Africa needs a new deal on energy, and now it has one. US President Roosevelt’s post-Depression New Deal of the 1930s focused on ‘Relief, Recovery and Reform’. For Africa’s New Deal on Energy, in the spotlight at the World Economic Forum in Davos this week, the focus is on Power, Potential and Partnership.
‘Power’ – because the New Deal aims to light up and power Africa by 2025. Energy is the lifeblood of any society. It is the passport to economic transformation, and it is one of the foundations for any society in the provision of education and health. And yet as we begin 2016 over 645 million Africans – some two-thirds of the people on the continent – have no access to energy.
Africans are tired of being in the dark: children suffer, because 90% of the continent’s primary schools have no electricity. Women suffer: 600,000 people, largely women, die each year from cooking with unclean energy like wood or baked earth. Hospitals and their patients suffer when equipment simply doesn’t work. Small and even large businesses suffer – Africa loses an estimated 4% of its annual GDP for the lack of energy. The unavailability of energy in Africa is unacceptable, and so is its cost. A woman living in a village in northern Nigeria spends around 60 to 80 times per unit more for her energy than a resident of New York City or London.
‘Potential’ – because Africa is aching to release its full economic potential, and to turn strong but uneven economic growth into deep-rooted and universally shared economic transformation. Energy is the secret to that. With a strong and secure energy supply we can unleash the skills of a young and dynamic population. We can continue the process of turning agriculture into agro-industry, and partial diversification into full-scale industrialisation. The raw materials that will provide our energy await us – unused or as yet untapped. As well as 300 gigawatts of coal potential and 400 gigawatts of gas, the continent is waiting to get its hands on 10 terawatts of solar energy potential, 350 gigawatts of hydroelectric, 110 gigawatts of wind, and a further 15 gigawatts of geothermal.
‘Partnership’ – because no country, no organization, no initiative can do it alone. The Africa Progress Panel has already done the research to show that Africa can power itself – if it and others work together. There are already key players in the field, like the Africa Renewable Energy Initiative supported by the G7, the UN’s Sustainable Energy for All Initiative, and the US Power Africa Program. The private sector is a source of leadership as well as funding, for instance through the Africa Energy Leaders Group. The task is to point them all in the same direction. So the New Deal is an African-led initiative to mobilize political will and financial support to solve Africa’s energy challenges.
What will it do?
It has four – huge – targets. To increase on-grid generation by adding 160 GW of new capacity by 2025, nearly doubling what we have today. To increase on-grid transmission and grid connections that will create 130 million new connections by 2025, 160 per cent more than today. To increase off-grid generation to add 75 million connections by 2025, nearly 20 times what we have today. To increase access to clean cooking energy for around 130 million households.
First and foremost, it will raise money, from Africa and beyond, and from the public and the private sectors. We need a total of $60-90 billion a year, compared with the $22 billion invested in the sector in 2014. This money will come from a variety of sources. First, we will work with other multi-lateral and bilateral financial institutions to see if we can get investment into the power sector to triple on an annual basis. Second, governments themselves need to play a role. If Africa were to increase its annual spending on energy from 0.4% of GDP to 3.4%, this would solve the problem completely. This could also be done by putting an end to subsidies for products such as kerosene and diesel. Finally, the private sector is very willing to play a significant role. This will require changes in regulation to make the sector more attractive for private capital, but we have seen many examples of significant capital flow where regulations are appropriately structured.
The New Deal is also practical: it will set up the right energy policy environment: laws, regulation, governance; it will build the capacity of national energy utility companies; it will dramatically increase the number of bankable energy projects and the funding pool to deliver them; it will roll out waves of country-wide energy ‘turnarounds’. It will be energy resource neutral, using renewables and non-renewables alike, and technology neutral.
The African Development Bank will manage the New Deal, as well as investing US $12 billion in energy funding over the next five years, attracting up to four times as much from other financiers in the process.
‘I pledge you, I pledge myself to a New Deal for the American people’, said FDR in July 1932. The pledges – financial and political – are being made again on a different continent, over 80 years later. Meeting Africa’s energy challenge is both a moral and an economic imperative. ‘A flick of a switch’ can’t be delivered in an instant, but a flick of a switch is what it will take.
Green building has become a no-brainer, as South Africa’s energy crisis worsens with no indication of abating and rolling power outages now seemingly a part of daily life.
The general consensus among industry players was that green buildings were a nice-to-have and the perceived high capital requirements of sustainable building would erode returns.
How times have changed for green buildings to now being the standard for quality real estate in the country.
As associate and sustainability consultant at WSP Africa Alison Groves puts it: “The uptake of the green movement in South Africa has been exponential [and] there is a deep understanding of the benefits of green building.”
In fact, United States-based McGraw-Hill Construction in its World Green Building Trends survey supports Groves’ views. South Africa’s adoption of green building, according to the survey, trumps most developed regions which include Europe, Australia, the United States, the United Arab Emirates, Singapore and Brazil.
While South Africa is only playing catch-up to its developed and developing counters, the survey pegs the country’s take up of green building to grow three-fold, from a measured 16% in 2012 to 52% by 2015.
“The future for green building is more concentrated in South Africa compared to other parts of the world… Notably, South Africa is one of the only countries with a high reported level of green activity in the residential marketplace,” the survey notes.
When South Africa’s green building movement started in 2007, the Green Building Council of South Africa (GBCSA) only certified one building and years later 100 buildings are currently certified.
Despite the country’s progress, most financial institutions are only now beginning to tap into this market by offering capital for green developments and retrofitting initiatives (conversions of buildings built to traditional standards). Property developments by nature are capital intensive and most developers rely largely on financial institutions.
Associate in banking and finance at law firm Norton Rose Fulbright Rorisang Mongoato says property financiers are still using mainstream lending practices, as financing green buildings is not a separate activity from their overall focus.
“Banks are not that sophisticated in green building, as most don’t have dedicated green building divisions. They need to tweak their transactions in financing a green building,” Mongoato says.
She says most financial institutions don’t have the requisite skills in the form of green building professionals who understand the rating system for green buildings, requirements of green buildings compared with conventional buildings and incentives for energy efficient buildings.
Despite these setbacks, she says financial institutions are cognisant of having green building and funding solutions for developers, but she stresses that “it is still early days and a work in progress.”
In the interim, many green building or retrofit projects are being bankrolled by property developers, says GBCSA CEO Brian Wilkinson.
“We have seen most retrofits funded by tenants or owners. The private sector seems to be leading the market with some property developers and property owners applying a green mandate to their businesses with visible returns on their investments,” Wilkinson told Moneyweb.
Implementing energy efficient initiatives, such as replacing conventional light systems with energy efficient lighting, upgrading chillers, investing in rain harvesting technology, waste disposal, solar panel heating, can translate into higher returns on a building.
“Investment in off-grid or co-generation is really starting to take hold as such projects increase their commercial value in the face of the electricity crisis,” Wilkinson says.
Also green buildings are allowing developers to reap the rewards of having lower operating costs, increased productivity and tenant retention as they usually favour energy efficient buildings, says Groves.
Groves adds: “Tenants understand that they would rather pay more in their square metres and reduce their risks in terms of energy costs. Those tenants are demanding green buildings because they see the benefits of going green.”
However, the focus among financiers has been on independent power producers, with the public and private sector looking to grow this market.