AFRICA: ENERGY TRANSITION POLICIES AND REGULATORY DEVELOPMENTS LIGHT UP ACROSS THE CONTINENT
Across the continent, countries in Africa are gearing up for the energy transition by implementing policy and legislative frameworks that take into account the energy crisis and the need for a renewable, decarbonized, decentralized energy supply that addresses climate change and the commitments made under the Paris Agreement. Ahead of the United Nations Climate Change Conference, COP 27, in Egypt in November this year, lawyers in Egypt, Ghana, Kenya, Morocco, Namibia, Nigeria, South Africa, Tanzania and Uganda have outlined the efforts taken by the governments in their countries to address this urgent need to harness renewable power. Such efforts are expected to provide exciting opportunities for investors in the African energy sector.
Lamyaa Gadelhak, Baker McKenzie Cairo Partner & Co-Head of Banking and Projects:
In Egypt, article 20 of the Investment Law No. 72 of 2017 (Investment Law) provides that companies that are established to develop a strategic or national project that contributes to achieving development, or projects in partnership with the private sector and the State, the public sector or the public business sector, in the area of public utilities, infrastructure, new or renewable energy, roads, transportation or ports, may, by a cabinet decree, be granted a “single license” for the establishment, operation and management of the project, which will include a construction permit and an allocation of real estate property required for the project (License).
Such a License will be effective without the need for any further procedures and may include other additional incentives for the project provided in the Investment Law. The aforementioned was further developed through Cabinet Decree No. 56 of 2022, which specified a series of requirements to be met for a project to be considered a strategic and/or national project. In addition to meeting a set of conditions, said projects must be a development in one of the fields specified in the cabinet decree, which include, but are not limited to, green hydrogen projects, green corridor projects, renewable energy projects aimed at supplying desalination projects and green hydrogen production projects with energy, and carbon capture, utilisation and storage (CCUS) projects. The conditions, set out in the cabinet decree, will be subject to a yearly review in light of any changes to the State’s economic development plan.
Among the other incentives provided under the Investment Law, and which can be included in the License, Article 11 provides that companies set up before 28 October 2023 to operate in certain industry groups, could obtain a deduction from their taxable income. This incentive is limited to seven years from the date of commencement of the project and is not perpetual. Furthermore, the Investment Law provides that additional incentives around, for example, utilities connection costs, land allocation costs and technical training may be made available to a project by a cabinet decision.
The Government of Egypt has now also expressly recognized the production, storage and export of green hydrogen and green ammonia among the areas falling within the State’s economic development strategy. It has passed a decree that would allow green hydrogen and green ammonia projects to benefit from a wide range of State support under the country’s existing Investment Law, including tax incentives. This is a key development for Egypt’s hydrogen economy and we expect that it will stimulate private investment and the development of new green hydrogen and ammonia projects in the country.
Sefakor Kuenyehia, Solicitor & Barrister, Kimathi & Partners in Ghana:
A recent legal development in Ghana was the amendment of the Renewable Energy Act, 2011 (Act 832) by the Renewable Energy (Amendment) Act, 2020 (Act 1045) (amended Act). The amended Act was passed on 29 December 2020 and establishes a procurement scheme to deliver a competitive market rate for electricity generated from a renewable source.
The Government of Ghana, through the Energy Commission, has also produced the Renewable Energy Master Plan 2019, and the Sustainable Use of Natural Resources and Energy Financing (SUNREF) 2021. Under the Renewable Energy Master Plan, the government proposes incentives in the form of substantial tax reductions. It also proposes exemptions of import duties and VAT on materials, components, equipment, and machinery (that cannot be obtained locally) for manufacturing or assembling renewable energy resources. Also, under the Sustainable Use of Natural Resources and Energy Financing (SUNREF) Programme, the government, in collaboration with other agencies, is offering businesses, organizations and households an opportunity to access financing for sustainable energy projects, and technical assistance in structuring green investment.
Amyn Mussa, Partner and the Head of Projects & Infrastructure at Anjarwalla & Khanna (A&K) in Kenya:
The Draft Kenya Energy Sector White Paper 2022 (Draft Energy White Paper) highlights that renewable energy sources currently account for over 75% of Kenya’s installed power generation capacity, with geothermal (863 MW), hydro (838 MW), wind (436 MW), and solar (173 MW) being the leading contributors. The sectoral reforms undertaken in the energy sector in recent years have resulted in Kenya having one of the cleanest electricity grids in the world. These reforms, among others, include the enactment of several laws and policies such as the Energy Act 2019, the Nuclear Regulatory Act 2019, Kenya FiT Policy 2021, the Least Cost Power Development Plan 2017-2037 (the LCPDP) and the 2021 Renewable Energy Auction Policy.
Although Kenya has adopted new and emerging technologies such as smart grid solutions that continue to make a renewable future achievable, some technologies such as sustainable biomass, battery technologies and green hydrogen have not yet been incorporated into the projected energy mix under national plans, such as the LCPDP. Should these technologies be fully adopted and developed, they will present additional opportunities for the country to meet the 100GW target of installed capacity by 2040 through renewable energy sources set out in the Draft Energy White Paper.
Keltoum Boudribila, Partner, and Saad Khaldi, Associate, Nasrollah & Associés Baker McKenzie in Morocco:
In May 2022, the House of Representatives of the Moroccan Parliament unanimously adopted Bill 40-19 amending Law 13-09 on renewable energies and Law 48-15 on the regulation of the electricity sector and the creation of the national electricity regulatory authority. The Bill will aim to simplify the authorization procedures, to strengthen the attractiveness of the renewable energy sector for national and international investors, as well as to safeguard the economic and social balance of public actors in the electricity sector.
The new legal framework will allow industries to produce their own renewable energy for their operating needs and supply it to other consumers. Morocco has been liberalizing the renewable energy sector for several years, and is continuing on this path with these legislative amendments.
Axel Stritter, Partner at Engling, Stritter and Partners in Namibia:
The Namibian government has stated that in order to achieve energy security and position itself as a regional African leader in renewable energy, it will focus on securing large-scale, low-cost renewable energy and green hydrogen and ammonia projects that are sustainable and able to maximise fiscal revenue and local development. To facilitate this energy transition, the Ministry of Mines and Energy introduced National Integrated Resource Plans (NIRP), being medium to long-term plans that guide state and private investors on least-cost investments in the energy sector, planning scenarios, and greenhouse gas consequences of energy projects. Further, the Harambeee Prosperity Plan II aims to implement targeted policy programmes to enhance post-pandemic economic recovery in Namibia. Improving energy security in Namibia is part of this plan.
Namibia currently produces about 40% of its own energy requirements, with around 60% imported from neighbouring countries, including South Africa. The planned renewable energy projects in the country aim to fill this gap and ensure the production of a reliable energy supply in the country. Renewable energy projects in the pipeline include those focused on biomass, solar, wind and battery energy storage.
Existing solar and wind resources puts Namibia at an advantage in the production of green hydrogen and ammonia, which could assist in making the country the first in Africa to achieve carbon neutrality.
The country’s green hydrogen and ammonia plans are supported by the government’s national Green Hydrogen Initiative, which aims to secure high impact environmental, educational, economic and social investments in the country. The Tsau Khaeb National Park Southern Corridor Development Initiative, with Hyphen Hydrogen Energy, was announced in June 2022. This is the country’s first large-scale green hydrogen project, with the first phase of production planned for completion by 2026. Total investment in this project is USD 10 billion.
Oludare Senbore, Partner at Aluko & Oyebode in Nigeria:
Following the decisions taken during COP 26, the President of Nigeria announced the intention for Nigeria to achieve a net zero emission target by 2060.In order to achieve this objective, the Federal Government of Nigeria on 24 August 2022, launched its Energy Transition Plan (ETP). The ETP, which was launched by the Vice President on behalf of the Federal Government of Nigeria, has a double-pronged objective of achieving universal access to energy by 2030 and a net-zero emission target by 2060.
The foregoing actions support Nigeria’s energy transition drive, which includes an updated Nationally Determined Contribution (NDC) under the Paris Agreement that was submitted in May 2021, and which highlights the country’s commitment to reduce greenhouse gas emissions by 20% unconditionally, and a conditional reduction target of 47% by 2030. This was followed up with the enactment of the Climate Change Act 2021 in November 2021, which provides a framework for achieving low greenhouse gas emissions (GHG), inclusive green growth and sustainable economic development in Nigeria.
An additional legislative action by the Federal Government of Nigeria is the Petroleum Industry Act of 2021, that empowers the Nigerian National Petroleum Limited (a state-owned oil company) to engage in the business of renewables. This further confirms the country’s drive for energy transition, as do proposed amendments to the Electric Power Sector Reform Act, which provide that distribution companies must ensure that a portion of the electric power that they purchase must be from renewable sources. This is supposed to provide support for the growth of renewable power projects.
Kieran Whyte, Partner and Head of the Energy, Mining & Infrastructure Industry Group at Baker McKenzie in Johannesburg:
South Africa is in dire need of a clean, reliable and secure energy supply to get out of its negative growth spiral. As a result, the country is moving forward towards just energy transition and the increased utilisation of renewable energy.
At COP 26 in November 2021, it was announced that the governments of France, Germany, the United Kingdom, the United States and the European Union had pledged USD 8.5 billion in first round financing to assist South Africa with energy transition projects. On 20 October 2022, the South African cabinet approved an investment plan for the USD 8.5 billion package, the details of which are expected to be announced at COP 27. The South African government said the plan outlined the investments required to achieve the country’s decarbonisation commitments, while promoting sustainable development, and ensuring a just transition for affected workers and communities.
A just transition takes into account the requirement to balance the reduction of carbon emissions with the impact of this transition on employment and the need to develop long-term green energy jobs, especially in communities that have a current heavy reliance on fossil fuels. Coal remains the primary source of energy for the country, but in order for South Africa to reach its reduction in carbon emission targets, this must change. South Africa updated its NDC under the Paris Agreement in 2021 and now has a proposed revised target range of 398 to 510 Mt CO2-eq for 2025, and 398 to 440 Mt CO2-eq for 2030.
The National Development Plan (NDP), the draft Integrated Energy Plan (IEP) and the Renewable Energy White Paper outline the policy foundation for energy transition in South Africa and the move away from carbon-fuelled energy. The Integrated Resource Plan (IRP) 2019 covers the government’s plans for power until 2030 and outlines a decreased reliance on coal-powered energy and an increased focus on a diversified energy mix that includes renewable energy, distributed generation and battery storage.
The Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), introduced in 2011, outlined the procurement of renewable energy in the country. The sixth round of the REIPPP kicked off in 2022 and this round aims to procure 2.6 GW of solar and wind power. To incentivise the self-generation of renewable energy, the South African government has also indicated that it proposes to scrap the threshold for distributed energy generation of 100 MW, meaning that large scale power plants in excess of 100 MW could be built without a licence, to meet their own demand and to sell to the grid.
In February 2022, the South African Hydrogen Society Roadmap (HSRM) was published by the South African government. The Roadmap is considered to be an important marker on its path towards implementing hydrogen development, which is envisaged to be at the centre of South Africa’s strategy for economic growth and mitigating climate change. Further, the Climate Change Bill was introduced into South African Parliament in 2022 and outlines steps for climate change mitigation and the move towards a climate resilient economy. Other tools in the just transition toolbox include the introduction of a carbon tax and carbon offsetting schemes, designed to tax/incentivize the reduction in carbon emissions. Further policies such as the National Energy Efficiency Strategy and the Green Transport Strategy also have a role to play in ensuring the country meets its climate change targets and reduces its carbon emissions. Trading in carbon offsets in the carbon market, where companies can pay other entities to offset their emissions for them, is growing in popularity in emerging markets. In August 2022, the Johannesburg Stock Exchange announced that it was investigating the possibility of introducing a carbon trading market in South Africa.
As part of a diversified energy mix strategy, Eskom recently identified eighteen independent power producer bids in terms of an auction relating to the use of vacant land it owned in Mpumalanga, situated in proximity to its coal-fired power stations, with direct access to the national transmission network and the enabling of wheeling. The projects will add approximately 1 800 MW of renewable power to the South African grid.
The Department of Minerals Resources and Energy ( DMRE) is proposing a number of amendments to the Electricity Regulation Act, which came into effect in 2006. The amendments are likely to address, inter alia, the electricity supply deficit, the vertical structure of the market and the lack of competition, the introduction of a multi-market including independent power producers( IPPs) and the formation of a central purchasing agency. The amendments will also address the introduction of a day-ahead market to accommodate hourly supply and demand, the direct procurement of power by municipalities, the increase in the threshold pertaining to self-generation, the need to accommodate low carbon-emitting generation technologies, the timing of licensing applications, changes in transmission system operation including power trading ,and the creation of additional regulatory capability.
The lack of access to power has had a significant impact on the private sector in South Africa for some time, and the country’s energy policy developments, which are aligned with the global energy transition towards a clean and decentralised energy system, have been welcomed as a means to improve access to decarbonized, affordable renewable energy that takes into account the country’s carbon reduction commitments and economic growth requirements.
Shemane Amin, Partner at A&K Tanzania:
Tanzania has refocused its attention on the energy future, with the Ministry of Energy actively pursuing investment opportunities in renewables to improve the country’s energy mix. This is specifically in relation to solar, wind and geothermal opportunities – and to add more renewable energy sources to the national grid to meet the country’s growing demand for power.
The Government of Tanzania is targeting an electrification rate for the entire country of 75% by 2035 and in the next six to seven years is striving to add 2 GW of renewables to the grid. In order to attract these investments, the government is striving to create a more conducive business environment in which such power projects can be sustainable, this includes providing investment incentives. In the 2022 budget speech, the Ministry of Energy highlighted, among other things, the establishment of the Renewable Energy Strategy and Roadmap. In a nutshell, the refocus on the energy future and the momentum behind renewables in Tanzania make this a key area to watch for investors.
Arnold Lule Sekiwano, Partner at Engoru, Mutebi Advocates in Uganda:
There are a number of policy initiatives which have been passed purposely to facilitate energy transition in Uganda. Such policies include the Climate Change Policy 2015, which focuses on the use of alternative renewable energy sources such as solar, biomass, mini-hydro, geothermal and wind; and the Renewable Energy Policy (2007), which forms the basis of the underlying framework for renewable energy.
Furthermore, Uganda’s Vision 2040 has also emphasized clean sources of energy to avert climate change. These policy initiatives have culminated into the recent enactment of the Climate Change Act, 2021. The Act governs the national response to climate change. One of the stated purposes of the Act is to give effect to the UN Framework Convention on Climate Change, the Kyoto Protocol, and the Paris Agreement. Generally, there is an increased focus on the utilization of renewable energy resources and technologies in Uganda and a regulatory focus that supports energy transition.