Paul O’Flaherty - EY Parthenon Africa Leader

Our recently released EY Africa Attractiveness Report 2023 highlights below some of the challenges and opportunities that are present in the continent’s energy sector.

In 2023, South Africa's struggle with power outages and slow reforms highlighted the energy challenges facing Africa. The economy grew by a mere 0.2%, significantly below the 5% target. The impact of these power outages has been severe – costing the economy $50-million daily due to disrupted operations. This electricity crisis, however, is not just a South African issue but one of concern across the continent.

Despite this, Southern Africa, led by South Africa, attracted significant foreign direct investment (FDI), with a notable focus on CleanTech. South Africa alone witnessed a remarkable rise in solar rooftop photovoltaic (PV) installations. This surge in CleanTech investment is not just confined to South Africa. Countries like Zimbabwe, Mozambique and Egypt are also seeing significant projects, ranging from biodiesel and solar PV to large-scale green hydrogen plants.

Egypt also stands out. The country has attracted substantial investments despite economic hurdles. Its initiatives in green hydrogen and renewable energy have drawn major global players, positioning it as a key FDI hub in Africa.

Investment Potential

The report also highlights various initiatives across the continent. In Morocco, significant investments are flowing into technology and renewable energy. Kenya's focus on geothermal and wind power is attracting investors, while Tanzania and Ethiopia are advancing in geothermal power. Nigeria's collaboration with international partners for solar power and battery storage capacity is a step towards diversifying its energy portfolio. Côte d’Ivoire is also not far behind, with significant PV plant projects underway.

An interesting insight from the report is the concentration of clean energy investments in just a few African countries. South Africa, Egypt, Morocco and Kenya collectively account for a significant portion of renewable energy investments since 2010. However, the potential for expansion elsewhere is immense, given the continent's abundant solar, hydropower and wind resources.

The International Energy Agency and the International Renewable Energy Agencyhave highlighted the need for massive investment in sustainable and affordable power infrastructure in Africa. With appropriate policies, a shift toward renewable energy could substantially boost GDP, create jobs and improve overall welfare.

Countries like the UAE, France, India and the UK have been leading the charge in Africa's renewable investment push. From massive green hydrogen projects to large-scale renewable energy capacity, these investments are reshaping Africa's energy landscape.

Job Growth

The global energy transition, particularly in solar and wind investments, is creating employment opportunities across the continent. In 2022, CleanTech and energy sector FDI was responsible for a significant portion of job creation.

However, to meet the Sustainable Development Goals (SDGs) and global warming targets, Africa needs to mobilise substantial investments. Both the private sector and foreign investors play crucial roles here. The continent's energy systems require significant investments to transition effectively towards cleaner energy.

Energy Transition Challenges

EYs recent report — If every energy transition is different, which path will accelerate yours? -- positions that the global energy system has transformed before, but not like this, and not this fast. The report notes that previous transitions have been driven by new technologies and achieved through market forces. These play a part in this change too, as well as a changing consumer behaviour, but the primary aim this time is far more ambitious: the world needs to rewire the entire global economy to meet an urgent environmental imperative.

The report goes on to note further that while individual transitions will proceed at different speeds, depending on individual markets’ motivations and resources, all will now move ahead at pace. We are entering a decade of disruption, shaped by new technology and underpinned by government policy. The build-out of renewables to date has been relatively simple compared with what comes next. Decarbonising a largely hydrocarbon-powered industrial sector is the far more difficult challenge — and our ability to tackle it will determine the ultimate success of the world’s transition to clean energy.

Complicating the matter further is the urgency of the matter and how the science, as the motivator for the urgency, divides the market. Never before have we had to solve for such complexities.

Making this all happen will require governments to face tough choices, balancing economic and environmental priorities to set policy that sends the right signals to the market and, ultimately, all of us. Energy transitions in every country will only succeed if they deliver more value to industrial consumers and end users — you and me — and this requires clean energy solutions that are genuinely better and cheaper.

Closer to home, South Africa’s Just Energy Transition Plan (JET-IP), approved in November 2023, estimates that our country’s energy transition would require ~R1 480-billion through to 2027, allocated as follows:

This requirement sees investment in the electricity sector at a national level over the following five years of ~R647.7-billion, focussed on:

The International Partners Group, consisting of the Governments of South Africa, the US, the UK and the European Union, have pledged $8.5-billion thus far to fund these initiatives. In addition, the World Bank, Germany’s KfW bank and the African Development Bank have committed a further $1.9-billion.

Alongside this, South Africa’s Integrated Resource Plan (IRP) 2023 is out for public comment by  February 23, 2024. It models two time horizons, one to 2030 and one from 2031 to 2050.The draft plan attempts to balance the security of supply over the medium term together with the commitments made by South Africa under the Paris Agreement and, in particular, the future of the Renewable Energy Independent Power Producer (REIPP) programme. It is clear that material planning is going into what a future energy mix could look like, and that this planning must consider cost and funding sources, but also ensure security of supply. It is critical that this funding load is spread in a commercially viable manner across an energy mix that is not only fit-for-purpose, but also fit-for-pocket.

This goes not only for generation, but also for transmission, where the ~R132-billion ask could, potentially, not be borne by Government alone. The biggest constraint will remain supporting transmission infrastructure – the governance between REIPP and private generation will have to be clarified. Whilst the reforms have created a pipeline of 9 000 MW of private renewables projects, it did, unfortunately, mean that the wind projects under REIPP could not be allocated due to grid allocation having been made to IPPs outside of the REIPP.

The EY Africa Attractiveness Report 2023 provides valuable insights into the energy sector's current state and future potential of the continent. The challenges are evident, but the opportunities for growth, particularly in renewable energy, are immense and ripe for exploration.

To read the full report, please click here.

The new EY report — If every energy transition is different, which path will accelerate yours?  – is a practical, positive guide to the future of our energy system, rich in evidence-based insights, real-life examples and the steps you can take today to mitigate risk and maximise opportunity

To read the full report, please click here.