Making Renewable Markets work in Africa: Experiences and Emerging Issues

Transcription

1 Making Renewable Markets work in Africa: Experiences and Emerging Issues Prof. Ogunlade R Davidson Dean, Post Graduate Studies, University of Sierra Leone International Conference on Renewable Energy Making Renewable Energy Mar11kets work for Africa Meridian Hotel, Dakar, Senegal April, 2008 UNIDO/The African Union/Government of Senegal/ Government of Germany

2 Contents of Presentation Introduction Energy in Africa Renewable energy use in Africa Barriers to renewable use in Africa Background to strategies for scaling up Scaling up strategies for renewable energy Bio-fuels and Africa Conclusion

3 Introduction Africa is rich with both fossil and renewable energy sources, but the least consumer of modern energy globally African governments faced with high poverty levels want to improve their overall net productivity and the quality of life of Africans, so that they can improve their economic competitiveness. African energy needs cover all its economic and social sectors. Transforming African agriculture from the largely peasant type to mechanization to cope with food and for exports Improving its poor industrial performance need substantial modern energy inputs. Catching up with other developing regions will need major electricity supplies. Transporting people, raw materials and finished goods are crucial at the early stage of economic development Coping with health and educational demands Hence, the modern energy needs of the continent are huge and urgent if the continent is to cope with other developing regions. Innovative technical and financial ideas needed to face these challenges.

4 Substantial Energy Resources, but large Share remain unexploited SHARE OF AFRICA TO WORLD FOSSIL FUEL RESOURCE Growing Reserves of Oil and Gas in Africa Uranium Coal World Africa Fuel Sourc e Oil 1985 = Natural Gas Natur al Gas Oil Source: BP Stats, IEA, WEC Reserves/Production (R/P) years Africa has about 9% of uranium, oil, gas and coal resources and significant renewable energy sources, the challenge is to exploit them for the benefit of Africans On average, almost 70% crude oil produced is exported Energy sources largely skewed: Oil & Gas West, Coal South, Hydro& Geothermal-East and biomass and hydro- Central

5 Electricity production in Africa Electricity generation is only 3.1% of total 80% of electricity generation is from fossil fuel (mainly coal in S. Africa & Oil and gas in N. Africa) 18.8% is from hydropower (7% of continent s potential) 2.5% is from nuclear (S. Africa) 0.5% is from non-hydro renewable energy (geothermal, biomass, solar, etc) Average annual consumption lowest in the world, 515 kwh, while world average is 2326 kwh Population with Access to Electricity in Developing Regions, 2000 S.S.Africa South Asia Mid.Weast &N.A L. America E.Asia E.Europe % Access

6 African Energy Demand Sector 3 distinct regions North Africa oil and gas sub-region South Africa coal sub-region Sub-Saharan Africa biomass region West Oil & Gas East - Geothermal, Hydro Central Hydro South - Coal Energy Consumption - North Africa Electricity 15% Gas 18% Coal 1% Biomass 4% Energy consumption - Sub-Saharan Africa (2001) Electricity 3% Gas 1% Coal 0% Petroleum 62% Biomass 16% Petroleum 15% Coal 27% Gas 2% Biomass 81% Coal-based Electricity 26% Petroleum 29% Energy Consumption - South Africa (2001)

7 Energy Access in Urban and Rural Areas Use of energy sources in urban and rural areas not satisfactory Increase energy access is urgent for both areas, but more for rural Energy for production/enterprise (incl. SMEs) Stimulation of energy demand SSA Mid.East N. Africa South Asia China & E. Asia Latin Amer. & C Dev. Countries Source: IEA, 2002 Rural and Urban Access to Electricity in Developing Countries, Percentage Access Per Capita Energy use (commercial and Non-Commercial) by World Regions, OECD-NA OECD-Pacific OECD-Europe F.USSR Non-OECD-Eur MEA&NA Gigjoules per Capita LAC China Asia Rural Urban S.S.A

8 Key Challenging issues for Energy Development in Africa 1 Low energy access to modern energy Access to electricity very especially for production Rural areas need special attention Energy infrastructure for viable energy sector Weak national and regional institutional capacity Inadequate human resource Poor information base Reducing upfront cost of renewable energy systems Dedicated funding for poor and vulnerable that leave in remote areas Reducing transaction cost in energy projects Energy RD&D Poor integration between energy R&D agenda and development objectives Inadequate interests in fossil fuels

9 Key Challenging Issues for Energy Development in Africa 11 Overcoming local and global environmental problems Search for win-win solutions Search for trade-offs Climate change related problems Search for technical and financial investments Search for technologies appropriate to local conditions Search for financial investments Energy security Control outside interests Inadequate regional systems to benefit from cooperation Linking to environmental security

10 Despite these Challenges, some progress Access to modern energy services in both rural and urban areas has improved. Improved off-grid energy systems, largely based on renewable energy in rural areas Development of indigenous energy resources has increased mainly due to foreign investments, though most are on the upstream end and for exports. Energy cooperation and trade among African countries, including developments within sub-regional economic groups have increased. The number of well-trained energy professionals has increased, as well as performance of energy decision-making institutions. Some countries have successfully used both locally initiated programmes and externally funded projects Replacement of traditional fuels with LPG in their urban areas, and increased the usage of this fuel in the rural areas for cooking. The use of bio-fuels as substitute for petroleum fuels for productive activities in a few land-locked oil importing countries In many countries, small and medium-sized energy service enterprises have been established, especially in renewable energy. Development of energy and energy efficiency service enterprises Development of innovative financial programmes

11 Renewable Energy Use in Africa Renewable energy potential worldwide is huge and varied and theoretically can supply most of global needs. Recent technical and financial progress has been tremendous that has increased the viability and lowered the cost. Current high price of crude oil is good for renewable energy technologies as well as making the high priced renewable energy competitive. Improvements in policy environment, improved institutions and enhanced market conditions could favour the wider use of renewable energy in Africa, especially in the power, transport and household sectors. Despite this progress, many barriers to the wider use of renewable energy in Africa still remain. Need to improve the quantity and accuracy of energy data Major R&D constraints remain. The manufacturing capacities in African countries are very low Efficiency in RETs are increasing, but a lot of problems for effective competition with other energy sources - storage technologies and suitable control systems needed to cope with intermittency

12 Large-scale use of RETs I Large-scale hydropower provides % of power needs for several African countries and nearly half for a lot more countries. Advantages- most efficient when used in large-scale application and can be comparatively cheaper and can contribute towards energy supply security. Dis-advantages - siltation of dams can affect output drought prone land displacement Biomass energy is used for provision of process heat, liquid fuels production, gasification, heat co-generation, biogas production and solid fuel production. Several agro-based industries waste from wood based industries, palm products, rice mills, sugar and paper and pulp used to produce both process heat and power, but in nearly all cases, power used internally except sugar industries With increased efficiency and better technologies, most of such facilities can produce significant power nearby facilities or the national grid. Several sugar producing countries can repeat the example of Mauritius that uses sugar waste for about 30% of the total power needs. Three African countries uses ethanol from sugar industries as blends with petrol as transport fuel - Zimbabwe, Kenya and Malawi. A few more countries are thinking about starting such programmes.

13 Large-scale use of RETs II The potential of Geothermal energy is up to 9000 MW, but only used in Kenya MW, amounting to about 17% of the national power supply and in Ethiopia with a 7 MW installation. Plans are at different stages to use this energy source in Uganda, Tanzania and Eritrea. Wind energy is used significantly in two countries - Morocco and Egypt. Egypt has an installation of 230 MW and plans to increase to 850 MW by 2010 and 3000 MW by In 2005, Morocco has a total installed wind capacity of 63.9 MW, but doubled it in This is a CDM project. The government, under its Initiative 1,000 MW programme is planning to have 1,000 MW wind capacity by Large-scale solar energy projects are very limited because of high costs. The Shell/Eskom SHS projects in South Africa. The CILES project which involved 9 West African countries had significant SHS component. A solar thermal plant generating 0.5 MW in South Africa. Egypt plans to install a solar thermal plant of 30 MW by 2010 and 300 MW by They also have significant solar PV systems totaling 5.2 MW, mainly in their telecommunication sector.

14 Small-scale RETs use Small-scale solar systems used fall into two types: the production of electricity using photovoltaic technologies (PV) and the use of direct heat for heating, drying and cooking. Solar water heaters for domestic purposes in several countries. Some hotels use solar energy for production of hot water. In some rural and community, solar energy is used for electrification in hospitals, telecommunication systems and households. SHS in the household sector is by far more common. Unfortunately, solar PV systems have benefited high incomes more than poor households, except South Africa that subsidizing such systems up to 70% of the initial capital cost. Wind energy is mostly limited to the Northern and Southern sub-regions. High wind speeds of up to 9 m/s in the Cape area of South Africa and some areas in Northern Africa. There are selected projects in Mauritania and Djibouti in areas with lower speeds of about 4-5 m/s. In Kenya, a few countries have installed wind generators that generate electricity that are connected to the national grid. There are also a number of countries with wind turbines that are used for water pumping.

15 Small-scale RETs use II Small Hydropower systems (less than 10MW) is used for remote communities and has catalyze the development in such communities. Smaller systems require lower capital costs and allows for increased private participation and greater involvement of local people. In environmental terms these systems have less impact. African countries have very high potential for such systems and many countries are exploiting them especially for their rural communities. Several small-scale biomass initiatives Most of them aimed at improving the existing inefficient cooking devices that uses firewood and charcoal under improved cook stoves programmes. These efforts are widespread and involve both urban and rural domestic sectors. They attractive to the informal sector because of their relative low technical requirements and low initial capital demands. These programs have become very popular in many countries with little or no government involvement. Biogas technology is used in some countries - some engineering and scientific knowledge needed for effective operation and use. The relative high initial cost can prove too expensive to intended rural users. Such systems at household level exist with very few institutional applications such as schools and hospitals.

16 Barriers to Widespread RETs: Policies and Regulations Policies and regulations are crucial for the success of renewable energy, unfortunately, coherent and consistent policies are generally absent in the continent. Weak industrial and private sectors and they need clear direction and leadership from the government Government should create the enabling environment for the effective RE development and operation. Policies relating to renewable energy are few and ad hoc Removal of excise tax on renewable energy technologies - Kenya and Zimbabwe for PV systems. Some instituted subsidy programs such as in South Africa where users get repayment of up to 70% of capital cost for PV solar home systems. After the WSSD, some countries discussed setting up renewable energy targets as share of total supply - South African White paper on energy However, efforts are laudable but not wide spread and in some cases not consistent and well coordinated.. Relatively low budgetary allocation or other dedicated funds for the promotion of renewable energy. Apart from policies for promoting renewable energy, there is the lack of enforcement mechanism. No effective policy monitoring and evaluation to ensure effective policy implementation and adherence. Lack of capacities for effective policy development and implementation, proper research and development, and for effective engagement with industry and other arms of the private sector.

17 Barriers to Widespread use: Institutional Successful development and deployment of renewable energy technology need several technical, economic and market institutions that are not always present in African countries. Power utilities failure to easily accept power produced by solar and wind technologies is an example Existing technical institutional deficiencies: Weak institutions for installation, operation and maintenance of technologies also affects renewable energy. Proper testing and certification of technologies as well as monitoring Africa suffers from technology development and transfer due to the absence of National Systems of Innovation (NIS). This is a system that has proved to be crucial in increasing technological receptivity in most developed and emerging economies. Only Egypt and South Africa have attempted to put such system that fosters technology incubation and commercialization into place. The wider use of renewable energy using market based approaches need NIS if manufacturing capacities have to be increased.

18 Barriers to Widespread use: Technical Unavailability of accurate and well organized renewable energy resource data -especially for solar and wind are very scanty. Biomass data as it relates to land availability, competing uses, Water availability and processing The intermittent supply of renewable energy. Such intermittency will impact badly on the system design and its flexibility. However, intermittency for solar and wind systems could be reduced with adequate storage, back-up and interconnection technologies. Hydro and bio-energy systems will need major back-up systems. The relatively poor access to these technologies though large numbers are available worldwide and their cost will limit access to the continent. Inadequate domestic technical skills account for poor maintenance of imported systems and lack of provision of adequate after-sales service. Hence, the need for high and middle level technical manpower in business development, manufacturing and overall management. The public sector also lacks adequate personnel to undertake effective monitoring and evaluation.

19 Barriers to Widespread use of RETs: Financial and market The lack of low-cost and long term financing schemes for renewable energy projects prevents development. Many countries suffer from poor macro-economic environment Providing renewable energy technologies at an affordable price to the poor and vulnerable is very challenging. Private sector funding through banks or other lending facilities is not yet interested in renewable energy systems. These institutions do not have special packages for renewable energy systems The relative few banks that have shown some interests in renewable energy have only benefited middle and high incomer earners that can provide collaterals and are conversant with bank procedures. Lack of support financial institutions that promote the business and market environment of technologies. These include insurance companies, broker institutions that assist to reduce the very high transaction costs of technologies. Lack of suitable advertising media also affects the marketing of renewable technologies.

20 Maturity of Renewable Energy Technologies Source: IPCC, 2007 Technology Status Technically matured with established markets Technically matured but limited markets Technology under development Technology under R&D Renewable Energy Technologies Large hydropower systems Small hydropower systems Woody biomass Geothermal systems Solar PV & Solar heaters Wind Energy systems MSW Anaerobic digestion systems Bio-diesel Conventional solar thermal systems Thin film PV Tidal and Wave systems Biomass gasification Bio-ethanol from lingo-cellouse Solar thermal towers Nano technology solar cells Hydrogen technologies Bio-refineries Ocean energy systems Saline gradient technology

21 International Policy Experience UK experience: a target of achieving 10% of its electricity from renewable energy by Renewable Obligation Certificate (ROC), introduced in This policy requires suppliers to sell a share of their electricity supply from renewable energy, and for each MW generated from renewable energy the and the supplier is given a certificate As a result of ROC, renewable energy generation increased from 1.8% in 2002 to 4% in Investments on RE increased to spend 500 million pounds between 2002 and The feed-in-tariffs system has been introduced in over 40 countries aims at overcoming the major market barriers to the widespread use of renewable energy (distorted costing and pricing, legal framework for IPPs, and market performance). This system institutes a legal obligation on utility companies to buy electricity from renewable energy producers for a guaranteed period. This makes the installation of renewable energy systems more secure for investments. The leading country with this policy is Germany The European Union: in March 2007 set a binding target of a 20% share of renewable energy in the overall energy consumption by Also making bio-fuels be a share in transport fuel, 5.75% by 2010 and 10% by In addition, countries within the EU have specific national policies. France intends to make biofuels share be 10% by 2015 and Belgium 5.75% by 2010, Japan 5% by Over 12 other countries have accepted bio-fuels as blends for transport fuel, 10-15% for ethanol and 2-5% for bio-diesel. The United States of America has set a goal for reducing the use of petrol by 20% within the next 10 years from 2007 by using bio-fuels as substitute. As a result, the price of corn the feedstock for their ethanol production increased significantly.. Some developing countries have instituted some policies to promoted renewable energy. China has an ambitious target of deriving 15% of total energy consumption from renewable energy by 2020 along with reducing their energy intensity substantially by Bio-fuel tax exemptions, in some cases up to 100% have been enacted in many countries between such as Argentina, France, Germany, Greece, Ireland, Italy, Lithuania, Slovenia, South Africa, Spain, Sweden and the UK.

22 Global Markets of RE is growing Average Annual Growth Rates of Renewable Energy Capacity, Geothermal P Biomass power Large Hydro Small Hydro Ethanol Solar PV Off Grid Geothermal H Wind Biodiesel Solar PV Grid Source: REN21 Renewables 2007 percentages This growth is more marked with solar PV for grid electricity, annually by over 60% More recently, bio-diesel has been growing significantly by about 40% annually as the search for alternative transport fuel continues. Solar and bio-fuels projects relatively need smaller investments compared to large hydropower and geothermal systems that require significant investments and have long lead times to become operational. In general, electricity produced from renewable energy with the exception of large hydropower is growing. In 2007, power from these sources amounted to about 240 GW which was 6% of the global total power. Also, there has been some growth in the number of jobs created. Renewable energy has made inroads in market capitalization. An important feature that needs attention by African countries is the negotiations for the trade of environmental goods and services including renewable energy. In 2007, United States of America, EU and Japan account for 84% of all trading in environmental goods and services. Very few are by developing countries (China, India and Chile). Some trade in efficient cook stoves from Kenya, but forms a negligible share of total exports.

23 Technology Typical Characteristics Energy Costs (UScents/kWh) Pricing of RE Power Generation Large hydro Small hydro On-shore wind Plant site 10MW-18000MW Plant site 1-10MW Turbine site 1-3MW Blade diameter meters Off-shore wind Turbine site 15-5MW () Blade diameter meters 8-12 Biomass power Plant site 1-20MW 5-12 Geothermal power Plant site 1-100MW; Types binary, single and double flash natural steam 4-7 Solar PV(module) Cell type and efficiency singlecrystal 17% polycrystalline 15% thin film 10-12% - Rooftop solar PV Peak capacity: 2-5kwp Concentrating solar thermal power (CSP) Plant site MW types: tower dish tough (tough) Hot Water Heating/Cooling Biomass heat Plant site: 1-20MW 1-6 Solar hot water heating Size 2-5m, Types: evacuated tube flat-plate 2-25 Geothermal Plant capacity 1-10MW; Type: heat pumps, direct use chillers Ethanol Feedstock: sugar coca, sugar beans, coca, cassava, sorghum wheat (and cellulose in the future) cents/litre (sugar) cents/litre (com) (gasoline equivalent) Bio-diesel Feedstock: soy, rapeseed mustard seed, palm jatropha or waste vegetable oils cents (diesel equivalent)

24 Investments in Renewable Energy Investments in RE continue to rise Due to policies and innovation Investments in (Sustainable energy Only 6% on EE) rose by 43% between 2004 and 2005 and 35% from 2006 to % went to OECD countries Region Europe Union United States Venture Capital/ Private Equity ($millions) 1,814 4,862 Public Markets ($millions) 5,667 3,449 Assets Financing ($millions) 15,591 8,002 Total ($millio n) 23,099 16,313 Most to developing countries are to India and China Other OECD China , ,804 2,636 4,003 3,961 Few to North Africa and South Africa India Latin America ,073 1,448 2,270 1,633 Hardly any investments on RE to SSA Africa Other Developing Total , , , ,781 53,159

25 Strategies for Scaling up RETs Selection and integration of renewable energy Technological acquisition and development Human and institutional development Policy Environment Financing options South-South Cooperation

26 Selection and Integration of RETs Pooling of several decentralized renewable energy systems to form energy generating clusters to minimize intermittency such as using solar, wind and hydropower systems in an hybrid form Improved energy generation management between systems to optimize losses and benefit from gains of the system. Matching load with supply is one such activity Better integration to national grid system using multiple connections so that the grid is always supply with minimum power if one system fails to do so Centralized district heating and cooling systems be supplied from multiple sources Optimal use of modern storage technologies by matching them with the appropriate supply systems.

27 Technology acquisition and development: NIS Targeted capacity building and strengthening of scientific and technological institutions Collection and assessment of specific technical, commercial, financial and legal information Identification and development of solutions to technical, financial, legal, policy, and other barriers to wider use of RETs Technology assessments, promotion of prototypes, demonstration projects, and extension services Innovative financing mechanisms such as public/private partnership and specialized credit facilities Local and regional partnerships Development of market intermediaries

28 New Approaches to Technology acquisition Technology assessment and market assessment Equipment supply focus and application, value added and user focus Economic viability and policy, financial and institutional needs and solutions Technical demonstration and business demonstrations, financial and institutional models Donor grants and risk and costs sharing with donors

29 Recent examples for replication The present thin-film solar technology developed in the University of Johannesburg in South Africa and is estimated to cost about US$1.80 per watt. Wind energy technologies developed in South Africa, Zimbabwe and countries in North Africa (Egypt and Morocco) Ethanol production in Zimbabwe Sugar powered system Mauritius Solar PV control system in Botswana Solar batteries in Kenya Bio-diesel in Mali

30 Human and institutional development African countries do not have the needed human and institutional capacities to cope with the technological and market demands for scaling-up renewable energy technologies. Specific skills are required for operating, modifying, producing and innovating renewable energy technologies. Most countries have operating skills, and some modification skills. Countries will need both productive and innovative skills to scale-up RETs in Africa. These capacities will assist countries to develop export oriented skills of RETs - acquiring codified knowledge, learning to meet quality standards and delivery times, and skills to react to changes in products and processes. Scaling up RETs markets in Africa will require significant R&D in renewable energy, but unfortunately most of these activities in global terms are done in industrialized countries Most R&D are from OECD, over 80% were done in Japan, USA and EU. Similarly, the number of renewable energy technology incubators increased significantly in that same period but all were in developed countries, with the exception of China. They are scattered and are un-coordinated, hence the gains are sub-optimal. To maximize gains, sub-regional and regional approaches are taken because R&D is becoming more specialized, expensive and knowledge demanding. Therefore, regional and sub-regional facilities R&D facilities should be developed with specialized renewable energy skills.

31 Policy environment National Policies International standards, Metering, Contract licensing, Equipment standards, Building permits Taxes and Charges (Personal income tax credits, Corporate tax credits, Sale tax exemptions, Property tax) Subsidies and Incentives (Feed in Tariffs, Rebates, Grants, Loans, Bonds, Production incentives, Government purchasing agreements, insurance) Voluntary agreements (Between government and private sector) Tradable Permits (Renewable energy certificates, Emission trading certificates, other offset programmes Research and Development (Tax credits, Renewable energy grants, Public/private partnerships Information instruments International Policies Emission targets and trading system Statuary agreements Co-coordinated policies and measures Technology co-operation Financial system (ODA, FDI, Commercial Bank loans) Capacity building

32 Financing Options Mobilising local Financing Local Bond market Insurance funds Local share market Aid and Grants More rationalised Leverage funds Foreign Direct Investments Redirect to priorities Develop the demand Carbon financing CDM Other climate funding opportunities

33 South South Cooperation FDI flows to developed countries and developing countries are increasing. South-south investment is on the rise and this is of more importance to Africa, doubles between 2004 and 2006 to around $39bn. Due to improved economic performance of developing countries, they are now investing in themselves and secondly their outward investment is growing- Africa increases it outward flows from $2bn in 2005 to $8bn in 2006, though most is from South Africa. With the improved performance of the continent and economic growth continue to rise, 6.7% in 2007; the confidence in the region is growing too. China is planning to increase its aid to the region from current $40bn to $100bn in the next 10 or 15 years. Hence, South-South investments are affecting Africa in two ways. First is between African countries and other developing nations, mostly from China and India, Second is trade between African countries. In recent times, exports and imports between China and African countries increased $11bn in 2000 to $56bn in 2006, and FDI reaching $1.6bn in 2005 operating in 48 of the 53 countries. Within the continent, South Africa is by far the biggest investor. They are also operating in several countries across the continent. They concentrate on banking services and power industry. This interest is fuelled by the tax benefits instituted by the South African government for investing in Africa. In addition, Nigeria investments through the recent instituted sovereign wealth fund are operating in several countries in Eastern and Western Africa. Libya through the Libya-Africa Portfolio for Investments (LAP) has a total of $5bn operations in Africa. They are more interested in property and banking services (African Business, 2008). The challenge for African countries and as a region to discuss with these countries to include renewable energy in South-South investments. China and India offer the greatest opportunities because they have recently expanded their manufacturing base in renewable energy. Exploiting the recent renewable energy developments in South Africa can prove beneficial to many African countries.

34 Bio-fuels and Africa Bio-fuels have a future for Africa if based on using agricultural and forest wastes, urban waste, and non-food crops. With adequate finance, capacities and adequate technology transfer, Africa can produce bio-fuels for both consumption and exports, however the following are needed: Integrate and better coordinate policy on bio-fuels Undertake a proper assessment of benefits of trade, use and production of bio-fuels with suitable monitoring mechanism Creation of a system of benefits for role of carbon management from bio-fuels Use modern information instruments to build consensus in bio-fuels Increase support including investments in R&D,D Build capacity to manage issues relating to the production of bio-fuels (water, land, other inputs) Improve understanding of inter-linkages between bio-fuels and climate change

35 Conclusions Renewable energy resources in Africa is huge with great technical and market potential There are major technical, economic and institutional barriers to their development The suggested strategy can overcome some of these barriers The current opportunities including relatively good economic environment should be exploited

36 Thank you for Listening Further Contact: