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Transition Challenges in Sub-Saharan Africa

To guarantee a comprehensive understanding of the transition risk of a project before moving forward, it is important to examine the impact of the drive for net-zero on each target country.

As the home to numerous rare earth metals, Sub-Saharan Africa will undoubtedly play a key role in achieving the COP26 net-zero goals – as these metals will help facilitate the global shift to renewable energy. However, the transition needed to reach these goals will be challenging for the region.

To achieve the global goals or net-zero emissions, a nuanced approach to transition is needed for Sub-Saharan Africa. This approach will need to take into account the interplay between economic, political, regulatory forces in each country, as well as the state of its existing infrastructure.

Sub-Saharan Africa has diverse levels of progress with regard to power infrastructure, and varying degrees of policy and regulation. This means that different countries will need space to go through the transition at a largely different pace across the region. Cutting through the spectrum of requirements for transition in the region, there are particular scenarios that need to be addressed. Indeed, with a more transparent approach to transition in Sub-Saharan Africa comes better understanding of the challenges and risks ahead.

Economic limitations

In some countries, there is a significant lack of power infrastructure. Focus may need to be given to economic growth to facilitate the transition. This will require investment and policymaking; also, some parts of the sustainability value chain may need to be compromised in order for these countries to keep pace. At COP26, leaders from around the world acknowledged the need for flexibility in terms of policy and expectations in order for all countries to have a fair and just transition.

Limited Infrastructure/Limited policy and regulation

In some cases, lack of power infrastructure is an enabler of change. Similar to the rapid implementation of mobile communication in Sub-Saharan Africa, the absence of legacy power infrastructure can mean that innovations can proceed with limited impediment. One great example of this would be Namibia, which has a plentiful supply of renewable energy from solar and wind. As Namibia does not have a large energy requirement, there is also potential for the country to become a net-exporter of sustainable power in the region.

However, the lack of power infrastructure is often accompanied by a lower degree of policymaking and regulation; there may also be challenging political environments to content with. These are risks that investors in this opportunity-rich countries will have to contend with.

There is also a time-consideration needed for countries that present a blank canvas from a policy and regulatory standpoint – agreements will need to be established with government and through the chain to ensure projects are moving in the right direction.

Mature governance/Legacy Infrastructure

At the other end of the scale are countries like South Africa and Nigeria. These have established governance frameworks, with policy in place and have more mature regulatory environments. South Africa has strong policymaking in place for driving forward renewable energy infrastructure and power generation. This has seen significant investment flow into the country.

These bigger economies, however, tend to have a larger reliance on hydrocarbons. Not only are hydrocarbons paramount to the strength of these economies, but also they are essential to existing power infrastructure. Those investing in these more established countries will need to contend with legacy infrastructure; though these countries present a more typical transition, they may require significantly more investment to tackle these legacy barriers.

In summary

Investors, and developers of renewable energy projects, will need to take a heterogeneous approach to the transition in Sub-Saharan Africa. The impact of the drive for net-zero on each country of interest should be assessed to ensure a clear view of the transition risk of a project ahead of moving forward.  Opportunities comes in many forms, and resilience is key to maximising success.

Authors

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Mark Walshaw

Renewable Energy Leader, Middle East and Africa

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Shivan Hutton

Managing Director, Head of Marsh Specialty Africa