By Gideon Osaka
Climate change is the biggest challenge facing humankind now, and the issue has reached a tipping point. There have been warnings of the potential for average global temperature to increase by more than 1.5 degrees before 2030 and the world is said to be heading towards 3.5 degrees if nothing is done now.
The energy sector holds the key to averting this impending climate disaster. In 2015, the United Nations set out a global framework to avoid catastrophe limit of climate change by limiting global warming to well below 2 degrees. 189 countries joined the UN climate agreement, in a race to curb the dangers of climate change, boost clean energy and transform their economies in the process.
Since then, there has been a gradual shift from policies that have supported oil and gas production to policies that instead are starting to disincentivize fossil fuels. In addition to disincentives, many governments are encouraging the use of substitute technology and fuel, especially renewable energy. The Paris agreement charted a fresh course in the effort to tackle global climate change. World leaders committed to balance greenhouse gas emissions in the second half of the century so that the total of greenhouse gasses emitted from human activities reduces to zero. Consequently, more nations, companies and institutions started announcing net-zero targets.
Achieving the goals seemed demanding and even made difficult by the Covid-19 pandemic which delivered a major shock to the world economy. However, the pandemic ironically accelerated the clean energy transition trend. “We can say that renewables were immune to Covid. Both solar and wind saw significant increases (last year),” Fatih Birol, head of the International Energy Agency (IEA), said at a press conference in January 2020. “Our numbers show that renewables are set to become the largest source of generation by 2025, overtaking coal — and ending the fossil-fuel domination of the last decades.
Valuechain reports that the pace and scale of the transition to renewables have already shot past the most optimistic projections. Dozens of the world’s biggest economies have adopted targets for net-zero emissions of greenhouse gases by 2050. As of February 2021, around 110 companies that consume large amounts of energy directly or produce energy-consuming goods have announced net-zero emission goals or targets. In February 2020, British multinational oil and gas company BP announced net-zero carbon emissions by 2050 or sooner. A few months later, Paris-based Total and Netherland’s Royal Dutch Shell declared their plans to reach climate neutrality by mid-century. The same year US multinational energy firms ExxonMobil and Chevron also committed to reducing their carbon intensity. Similarly, Spanish oil and gas company Repsol and state-held PetroChina have pledged to cut emissions to “near zero.” Around 60% of pledges aim to achieve net-zero emissions by 2050, but several companies have set an earlier deadline of 2030 or 2040.
For most of the past century, geopolitical power has been intimately connected to fossil fuels. Today, in the world of clean energy, a new set of winners and losers are emerging. Countries or regions that master clean technology, export green energy, or import less fossil fuel stand to gain from the new system, while those that rely on exporting fossil fuels — could see their relevance decline. The expectation that renewables will soon end the fossil-fuel domination of the last decades is a grim thought for regions such as Africa that rely on oil and gas exports for revenue.
Africa is currently accelerating the adoption of clean energy solutions. For example, countries such as Egypt, Ethiopia, Kenya, Morocco and South Africa are progressively steering this renewable energy effort. Other African countries such as Cape Verde, Djibouti, Rwanda, and Eswatini have also established ambitious renewable energy targets. Notably, other African countries are following suit, and renewable energy is progressively being adopted across the continent.
Africa’s potential for a quick transition to renewable energy is not in doubt. Several drivers could prepare the way to Africa’s energy transition. First is that renewables are becoming increasingly competitive, with their costs rapidly declining both globally and in Africa. The prices of batteries to balance intermittent supply from renewables are also declining steeply. This downward trend in technology costs is coupled with Africa’s renewable energy sources abundance. The continent has 40% of the world’s solar resources.
However, several studies have shown that, within this decade, there is currently limited evidence for a quick transition to renewables in Africa. In the global race to reduce carbon emissions, Africa has so far been a bystander rather than an active participant.
Africa is home to around 630 million people without electricity. Apart from the impact on households, power shortages are holding back growth and job creation. Firms have to depend on costly generators, which make goods more expensive. Skipping fossil fuels entirely for renewables, especially solar energy, is too expensive for most African countries to contemplate.
As things currently stand, a significant number of African countries might not make a decisive leap to renewables this decade. The findings of a study by University of Oxford released in February last year said fossil fuels are set to remain the dominant source of electricity across Africa over the next decade. Researchers found that out of around 2,500 power plants planned in Africa, enough to double electricity production by 2030, less than 10% of the new power generated will come from wind or solar. By 2030, the study suggests that coal, oil and gas will continue to dominate the generation of electricity across 54 African countries, with just 9.6% coming from renewable sources, excluding hydropower.
Investments to implement energy transition in Africa still low
Achieving universal access and seamless energy transition will take huge domestic investments and a big international financing effort. In Africa alone, the International Renewable Energy Agency (IRENA) estimates that $70 billion in annual investment is required until 2030 to implement an energy transition on the continent. Energy experts at PricewaterhouseCoopers (PwC) estimates $2.8 trillion investment to transit Africa from its current energy base to achieve the global net-zero emission target by 2050.
There have been global climate finance commitments from developed economies to Africa. The EU, this February, announced a €150 billion ($170 billion) investment plan for Africa to focus on the green transition. Wealthy countries at the UN climate talks in 2009 committed a $100 billion yearly investment in climate finance to developing countries. However, these countries are yet to make good on their pledge to deliver the $100 billion. A report recently announced they would not be able to meet this target until 2023. Between 2016 and 2018, only 25% of the money promised to developing nations went to Africa.
Committed to increasing both renewable energy and energy access in Nigeria, the UK recently announced support of up to N5.6 billion (£10 million) to help the country focus on off-grid and low carbon energy projects. Vicky Ford, United Kingdom’s minister for Africa, who made the pledge recently in Abuja during her first visit to Nigeria said the fund will help scale up domestic financing for eligible off-grid clean energy infrastructures, such as solar mini-grid and home systems, clean cooking infrastructure and SME cold storage infrastructure in Nigeria.
Investment in low-carbon energy systems in Africa still lags global pace as the allocation to Africa falls significantly short of what the continent requires to meet global targets. The rest of the world can help poor African countries with the cost of developing renewable energy.
Africa adamant, to continue hydrocarbon exploitation
In the face of pressure to end fossil fuel extraction and transit to renewables, several African countries plan to continue to exploit their oil and gas reserves to tackle poverty and energy shortages. For African national oil companies, which own a significant share of the continent’s hydrocarbon reserves, they are clearly not thinking with an energy transition mindset, their current goal is to use oil and gas resources more efficiently. More than a third of African nations are very dependent on fossil fuel commodities for state revenue, foreign currency reserves and local economic activity. An unfunded and rapid shutdown of this sector would place significant fiscal strain and hardship on them.
Africa needs energy to drive its economic growth and to reduce poverty – the big question is where will that energy come from during the next 10 to 20 years? How Africa meets its growing energy needs is crucial for the region’s economic future.
Recently, the Council of Ministers of the African Petroleum Producers’ Organisation (APPO) resolved to continue the exploitation of the continent’s huge oil and gas reserves despite the growing call to jettison the natural resource. In a communique in December, after its 41st ministerial session which was attended by the ministers and heads of delegation of the 14 member countries of the organization that form the bulk of oil producers in Africa, the group noted that the current approach to energy transition is unilateral imposition where the developed countries that have for over one hundred years used fossil fuels to grow their economies and societies and have all along been aware of the dangers of fossil fuel emissions, are now telling the world that fossil fuels are dangerous to mankind and that all should abandon it. The ministers noted that this aggressive drive for energy transition was coming at a time that African economies are poised to launch themselves into industrialisation, which requires a lot of energy.
According to them, the economies of the developed countries now require less energy because of their transformation from manufacturing to knowledge production and artificial intelligence.
“We want to develop our resources as Africa, just as our brothers in the West have done,” John Munyes, Kenya’s minister of petroleum and mining, said at the Africa Oil Week conference in Dubai, last November during the United Nations COP26 climate summit in Glasgow, Scotland. “Much of Kenya is renewables, we just want to tap into what God has given us: hydrocarbons,” he added.
Across the African continent, where some 600 million people lack electricity, both well-established and emerging producers in the continent are seeking to accelerate hydrocarbon extraction. “We understand that we have to mitigate the damage to the planet. That’s why we have signed up to the energy transition,” Thomas Camara, Ivory Coast’s minister of mines, petroleum and energy, said at the event. “But for our African nations, we have to ensure that our populations have access to energy … We will not turn our back to oil and energy companies so we can ensure the happiness – and even the existence – of our populations.”
OPEC member Angola, plans to develop more fields through licensing rounds for onshore blocks in 2023 and offshore blocks in 2025. Output in 2031 is projected to slightly exceed last year’s roughly 1.3 million barrels a day. Ghana, which discovered oil in 2007 and began extraction at the end of 2010, will channel investments to oil and gas development to then use the proceeds to invest in infrastructure and social welfare such as healthcare and education. “We believe strongly in oil and gas, and in particular gas” to ensure reliable energy baseloads, he added.
For Uganda, hydrocarbons are necessary to reshape the economy and it is counting on a pipeline through Tanzania to the Indian Ocean coast that will help Uganda export its crude. “We have a duty to provide jobs for our people. We have a duty to make sure that the distribution of electricity goes to the last person,” Energy Minister Ruth Nankabirwa said.
Helping African nations during the clean energy transition should be a priority of COP27 climate talks in Egypt later this year, according to the host country’s President Abdel-Fattah El-Sisi. The continent shouldn’t miss out on the financial benefits of its oil and gas reserves, and the November summit in Sharm El-Sheikh needs to reach balanced, fair and objective resolutions to support African countries, El-Sisi said. He added that the energy sector has provided decades of wealth for rich nations.
“African nations are still poor,” El-Sisi said at an Energy conference in Cairo early February. “Now that we have an opportunity, you tell us ‘No, don’t exploit it.’ What do you mean, do not exploit? If you want it that way then it is up to the rich to give to the poor.”
In his inaugural speech to African heads of state and government as chair of the African Union (AU), at the opening of the African Union summit in Addis Ababa on 5 February, President Macky Sall of Senegal called for a fairer energy transition, better access for Africa to development finance resources and an end to gender-based violence on the continent.
At the COP26 climate summit in Glasgow last November, developed countries decided to put end to financing of fossil fuels, “even the clean ones like gas, while some of them continue to use more polluting sources like charcoal and diesel fuel”, said Sall.
“Putting an end to the financing of gas will deeply affect and thwart our efforts for social development… While remaining committed to the fight against climate change… it is legitimate that our countries demand a fair and equitable energy transition,” he said.
Chief Executive Officer and Group Managing Director of the Nigerian National Petroleum Company (NNPC) Limited Mallam Mele Kyari in the same light told industrialised nations that putting Africa in the same energy transition speed could spark an energy crisis. Kyari, who made the disclosure recently while delivering the 30th Convocation Lecture of the Federal University of Technology, Minna spoke on the topic ‘Energy Transition and Energy Accessibility – The New Paradigm’ said “Putting every country in the same energy transition speed could therefore result in unanticipated collateral damage that can spark energy crisis and deny developing countries access to available and cheaper energy for growth”.
…Split Frontier Exploration Fund for Renewable Energy Development – Experts
Section 9(4 & 5) of the Petroleum Industry Act (PIA) recently signed into law in Nigeria, requires the establishment of a Frontier Exploration Fund escrow account which shall receive 30 percent of NNPC Limited’s profit oil and profit gas as in the production sharing, profit sharing and risk service. And dedicate it to the development of frontier acreages and utilise the funds to carry out exploration and development activities.
Experts are of the opinion that even though Nigeria really needs a fund for the exploration of more crude oil, it should devote 2/3 of the funds to getting a front seat in funding renewable sources as the world transits from hydrocarbons.
An energy expert and publisher of the Valuechain Oil & Gas magazine, Mallam Musa Bashir Usman advocated two-thirds of the Fund to be channeled into research and exploration of cobalt, copper and other renewable energy deposits/sources in the country. Demand for copper and cobalt has recently soared due to the clean energy transition. While copper is essential for electric cables and wind turbines, cobalt is used in electric vehicle batteries.
“It can be in research, exploration of cobalt, or setting up of dry cell battery factories. We should think beyond the next decade. It is time to begin putting in place structures, institutions, companies that will make us relevant in the next 20 years and above in the scheme of renewable energy the way we are relevant in the oil sector today,” Usman said.
Usman’s prescription is supported by PricewaterhouseCoopers (PwC), one of the world’s leading consulting firms, which has also advocated the setting up of a ‘Future Energy Fund’ that will incorporate elements of the transition to cleaner fuel sources, rather than devoting the 30 per cent to the Frontier Exploration Fund as provided for by the PIA.
PwC in the report where it made the recommendation, argued that the country should begin moves to join the global energy transition, stressing that as it is, Nigeria’s resources are being devoted almost solely to a commodity that is fast waning.
“Exploration is a high-risk endeavour. In addition, raising the needed finance for the development, production and evacuation from the frontier basins might be a tall order as investors are staying away from high-cost emission-intensive assets.
“These basins will compete for funds with ambitious and more-environment friendly projects like gas, hydrogen, solar and wind. Rather than a frontier exploration fund, Nigeria could consider setting up a future energy fund.
“The amounts being set aside in the PIA for the frontier exploration fund can be applied towards funding the development of Nigeria’s future energy potential, which will include but not be limited to petroleum, in readiness for the energy transition.
“The fund can also be deployed for funding the development of abatement technologies that can aid carbon neutrality,” the firm maintained.
PwC noted that with the projected decline in global demand for hydrocarbons, leading oil and gas production companies are cutting back significantly on their oil and gas business and on further investment in fossil fuels.
