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Geopolitics

of Energy
Volume 39, Issue 5 and 6
June-July 2017
ISSN: 0273-1371

Editorial Committee
Ganesh Doluweera
Paul Kralovic
Dinara Millington
Inside this Issue...
Megan Murphy
Allan Fogwill
Energy Dependency and the Industrialization of Turkey Page 2
Advisory Board Oya S. Erdogdu
Kimble Ainslie
Yasser Al-Saleh
Anis Bajrektarevic Turkey is a middle income, developing country and has been setting industrialization as the
Nicola Bilotta
Fatih Birol
main goal of economic polices since the foundation. Shifting resources to industry requires
John Brunton higher productivity of investment in that sector compared to others. It also requires efficient
Michael Charokopos usage of inputs in the industry sector and Turkey has to import energy, which is one
Robert Cutler
Zachary Cuyler significant factor of production. Over the last 20 years, energy policies have increased energy
Athanasios Dagoumas dependency of the country. This article searches for the linkage between energy dependency
Alberto Cisneros Lavaller
Napier Collyns and industrialization performance of Turkey.
Oya S. Erdogdu
Floros Flouros
Herman Franssen Bridging the Energy Divide to Catalyze Socioeconomic Page 8
Ieda Gomes Transformation in Africa
Antoine Halff
David Howell Richard Munang and Robert Mgendi
Wenran Jiang
Larry Kaufmann
Mikhail Krutikhin
Africas precarious energy security is threatening the continents ascend to actualize the
Vadim Loktionov promise of the Sustainable Development Goals (SDGs). With an estimated 621 million
Michael Lynch
Robert Mgendi
Africans without electricity and the gap expanding, energy poverty is impacting Africas
Richard Munang growth on multiple levels. Going forward, bridging the energy gap is an urgent imperative to
Chilenye Nwapi
Ayodele Oni
truly leave no one behind and secure Africas place in the 21st Century.
Keun Wook Paik
Petra Posega
David Pumphrey
Adnan Shihab-Eldin
Sutandra Singha
Paul Sullivan
Eric Switzer
Paul Tempest
Ifemezue Uma
Konstantina Vlachava
Jiqiang Wang
Qianting Zhu

Geopolitics of Energy was founded by the late Melvin A. Conant of Washington, DC in 1979.
Since 1993, it has been published under the auspices of the Canadian Energy Research Institute.
All views expressed in this journal are those of the individual authors and do not reflect the views
of the Canadian Energy Research Institute.
Energy Dependency and the Industrialization of Turkey
Oya S. Erdogdu

Introduction There are many studies warning policy makers on the significance of energy on economic growth and the
importance of providing the security of energy supply chain in that respect. These studies work with
different econometric techniques to define the relation between energy usage and economic growth
and although the results are ambiguous, besides capital and labor, energy is another factor that is crucial
for production. Once the importance of energy for production is set, the following question arises: Who
owns energy resources?

Oil, natural gas and coal are the primary sources of energy in todays world and being dependent on
these energy resources is inevitable for many countries. A country who cannot meet its domestic
demand with its own resources is regarded as a net energy importer. Being a net energy importer is not
a matter of concern but it is vital to pursue an independent and sustainable economic policy.

For a net importer country, dependency becomes the ultimate challenge of energy policies. The
dependency level of a country is measured by the ratio of net energy imports to total energy usage and
any increase in this ratio is regarded as an increase in the dependency and taken as a warning of not
being able to follow independent policies to achieve the best resource allocation.

Energy economics literature usually follows this supply side perspective. Studies take the level of
demand as given and try to enlarge the spectrum of energy resources by promoting the usage of existing
domestic ones and searching for technically and economically efficient usage of new ones like bioenergy
and renewable energy. This supply side perspective is inadequate since a well-defined strategy on
decreasing energy dependency of a country should consider demand side impacts as well as policies on
progressive usage of domestic resources.

The demand side perspective is seen in studies searching for the relationship between energy
consumption and economic growth. This nexus is based on the means of evidence that nationwide
energy consumption and hence energy import levels are determined by either the level / state of
economic growth or technology. Therefore, this study argues that although it may be inevitable to be
independent of the usage of foreign energy resources, it is possible that the level of energy dependency
be an outcome of applied macroeconomic policies.

This article takes a demand side perspective and asks whether a countrys own growth strategy and
sectoral composition cause increasing energy dependency. The article is divided into two parts: the
literature review and the economic panorama of Turkey. The data and the econometric methodology
that has been used is also discussed as well as the results of the analysis and possible policy suggestions.

Motivation The literature searching for the causality relationship between energy consumption and economic
growth is vast. Studies define non- or uni- or bi-directional causality and the results differ depending on
countries, regions, time periods and econometric methodologies. Payne (2010) is one of many survey
studies in the literature arguing the reasons of conflicting results on the energy consumption economic
growth nexus and focus on the importance of country specific factors.1 Using meta-analysis, Bruns, Gross
and Stern (2013) state high sensitivity of the results to chosen econometric methodology and time span
and Ozturk (2010) notes the importance of using improved econometric techniques, whereas Jacob,
Haller and Marschinski (2012) focus on the impact of country specific factors like historical development
processes. Developing countries state of the technology which is lower than developed countries level
of technology requires high energy consumption, however developed countries high technology
creates energy-intensive production processes that loosen the link between energy consumption and
growth. Therefore, the causality relationship from energy to growth is analyzed from the scope of
intensive usage of energy efficient technologies whereas, the causality relationship from growth to
energy is interpreted as an economy in need of energy to grow. Thus, historical processes account for
possible development effects and the impact of technology and thus, for analyses using annual data for a
long period, it is crucial to account for possible long and short run dynamics and/or choose
methodologies independent of possible cointegration relations.

Similar conclusions are reached for Turkey. Soytas and Sari (2007), Soytas, Sari and Ozdemir (2001),
Erdal, Erdal and Esengun (2008), Robert and Karanfil (2007), Altinay and Karagol (2004), Lisea and Van

GEOPOLITICS OF ENERGY/JUNE-JULY 2017 2


Montfort (2007) are some studies on Turkey using a similar period, different econometric techniques and
finding different or conflicting results. Within these studies the most noticeable difference comes from the
distinction between long and short run dynamics.

Whatever the methodology is, these studies note the importance of searching for the energy consumption
economic growth nexus to estimate and project the future energy needs of a country. To make a country
self-sufficient in energy or at least be less dependent on foreign energy resources, these studies propose the
usage of domestic and/or alternative resources like nuclear, renewable and bio energy. However, as current
account deficits and political risk of energy transfer routes are increasing, alternative resources not being
available and/or technically inefficient, the energy dependency ratio is becoming more important than
energy consumption rates. To model a well-defined strategy to combat energy dependency, the level of
dependency and the gravity of the problem should be settled beforehand.

Sozen (2009), Alp, Sozen and Kazancioglu (2013) and Sozen, Alp and Iskender (2014) analyze Turkeys
position in terms of energy efficiency and dependency. These studies use data envelopment analysis to
compare energy efficiency performances of different sectors of Turkey within the country and across the
European Union. They use an output oriented version of data envelopment methodology to calculate the
efficiency of a sector which is the performance of a sector in using energy input to generate output. The
results indicate the importance of making energy analysis at the sectoral level. According to constant and
variable returns to scale versions of the methodology, the results indicate that relative to European Union
countries, Turkey is regarded as efficient nationwide, but inefficient at the sectoral level. That is nationwide
energy usage is efficient such that energy as an input is allocated among sectors at best, but at sectoral
levels energy consumption is higher than it should be. Sozen, Alp and Iskender (2014) indicate that to be
efficient, Turkeys sectoral energy consumption should be decreased by 82.93 percent. 2

To sum up, economic literature states the importance of the relationship between energy consumption and
economic growth, but warns the researchers to account for possible short and long run differences in a
historical analysis. Moreover, some recent studies note the impact of sectoral effects on this nexus and shift
the focus from the energy consumption level to the dependency ratio of a country. If sectoral effects are
important for energy efficiency and for the relationship between energy consumption and economic
growth, then it is natural to ask: what is the direction of the causality relationship between sectoral
composition of an economy and the energy dependency ratio of a country? To answer this question, Turkey
is used as an example since the sectoral composition of Turkey has shown a significant change over the
years.

Turkish Economy Industrialization has been the main goal of the Turkish economy since the foundation. Although its
significance deteriorated after the 1950s, the main growth path did not change until the late 1990s. At the
beginning, to sustain an independent and strong national economy, the Republic of Turkey has pushed all its
resources towards industry. The share of industry in Gross Domestic Product (GDP) increased from 10
percent in 1924 to 16 percent in 1938. The 10.3 percent annual growth rate of industry over the 1930-1939
period pushed the growth rate of GDP to 5.8 percent and changed the composition of foreign trade. The
decreasing importance of agriculture in exchange for an increasing share of trade and industry is shown in
Figure 1.3

Figure 1: Share of Sectors Value Added in Gross Domestic Product

3 GEOPOLITICS OF ENERGY/JUNE-JULY 2017


As can be seen in Figure 1, by early 2000 Turkeys sectoral growth path has shown a significant change.
Widespread application of neoliberal policies, the financial crises in 2000, the high debt ratio and the
need to find an easy and quick way to pay fiscal debt, or just world macroeconomic and fiscal conditions
are given as reasons for the change in monetary and fiscal policies and economic panorama. The reasons
are not the subject of this article, but the result is. Figure 1 shows that the gap between the growth rates
of the industry and service sectors widen by the late 1990s and as can be seen in Table 1, on average
only the services sector continues to grow by the 2000s.

Table 1: Average Growth Rates of Shares of Sectors Value Added

Industry Services Agriculture


1990-2000 -0.60 1.52 -3.38

2000-2013 -1.39 1.11 -1.89

2000-2005 -2.28 1.59 -0.72

2006-2013 -0.57 0.75 -2.76

Table 2 studies manufacturing, the leading sub-sector of industry and the sub-sectors of services to show
the significant change in the sectoral composition of the economy since 2000. As can be seen post-2000,
the services sector became the driving force of economic growth. The GDP shares of value added of
finance, communication and transformation sectors has shown significant increases.

Table 1 and Figure 1 portray a country that shifted its growth path from industry to services sectors and
although this analysis is done for Turkey, this structure of the economy is not very different than many
developing countries in the world.

Table 2: Average Annual Growth Rates (calculated with 1998 prices)


2000-2013
Growth Rate of Sector Growth Rate of Share of GDP
Manufacturing 4.8 0.1
Construction 5.0 0.1
Trade 4.5 -0.3
Transportation 6.1 1.4
Finance 7.7 3.1
Information 6.1 1.4
/Communication
Mining 1.3 -3.2
Energy 5.4 0.8
GDP 4.4

Besides the changing economic panorama, Turkeys energy dependency ratio that is, the ratio of energy
imports to total energy usage had been increasing during these years. In the 1980s, Turkeys import
dependency ratio was 45 percent. This ratio increased to 56 percent in 1996. In 2000 Turkey was
importing 66 percent of its energy consumption and by 2013 it was 73 percent. The increase in this ratio
is much higher than the increase in GDP. One significant reason for this path lies in the energy
production capacity of Turkey. Like many others, Turkey must import energy to satisfy consumption. The
country has technically inefficient qualities of coal, does not have nuclear power and does not have oil
and natural gas resources. Renewable energy resources have not been used efficiently throughout its
history. Moreover, comparatively cheap production and operating costs of an electricity generator
system using natural gas led the private sector to use this foreign resource for electricity production at
an increasing rate.4

This study argues that besides natural causes, political and technical implementation affected energy
consumption and the dependency ratio of the country. Tables 1 and 2 show the changing pattern in the
sectoral composition of Turkey. Moreover, to see the impact of sectoral composition on energy
dependency ratio, sectoral energy consumption levels should be analyzed.

GEOPOLITICS OF ENERGY/JUNE-JULY 2017 4


Table 3 shows energy consumption values of the industry sector and sectors other than agriculture that
accounts for energy consumption levels of residential, services and transportation sectors.

Table 3: Energy Consumption (kt of oil equivalent)


1987 1997 2000 2006 2013
Total Energy Consumption 38695 57444 61556 77366 89887

Industry 12038 21790 24501 30984 31467

Sectors Other than Agriculture5 24819 32831 33981 42773 56468


Transportation 7586 11338 12008 14884 22772
Residential and Services 16007 19704 20058 23726 31402

Industry/Total Consumption 31.1 37.9 39.8 40.0 35.0


Residential and Services/Total 41.4 34.3 32.6 30.6 34.9
Consumption 19.6 19.7 19.5 19.2 25.3
Transportation/Total Consumption
Sectors Other than Agriculture/ 2.1 1.5 1.4 1.4 1.8
Industry

As seen in Table 3, until 2006 the share of industrys energy consumption in total has been increasing. After
2006, a peak of 40 percent is seen and then the share of industry declines. The decline is so severe that in
2013 the share is closer to its value 20 years ago. Energy consumption of the residential and services sectors
follow an opposite pattern. Comparing 1997, 2000 and 2006 to 2013, it is observed that only the share of
industry in total energy consumption had declined.

The last row of Table 3 focuses on total energy consumption trade-off between industry and sectors other
than industry and agriculture. The historical path indicates that, as of 2013, compared to industrys energy
consumption, residential, services and transportation sectors energy consumption levels are increasing.

Tables 1 to 3 and Figure 1 indicate that as the Turkish economy is shifting its resources towards the services
sectors, energy consumption is also changing in favor of sectors other than industry. To see if this pattern
affects energy imports, sources of energy that are used by the sectors should be analyzed.

Table 4 lists the shares of energy resources by sector. Comparing 2006 to 2013 all sectors are inclined to use
more coal and lignite rather than oil and natural gas. This change in composition of energy resources can be
a positive sign for improvement of dependency since Turkeys primary energy import is oil and natural gas.
However, as of 2016 the imports of coal and lignite are increasing as well as oil and natural gas. 6

Table 4: Shares of Energy Resources in Total Energy Consumption of Sectors

Industry Transportation, Residential and Residential and Services


Services
Coal, Oil, Electricity Coal, Oil, Electricity Coal, Oil, Electricity
Lignite Natural Lignite Natural Lignite Natural
Gas Gas Gas
1997 43.8 39.3 16.5 32.5 55.2 10.1

2000 45.4 29.8 16.5 26.6 58.3 12.6

2006 42.8 35.1 18.6 19.6 61.7 15.7 31.9 37.7 25.3

2013 38.3 31.4 25.5 23.9 57.3 15.6 39.2 30.3 25.4

To fulfil the pattern drawn by the data, econometric methodology is used to analyze the relationship
between energy dependency and sectoral composition of the economy.

5 GEOPOLITICS OF ENERGY/JUNE-JULY 2017


Data and Methodology To search for the impact of the national income structure on the energy dependency ratio of Turkey,
Granger causality which is one of the most commonly used methodology in economics is used.
Granger (1969) causality studies whether the past values of a variable have information on predicting the
value of another variable. The methodology requires variables to be modelled as vector autoregression
(VAR) systems of stationary variables. Once the variables are regressed on past values of itself and
others, the Wald test is applied to search for the causality relationship between variables. It should be
noted that the test results are valid only if the model is well specified. In case of any specific bias,
spurious regression may be found and thus, the causality inference will be invalid. Therefore, if there are
cointegration relationships between variables, that is, if the variables in question are non-stationary, but
the relationship between them is stationary, then Granger causality will be invalid. To overcome this
specification problem, Toda and Yamamoto (1995) and Dolado and Lutkepohl (1996) proposed a
modified version of Granger causality.

The analysis covers a long period, 1960-2013, and different growth paths of the Turkish economy. To
overcome the problem of possible cointegration relations, this study applies the Toda and Yamamoto
approach to search for causality relation between energy dependency and the sectoral composition of
Turkey.

The study used net energy imports as a percentage of energy usage to represent energy import/
dependency ratios and logarithmic values of the ratio of value added of services to the industry sector to
represent the sectoral composition of the Turkish economy. Note that since the aim of the study is to
analyze the impact of sectoral composition of the economy on energy dependency ratio, but not the
impact of a specific sector alone, neither the value added of services nor the industry sector in GDP, but
the comparative state of the two main sectors were used in the analysis. The series for value added of
industry and service sectors as a percentage of GDP and net energy imports as a percentage of energy
usage were gathered from the World Bank website.

Results indicate a unidirectional relation. Thus, the causality relation runs from sectoral composition to
energy dependency but not vice versa. The ratio of GDP shares of services to industry contains useful
information in predicting the energy import ratio of Turkey but energy dependency does not affect the
comparative GDP shares of the sectors in the economy.

Conclusion Turkey development policies changed significantly post-2000. Export-based industrialization was
deferred into capital-based development policy by the 1994 and the 2000 economic crises. The
transformation, information, construction and financial sectors excelled whereas the manufacturing
sector/industry lost ground. Since technology and structural properties of the sectors differ, the energy
consumption patterns and energy dependency position of the country is expected to change with new
growth policy. As a first step, this study searches for possible relationships between energy dependency
and sectoral composition of Turkey and for that purpose the Toda Yamamoto approach to Granger
causality methodology was used. The results indicate a unidirectional causality such that the energy
dependency ratio does not include information to predict sectoral composition of the economy but
sectoral composition of the economy does impact the energy import ratio. The results state that shifting
resources from industry to the services sector effects Turkeys dependency on foreign energy resources.
Therefore, the first step in decreasing energy dependency should be recognizing the fact that this
macroeconomic environment is one cause of Turkeys increasing energy dependency ratio.

About the Author


Oya S. Erdogdu is with Ankara University, Faculty of Political Sciences, Department of Economics, Cebeci,
Ankara, Turkey.

GEOPOLITICS OF ENERGY/JUNE-JULY 2017 6


Endnotes
1
Growth, conservation, neutrality and feedback are four different hypotheses that are used to explain the
motivation behind the direction of causality. Payne (2010) is one of many survey studies in the literature
that uses this categorization.
2
Moreover, these studies indicate that from 1998 to 2006, Turkeys dependency did not decrease since its
energy efficiency decreased.
3
All data used in Figure 1, Table 1 and Table 2 are gathered from the World Bank website.
4
Country uses its own coal resources as well as imported, however, imported coal is not the driving force
behind Turkeys energy dependency. As of 2015, 8.3 percent of total electricity production capacity used
imported coal.
5
Energy consumption of sectors other than agriculture includes energy consumption values of
transportation, services and residential sectors and sectors other than energy.
6
By 2001, around 14,000 tons of coal and lignite was imported. This number increased to around 20,000
tons by 2006 and to 28,000 tons by 2012.

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7 GEOPOLITICS OF ENERGY/JUNE-JULY 2017


Bridging the Energy Divide to Catalyze
Socioeconomic Transformation in Africa
Richard Munang and Robert Mgendi

How to Catalytically With just over 10 years to the expiry of the Sustainable Development Goals (SDGs) and high
Bridge the Energy Gap socioeconomic challenges confronting the continent, efforts to bridge the energy divide cannot be
a silo undertaking. In Africa, over 40% of the population lives in poverty on less than $1.90/day
(SDG 1). Over 60% of youth are unemployed and over 70% are living on less than $2 per day with
this figure projected to increase in the coming years. By 2035, the number of Africans reaching
working age will exceed the rest of the world combined implying an urgent need to accelerate job
creation to absorb this influx. Related to the fight against poverty is labour productivity which
continues to be low, especially in Sub Saharan Africa (SSA). Labour productivity is 20 times less than
that of developed regions, implying that the regions performance in SDG 8, which comes through
increased industrialization and value addition (SDG 9), remains alarmingly low. Over 50% of the
adult population in SSA still face moderate or severe food insecurity (SDG 1) while an average of $4
-$48 billion worth of food is lost due to post-harvest losses (PHLs) resulting from inadequate value
addition (SDG 12). Climate vulnerability is high and threatens up to 40% reduction in agriculture
(SDG 13). A vital socioeconomic sector that is not only a source of food but livelihoods employing
on average up to 64% labour and with women producing up to 80% of the food. This is an inclusive
sector that will foster economic participation of a majority in the continent including women to
reduce social inequalities (SDG 10) and enhance gender equality (SDG 5). In the face of such glaring
challenges, energy development needs to be premised as an enabler and accelerator of delivering
the promise of the SDGs to the 1 billion strong population. Not a silo investment void of a
development trajectory that can accelerate achievement of multiple SDGs.

Policy Trajectories to Going forward, debate on using nuclear power to bridge Africas energy gap should not be void of
Bridge Africas Energy the urgent need to directly catalyze achievement of the SDGs. And for this, policy trajectories
Gap - Nuclear vs. should take the following critical parameters into consideration.
Clean Energy
Alignment with future global energy trajectories
In the words of a famous African proverb, where you will sit when you are old shows where you
stood in youth. Africa is a relatively young continent only now laying its energy foundation. It is
therefore fundamentally important to accelerate the achievements of the SDGs in a way that the
strategic trajectory of the region aligns with global future energy projections.

Driven by factors such as cost (capital, operational, maintenance and decommissioning); risks
(environmental, health and safety) and time to build, the proportionate contribution of nuclear
energy to global electricity which peaked at 17.5% in 1993, and declined to under 11% by 2014, is
not that much. Others estimate a more significant decline to 4.4% by 2014. On the other hand, with
improving technological developments to harness renewables and solve intermittency base load
concerns and price reductions vis--vis the lower risks renewables have grown globally, adding
about 40 nuclear reactors-worth of electricity. Over the next 10 years, renewables are projected to
add over 100 nuclear reactors worth of electricity.

Some of the worlds leading countries also demonstrate the rising prominence of renewables. In
2016, renewable energy made up nearly 90% of new power capacity in the European Union 21.1
GW out of a total of 24.5 GW installed in 2016. Germany, Europe's biggest economy has vowed
to shut down its nuclear capability within 10 years, and replace it with renewable energy where
renewables contribute 80% of Germany's energy by 2050. China, the worlds leading investor in
renewables, added 35 GW of new solar generation in 2016 alone an amount almost equal to
Germanys total capacity and intends to spend more than $360 billion through 2020 on
renewable power. Renewable energy generated over 70% of Portugals electricity in the first
quarter of 2013.

GEOPOLITICS OF ENERGY/JUNE-JULY 2017 8


Going forward, if Africas future energy development is to benefit from global economies of scale, then
aligning with global energy investment trajectory prioritizing renewables is an imperative.

Leverage on comparative advantage in resource


Abundance will make cotton pull a stone. This African proverb aptly describes the regions potential in
renewable energy.

The continents hydro-power potential is estimated at 1852 TWh annually, 3 times the continents
current demand of 554 TWh per year. However, currently only 10% of the continents potential is being
exploited. This is in huge contrast to Western Europe which uses 85% of its available hydropower
potential. On solar, Africa has the best solar resource in the world. It is estimated that a mere 0.3% of
the sunlight that shines on the Sahara could supply nearly all of Europes energy needs. However,
currently only about 5% of African households use some form of solar. In geothermal, the East Africa
region has an estimated 15,000 MW of potential. Kenya, ranked as the 8th largest global producer of
geothermal power, has potential of 10,000 MW against current production at 579 MW. On wind
power, SSA has estimated 1300 GW wind potential against total deployed capacity of 190 MW.

Considering its comparative advantage in resources vis--vis the low level of exploration relative to less
endowed countries in the west, energy development policies in Africa should focus on exploring
renewables at least to equivalent levels of counterparts in developed countries. And with its added
advantage of being a low risk, low cost potential future energy resource, the region should prioritize
developing a globally competitive renewable energy sub-sector. In place of investing in nuclear power,
which in addition to being a high risk, high cost potentially declining sub-sector, the continent does not
hold any comparative advantage.

Unlock multiple SDGs while bridging the energy divide


To unlock multiple SDGs, Africa needs to prioritize clean energy amalgamation with sustainable
agriculture. The catalytic socioeconomic potential of agriculture is well documented. Growth in
agriculture is at least two to four times more effective in reducing poverty than in other sectors.
Agricultural growth also stimulates productivity in other sectors like logistics whose value chains link
with the agro-chain, resulting in economy wide impacts. The World Bank reports that in Africa, a 10%
increase in crop yields translates to approximately a 7% reduction in poverty, the highest of any sector
in the continent. Tagging energy development to a trajectory of complementing agriculture
productivity through value addition represents a most catalytic path to accelerate contribution of
energy to socioeconomic transformation.

Renewable energy is uniquely positioned for such development relative to nuclear considering its
potential to be an off-grid power source. Up to 70% of Africas food is produced in rural areas. Off-grid
solutions are the most economical for electrification in remote areas. Nuclear power is specialized for
centralized grid systems and therefore fails this vital test.

Across Africa, pockets of success demonstrate the potency of this integrated environmental approach
that can accelerate socioeconomic transformation through actualizing multiple SDGs. Consequently,
energy development policies should prioritize the amalgamation of clean energy with EBA-agriculture
to unlock clean energy powered agro-value addition as a catalytic opportunity of bridging Africas
energy gap where key socioeconomic development priorities are simultaneously actualized with
meeting climate objectives under the Paris Agreement to cumulatively unlock multiple SDGs.

How Clean Energy Can With an estimated 621 million Africans without electricity and the gap expanding, energy poverty is
Contribute to the Catalytic high, impacting Africas growth on multiple levels. Implementation of the Paris Agreement cannot be a
Implementation of the silo to this grave reality.
Paris Agreement
With vast renewable energy potential, Africa is among the regions that have most ratified the
Agreement with 37 ratifications as of early May, representing about a 68% ratification rate. This
leadership is a demonstration that the region has taken a cue of the opportunities inherent in the
agreement. One indicator is the formulation of Nationally Determined Contributions (NDCs) of which
all 54 countries submitted. Most of these NDCs prioritize climate proofing developments in agriculture
and energy as well as restoration of ecosystems. These stand out as the fundamental economic sectors

9 GEOPOLITICS OF ENERGY/JUNE-JULY 2017


in the region capable of accelerating socio-economic transformation as captured in national
development agendas and the AU Agenda 2063. Implementation of the Paris Agreement should be
equally aligned.

Amalgamation of clean energy with Ecosystems Based Adaptation (EBA)-driven agriculture to


unlock clean energy powered agro-value addition presents a catalytic trajectory of implementing
the Paris Agreement where climate and socioeconomic objectives are actualized simultaneously
with multiple Sustainable Development Goals.

For example, in the Democratic Republic of Congo (DRC), a group of youthful "agripreneurs" are
using clean energy to process cassava, an indigenous, climate resilient crop grown using EBA, into
flour, packaging and standardizing it for sale to higher value markets. The youth generate up to
$4,000 as weekly income, translating to $16,000 monthly and $196,000 annually. This, in turn,
incentivizes production of climate resilient cassava EBA (Article 7; SDG13), clean energy value
addition (Article 4; SDG 13) while creating incomes and jobs and enhancing food security (SDGs 1,
2).

In Kenya, an EBA farm is using solar powered, efficient micro-irrigation and saving farmers over
$10,000 annually in operating costs relative to using conventional fossil fuel powered, non-efficient
farrow systems. Cumulatively, farmers are generating up to $30,000 per acre annually. This is
combating community level poverty while enhancing food security (SDGs 1 and 2). For climate
action, this system is conserving up to 1.9 billion litres of water annually, conserving ecosystems
and enhancing climate resilience (SDG 13, 15, Article 7) while offsetting carbon by generating up to
64,499 kWh of clean energy (SDG 13, Article 4).

To fully unlock this paradigm, several barriers to upscale clean energy need to be addressed.

Addressing Barriers to Policy Harmonization: Policy is the biggest driver of change. Maximizing clean energy uptake by
Clean Energy Uptake diversifying investment beyond the common domestic application to include agro-industrial
applications will need harmonization of policies across multiple ministries to complement this
strategic aim. For example, agriculture policies will need to reconcile with industry policies, energy
policies, lands policies and private investors to achieve cross cutting policies to incentivize
investment by both state and non-state actors in plants and clean processing industries near high
potential agro-production areas. Infrastructure policies, especially roads need to be synchronized
to ensure prioritized investments in rural roads for efficient connection of production areas and
value addition centers to markets. Lands and planning policies will need to be in sync to establish
special economic zones with favorable incentives to attract investors to develop clean energy
plants or agro-processing plants. Trade policies will need to be in sync and facilitate access of both
fresh and processed agriculture goods to both local and export markets. Cumulatively, this
harmonization will create enabling market conditions to drive demand in clean energy for agro-
industrial applications.

As an example, the UN Environment Program through the countries Ecosystems Based Adaptation
for Food Security Assembly (EBAFOSA) is convening policy makers from Ministries of transport,
agriculture, environment, lands, energy, and industrialization among others across countries in
Africa to form inter-ministerial policy-task forces. These are bridging inter-ministerial silos;
harmonizing relevant ministry policies to ensure they support the amalgamation of EBA-Driven
Agriculture with clean energy powered value addition for agro-industrial zones.

Technical and Technological capacity. To upscale renewable energy, Africa needs to invest in
relevant applicable technologies and technical capacity. Over reliance on imported technologies
and expertize at the expense of developing the local clean energy industry means the continent is
limited in its technology choices. And this is a disincentive to fully exploiting the resource especially
where specific physical limitations such as unfavorable topography exist. The only way to overcome
such limitations would be investing in specific research and development toward developing and
deploying a competitive local clean energy technology industry. To remedy this scenario,
institutions of higher learning across the continent should prioritize development of globally
competitive renewable energy programmes and courses.

GEOPOLITICS OF ENERGY/JUNE-JULY 2017 10


Tariff and Subsidy policies. A key policy area for governments to remedy is in oil subsidies. Currently,
oil subsidy policies incentivize continuous use of fossil fuels while dis-incentivizing clean energy. And
these subsidies dont meet their intended social impact. For instance, some oil rich countries on the
continent spend up to 30% of budgets, amounting to over $7 billion annually on oil subsidies. Yet an
estimated 65% of the subsidies benefit the richest 40% of households, defeating their otherwise noble
social objectives. Such monies should, through appropriate policies, be re-channeled to incentivize
development of a clean energy industry in Africa. This is vital in making these technologies affordable
and catalyzing the development of a clean energy ecosystem.

As examples of tax-based incentives to accelerate renewables, Environment Ministers could work with
Finance Ministers and Energy Ministers to institute tax-based incentive policies such as an emissions
reduction exemption policy which would give tax breaks to energy production and use that ensures
carbon offsetting. Or a research and development allowance which would give tax breaks to
organizations enhancing the use of clean energy through research and development. Additionally, a
reduced tax rate, tax credits and exceptions could be offered to organizations enhancing the use of
renewable energy, especially those facilitating technology transfer and research and development to
contextualize these technologies to Africa.

Beyond tax-based incentives, countries can improve their Feed-in Tariff policies to ensure a higher rate
for clean energy connecting to national electricity grids. A good example could be the Renewable
Energy Feed-in Tariff in Kenya. Kenya adopted a Renewable Energy Feed-in-Tariff (REFIT) in 2008, a
policy it revised in January 2010. REFIT aims to stimulate market penetration for renewable energy
technologies by making it mandatory for energy companies (or utilities) to purchase electricity from
renewable energy sources at a pre-determined price. This price is set at a level high enough to
stimulate new investment in the renewable sector. This, in turn, ensures that those who produce
electricity from renewable energy sources have a guaranteed market and an attractive return on
investment. Kenyas REFIT covers electricity generated from wind, biomass, small hydro, geothermal
and biogas, with a total electricity generation capacity of 1300 MW.

Leverage geopolitical advantage. While the continent has a high theoretical potential for renewable
energy, the coverage is not evenly distributed. For example, while the continent has up to 15 GW
geothermal potential, all of it is found along the rift valley, concentrated in about 10 countries. Seventy
percent of the estimated 1852 TWh annual hydro potential is concentrated in Central and East Africa.
Most of the estimated 1300 GW wind potential is confined to East, Southern and North Africa. This is
an opportunity for countries to leverage this uneven distribution to gain geopolitical advantage, which
then incentivizes investment in renewable energy development. For instance, Ethiopia, a land-locked
country, is leveraging its vast hydro potential to generate surplus electricity which is then sold
competitively to Djibouti, a neighboring country. This gives Ethiopia favourable access to the Djibouti
seaport which overcomes the geopolitical limitation of being land-locked. Such leverage is an incentive
for Ethiopia to invest in exploiting its vast renewable resources. Failure to leverage this geopolitical
advantage constitutes a disincentive for clean energy investment. Government think-tanks in countries
with significant renewable potential and surrounded by neighbors with power deficits should study
such geopolitical advantages and inform planning policies to invest in renewables as a geopolitical
resource, hence incentivize upscaling renewable energy investment.

Finance Barriers. While electricity demand is projected to triple by 2030 offering huge potential for
upscaling renewable energy, investments of up to $70 billion are required annually up to 2030. These
hypnotizing figures blind the continent to innovative practical financing solutions that can indirectly
bridge this gap. For example, fintech, the combination of information communication technology (ICT)
and financial services is currently enhancing accessibility of off-grid communities to clean energy
domestic options. In Kenya, M-Kopa, a pay-as-you-go decentralized solar solutions is leveraging on the
M-Pesa mobile money solution to provide flexible payment options for acquisition of domestic solar
lighting solutions thus bridging financing gaps on clean energy. Through this model, M-Kopa has
electrified up to 400,000 rural homes across East Africa in direct fulfillment of SDG 7 and indirectly SDG
3 by reducing indoor pollution to enhance health, and SDG 4 by facilitating clear lighting for children to
study.

11 GEOPOLITICS OF ENERGY/JUNE-JULY 2017


This provides a test case to build on which can maximize the financing available for off-grid energy
for industrial applications powering agro-value activities.

While Africa has the most countries having ratified the Paris Agreement and vast renewable energy
Conclusion
potential to contribute to sustainable development, and where leading socioeconomic
development priorities can be actualized alongside offsetting carbon and protecting ecosystems,
without efforts to remove these barriers, success is not pre-ordained.

Drawing wisdom from a famous African proverb, a man does not wander far from where his corn
is roasting, as the continent seeks ways to bridge its energy divide, its renewable energy corn is
roasting. The continent should therefore not wander far from this ready subsector that can ensure
efforts to bridge the energy divide directly contributing to the achievements of the SDGs.
Ultimately, energy is an enabler of socio-economic transformation. And the yardstick with which to
measure is achievement of the SDGs. This is the big picture that should inform policy decisions in
Africas efforts to bridge the energy gap.

It will take deliberate actions by countries in the continent to prioritize investments that unlock this
strategic trajectory. Let us therefore put aside our fine words, pick up our tools and start to
actualize the glorious promise of the SDGs for ourselves and future generations-. Where no one is
truly left behind.

About the Authors


Dr. Richard Munang is an Africa Climate Change and Development Policy Expert. He tweets as
@RichardMunang. Mr. Robert Mgendi is an Adaptation Policy Expert.

The views expressed here are those of the authors and do not necessarily represent those of the
institution with which they are affiliated.

Publication Date: July 17, 2017

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