The duel aims of rapidly reducing greenhouse gas emissions and providing greater access to energy for underserved regions of the world are proving to be a complex challenge in need of innovative solutions and major investment. Repeated warnings from scientists regarding the economic and environmental consequences of unabated carbon emissions have seen the topic of climate change increasingly appear on the agendas of companies and governments worldwide. In 2018 the UN’s Intergovernmental Panel on Climate Change released a special report titled “Global Warming of 1.5°C”, which stated that global CO emissions must be cut in half by 2030 and reach net zero by 2050 to avoid the planet warming by 1.5°C above pre-industrial levels, an ambition set out in the 2015 Paris climate agreement. At the same time, the International Energy Agency (IEA) notes that 850m people around the world lacked access to electricity in 2019, a service that is desperately needed to raise development outcomes and transform livelihoods. As such, huge volumes of new energy infrastructure are needed.
Many developing countries find themselves at a crossroads when deciding which new energy sources to invest in. On the one hand, conventional fossil fuel infrastructure has the backing of a well-developed industry with many skilled professionals, but its capital-intensive nature often requires a long-term commitment. Renewable energy, on the other hand – specifically off-grid solar home and mini-grid systems – offer a cost-effective, private sector-led solution that bypasses centralised grid models, effectively leapfrogging traditional stages of the energy development continuum.
Unlocking the full potential of renewable energy will be one of the central components of addressing the sustainable energy challenge. After years of development, renewables have proven themselves a viable, cost-effective alternative to fossil fuel. They are currently the fastest-growing energy source in the world, according to BP, and the company predicts renewables will make up half of the growth in global energy supplies by 2040 and be the largest source of power. Renewable energy has indeed been expanding rapidly in developing countries, and at a rate that exceeds developed economies. Emerging markets accounted for approximately 70% of new global investment in renewables in 2018. China has been driving the market, while Abu Dhabi, Dubai, Saudi Arabia, Chile, Mexico and Peru have witnessed record low prices for green energy in recent years.
Decreasing costs mean renewables are becoming increasingly cost-competitive in relation to fossil fuels. Significant progress has been made in leveraging technology across the supply chain, lowering prices and improving performance. This trend is being observed not only for renewable energy sources, but also for electric vehicles and batteries. The International Renewable Energy Agency expects all renewable technologies to fall within the fossil fuel cost range by the end of 2020.
Renewable Energy Goals
A growing number of countries have adopted ambitious targets for the deployment of renewable energy. Government goals and investments made by the public and private sector provide insight into the extent to which countries are locking themselves into fossil fuel infrastructure or moving into the renewables space.
Kenya has become a leader in Africa in terms of renewable energy. The country launched the continent’s largest wind farm in July 2019 as part of its goal of generating 100% renewable energy by 2030. Morocco, meanwhile, has also become well known in the renewables space with major projects such as the Noor Solar Complex. The North African nation has the goal of producing 42% of its electricity from renewable sources by 2020, and 52% by 2030. Other important developments are seen across the continent. Egypt’s 1.5-GW Benban solar complex, finished in October 2019, can provide renewable energy to more than 1m homes and is helping the country reach its target of achieving 20% renewable generation in the electricity mix by 2022 and 42% by 2035. Nigeria aims to generate 30% of its electricity from renewables by 2030, while South Africa has proposed 14.4 GW of new wind power capacity to be installed between 2022 and 2030 – a large increase from the 1.9 GW installed as of 2019.
In Asia, meanwhile, Sri Lanka has a goal of generating 60% of its energy from renewables by 2030, with a particular focus on wind. Papua New Guinea is targeting 35% renewable generation by 2030 and 100% by 2050, with significant hydropower projects in progress.
Across the ocean, Mexico has a goal of 35% renewable energy by 2024, with over 21 GW of renewable capacity under development as of September 2019, including almost 12 GW of solar and nearly 7 GW of wind. Colombia produced 65% of its electricity from hydropower in 2019, and aims for renewable sources as a whole to make up 30% of generation by 2030.
While renewables currently account for a fraction of the Gulf region’s overall energy mix, the percentage is set to grow. Saudi Arabia has a target of 58.7 GW of installed solar and wind capacity by 2030, with 3.1 GW worth of projects being tendered in 2019, mostly in the solar segment. The UAE has a 44% renewables target for 2050, while Dubai, specifically, has set a 75% target. Abu Dhabi recently started commercial operation of its 1.2-GW Noor Abu Dhabi solar plant, and Dubai is developing the 5-GW Mohammed bin Rashid Al Maktoum Solar Park, set for completion in 2030. It will cover an area of 80 sq km, providing power to approximately 1.3m homes. Bahrain has announced a target of having 10% renewable energy in its mix by 2035, and Oman and Kuwait are targeting 30% and 15% renewable power by 2030, respectively.
Fossil Fuel Investment
Despite ambitions to use more renewable sources of energy, conventional sources remain preferable in many quarters. Coal and gas are often singled out as cheaper and more reliable options, despite their environmental impact. Indonesia stands out as one of the world’s largest producers of coal, excavating around 485m tonnes annually. It is also a significant consumer, with domestic coal use set to double between 2018 and 2027. In addition, the country’s new 2-GW coal-fired Batang power plant is expected to come on-line in 2020. Vietnam is also planning to commission more coal-fired power plants, with coal set to increase its share in the electricity mix from 33% in 2018 to 43% in 2030. Overall, coal consumption remains elevated in Asia: while global demand recorded a decline during 2019, demand in Asia is expected to grow throughout the 2020s.
In the Gulf, countries are seeking to substantially diversify their sources of revenue, yet governments remain firmly in the oil and gas business. The UAE plans to increase its oil production capacity to 4m barrels per day (bpd) by the end of 2020 and to 5m bpd by 2030. Kuwait, home to vast reserves of heavy crude, is increasing its heavy oil production from 60,000 bpd in 2019 to 110,000 bpd by 2030, in addition to boosting non-associated gas production capacity. As the region shifts to higher output, fossil fuels are set to remain the foundation of producing countries’ development models and the predominant source of domestic energy use.
In Africa, Nigeria is seeking major new investment in its petroleum industry, reaching out to Saudi Arabia and Russia for support and expertise. South Africa is expected to maintain or grow coal in its energy mix, following the government’s October 2019 announcement that it would increase coal-fired energy production, which already accounted for 77% of electricity production in the country in 2019. At the same time, additional fossil fuel resources are being found in Africa, such as in Uganda’s Albertine Rift Basin. Exploration efforts are also continuing, with international companies heavily investing in Morocco to find new deposits. To the south, Côte d’Ivoire signed a number of contracts with European energy giants Total and Eni in 2019 to search for oil off its coast.
While debates continue over the kind of energy infrastructure to develop, access to that energy – particularly in rural regions – remains a challenge. Among those underserved areas, perhaps the greatest need is in sub-Saharan Africa. According to a May 2019 World Bank report, “without more sustained and stepped-up actions, 650m people [globally] will still be left without access to electricity in 2030. Nine out of 10 of them will be living in sub-Saharan Africa.” In Nigeria, Africa’s most populous country, around 70m people lacked electricity in mid-2019. The government has a target to increase access to 90% of the population by 2030, up from 57.7% in 2018. In developing Asia, some 350m people lacked access to electricity in 2018, according to the IEA. In Papua New Guinea only 13% of the population are connected to the grid. The country aims to reach a 70% electrification rate by 2030.
Bolstering access to energy has a strong economic rationale and can mitigate challenges to development. Access to lighting and steady electricity for greater computer use dramatically improves the prospects for economic productivity and wellbeing, while a lack of access to power or regular disruptions curb economic growth and leads to financial losses for companies. Goal 7 of the UN Sustainable Development Goals calls for universal access to affordable, reliable, sustainable and modern energy services by 2030. This is helping to accelerate demand for low-carbon and ultimately net-zero emission energy systems. One option in this regard is off-grid solar power.
The IEA estimates that decentralised solar photovoltaic (PV) systems and mini-grids would be the most cost-effective solution for more than one-third of the global population that lack electricity, particularly in sub-Saharan Africa. Moreover, the African Development Bank (AfDB) has estimated that 40% of the continent’s new electricity connections will need to come from off-grid solutions. As a result, the region stands as an enormous untapped market for the deployment of renewable energies.
Traditional grid-based electrification models involve centralised power stations distributing electricity via transmission lines to urban areas. This works well in densely populated cities and large towns, however, this model is usually cost prohibitive in rural areas of developing countries. Furthermore, extending central grid infrastructure takes a significant amount of time, and populations in many underserved regions are growing faster than grid expansion can take place. Therefore, effectively combining off-grid and on-grid models is a way to help address the access gap.
Off-grid options include solar home systems, which are often PV rooftop panels and a battery pack that enable the charging of basic items such as light bulbs, mobile phones and radios. Productive Use Leveraging Solar Energy applications are a commercial option for small enterprise activities such as solar irrigation, milling and refrigeration. In addition, standalone mini-grids offer an electricity distribution network for small-scale needs. These off-grid solutions allow electricity to reach the most remote households and enterprises, while enabling less carbon-intensive development. Importantly, they offer a cost-effective solution by reducing the need of governments to invest in building largescale power plants and transmission infrastructure.
Significant progress is being made in the off-grid space: the World Bank notes that over 700,000 solar systems had been installed in sub-Saharan Africa by August 2019. The market has seen growing involvement from local and international companies, in addition to governments and multilateral organisations. As a result of decreasing costs and efficiency improvements in solar panels and batteries, private companies – notably distributed energy companies – have been able to enter the market and provide services where state utilities had previously struggled. New financing and investment structures have also emerged to support the growth of off-grid systems. The traditional structure involved investors building power infrastructure with governments committing to long-term purchasing agreements. Now, in order to support off-grid solutions, governments must create a supportive legal environment and facilitate lending for the expansion of distributed energy companies.
Although the segment is moving in a positive direction, much more financial backing and government regulatory support will be needed for future mini-grid developments. The World Economic Forum states that a significant investment and policy gap will leave 670m people without electricity by 2030 – 80% of which will be in sub-Saharan Africa – if effective action is not accelerated. The IEA, for its part, forecasts financing needs for mini-grids of $20bn-25bn annually to 2030.
Companies such as M-KOPA, BBOXX, ZOLA Electric and Lumos have brought a game-changing advancement. These firms offer home and mini-grid solar systems on a pay-as-you-go basis using mobile technology; customers pay using their mobile airtime credit. M-KOPA is a major player in Kenya and has been a pioneer of the pay-as-you-go solar model. BBOXX operates in 12 countries including Rwanda, Kenya, Togo, the Democratic Republic of Congo and Pakistan, while ZOLA Electric operates in Nigeria, Ghana, Rwanda and Tanzania. Lumos is the largest provider of off-grid solar in Nigeria, with around 100,000 customers in mid-2019. By offering a cost-competitive alternative, these businesses have helped replace diesel generators, which cost Nigerian customers about $70 per month to fuel. Lumos’ system, in contrast, involves a $40 start-up fee and monthly payments of $15.
In Mexico, while there is a high electrification rate, companies are working to fill the remaining gap. Around 2.5m people – or 2% of the population – do not have grid connectivity as they are too remote. A similar number have poor grid access, creating a market of 5m in need. Rural electrification company Iluméxico installed over 20,000 solar home kits between 2009 and 2019, assisting around 90,000 people.
A number of governments have been rolling out programmes to provide offgrid solutions. Both Kenya and Ethiopia have adopted universal electricity access targets, with Kenya aiming to reach its goal by 2022 under the Last Mile Connectivity Project. In addition to grid expansion, off-grid energy has a key role in the strategy. Ethiopia aims to achieve universal access by 2025 through its National Electrification Programme, which involves providing 35% of the population with off-grid solutions. In another important area, Nigeria has updated licensing and registration regulations for mini-grid providers, which has helped boost off-grid solar development.
In the Gulf, although Oman has a 100% electrification rate, the state-owned Rural Areas Electricity Company is developing 11 off-grid hybrid solar-diesel projects in isolated areas. These will be developed as independent power producer projects and will replace existing diesel mini-grid networks. Overall the projects will provide around 48 MW of solar power, 70 MW of diesel power and 28 MW of energy storage facilities.
\Among international development organisations, the AfDB launched a lending programme in July 2019 to support the expansion of distributed energy companies. The programme provides credit in local currency, helping to address the mismatch between traditional foreign exchange funding and customers paying in local currency. As part of the programme’s 2018 trial, a CFA15.75bn ($27.1m) loan was awarded to ZOLA Electric to provide off-grid solar solutions to 100,000 households in Côte d’Ivoire by 2020. The World Bank’s Lighting Global initiative, meanwhile, has had major successes in Papua New Guinea through its Lighting PNG programme: 60% of households were using off-grid solar technology in 2019, up from just 2% in 2012. This dramatic growth has made the country a world-leading market for offgrid solar. The World Bank’s Lighting Africa initiative is advancing similar programmes and aims to expand off-grid solar to 250m people by 2030.
In the continent’s west, meanwhile, the Nigeria Electrification Project has received significant international support. As part of the project, the Rural Electrification Agency has obtained $350m from the World Bank and $200m from the AfDB to subsidise companies supplying off-grid solar solutions. The funding is aimed at lowering feed-in tariffs and connecting roughly 1m rural households over a period of five years, beginning in late 2019.
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