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Why You Cannot Afford to Overlook Africa’s Energy
The cost and efficiency of energy is stifling development opportunities and, for owners and investors, acts as a barrier to entry to many African markets. However, through an analysis of the expected increase in demand and the potential of the African continent for renewable energy development, Africa is worth investing in, despite the perceived ‘risk’ of committing to the market. Africa Event Services has been researching the African energy market and will be launching the inaugural Sustainable Buildings Africa conference in 2017, putting a spotlight onto Africa’s energy potential.
As long as population growth and urbanisation continue to expand, energy demand will continue to rise. Although fossil fuels play an important role in providing energy, the equilibrium is shifting in the direction towards renewable energies; the share of renewable energy in global power generation is expected to rise to over 26% by 2020 from 22% in 2013 (MTRMR, IEA). The ongoing decarbonisation of the energy sector coupled with the continued increase of investment in renewable technology development means that renewable energies are not just essential in combating the increasing demand for energy from an environmental perspective, but also from a cost efficiency point of view. And so as the worlds demand for energy grows, renewable energy, particularly in the emerging markets of Africa, will become both a higher priority and lower risk for investors.
There are two reasons why Africa will play such a key role in the future of renewable energy. Firstly, Africa has a vast supply of appropriate natural resources for renewable energy potential which include; solar, wind, hydro, bioenergy and geothermal energy. The Lake Turkana Wind Power Project is a great example of this, aiming to provide reliable low cost wind power to Kenya’s national grid. This has the outstanding capacity to provide approximately 18 per cent of the country’s current installed electricity generating capacity. The second reason is that many countries in Africa have, or are predicted to have, rapidly growing economies. This gives Africa the ability to take the lead in sustainable development as it increases growth in the renewable energy industry. As Africa’s renewable energy possibilities become increasingly recognised and technological innovation continues to progress, Africa will continue to provide new and exciting opportunities for energy sectors and investors.
So what role does government policy play in all of this? Government support in the form of long term energy targets as well as more specific regulatory policies varies wildly between countries and regions in Africa. A strong economy and a stable political scene are absolutely necessary if one is going to consider investing in a given country – and this is not to be taken for granted in Africa. Another key issue worth pointing out is the high probability of exchange rate fluctuation and with that, the devaluation of assets financed by foreign invested capital (please refer to pages 26&27 here for more information). South Africa is by far the leader and prime example of how other African countries can progress through a positive government attitude, strong capital investment and the right support mechanisms.
We would like to draw your attention to a few of the most interesting African markets. Firstly, Morocco is expected to be one of the fastest growing renewable energy markets in Africa over the next decade. Morocco has not looked back since launching the Moroccan Solar Plan in 2009, overseen by MASEN, and at the end of 2015, increased its renewable energy target to covering 52% of its power, a bold but worthy commitment. Morocco will host COP22 in November this year, which is especially interesting as its greatest hindrance is likely to be political instability and a poor business environment.
Second on our list is Nigeria. The government of Nigeria has a renewable energy masterplan, however, there is very little political will to actualize the goals. Fiscal policies such as tax exemption and subsidies on renewable energy products as well as regulatory policies such as net metering, are not in place. Currently, this has reduced a nationwide interest in renewable energy. However, we believe that Nigeria is at a turning point after the recent drop in the price of oil shook up the economy. The nation is beginning to realise that it must diversify its economy and look to take advantage of the high potential of markets like agriculture and energy. It is a very long way away at the moment, but Nigeria has the potential to become a leader in the West African market.
Last but far from least is Kenya. It combines strong government support (Vision 2030 in particular) with a great environment for geothermal energy and increasing domestic demand to form a market with huge potential. Kenya may lack substantial infrastructure at present, but excellently situated and with a strong economy and political stability just around the corner, it is sure to be a key African market in the next decade and beyond.
Summarizing, it is certain that the African energy market has great potential, however it simply must be at the forefront of Africa’s future if it is going to achieve anything like the success that it is capable of.
If you are interested in the African energy scene, particularly clean energy for real estate, please get in touch with James Winsbury to hear more about an industry leading workshop in Rwanda and the inaugural Sustainable Buildings Africa conference in 2017. James has been working with Africa Event Services for the past six months as Research and Programme Manager, speaking directly with the key players in energy markets across the African region. He has also had the chance to interact with the key real estate players through AES’ partnership with Bench Events, producers of the Africa Hotel Investment Forum.