3 Energy Transition in Africa: Context, Barriers and Strategies
101
3.4.3 Mitigating the Transition Risk
Although the energy transition in Africa will be delayed, it is inevitable.
It, therefore, behoves African countries to plan for it and its attendant risks. From Sect. 3.2, it is apparent that the transition risk(s) will
fall on public balance sheets which balance sheets have little or no
capacity to bear such risk(s) without disturbing other public services or
having a ripple effect on the larger economy and ultimately the country’s
development agenda.
Accordingly, African countries will need to devise strategies of mitigating the transition risk or de-risking the transition. These could include
early retiring of assets; accelerating exploitation of the new discoveries in
order to capture revenues which can then be saved or invested and later
used to compensate those affected by the transition early asset retirement; optimizing the public balance sheet for resilience and flexibility
in preparation for the transition; encouraging economic diversification
in anticipation of the energy transition and developing labour market
policies to assist the employees who will suffer the risk of redundancy or
unemployment.
3.4.4 Cost Recommendations
The prohibitive costs of renewable energy systems have stagnated their
widespread deployment, and these costs are compounded by various
factors, including the fact that, historically, fossil fuels in Africa have
been the beneficiaries of subsidies. Other than in power generation,
renewable energy sources have not benefited from this kind of leverage.
Thus, African countries should first phase off fossil fuel subsidies so as
to ensure the competitiveness of renewables. The governments should
then offer financial and economic incentives (subsidies, reduced taxes or
rebates) to encourage private sector investment in research, development
of renewables and manufacture of renewable energy technology. It will be
imperative for the incentives to be targeted and not just general, conditional on performance and revised periodically so as to ensure that they
are effective.
101
3.4.3 Mitigating the Transition Risk
Although the energy transition in Africa will be delayed, it is inevitable.
It, therefore, behoves African countries to plan for it and its attendant risks. From Sect. 3.2, it is apparent that the transition risk(s) will
fall on public balance sheets which balance sheets have little or no
capacity to bear such risk(s) without disturbing other public services or
having a ripple effect on the larger economy and ultimately the country’s
development agenda.
Accordingly, African countries will need to devise strategies of mitigating the transition risk or de-risking the transition. These could include
early retiring of assets; accelerating exploitation of the new discoveries in
order to capture revenues which can then be saved or invested and later
used to compensate those affected by the transition early asset retirement; optimizing the public balance sheet for resilience and flexibility
in preparation for the transition; encouraging economic diversification
in anticipation of the energy transition and developing labour market
policies to assist the employees who will suffer the risk of redundancy or
unemployment.
3.4.4 Cost Recommendations
The prohibitive costs of renewable energy systems have stagnated their
widespread deployment, and these costs are compounded by various
factors, including the fact that, historically, fossil fuels in Africa have
been the beneficiaries of subsidies. Other than in power generation,
renewable energy sources have not benefited from this kind of leverage.
Thus, African countries should first phase off fossil fuel subsidies so as
to ensure the competitiveness of renewables. The governments should
then offer financial and economic incentives (subsidies, reduced taxes or
rebates) to encourage private sector investment in research, development
of renewables and manufacture of renewable energy technology. It will be
imperative for the incentives to be targeted and not just general, conditional on performance and revised periodically so as to ensure that they
are effective.