- By Carlijn Nouwen
Sustainability has been a hot topic for a while. Though it has its ups and downs, tailwinds and headwinds, and presents a different type and level of risk and opportunity in different sectors, most executives think about the environmental sustainability of their business and the role they should, can, and want to play in halting and reversing climate change.
Yet sustainability needs to be about so much more. A truly sustainable business is future-proof in all its aspects. It understands and explores future markets and ensures access to the capital and labor capacity it needs, as well as to energy, primary materials, and other crucial inputs. Business sustainability is as much about maintaining competitive advantage as it is about understanding that future drivers of competitive advantage are likely to be fundamentally different from current ones and being able to adjust to that.
For all those reasons, executives would be wise to pay attention to the continent of Africa. Home to 40% of the world’s untapped renewable energy potential, 40% of relevant critical mineral deposits, and 40% of the global workforce by 2050, it is the one global location where access to energy, primary materials, and labor force come together in abundance. Demographic dynamics also drive future market potential. For example, Africa is the continent with the biggest building stock yet to be built – both in buildings and in infrastructure, as 40% of all new global city dwellers between now and 2050 will live in African cities. As an increasingly highly educated and connected young population starts their working life, rising living standards will drive increased and increasingly diversified and sophisticated local consumption.
Limited existing African industrial capacity has long been a deterrent for investors, but in an era where completely new industrial processes are needed to meet future demand sustainably, the absence of legacy infrastructure allows African countries to develop green-from-the-start capacity more rapidly. Green iron and steel are a case in point: typical hydrogen-powered green steel electric arc furnace processes are completely different from traditional steel mills and are more easily built from scratch than achieved through conversion of existing capacity.
At the inaugural Africa Climate Summit in September 2023, the African Union embraced the notion that Africa can provide global climate solutions and drive economic growth and development in doing so (also known as Climate Positive Growth). African governments, innovators, industrialists and institutional investors are looking for global partners – across investment, innovation, and off-take, to develop Africa’s potential and to help preserve a livable planet for all of mankind.
Transformative leaders recognize Africa’s intrinsic competitiveness in a future in which we must radically green everything we consume and produce. And they lean in – as investors, as innovators, and in their capacity to shape and influence regulation. Responsible leaders do not try to do everything they can to hold onto the status quo – even if they are in a comfortable position right now. Instead, they lean in to shape the world we need. Both in the choices they make in their own businesses, in the partnerships they shape and drive and in their engagement with market-shaping rules, regulations and practices. Future-oriented leaders succeed when they help mankind thrive – and seek out Africa’s diverse and vast potential to do so.
How Renewable Energy is Challenging the Traditional Grid – Powering the Future
In Renewable Energy (RE), mankind’s climate imperatives and economic incentives rapidly converge. To maintain a livable planet for future generations, we must green everything we produce and consume, and RE will have to become the dominant energy source if we are to achieve that. In parallel, the costs of RE have come down so rapidly that they are now increasingly the economically rational choice: the Levelised Cost of Energy (LCOE) of solar or wind plus storage was up to 75% lower than that of gas peaking generation capacity as early as late 2023. In its most recent World Energy Outlook, the IEA states that the “Clean energy momentum remains strong enough to bring a peak in demand for each of the fossil fuels by 2030, [… so that] the global economy can continue to grow without using additional amounts of oil, natural gas or coal.”
This energy transition introduces new questions and challenges for grid infrastructure, driven by the intermittent and seasonal nature of renewables. In many countries, policy, regulation, and financial incentives now need to shift from a period of sheer stimulus on the expansion (as with the feed-in residential tariffs many European countries used for rooftop solar PV) to a set of measures and processes that realize the energy transition with energy security and where new (grid) infrastructure investments and design and load balancing approaches are set up to handle a new energy mix. That is not an easy feat: grid congestion slows down the energy transition, and changing government policy creates investment uncertainty and perceptions of policy inconsistency and unpredictability, which requires a lot of stakeholder engagement to continue bringing people along on this journey.
At the same time, far from the attention of most industrialized countries, emerging and frontier economies in Africa face a very different situation. Their objectives are different from industrialized countries and are mixed in a complex way: they need to solve both energy poverty (with 600 million Africans without access to electricity and over a billion Africans without access to clean cooking), reduce import dependency for fuels, and create massive surplus generation capacity to power green industrial development to diversify and grow their economies.
Africa’s untapped RE potential has much lower seasonality than most industrialized countries by virtue of the fact that many countries do not really have winter and can generate near-continuous power supply using mostly solar PV with a battery size of just a few days[i]. Moreover, Africa’s RE potential is orders of magnitude greater than that of other parts of the world – both in absolute and relative terms. Africa’s untapped RE potential is more than 50 times the projected global electricity demand by 2040 – and on a country-by-country basis, the viable RE potential is typically a few thousand times the current electricity generation[ii]. This is a testament to the RE potential – yet also a reflection of the very small current generation capacity and grid size. Kenya’s generation, for example, is over 90% renewable, yet also only has a 3 GW capacity for the entire country of 55 million people, which represents less than 70% of the city of London’s electricity consumption. Kenya’s aspiration is not only to get to 100% green generation, but the expand its generation capacity to 100GW by 2040, to power its transition towards a green economic and manufacturing powerhouse.
In short, this is a context where most African countries do not face an ‘energy transition’ challenge but a green (also called climate-positive) growth opportunity. One that is crucial for mankind as a whole, as renewably powered green industrial production is needed to achieve ambitious global industrial decarbonization targets. This does require energy system, grid and load balancing investments and designs that are not a gradual adjustment but a fundamentally new design fit for a green, productive future in which Africa provides global climate solutions. It requires bigger effective regional power pools – and substantially higher (global) investments. Given Africa’s potential, it is a global travesty that less than 2% of all investments into renewable energy happen in Africa.
The African Union has embraced Climate Positive Growth as its development and growth paradigm at the inaugural Africa Climate Summit in September 2023. African governments, innovators, industrialists and institutional investors are looking for global partners – across investment, innovation, and off-take, to develop Africa’s potential. African stakeholders know this is different – and may not be easy. It will require tenacity, appropriate risk assessment and mitigation, and deep and novel partnerships. Yet it holds unparalleled business and return potential and, macro-economically, is Africa’s only viable path to middle-income status and beyond. Not only that, but without developing Africa’s renewable energy potential, the world will not be able to be at net zero by 2050, jeopardizing life on Earth as we know it.
[i] See CAP-A’s synthesis analysis and location-specific country and industry-analysis for further details
[ii] See CAP-A’s RE dashboard for further details. The multiple (RE potential as a multiple of current electricity generation) ranges from ~ 300 in South Africa and Egypt to nearly 300,000 in Chad with most African countries ranging between 1,000 and 5,000 (with the exception of a handful of small countries like Equatorial Guinea and Liberia who have lower numbers – 4 and 80 respectively).
