICA – A CROSSREGIONAL OVERVIEW

2.2 NORTH AFRICA

2.3 WEST AFRICA

2.4 EAST AFRICA

2.5 CENTRAL AFRICA

2.6 SOUTHERN AFRICA

2.7 CONCLUSION

03 RENEWABLE ENERGY FINANCE IN AFRICA

3.1 TRENDS IN RENEWABLE ENERGY INVESTMENT IN AFRICA

3.2 SOURCES OF FUNDING FOR RENEWABLES IN AFRICA

3.3 MANAGING RISKS AND MOBILISING CAPITAL

3.4 CONCLUSION

04 POLICY FRAMEWORK FOR THE ENERGY TRANSITION

4.1 ENABLING POLICIES

4.2 DEPLOYMENT POLICIES

4.3 INTEGRATING POLICIES

4.4 STRUCTURAL POLICIES FOR A JUST AND INCLUSIVE TRANSITION

4.5 CONCLUSIONS AND RECOMMENDATIONS

05 SOCIO_ECONOMIC IMPACTS OF THE ENERGY TRANSITION IN AFRICA

5.1 IMPACTS ON GDP UNDER 1.5-S

5.2 IMPACTS ON JOBS UNDER 1.5-S

5.3 WELFARE EFFECTS

06 TACKLING THE ENERGY ACCESS DEFICIT IN AFRICA

6.1 THE ENERGY ACCESS DEFICIT: A CLOSER LOOK

6.2 RAISING ACCESS TO ELECTRICITY USING DISTRIBUTED RENEWABLES

6.3 CLEAN COOKING WITH RENEWABLE ENERGY SOLUTIONS

6.4 PRIORITY ACTION AREAS TO REACH UNIVERSAL ACCESS TO MODERN FORMS OF ENERGY

07 THE WAY FORWARD

7.1 THE OPPORTUNITIES INHERENT IN THE ENERGY TRANSITION

7.2 THE POWER OF COMPREHENSIVE POLICY

7.3 SCALING UP FINANCE

7.4 BRIDGING THE GAP IN ACCESS TO MODERN ENERGY

7.5 THE PROMISE OF AN AFRICAN GREEN DEAL

References

Annex A

Additional economic indicators for Africa by region and country

Annex B

Basic energy indicators for Africa by region and country

LISTS OF FIGURES, TABLES AND BOXES

LIST OF FIGURES

Figure 1.1 Overview of the evolution of key economic indicators in Africa and its regions

Figure 1.2 Manufacturing value added (MVA) in Africa and its regions

Figure 1.3 Overview of employment indicators in Africa and its regions

Figure 1.4 Evolution of imports and exports across Africa, by sector, 2000–2019

Figure 1.5 Composition of exports, by region, 2019

Figure 1.6 Socio-economic indicators based on energy exports/imports

Figure 1.7 Evolution of key socio-economic indicators by African region

Figure 2.1 Total primary energy supply in Africa, by source, 2008-2018

Figure 2.2 Total primary energy supply in Africa and its regions, by source, 2018

Figure 2.3 Electricity generation mix in Africa, by source, 2010-2019

Figure 2.4 Electricity generation in Africa, by energy source, 2019

Figure 2.5 Installed renewables-based generation capacity, 2011 2020, and capacity additions, 2019-2020

Figure 2.6 Installed hydropower generation capacity, Africa, 2020

Figure 2.7 Hydropower potential and installed capacity, Africa

Figure 2.8 Total capacity of existing, committed, planned and candidate hydropower plants in Africa

Figure 2.9 Africa: (a) average annual global horizontal irradiation; (b) most suitable areas for utility-scale solar PV

Figure 2.10 Solar PV potential and installed capacity, Africa

Figure 2.11 Africa’s installed solar generation capacity, 2020

Figure 2.12 Africa: (a) average annual wind speed; (b) most suitable areas for utility-scale wind

Figure 2.13 Wind potential and installed capacity, Africa

Figure 2.14 Installed wind generation capacity, Africa, 2020

Figure 2.15 Total final energy consumption in Africa by sector and source, 2018

Figure 2.16 Final energy consumption in Africa and its regions by sector, 2018

Figure 2.17 Access to electricity and clean cooking fuels in Africa, 2019

Figure 2.18 African population served by off-grid renewable power, 2009-2019

Figure 2.19 Trends in biogas production in Africa, 2009-2019

Figure 2.20 North African countries in total primary energy supply, 2018

Figure 2.21 Access to electricity and clean cooking fuels in North Africa, 2019

Figure 2.22 Total primary energy supply in North Africa, by source, 2018

Figure 2.23 North Africa’s electricity generation mix, by source, 2010-2019

Figure 2.24 Electricity generation in North Africa, by source, 2019

Figure 2.25 North Africa’s electricity generation capacity by country and source, 2020

Figure 2.26 Most suitable areas in North Africa for utility-scale solar PV and wind

Figure 2.27 North African population served by off-grid renewable power, 2009-2019

Figure 2.28 Top five West African countries in total primary energy supply, 2018

Figure 2.29 Access to electricity and clean cooking fuels in West Africa, 2019

Figure 2.30 Total primary energy supply in West Africa, by source, 2018

Figure 2.31 West Africa’s electricity generation mix, by source, 2010-2019

Figure 2.32 Electricity generation in West Africa, 2019

Figure 2.33 Electricity generation capacity in West Africa, by country and source, 2020

Figure 2.34 Most suitable areas in West Africa for utility-scale solar PV and wind

Figure 2.35 West African population served by off-grid renewable power, 2009-2019

Figure 2.36 Access to electricity and clean cooking fuels in East Africa, 2019

Figure 2.37 Top five East African countries in total primary energy supply, 2018

Figure 2.38 Total primary energy supply in East Africa, by source, 2018

Figure 2.39 East Africa’s electricity generation mix, by source, 2010-2019

Figure 2.40 Electricity generation in East Africa, by source, 2019

Figure 2.41 Electricity generation capacity in East Africa, by country and source, East Africa, 2020

Figure 2.42 Most suitable areas in East Africa for utility-scale solar PV and wind

Figure 2.43 East African population served by off-grid renewable power, 2009-2019

Figure 2.44 Access to electricity and clean cooking fuels in Central Africa, 2019

Figure 2.45 Top five Central African countries in total primary energy supply, 2018

Figure 2.46 Total primary energy supply in Central Africa, by source, 2018

Figure 2.47 Central Africa’s electricity generation mix, by source, 2010-2019

Figure 2.48 Electricity generation in Central Africa, by source, 2019

Figure 2.49 Electricity generation capacity in Central Africa, by country and source, 2020

Figure 2.50 Most suitable areas in Central Africa for utility-scale solar PV and wind

Figure 2.51 Central African population served by off-grid renewable power, 2009–2019

Figure 2.52 Top five Southern African countries in total primary energy supply, 2018

Figure 2.53 Access to electricity and clean cooking fuels in Southern Africa, 2019

Figure 2.54 Total primary energy supply in Southern Africa, by source, 2018

Figure 2.55 Electricity generation mix in Southern Africa, by source, 2010-2019

Figure 2.56 Electricity generation in Southern Africa, by source, 2019

Figure 2.57 Electricity generation capacity in Southern Africa, by country and source, 2020

Figure 2.58 Most suitable areas in Southern Africa for utility-scale solar PV and wind

Figure 2.59 Southern African population served by off-grid renewable power, 2009-2019

Figure 3.1 Cumulative and annual renewable energy investments in Africa by technology (excluding large hydropower), 2000-2020

Figure 3.2 Renewable energy investments in Africa based on the five-year moving average against 2010 baseline, 2010-2020

Figure 3.3 Shares of renewable energy investment in Africa by technology (excluding large hydropower), 2005-2020

Figure 3.4 Annual renewable energy investments in Africa by region (excluding large hydropower), 2000-2020

Figure 3.5 Top recipient countries of renewable energy investment, 2010-2020

Figure 3.6 Annual commitments to off-grid renewable energy and number of annual transactions, by region, 2010-2020

Figure 3.7 Shares of annual commitments to off-grid renewables, by region, 2010-2020

Figure 3.8 Annual commitments to off-grid renewables, by energy use, 2010-2020

Figure 3.9 Annual commitments to off-grid renewables, by energy product, 2010-2020

Figure 3.10 Public commitments for energy in Africa, by technology and renewable share, 2000-2019

Figure 3.11 Cumulative public commitments in energy sector by region, 2010-2019

Figure 3.12 IPPs in Africa: Installed capacity, 2000-2020

Figure 3.13 DFIs’ contribution to IPP energy finance, compared with other sources, 2000-2020

Figure 3.14 DFIs’ contribution to IPP energy finance by technology, 2000-2020

Figure 3.15 Scaling Solar contractual and guarantee structure in Zambia

Figure 3.16 Shares of public/private commitments to off-grid renewable energy, by region, 2010-2020

Figure 3.17 Shares of commitments to off-grid renewable energy, by type of investor and region, 2010-2020

Figure 3.18 Annual commitments to off-grid renewable energy, by investor region, 2010-2020

Figure 3.19 Shares of cumulative commitments to off-grid renewable energy, by region and financing instrument, 2010-2020

Figure 4.1 Comprehensive policy framework for a just and inclusive energy transition

Figure 4.2 Overview of deployment policies by region

Figure 4.3 Power sector structures in Africa

Figure 4.4 Number of IPPs in Africa by procurement method and year of financial close

Figure 4.5 Renewable energy feed-in tariff prices in African countries

Figure 4.6 Renewable capacity awarded through auctions in Africa, 2010-2020

Figure 4.7 Results of selected auctions in Africa, and global weighted average prices resulting from auctions, 2010-2020

Figure 4.8 Auctions in Africa cancelled or delayed, 2010-2020

Figure 4.9 Average years taken for an IPP to come online after financial close

Figure 4.10 Overview of structural change policies

Figure 4.11 Industrial policies for local value addition

Figure 4.12 Key education and skilling priorities

Figure 4.13 SE.ED initiatives in support of youth employment and skills development

Figure 5.1 Measuring the socio-economic footprint of the energy transition

Figure 5.2 Comparison of 1.5-S and PES and their drivers: Effects on African GDP, 2021-2050

Figure 5.3 Effects on output by sector in Africa, percentage difference between 1.5-S and PES, selected years

Figure 5.4 GDP percentage difference between 1.5-S and PES for Africa and its regions (2021-2050 average)

Figure 5.5 GDP in African regions, percentage difference between 1.5-S and PES by driver, 2021-2050

Figure 5.6 Climate damages on GDP under PES: World, Africa, and African regions, 2020-2100

Figure 5.7 GDP percentage difference between 1.5-S and PES in 2050, with and without climate damages

Figure 5.8 Economy-wide employment in Africa under 1.5-S and PES, 2021-2050

Figure 5.9 Economy-wide employment impact of 1.5-S and PES in African regions, by driver, 2021-2050

Figure 5.10 Overview of energy sector jobs in Africa under 1.5-S and PES, by sector, 2019-2050

Figure 5.11 Energy jobs by sector in African regions, 2019-2050

Figure 5.12 Evolution of energy sector jobs Africa and its five regions by segment of the value chain and transition scenario, 2019-2050

Figure 5.13 Evolution of renewable energy sector jobs in Africa under 1.5-S and PES, by technology, 2019-2050

Figure 5.14 Evolution of renewable energy sector jobs in African regions under 1.5-S and PES, by technology, 2019-2050

Figure 5.15 Energy sector jobs in Africa by educational requirements: PES and 1.5-S compared over time

Figure 5.16 Structure of IRENA’s Energy Transition Welfare Index

Figure 5.17 Welfare Index percentage difference between 1.5-S and PES for Africa and its regions by 2050

Figure 5.18 Welfare and dimensional indices for 1.5-S and PES in Africa by 2050

Figure 5.19 Transition-related per capita fiscal flows in Africa: PES and 1.5-S, 2021-2050

Figure 6.1 Access to electricity for refugee sites and nearby host communities

Figure 6.2 Components of an enabling environment for distributed renewable energy solutions

Figure 6.3 Overview of measures to scale up renewable energy mini-grids

Figure 6.4 Overview of mini-grid under the grid configurations

Figure 6.5 Ecosystem for linking electricity access with livelihood applications

Figure 7.1 Components of the European Green Deal

Figure 7.2 Pillars and desired outcomes of an African Green Deal

LIST OF TABLES

Table 2.1 Five countries in Africa with the largest deficits in access to clean cooking solutions, and biomass use, 2019

Table 3.1 Overall renewable energy investment in Africa and globally, 2000-2020

Table 3.2 Off-grid renewable energy investment in Africa, 2010-2020

Table 3.3 Net impact of the pandemic on renewable energy investment

Table 3.4 Public commitments of financing for energy, including renewable energy, in Africa, 2010-2019

Table 3.5 IPP investments in energy, including renewable energy, in Africa, 2010-2020

Table 3.6 Key investment risks and mitigation tools to address them

Table 4.1 Renewable energy regional plans and centres

Table 4.2 Overview of national commitments to renewable energy and energy efficiency

Table 4.3 Energy subsidies in highest subsidising countries in Africa, 2020

Table 4.4 Examples of centres for research and innovation promoting renewable energy deployment in Africa

Table 5.1 Key figures on jobs in Africa, 2030 and 2050

Table 5.2 Welfare and dimensional indices for 1.5-S, and differences with PES, in 2050

Table 5.3 Main Socio-economic indicators for Africa and its regions

Table 6.1 Clean cooking policy framework – key aspects

LIST OF BOXES

Box 2.1 The impact of the COVID-19 pandemic on the energy landscape in Africa

Box 2.2 Renewable energy potential in North Africa

Box 2.3 Renewable energy potential in West Africa

Box 2.4 Renewable energy potential in East Africa

Box 2.5 Renewable energy potential in Central Africa

Box 2.6 Renewable energy potential in Southern Africa

Box 3.1 Scaling Solar Programme risk mitigation and credit enhancement products

Box 3.2 Support for solar projects in Malawi from the Regional Liquidity Support Facility

Box 3.3 IRENA ADFD Project Facility in Africa

Box 3.4 Developing the green bond market in Nigeria

Box 4.1 The African Development Bank’s (AfDB’s) New Deal on Energy for Africa

Box 4.2 Procurement planning plans for renewable power plants

Box 4.3 Energy subsidy reforms in Morocco and Egypt

Box 4.4 Local communities – a voice for cancelling coal power plants in Kenya and Ghana

Box 4.5 Cooling access gaps for the rural and urban poor at highest risk in Africa

Box 4.6 Organisational structure of power systems for the renewable energy era

Box 4.7 Open Solar Contracts

Box 4.8 Experience with feed-in tarrifs in Egypt, Namibia, Uganda, Kenya and Ghana

Box 4.9 Auctions in Morocco designed for socio-economic goals and system integration

Box 4.10 Auction completion rates in Africa – highlights from selected countries

Box 4.11 The role of cities in renewable energy deployment in Kasese (Uganda)

Box 4.12 The deployment of electric vehicles (EVs) in Ghana

Box 4.13 Key pillars of green hydrogen policy making

Box 4.14 IRENA’s Prospects and Planning for Renewable Power in Africa series – informing capacity building and long term planning

Box 4.15 Supporting the development of local content in South Africa

Box 4.16 Implications of the African Continental Free Trade Area for the renewable energy sector in Africa

Box 5.1 IRENA’s World Energy Transitions Outlook (WETO)

Box 5.2 International co-operation

Box 5.3 The need for adaptation on the African continent – one more role for renewable energy

Box 5.4 IRENA’s energy transition welfare index

Box 5.5 Fiscal balances and their welfare impact under 1.5-S

Box 6.1 Access to energy at refugee sites and near host communities

Box 6.2 Policies to support local manufacturing of stand-alone solar solutions

Box 6.3 Renewable energy mini-grid regulations in Kenya

Box 6.4 COVID-19 relief funding for the distributed renewable energy sector

Box 6.5 Interconnected mini-grids in Nigeria: The case of Wuse Market

Box 6.6 Job creation through off-grid energy access in agriculture: Insights from Ethiopia

Box 6.7 Scaling-up renewable energy use in agriculture

Box 6.8 IRENA energy assessment for healthcare facilities: The case of Burkina Faso

Box 6.9 Improved solid biomass fuels

Box 6.10 Africa Biogas Partnership Programme

Box 6.11 Promoting electric cooking in Kenya

Box 7.1 The European Green Deal

Box 7.2 The African Single Electricity Market

ACKNOWLEDGEMENTS

This report was developed under the guidance of Rabia Ferroukhi, in collaboration with the African Development Bank (AfDB), with invaluable support and contributions from Laura El-Katiri, Mirjam Reiner, Abdullah Abou Ali, Diala Hawila and Divyam Nagpal (IRENA).

Individual chapter authors were as follows:

CHAPTER 1: Rabia Ferroukhi, Laura El-Katiri and Amir Lebdioui (IRENA)

With contribution from Michael Renner, Mirjam Reiner and Abdullah Abou Ali (IRENA).

CHAPTER 2: Laura El-Katiri, Imen Gherboudj, Gerardo Escamilla, Nazik Elhassan and Dennis Akande (IRENA)

With contribution from Arvydas Lebedys, Asami Miketa, Abdullah Abou Ali, Sibghat Ullah, Raghad El-Saleh, Mohamed Nababa, Annah Jabesh, Daniel Russo and Sebastian Hendrik Sterl (IRENA).

CHAPTER 3: Costanza Strinati, Faran Rana, Diala Hawila, Sandra Lozo (IRENA), Wikus Kruger and Olakunle Alao (Power Futures Lab, CTU)

With contribution from Ute Collier (IRENA) and Antonio Barbalho (IRENA consultant).

CHAPTER 4: Diala Hawila, Carlos Guadarrama, Abdullah Abou Ali (IRENA), Wikus Kruger and Olakunle Alao (Power Future Labs, CTU)

With contribution from Ute Collier, Michael Renner, Ulrike Lehr, Samah Elsayed, Celia García-Baños, Laura El-Katiri, Amara Kate Bain Slaymaker, Emanuele Bianco, Jinlei Feng, Saida Usmonova, Asami Miketa, Francisco Boshell, Sebastian Hendrik Sterl, Arina Anisie, Elena Ocenic and Jennifer Ifeanyi-Okoro (IRENA). Lea Ranalder (REN21) contributed with a sidebar on Renewable Energy in Cities in Africa.

CHAPTER 5: Rabia Ferroukhi, Xavier Casals, Ulrike Lehr, Laura El-Katiri, Álvaro López-Peña (IRENA)

With contribution from Carlos Guadarrama (IRENA) and Ha Bui, Jamie Pirie, Hector Pollitt, Unnada Chewpreecha, An Vu, Zsófi Kőműves, Sophie Heald and Alistair Smith (Cambridge Econometrics) for the modelling exercise.

CHAPTER 6: Ute Collier and Divyam Nagpal (IRENA)

CHAPTER 7: Michael Renner, Rabia Ferroukhi and Amir Lebdioui (IRENA)

With contribution from Mirjam Reiner, Laura El-Katiri, Diala Hawila and Divyam Nagpal (IRENA)

REVIEWERS: This report benefited from valuable feedback and inputs from: Ahmed Badr, Ali Yasir, Ashani Bartley, Bishal Parajuli, Dolf Gielen, Elizabeth Press, Gurbuz Gonul, Hanbit Lee, Kamlesh Dookayka, Nopenyo Dabla, Sebastian Hendrik Sterl, Tarig Ahmed (IRENA), Daniel Schroth, Franklin Koffi Gbedey, Joao Duarte Cunha, Regina Oritshetemeyin Nesiama and Serign Cham (AfDB), The Infrastructure and Energy Department (African Union), Lars Holm (Boston Consulting Group), Christine Eibs Singer (Catalyst Off-Grid Advisors), Jean Marc Sika (Hivos), Adeola Adebiyi and Bah F. M. Saho and (ECREEE), Maged Mahmoud (RECREEE), Laura Williamson, Lea Ranalder and Rana Adib (REN21), Eugenia Masvikeni (SACREEE), Jem Porcaro, Luc Severi, Nishant Narayan, Olivia Coldrey (SEforALL) and Stratos Tavoulareas (IRENA consultant).

The report was copy-edited by Steven B. Kennedy and technical review was provided by Paul Komor (IRENA). The graphic design was done by weeks.de Werbeagentur GmbH. The main photos of the report were provided with the compliments of © Nadia Ferroukhi | www.nadia-ferroukhi.com

IRENA is grateful for the generous support of the German Government and the Walloon Government, which made the publication of this document a reality.

01

BACKGROUND AND SOCIO-ECONOMIC OVERVIEW

The economic context

Trade, commodity dependence and industrial diversification

Differences between energy importers and exporters

Human development and the Sustainable Development Goals

Africa is a continent rich in land, water and energy resources, with a young and fast-growing population. Already the world’s youngest continent, it is expected to grow to nearly 2.5 billion people by 2050, 80% of them in Sub-Saharan Africa (UNPD, 2019). Levels of human and economic development differ widely across the continent, but it is clear that the opportunities the continent offers are vast. Energy plays a fundamental role in Africa’s development pathway, and improving livelihoods and access to opportunities will depend crucially on the expansion of access to reliable and affordable and sustainable energy. This is also in view of the expectedly vast impact of climate change on the African continent, the effects of which are already beginning to be felt right now, and in view of the enormous potential for industrial development, job creation and environmental management that more widespread access to sustainable energy sources brings.

The African Union’s Agenda 2063 clearly establishes the links between energy and industrialisation (AUC, 2015). However, access to reliable electricity and clean, modern cooking in Africa remains far behind most other parts of the world. With an electrification rate of 46%, 570 million people in 2019 were still without access to electricity in Sub-Saharan Africa, while only 16% had access to clean cooking (IEA, IRENA et al., 2021). This situation reinforces socio-economic inequalities and impedes progress in widening access to basic health services, education, and modern machinery and technology – thus, ultimately, to socioeconomic opportunities.

Africa holds significant energy resources. Fossil fuels represent around 40% of African exports, with countries such as Algeria, Angola, Chad, Nigeria and the Sudan being highly dependent on them as a source of revenue. Along with other raw materials that continue to constitute a substantial proportion of African countries’ exports, fossil fuels provide revenue but also reinforce commodity-dependence. In the context of a low-carbon future, these and other fossil fuel dependent countries will be increasingly vulnerable to the risks of stranded assets, in addition to the already serious effects of price volatility for internationally traded commodities. Renewable energy, by contrast, offers African economies prospects for economic growth, cost-effective technologies to expand energy access and quality of access, and industrial development along new value-chains, with substantial, local job creation potential (see also subsequent chapters, especially Chapter 5).

Energy development will also have a critical influence on Africa’s recovery from the COVID-19 crisis. Recovery from the pandemic heightens the importance of placing sustainable energy development at the core of broader economic development and industrialisation strategies. This must include increased efforts and investment to broaden access to energy in vital sectors such as health and education, and the use of recovery-related policy measures and investments to hasten the wider structural shift toward sustainable energy as a pillar of resilient economies and societies (IRENA, 2020a).

This chapter provides a brief macroeconomic overview of the African continent and its five regions – North, West, East, Central and Southern Africa – focusing on the socio-economic challenges the region faces and the role of energy in meeting those challenges in sustainable ways. Section 1.1 looks at the macroeconomy of the region, focusing on the recent economic and trade trends across the five African regions. Section 1.2 explores the links between trade, commodity dependence and industrial diversification. Section 1.3. takes a closer look at the economic differences between African energy exporters and importers. Section 1.4. looks at human development and the SDGs, and their link to current energy systems in Africa. Section 1.5 provides concluding remarks.

1.1 THE ECONOMIC CONTEXT

KEY MESSAGES AND NUMBERS

□On average, growth in gross domestic product has slowed across African economies in recent years, in part because of lower commodity prices and the effects of the COVID-19 crisis.

□More than 80% of African countries are still commodity dependent.

□Population grew by 26% between 2010 and 2020 and is expected to reach 2.5 billion by 2050.

□The electricity access rate in Sub-Saharan Africa has grown from 33% in 2010 to 46%in 2019, yet 570 million people remain without access.

□Only 16% of the population in Sub-Saharan Africa has access to clean cooking, with the access rate dropping to 4% in rural areas.

□A third of African countries are at risk of a debt crisis.

Africa’s economies are widely diverse in their growth trajectories. Many expanded until the mid 2010s on the back of strong international commodity markets, but the pace slowed afterwards, first as a result of falling commodity prices after 2014, and then because of the COVID-19 crisis. Because Africa remains highly dependent on commodity exports, the region’s economies rise and fall with international movements in commodity price. Fuelled mostly by the commodity price boom of the 2000s and early 2010s, average gross domestic product (GDP) per capita (in constant 2010 USD) grew at an annual rate of 2.3% between 2000 and 2014 (see Figure 1.1). In some countries the expansion of manufacturing capacity reinforced this growth. One of these was Ethiopia, which has been one of the fastest-growing economies in the world, with a sevenfold increase of GDP per capita between 2000 and 2019. However, persistent commodity dependence and an overall lack of economic diversification has now reversed the earlier trend, as shown in Figure 1.1. Between 2014 and 2019, when commodity prices were low, per capita GDP stagnated (with an average annual rate of -0.01%, and even -0.22% for the 2014 2020 period).

The COVID-19 pandemic has added social, economic and financial stress. Despite weathering the beginning of the pandemic comparably well economically (with almost half of the 24 countries worldwide that experienced any positive GDP growth in 2020 being in Sub-Saharan Africa), economic growth across the region is set to stall in 2021 (IMF, 2021). It is also estimated that over 23 million people will be pushed into poverty in Sub-Saharan Africa (Mahler et al., 2020).

A third of African countries are at risk of a debt crisis.¹ As of December 2020, six were already in debt distress and 14 others were at high risk (AfDB, 2021a).² Given weaknesses in the public balance sheets of several countries and reserve buffers below levels typically considered adequate in more than half of the countries in the region (IMF, 2019), the region is vulnerable to the effects of slower growth, reduced foreign investment and lower remittances as a result of the pandemic – and to the pandemic’s effects on commodity export revenues, including those from fossil fuels.

Region-wide economic statistics show important regional economic differences across the African continent. In 2019, East Africa was the continent’s fastest-growing region, with average growth estimated at 5.0%. North Africa was the second fastest, at 4.1%, followed by West Africa (3.7%) and Central