Developing Africa's Energy

Climate Policy

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Developing Africa’s energy mix

Gregor Schwerhoff & Mouhamadou Sy

To cite this article: Gregor Schwerhoff & Mouhamadou Sy (2018): Developing Africa’s energy mix, Climate Policy, DOI: 10.1080/14693062.2018.1459293 To link to this article: https://doi.org/10.1080/14693062.2018.1459293

Published online: 05 Apr 2018.

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SYNTHESIS ARTICLE Developing Africa’s energy mix Gregor Schwerhoffa and Mouhamadou Syb aMercator Research Institute on Global Commons and Climate Change (MCC), Berlin, Germany; bInternational Monetary Fund, Washington, DC, USA

ABSTRACT ARTICLE HISTORY Africa is growing rapidly both in terms of population size and economically. It is also Received 22 November 2017 becoming increasingly clear that fossil fuels impose a high price on society through Accepted 27 March 2018 local environmental pollution and Africa’s particular vulnerability to climate change. At the same time, Africa has an excellent renewable energy potential and prices for KEYWORDS Africa; development; energy renewable energy are reaching the price range of fossil fuels. Comparing results mix; sustainability from state-of-the-art Integrated Assessment Models we find different options for achieving a sustainable energy supply in Africa. They have in common, however, JEL CLASSIFICATION that strong economic development is considered compatible with the 2°C climate O13; O44; Q01; Q48 target. Taking both challenges and appropriate solutions into account, some models find that a complete switch to renewable energy in electricity production is possible in the medium term. The continental analysis identifies important synergy effects, in particular the exchange of electricity between neighbouring countries. The optimal energy mix varies considerably between African countries, but there is sufficient renewable energy for each country. The intermittency and higher capital intensity of renewable energy are important challenges, but proven solutions are available for them. In addition, we analyse the political economy of a sustainable energy transition in Africa.

Key policy insights . An almost complete shift towards renewable energy (RE) is considered feasible and affordable in Africa. . By 2050, electricity generation could be sourced largely from solar, wind and hydro power. . Prices for RE in Africa are now within the price range of fossil fuels, partly due to the excellent RE potential. . The optimal energy mix varies strongly between countries, but RE is sufficiently available everywhere. . Addressing intermittency is possible, but requires investments and cooperation on the grid.

1. Introduction The current energy mix in Africa reflects the energy endowments of the continent, but also the technologies of the past. Although the total amount of energy produced in this way is still insufficient, the energy mix was comparatively cheap and, until recently, externalities were not considered a major problem. Two recent develop- ments have changed this overall perspective. First, it has become increasingly clear that fossil fuels are leading to climate change and local environmental pollution. These effects in turn are causing significant damage to welfare and, via health impacts and increasing heat, to the productive capacity of Africans. Second, the available technologies have changed significantly. It is thus fortunate for the continent that it is not only endowed with fossil resources, but also with the best renewable energy sources worldwide. Africa

CONTACT Gregor Schwerhoff [email protected] Mercator Research Institute on Global Commons and Climate Change (MCC), Torgauer Straße 12-15, 10829 Berlin, Germany © 2018 Informa UK Limited, trading as Taylor & Francis Group 2 G. SCHWERHOFF AND M. SY has the opportunity to combine new technologies with its own resources to achieve an energy mix that will not only allow it to develop rapidly, but also to build this development on a sustainable basis for future generations. Although developing the electricity supply is the responsibility of the individual African governments, some degree of analysis at the continental scale is useful. Important synergies can be realized at the international level, in particular in the development of the electricity grid. Continental aggregates can be used to study the com- patibility of the energy mix with the UN’s Sustainable Development Goals, and with the 2°C target for global warming fixed in the 2015 Paris Agreement. In addition, there are similarities between countries that allow for the transfer of some general insights to the individual country situations. As a first contribution, we present energy mix scenarios for Africa from five highly detailed, well-documented energy-economy models from the peer-reviewed literature (see Figure 1 for a list of these models). The comparison of these model results shows important similarities and differences between them. All of the models see an

Figure 1. Energy mix in Africa. Source: Author’s calculation using the LIMITS database (Kriegler et al., 2013; Tavoni et al. 2013; Jewell et al. 2016). The database is available at https://secure.iiasa.ac.at/web-apps/ene/LIMITSDB/. CLIMATE POLICY 3 opportunity for Africa to rapidly develop its economy with sufficient energy while respecting the 2°C target. The models also expect that a number of different energy sources will be used, because some of these sources are complementary and because the best locations are limited. A very important share will come from renewable sources, mainly solar, wind, hydropower and biomass. While most models consider renewable energy as the main approach to climate change mitigation, others expect carbon capture and storage (CCS) or nuclear energy to be the best option (see Section 2.1). As a second contribution, we investigate the effect of heterogeneity within Africa on the best choices for the energy mix in the individual countries across the continent. While the potential for solar power is very good throughout the continent, wind power and biomass potential are more concentrated, at the coasts and in central Africa, respectively. We conduct case studies of Nigeria, South Africa and Kenya to analyse how local conditions and political factors influence the optimal energy mix. As a third contribution we analyse how plans for a reliable energy mix can be implemented on the ground in Africa. We discuss the major challenges for the use of renewable energy: intermittency, the relative cost of renewable and fossil fuels, higher capital intensity and political economy. We then show that a wide range of options for the financing of an improved energy mix can be taken and which policies are the most promising. We also present some of the existing tools to plan the energy mix of a country systematically. This article is related to studies of the energy mix at the global level. These studies address the question whether particular targets for climate mitigation can be reached and to which extent the different technologies can contribute. McCollum et al. (2013) compare the results from several Integrated Assessment models (IAMs). They find that reaching the 2° target requires significant additional investments into low-carbon energy. For Africa, the study finds that the target requires an increase in investments into renewables from 1–3to13–72 billion US$ annually, while it would leave some space for the use of fossil fuels. Recent studies focus on specific technical questions such as the feasibility of climate mitigation with sub-optimal policies (Bertram et al., 2015) and the systematic underestimation of solar power potential in previous studies (Creutzig et al., 2017). Compared to these studies, we focus specifically on Africa and on the policy options for implementing powerful and sustainable energy provision. The Africa Energy Outlook (IEA, 2014) offers a comprehensive analysis of future energy use in Africa. However, the study does not take climate mitigation targets into account, suffers from the previously mentioned underestimation of solar energy and has a comparatively short time horizon until 2040. Lucas et al. (2015) study the energy system in Africa and focus on aggregate indicators such as total emissions, energy access and fuel exports. Calvin, Pachauri, Cian, and Mouratiadou (2016) consider different drivers of the energy mix in Africa for scenarios with no and moderate (550 ppm) climate policy. Leimbach, Roming, Schultes, and Schwerhoff (2018) study the aggregate cost of climate policy for Africa, finding benefits of mitigation to be of roughly the same size as the cost. In this article we study the energy mix required for fuelling rapid growth within the limits of the Paris Agreement, that is 2°C global warming,1 and combine it with an analysis of the obstacles and policy options to implement it. Today’s decisions also create a future bias towards today’s choices through infrastructure, government institutions and their interaction (Unruh 2000). Given the effects of fossil fuel use on health and the environment, this kind of ‘lock-in’ effect should be considered as an externality of today’s decisions on the decisions of the future. This is important when considering that African governments are currently planning to construct a number of coal power plants (Shearer, Ghio, Myllyvirta, Yu, & Nace, 2017) and how difficult it is for western governments to decarbonize their coal-based energy systems (Spencer et al., 2018). In Section 2 we review the available literature on the future development of the energy mix in the continent of Africa. We then highlight regional variations within Africa and present case studies for Nigeria, South Africa and Kenya in Section 3. In Section 4 we take a closer look at the major challenges for implementing a sustainable energy mix in Africa. We conclude in Section 5.

2. The continent’s energy mix Developing an energy mix that will fuel Africa’s rapid development, avoid health damages and mitigate climate change is a complex task. The path-dependent development of technology and the long life-time of the infrastructure require long planning horizons. Several large-scale models take many detailed aspects of African 4 G. SCHWERHOFF AND M. SY development into account and model them jointly. We present below the most important results from some of the most prominent models.

2.1. Integrated assessment models (IAMs) In the context of the LIMITS project (Low climate IMpact scenarios and the Implications of required Tight emission control Strategies)2 (Kriegler et al., 2013) five prominent large-scale models have been compared and the results made available in a public database online. Using this database, we compare the optimal energy mix in

Africa across these models for a 450 ppm scenario (see Figure 1). Keeping the CO2 concentration in the atmosphere below 450 ppm will likely keep global warming below 2°C, in line with the Paris Agreement.3 The models have been developed independently so that results vary to some degree. For detailed information on the used models, see the indicated references. Even though the results differ in the details, they show some remarkable similarities. First, effective climate change mitigation is seen as compatible with rapid development in Africa. This is reflected in a several-fold increase in energy production throughout the century. While the mitigation scenario required the model to stay within a carbon budget and to generate economic growth, the feasibility of such a scenario is not given by assumption. See Rogelj et al. (2015) and Riahi et al. (2015) for studies exploring the limits of feasibility in climate mitigation. Second, a wide variety of energy sources is used according to all five models. This reflects the different energy potentials in Africa as well as limitations on each of the sources. Biomass, for example, is limited by the total amount of land available and the necessity of producing sufficient amounts of food. Wind- and hydropower are limited by the amount of adequate locations. The use of fossil resources is limited by the upper bound on CO2 emissions. A third commonality across models is the heavy use of biomass. Conditions for growing biomass are very good in Africa and, as both food and biomass production are expected to become increasingly efficient, the production of biomass can be expected to increase. An important advantage of biomass is that the CO2 released from its combustion has been previously withdrawn from the atmosphere during the biomass crop’s growing phase, so that the technology is climate neutral. Fourth, in all models, carbon capture and storage (CCS) is used intensively. CCS is an important technology as it allows the continued use of fossil fuels without accelerating climate change. In combination with biomass, CCS can remove CO2 from the atmosphere and thus help stabilize the climate through ‘negative emissions’ (Peters et al., 2013). The combination is termed Bio-Energy with Carbon Capture and Storage (BECCS). The differences in the results reflect different modelling assumptions. The models MESSAGE, REMIND and TIAM-ECN expect renewable energy sources to play a decisive role. Solar energy is dominant in all three cases. Prices for solar energy are expected to continue decreasing to become increasingly affordable. In addition, conditions for solar energy are excellent in Africa as the sunshine is not only intense, but also much more reliable than in other world regions. Taking a different approach, the model IMAGE is optimistic on prices and storage availability for CCS so that it finds it optimal to combine coal with CCS on a large scale. The model GCAM is similarly optimistic on the potential for nuclear energy.

2.2. The recent shift towards renewable energy The inter-comparison between models is helpful to understand the commonalities and differences of separate large-scale projections of the energy mix in Africa. Recent research allows us to identify in which way these projections might be shifting. BECCS remains untested on a large scale and there are indications that public accep- tance might become an obstacle. It could thus be risky to strongly rely on the technology (Fuss et al., 2014; Honegger & Reiner, 2018). The technology of CCS is still considered viable (Celia, 2017), but cost may be higher than anticipated (Rubin, Davison, & Herzog, 2015). In addition, there are concerns that it may not be possible to use biomass within planetary boundaries (Heck, Gerten, Lucht, & Popp, 2018). The cost of nuclear energy seems to exceed previous estimates (Gilbert, Sovacool, Johnstone, & Stirling, 2017; Grubler, 2010; Koomey, Hultman, & Grubler, 2017). CLIMATE POLICY 5

The potential of solar energy, by contrast, has been underestimated (Creutzig et al., 2017). Reasons are that the technology developed faster than expected and was actively encouraged through public incentive schemes. These two drivers are reinforcing each other: Historically, when the amount of installed capacity doubled, module cost dropped by 22.5% (Creutzig et al., 2017). This means that early subsidies kick-started the technology and brought down cost to a range where subsidies are often no longer needed. In addition, solutions to overcome obstacles to large-scale deployment of solar power seem increasingly realistic. These obstacles are the intermittency of solar energy and the upfront financing structure, both of them particularly virulent in Africa (see Section 4). Compared to the results presented in Figure 1, the recent development in solar power means that it could be employed to a greater extent and sooner. A share of 50% solar power for Africa could be the cheapest option even before 2050 (Creutzig et al., 2017). In another model comparison study, Pietzcker et al. (2017) find that including technologies for dealing with intermittency changes model results towards much higher shares of variable renewable energy (VRE). These technologies are (i) making the conventional power plants more flexible, (ii) allowing for more pooling with transmission grid extension, (iii) adjusting demand to supply and (iv) energy storage. As a result, the optimal electricity mix in Africa would rely almost exclusively on VRE already in 2100 (Luderer et al., 2017) or even in 2050 (Ueckerdt et al., 2017, Figure 10). The International Renewable Energy Agency (IRENA, 2015b) provides an analysis for the energy mix in individual regions within Africa up to 2030 using IRENA’s SPLAT Model. This includes an energy mix in each individual country under a ‘Renewable-Promotion Scenario’ for 2030. After 2020, all additional capacity is expected to come from renewable energy. In line with these model projections, Eberhard, Gratwick, Morella, and Antmann (2017) show that renewable energy is breaking through in Africa, both in the amount of new installed capacity and in the price. According to data from IRENA (2017d), renewable energy capacity in Africa has increased from 27.344 MW to 38.285 MW between 2011 and 2016. In the same period, capacity in wind energy increased from 1.035 MW to 3.862 MW and capacity in solar energy increased from 405 MW to 2.973 MW. Currently, Africa contributes a very small share to global carbon emissions. It could thus be questioned whether it should exert extra efforts to make energy generation sustainable. The main point in this debate is that Africa is expected to grow rapidly. Population is expected to grow by a factor of 2 to 3 up to the year 2100 (United Nations, 2013). Gross domestic product (GDP) per capita is expected to grow by a factor of 9 to 26 (Lucas et al., 2015). The carbon intensity of energy generation in Africa will thus start to matter at the global scale soon. In addition to contributing to climate policy, low-carbon energy production has considerable positive co-benefits for public health (Barron & Torero, 2017; West et al., 2013).

3. Country-specific aspects of the energy mix In the previous section we have seen that the five models presented in Figure 1 point to the importance of renewable energy sources in the long run. Studies such as IRENA (2015b) and Ueckerdt et al. (2017) propose adding almost only renewable energy to the energy mix in Africa even in the short and medium term as this would decarbonize the energy system without using CCS. In this section, we analyse how this strong emphasis on renewable energy breaks down to individual countries. In Section 3.1 we consider the geographic determinants that shape regional specifics in the energy mix. In Section 3.2, we analyse what a shift towards renewable energy would mean to three countries in Africa and how it aligns with national interests. A switch towards renewable energy can only be successful when local decision makers are convinced of the advantages. Nigeria, South Africa, and Kenya have been chosen as large represen- tatives of different regions. We chose Kenya for East Africa as there seems to be more literature available than for the more populous Ethiopia and Tanzania. Most of the country-specific analyses have been conducted by researchers based in the respective countries, thus giving them credibility in terms of local knowledge and consideration of local interests. It further highlights that governments can draw on local expertise when developing their energy mix. 6 G. SCHWERHOFF AND M. SY

3.1. Geographic determinants Concerning the status quo of energy use, Africa can be clustered into three regions, Northern Africa, Sub- Saharan Africa (without South Africa) and South Africa. In Northern Africa, electricity access is at 99% and electricity is generated mainly by gas and oil (IRENA, 2015a). In Sub-Saharan Africa, electricity access is at 29%. In all its sub-regions more than 70% of primary energy comes from traditional biomass4 (IEA, 2014, Figure 1.12) and more than half of electricity generation comes from hydropower (Mandelli, Barbieri, Mattarolo, & Colombo, 2014, Figure 6). In South Africa, electricity access is at 77% and electricity production is dominated strongly by coal. In terms of absolute numbers, the challenge of electricity access is concentrated on Nigeria, Ethiopia and the Democratic Republic of Congo with 93, 70 and 60 million people without access to electricity, respectively (IEA, 2014, Figure 1.6). While Sub-Saharan Africa will thus have to prioritize providing a basic level of access, Northern Africa and South Africa will find that their existing energy system cannot be scaled up as their economies grow without coming into conflict with the Sustainable Development Goals concerning health and the environment. It is thus fortunate that Africa is the continent with the best renewable energy potential (Krewitt et al., 2009). Which types of renewable energy to use, however, depends on regional characteristics. The potential for solar power is great throughout Africa (see for example Figure 2 in Huld, Müller, and Gambar- della (2012)). Spain, which has the best potential for solar power in Europe, is coloured in blue, indicating low potential compared to the entire African continent. The potential for wind power is more concentrated, in particular at some of the coasts (see Figure 7 in Mentis, Hermann, Howells, Welsch, and Siyal (2015)). The coasts of Somalia, Western Sahara, and South Africa have wind potentials between ‘good’ and ‘superb’. Figure 1 in Beringer, Lucht, and Schaphoff (2011) shows that bioenergy potential is concentrated in central Africa. Bioenergy production, however, is in competition with agricultural land use and biodiversity. All statements about the potential must thus be considered in light of these competing uses. When taking these other uses into account, bioenergy still has important potential in Africa (Creutzig et al., 2015; Wicke, Smeets, Watson, & Faaij, 2011).

3.2. Case study: Nigeria Apart from traditional biomass (80.0% of the Total Primary Energy Supply, TPES), energy production in Nigeria in 2015 was based almost exclusively on fossil fuels with 19.6% of TPES (IEA, 2018). Concerning the future prospects of fossil fuels as an important energy source for Nigeria, however, many factors need to be considered. When comparing the resources in the ground with current annual production, the resources appear to be abundant (Oyedepo, 2012, 2014). Nevertheless, these resources are perceived to be ‘near depletion’ (Aliyu, Dada, & Adam, 2015; Shaaban & Petinrin, 2014)or‘fast diminishing’ (Ohunakin, Adaramola, Oyewola, & Fagbenle, 2014). This apparent contradiction can be explained by the difference between physical and economic availability. The IEA (2014) points out the high cost of producing in Nigeria owing to small oil fields, swampy terrain and high expenses for security, so that some of the large international oil companies have decided to divest from onshore activities in Nigeria. Offshore resources are available, but again, costs are high. The high expense of providing security for the extraction facilities is due to the stark inequalities and local pollution caused by oil extraction itself, affecting the livelihoods of a large part of the population and contributing to violent conflicts (Obi, 2010). In addition to the cost of fossil fuel extraction to the industry, society bears further costs in the form of externalities. Ohunakin et al. (2014) describe an over-dependence on fossil fuels in Nigeria, which threatens energy security owing to the exposure to reductions in production capacity. Aliyu et al. (2015) add that oil price fluc- tuations and conflicts originating in the oil producing region affect the political stability of the entire country. Each step of the process (extraction, transportation and combustion of fossil fuels) causes local air pollution and CO2 emissions (Oyedepo, 2012). It should be emphasized that the critical perspective on fossil fuels described here does not reflect a selective reading of the literature, but that all current research on energy in Nigeria strongly favours renewable energy. Conditions for renewable energy production are generally excellent in Nigeria (Ohunakin et al., 2014). The best conditions for both wind and solar energy can be found in the northern part of the country (Mohammed, Mustafa, Bashir, & Mokhtar, 2013). Where electricity demand is low and the national electricity grid is far, wind, CLIMATE POLICY 7 solar photovoltaic (PV) and micro-hydro systems are already less expensive than grid electricity or diesel generators (Shaaban & Petinrin, 2014). In addition, there is a significant potential for bioenergy from crop residue, animal waste and municipal solid waste (Mohammed et al., 2013). Several articles identify government policy as an important determinant of energy access and renewable energy deployment in particular. The greatest challenges are identified as different forms of low human and physical capital as well as weak governance (Oyedepo, 2012). The government has, for example, implemented the ‘Nigerian Biofuel Policy and Incentives’ in 2007. This produced some initial results, but a large-scale trans- formation will require much stronger commitment (Ohimain, 2013). Ohunakin et al. (2014) identify a list of barriers to the extension of solar power, which also include technical and financial challenges. Policy recommendations on how to improve the situation are included in almost all of the publications cited on Nigeria. The most important ones are improved governance, targeted investments in energy infrastructure, sup- porting renewable energy through policies such as feed-in-tariffs and raising awareness among the general population. Gujba, Mulugetta, and Azapagic (2011) analyse future scenarios for the energy mix in Nigeria. A scenario based on fossil fuels has the lowest upfront capital costs, but suffers from much higher annual costs and environmental impact. A sustainable development scenario by contrast would require higher capital investments than planned by the government. Despite this need for additional efforts, there are encouraging signs in Nigeria concerning the planning of the electricity grid. According to Gatugel Usman, Abbasoglu, Ersoy, and Fahrioglu (2015) progress has been made recently as regulation has improved, private investors were encouraged to enter the electricity market and renewable energy has been actively boosted. In its nationally determined contribution (NDC) in the context of the 2015 Paris Agreement, Nigeria declares an objective of 20% emission reductions compared to business as usual by 2030. This would increase to 45% with international support. In addition, Nigeria intends to install 13 GW of off-grid solar PV by 2030. According to Nigeria’s ‘Renewable Energy Master Plan’, Nigeria is aiming to achieve a share of 36% renewable energy in 2030. Although policy makers are taking the SDGs and the Paris Agreement into account (Edomah, Foulds, & Jones, 2017), the Nigerian government declares an intention to increase the exploration and exploitation of oil resources (Nigeria Budget Office, 2016).

3.3. Case study: South Africa South African electricity production is dominated by coal power, the most environmentally harmful form of energy generation. How much South Africans themselves resent the local and global harm done by coal power is described by Rafey and Sovacool (2011). A quarter of the respondents to a survey by the government explicitly supported renewable energy (IEA, 2014). At the same time the lack of electricity causes a massive loss of industrial production (Bohlmann, Bohlmann, Inglesi-Lotz, & van Heerden, 2016) and environmental harm in the form of stimulating fuelwood use (Matsika, Erasmus, & Twine, 2013). Three quarters of the respondents to the mentioned government survey stated that the first priority of energy policy should be to keep energy prices low. As Edenhofer (2015) highlights, coal has the advantage of being cheap, in particular when taking the intermittency of renewables into account. Rafey and Sovacool (2011) show how the proponents of coal emphasize its role for economic development and energy security. The perceived trade-off between costs and environmental damage thus sets the scene for the development of the energy mix in South Africa. According to Altieri et al. (2016), however, economic and environmental objectives can be achieved simultaneously in South Africa. Based on a model study, they find that a strong industry growth can continue and unemployment can be reduced by more than half between 2010 and 2050, while per capita emissions would reduce by 62%. This would be achieved by retiring coal-fired power plants and con- structing solar and wind powered plants. That the heavy reliance on coal for electricity generation is at odds with sustainable development (Sebitosi & Pillay, 2008), and that South Africa’s fuel mix needs to change (Winkler & Marquand, 2009), has long been highlighted. In spite of vested interests constraining policy, an intention emerged to increase efficiency and reduce the carbon footprint of electricity in South Africa (Tyler, 2010). In response, South Africa’s Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) was launched in 2011 and after 8 G. SCHWERHOFF AND M. SY initially high costs proved quite successful (Walwyn & Brent, 2015). The IEA (2014) considers it to be ‘well- designed’. The most recent trend is that the cost of coal and the cost of renewables have approached each other, with the costs for coal increasing and those for renewables decreasing. The IEA (2014) points out that the Witbank coal fields, which have been exploited so far, are nearing exhaustion and that moving to other coal fields requires new infrastructure investments and will put upward pressure on costs. The construction of the new coal-based power stations Medupi and Kusile have experienced rising costs (Walwyn & Brent, 2015). At the same time, the costs for renewable energy, and solar power in particular, have been steadily falling for a long time. Figure ES 1 in IRENA (2016) demonstrates this on actually implemented solar PV projects in Africa. Walwyn and Brent (2015) claim that the actual costs of generation from wind, hydro, geothermal, and solar PV are already below those for conventional coal. The IEA (2017) also expects a drastic fall in the costs of solar PV, and acknowledges that costs are already in many cases as low as those of fossil fuels. An interesting addition in the debate of fossil fuels versus renewable energy is the economic viability of hybrid power systems in remote areas (Dekker, Nthontho, Chowdhury, & Chowdhury, 2012).

In its NDC, South Africa intends to limit its GHG emissions to between 398 and 614 MtCO2e over the period 2025–2030. This is equivalent to a 20 to 82% increase in emissions compared to 1990. This is rated as ‘highly insufficient’ by the Climate Action Tracker (CAT).5 Among the reasons for this rating is that the REIPPPP has not been implemented consistently and additional capacities in coal power would be required even if the REIPPPP were fully implemented. The energy mix could become more sustainable, however, if the carbon tax, which has been delayed several times (World Bank, 2016), would eventually be implemented. This may also help achieve the target for renewable energy of 42% by 2030 (Department of Energy, 2015, Table 24). Imple- menting climate policy in line with South Africa’s ‘fair share’ towards the 2°C target would allow the country to achieve considerable savings (Van Zyl, Lewis, Kinghorn, & Reeler, 2018).

3.4. Case study: Kenya Energy supply in Kenya is characterized by very low energy access, an already very sustainable energy mix, high import dependency for fossil fuels and excellent conditions for renewable energy (Kiplagat, Wang, & Li, 2011). As a consequence, the debate seems to centre around the comparative merits of small grids and a national grid expansion and on how to further access the renewable energy potential. In addition, Kenya is currently expanding the production of oil, but according to the International Energy Agency (IEA, 2014), this will start declining again already in the 2020s. The Kenyan NDC of a 30% reduction of emissions by 2030 strongly limits its ability to expand the use of fossil fuel resources. The government is planning to achieve a 40% share of total electricity capacity with renewable energy, including a 26% of total capacity coming from geothermal energy (Republic of Kenya, 2011). Only 18% of households have access to the electricity grid in Kenya and only 4% in rural areas (Kiplagat et al., 2011). Expanding energy access is thus an important concern for the country. Micro grids can make an important contribution to rural development and significantly improve worker productivity (Kirubi, Jacobson, Kammen, & Mills, 2009). Under favourable conditions, the cost for installing the grid can be recovered from the beneficiaries. However, according to Abdullah and Jeanty (2011) and Yadoo and Cruickshank (2012) households prefer grid electricity as this offers better services in the form of AC power, the availability day and night and a more powerful capacity, which allows additional forms of electricity use. The more capable micro grid systems developed since then and discussed in IRENA (2016) may have eliminated most of these disadvantages. In spite of the preference for grid electricity, Kenya has established itself as a global market leader for the use of off-grid solar power (Ondraczek, 2013). It appears that the idea of using a solar home system (SHS) is conta- gious as the probability of buying one is higher for households, who have a system in their neighbourhood (Lay, Ondraczek, & Stoever, 2013). Concerning energy sources for the national grid, Ondraczek (2014) obtains a result similar to that of Walwyn and Brent (2015) for South Africa: grid-connected PV systems seem to be in the cost range of some of the conventional power plants. In addition, Kenya has some of the best conditions in the continent for geothermal and wind energy (IEA, 2014). CLIMATE POLICY 9

4. Implementing renewable energy in Africa We have seen in Section 2 that the development of Africa’s energy mix in line with the 2°C climate target will be shaped by a shift towards renewable energy in generating electricity. In addition, climate policy requires an accelerated shift towards electricity in the energy mix to replace emission intensive fuels (Leimbach et al., 2018, Figure 8). Moving towards an economically sound and sustainable energy mix thus requires identifying and addressing the challenges of installing renewable energy capacities. We identify four major challenges for the implementation of renewable energy and discuss how they can be addressed in the African context. These challenges are intermittency, possibly higher cost, capital intensity and the political economy.

4.1. Intermittency A source of power is called intermittent (or variable) when it is not continuously available. The term is typically used for weather-dependent VRE such as solar and wind power. The specific challenges created by intermittency are diverse and depend on both region-specific supply characteristics and the (existing) energy system. Accord- ing to Ueckerdt, Hirth, Luderer, and Edenhofer (2013) intermittency causes three types of cost. Profile costs reflect the uneven profile of electricity provision, balancing costs reflect the uncertain nature of electricity provision, and grid costs reflect that VRE require an electricity grid of higher quality. In Africa, the seasonal variations of sunshine are small, but the peak of production does not match well with the peak of demand in the evening (Ueckerdt et al., 2017). However, as air-conditioning becomes more common, the match between supply of solar energy and electricity demand is likely to improve. In addition, the variability from solar energy cannot be balanced well with wind power (Ueckerdt et al., 2017). The mismatch between demand and supply could be addressed with short-term storage. But since this is still expensive, large interconnected grids or support from conventional power plants could be a more cost-effective solution. The challenge of intermittency is strongly determined by the penetration rate, that is, the share of VRE in the total energy mix. Africa currently has a very low VRE penetration rate, and can thus add the first few percent of VRE without too much concern for intermittency. Hirth (2013) and Gowrisankaran, Reynolds, and Samano (2016) expect intermittency to become a concern at penetration rates between 10 and 20%, although this range will depend on the quality of the grid infrastructure and the flexibility of conventional plants. Once this level is reached, intermittency must be addressed. As developed economies have already much higher shares of VRE, research on addressing the challenge is already advanced (IRENA, 2017b). There is even ongoing research on how to achieve 100% renewables in Nigeria by 2050, which takes intermittency into account (Akuru, Onuk- wube, Okoro, & Obe, 2017; Oyewo, Aghahosseini, & Breyer, 2017). Since infrastructure has long time horizons, it is important to assume a ‘systems perspective’ when planning with VRE (Ueckerdt, Brecha, & Luderer, 2015) even at very low penetration rates. How can African countries address these challenges? In Section 4.2 we will discuss how intermittency affects prices and how this can be considered. On a technical level, a whole range of integration options has been developed. Energy storage on diurnal scales, and to a lesser degree on seasonal scales, could help to match demand and supply. Ueckerdt et al. (2017) mention flow batteries and hydrogen electrolysis as possible solutions. In Africa, battery storage is relatively important due to the attractiveness of small independent electricity grids. Already, using solar energy and batteries is often less expensive than diesel generators (IRENA, 2015c,1, 2017a, 48) or can be combined with diesel generators economically (IRENA, 2016, p. 56). The planning of other types of power plants can be shifted from baseload capacity to peaking power plants. Gas power plants for example have much shorter response times than coal power plants. According to IRENA (2015b), hydropower will have an important share in the energy mix in Sub-Saharan Africa. This makes the integration of VRE easier since hydropower is a flexible source of energy and can help balance VRE (Hirth, 2016). Table 2 of Creutzig et al. (2017) further mentions the expansion of the electricity grid to balance VRE from different locations. As Africa’s grid infrastructure does not yet provide good connectivity (Eberhard & Shkaratan, 2012), investments into grid infrastructure will need to complement the construction of additional renewable energy capacity. In Africa, the attractiveness of balancing VRE between different locations often means that transnational connection and cooperation would be very beneficial (Brand & Blok, 2015; Fant, Gunturu, & 10 G. SCHWERHOFF AND M. SY

Schlosser, 2016). Transnational cooperation on electricity may be difficult, for example because internal conflicts may cause concerns for the reliability of supply by partners or because of political tension between neighbouring countries. However, there are examples of cooperation on electricity even between countries which had been in conflict (Oseni & Pollitt, 2016). Further options are the combination of solar and wind power (although this is less relevant in the African context), actively matching supply and demand, and electrification of transport and heating to use in-built storage capacity. To manage the complexity of these solutions, governments can make use of specialized soft- ware tools to support decision making. The technical expertise is well advanced, but it is useful only when it is customized to the country. Table 1 presents a list of customizable tools for planning the electricity grid. IRENA (2017b) offers comprehensive support for all aspects of investing in renewable energy.

4.2. Relative cost The IEA (2014) considers the cost of renewable energy to be significantly higher than the cost of fossil fuels. Naming intermittency as a main reason, Edenhofer (2015) comes to the same conclusion. However, country- specific studies such as Ohijeagbon and Ajayi (2015) for Nigeria, Walwyn and Brent (2015) for South Africa and Ondraczek (2014) for Kenya find that renewable energy can be as affordable as fossil fuels. According to Creutzig et al. (2017) and IRENA (2018), the price ranges of coal and solar PV overlap, meaning that each of the two sources can be cheaper than the other. These apparently conflicting results are obtained because authors calculate costs differently and take different aspects into account. The trend, however, is clearly towards lower cost for renewables. IRENA (2016) demonstrates that the cost for utility scale PV projects in Africa are following a steady down- ward trend (see in particular Figure ES1 in IRENA, 2016), in line with the long running global trend of falling costs (Edenhofer et al., 2011). No matter how costs are calculated, this shifts the balance in favour of renewables, as no similar development can be found for other sources of electricity. The management of the intermittency of VRE as described in Section 4.1 is not only a technical challenge. It also implies that costs for VRE must include more than the installation, operation, and maintenance of the facil- ity. At higher penetration rates (roughly at 30% market share of VRE), system integration costs will have to be considered (Hirth, Ueckerdt, & Edenhofer, 2016). Given that the penetration rate of VRE is currently well below 30% this will not be a concern for the short term, but it will need to be considered eventually. The costs referred to above are the direct costs to an investor. A comprehensive view on cost needs to factor in the social cost as well. Using fossil fuels generates a substantial externality – social costs – in the form of local pollution and GHGs. Charging these costs to the investor is a matter of aligning investments to social welfare. A straightforward approach to do this is carbon pricing as advocated by the International Monetary Fund (IMF) (Parry, 2015; Parry, Veung, & Heine, 2015) and the World Bank (World Bank, 2015). Carbon pricing has the advantage that it increases the cost of fossil fuels, thus forcing emitters to internalize the damage they cause, while it generates government revenue. This revenue can be invested in an environmentally beneficial and pro-poor way in renewable energy and energy access. Fell and Linn (2013) find that carbon prices outperform renewable electricity policies in terms of cost effectiveness, because they reduce demand via higher electricity prices and encourage fuel switching, as well as directly promoting renewables. In fact, there is a steady upward trend in the amount of carbon emissions under a pricing scheme and the number of schemes worldwide (World Bank, 2016, Figure 2). Ironically, many African countries actually have negative carbon prices in the form of subsidies for fossil fuels. Coady, Parry, Sears, and Shang (2015) find that 5% of African GDP is used for subsidies on fossil fuels from which coal and oil benefit the most. Arze del Granado, Coady, and Gillingham (2012) and Jakob, Chen, Fuss, Marxen, and Edenhofer (2015) find that abolishing subsidies would have a progressive effect. This means that the poor

Table 1. Tools for planning electricity grid expansion in Africa. Model developer Name of model Source World Bank, ESMAP and KTH Electrification Pathways http://electrification.energydata.info International Finance Corporation Off-Grid Energy Market Opportunities http://offgrid.energydata.info Columbia University Network Planner http://networkplanner.modilabs.org Massachusetts Institute of Technology Reference Electrification Model http://universalaccess.mit.edu CLIMATE POLICY 11 would benefit most if the government would abolish the subsidies and recycle the savings evenly across all households. The progressive effect can be further increased if the money saved by the government is targeted towards the poor. Providing sustainable energy access is exactly such a pro-poor policy. When carbon prices cannot be implemented, alternative policy approaches are available, in particular feed- in-tariffs and auctioning systems. The South African feed-in-tariff has been well designed and initially well received, although the condition that only national energy supplier Eskom could buy the electricity caused uncertainty to investors (Pegels, 2010). Later, an auctioning system was introduced and this appears to be very successful (Eberhard & Kåberger, 2016; Walwyn & Brent, 2015). Becker and Fischer (2013) add to this debate on the best policy, noting that countries experiment with different designs and obtain country-specific solutions. Renewable energy auctioning schemes are spreading internationally and often achieve good results (IRENA, 2017c). Mandelli et al. (2014) offer a comprehensive review of the policies implemented or discussed aimed at making energy in Africa sustainable, and their respective success.

4.3. Capital intensity Renewable energy not only has different costs from fossil fuels, it also has a different cost structure, (see IRENA (2018). The recurring costs of renewable energy are much lower than those of fossil fuels, because no fuel needs to be purchased. However, renewable energy requires much higher upfront capital investments. As a consequence the cost of renewable energy depends strongly on the cost of financing (Hirth & Steckel, 2016). The interest rates for borrowing in the market in Africa are generally much higher than in developed economies. The cost for renewable energy will thus be much lower when financing is supported by the public sector. Several articles have investigated the various aspects of financing renewable energy and energy access com- prehensively, including Duarte, Nagarajan, and Brixiova (2010), IEA (2011), Bhattacharyya (2013), Africa Progress Panel (2015) and (Schwerhoff & Sy, 2017). One point appears as a common theme in all of these analyses – that financing energy access and renewable energy in Africa requires action from international donors, African governments and the private sector alike. The IEA (2011) highlights that in 2009, financing for energy access in Africa was sourced with 34% from multilateral organizations, 30% from domestic governments, 22% from private investors and 14% from bilateral aid. There is significant potential by African governments to mobilize more of their domestic resources to cover the upfront capital costs of renewable energy. Eberhard, Rosnes, Shkaratan, and Vennemo (2011) and Eberhard and Shkaratan (2012) emphasize that reducing the under-pricing of electricity and the inefficiencies within the current delivery mechanisms has the potential of freeing up noticeable resources for investment. While there has been substantial progress in increasing the role of private investors (Eberhard et al., 2017), they still face high investment risk, which is often caused by political and regulatory uncertainty. Finally, international donors and development finance institutions could step up their efforts to contribute to the double challenge of powering the continent and mitigating climate change.

4.4. Political economy A swing towards renewable energy can threaten the successful business model of powerful and profitable incumbent firms. As a result political economy has affected the implementation of renewable energy across the world (Michaelowa, Allen, & Sha, 2018; Strunz, Gawel, & Lehmann, 2016). Djankov, La Porta, Lopez-de-Silanes, and Shleifer (2002) present empirical evidence that market entry is more difficult and expensive in countries with higher corruption. According to Parente and Prescott (1999), artificially high barriers to market entry can be caused by politicians protecting the monopoly rents of incumbents. Although the literature does not provide explicit and direct evidence, there are indications that such mechanisms might be at work in the energy sector in Africa. Majbouri (2016) presents empirical evidence that rents from oil and gas can reduce entrepreneurial activity and increase rent-seeking, in particular in corrupt environments. Excluding competitors is an important form of rent-seeking. Nigeria has set up Oil Producing Area Development Commissions to improve governance with respect to oil revenues. They have not led to improvements, because they have not been able to affect rent- 12 G. SCHWERHOFF AND M. SY seeking (Idemudia, 2012). In resonance with the theory of political forces protecting monopolies, Nwajiaku- Dahou (2012) find state and non-state actors in the oil industry to be in complicit union in Nigeria. Sala-i- Martin and Subramanian (2008) identify oil production as directly responsible for the weak overall economic performance of the country. As renewable energy represents a threat for the oil profits in Nigeria, dealing with the political economy of oil extraction will be of central importance for its implementation. In South Africa, the publicly owned electric utility Eskom still provides almost all electricity, making it a monopoly in the market. More than 90% of electricity is produced from coal and long-term contracts with mines allowed Eskom to obtain the coal below the market price. At the same time, the price for electricity is controlled politically so that the government had to stabilize Eskom with substantial financial aid (Schmidt, Matsuo, & Michaelowa, 2017). Environmental campaigners blame these close ties between politics and Eskom for misman- agement as well as a disregard for environmental concerns and for transparent public consultation6 (Rafey & Sovacool, 2011). In addition, the Energy Intensive User’s Group (EIUG), which holds a monopoly over coal production in South Africa, questions and resists climate policy (Baker, Newell, & Phillips, 2014). As a consequence, political inertia slows the deployment of renewable energy (Krupa & Burch, 2011), even though some steps have been taken to introduce it. Compared to Nigeria and South Africa, there is no similarly powerful incumbent fossil fuel industry in Kenya. Accordingly, there is no organized resistance against investments into renewable energy. Nevertheless, political economy is slowing down the expansion of renewable energy. This can take the form of corruption (Kamp & Vanheule, 2015) or of power relations acting as a barrier to climate policy (Naess et al., 2015). Against this background it is important to keep in mind that developing a sustainable energy mix is not just the technical challenge described in the previous three sub-sections. Some actors have an interest in keeping renewable energy out of business. Sector-specific approaches to counter rent-seeking include a suggestion specifically for Nigeria (see Sala-i-Martin & Subramanian, 2008) to set up a form of sovereign wealth fund that would distribute oil revenues to the citizens of Nigeria, along with efforts by the World Bank to encourage competition in the electricity sector. The political economy of energy transitions, however, should not be confused with distributional aspects. Energy transitions can pose a disproportionate burden on certain groups. Compensation for this burden can be a legitimate request and can be included in the design of the policy. Schwerhoff et al. (2017) for example provide an overview on redistribution measures. Mattes, Huber, and Koehrsen (2015) and Spencer et al. (2018) describe how the locally concentrated effects of energy transitions, in mining areas in particular, can be managed.

5. Conclusion Given that Africa has both domestic fossil fuel reserves and experience in operating fossil fuel power plants, energy from fossil fuels is often seen as safe and comparatively affordable. In addition, the low income level of countries in Africa means that policy makers put a large emphasis on maintaining low energy prices. For renewable energy there is still little experience and a certain scepticism if the low prices reported can be realized on the ground. Model results, however, do not show any incompatibility between rapid growth in energy supply and an energy system in line with the 2°C target of the Paris Agreement. The models consider a mix of fossil fuel and renewable energy sources as optimal. The most recent decline in prices for renewables, the rapid uptake of renewables in Africa and a reconsideration of approaches for addressing variability have caused a shift further in favour of renewables. Some models consider it feasible and affordable to add almost all new capacity for electricity production from renewable sources. At the country level, the negative effects of fossil fuels on health, local environmental quality, political stability and corruption as well as increasing costs of production make it increasingly clear that such a shift from fossil fuels to renewable energy is well aligned with national interests. First experiments on the continent with policies like auctions show how such a shift can be achieved and that prices for renewables within the range of fossil fuels can be achieved. The energy mix of the future could thus consist of the fossil fuel capacities that have already been constructed together with an increasing share of diverse renewable energy sources, from hydropower, solar power, wind power and biomass. CLIMATE POLICY 13

Following the price decrease of renewable energy, the cost range for renewable energy overlaps with that of fossil fuels, meaning that renewables are an attractive option for an individual investor in many cases. Taking the external cost of fossil fuels imposed on society into account would make fossil fuels even less attractive. Inter- mittency and the capital cost of renewable energy are technical challenges with particular importance in Africa. Addressing them requires confronting long-standing challenges like regional integration, corruption, regulatory reliability and infrastructure investments. However, solutions exist and have proven to be implementable in practice.

Notes 1. More precisely, the treaty calls for keeping the temperature increase ‘well below 2°C’ and for ‘pursuing efforts to limit the temp-

erature increase to 1.5°C’. In line with most publications available we consider the 2°C target, corresponding to a CO2 concentration of 450 ppm. 2. The ‘Low climate IMpact scenarios and the Implications of required Tight emission control Strategies’ (LIMITS) project was funded by the European Community’s Seventh Framework Programme from October 2011 to 2014. As a way of making results accessible, a results database was made public at https://tntcat.iiasa.ac.at/LIMITSPUBLICDB. 3. A full analysis of mitigation costs in Africa is provided in Leimbach et al. (2018). 4. The traditional use of biomass includes mainly fuelwood and charcoal. Modern forms of biomass include mainly plants culti- vated for energy production and by-products from forestry and agriculture used for energy production. 5. The Climate Action Tracker is available at http://climateactiontracker.org. 6. Recently, efforts of public consultation seem to have improved. In 2016/2017, the department of energy has offered a series of consultation workshops on its Integrated Resource Plan, see www.energy.gov.za/files/irp_frame.html.

Acknowledgements We thank Ira Dorband, Jérôme Hilaire, Sebastian Kraus, Anselm Schultes, Falko Ueckerdt and Kevin Urama for very helpful advice. We also thank four reviewers and editor Joanna Depledge for very helpful remarks.

Disclosure statement No potential conflict of interest was reported by the authors.

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