The Africa Continental Free Trade Area is promising with many prospects. But what can state parties do through the avenue provided to effectively participate in the exploitation of renewable energy technologies, especially the Solar Photovoltaic, in this critical era of the energy transition?
The world is trumpeting energy transition, and Africa is in the chorus. Climate concerns and calls for a shift to cleaner energies have culminated in an increasing demand for Renewable Energy (RE) technologies. Over the last decade, the globe has witnessed lots of RE-installed capacity.
Between 2010 and 2020, total global capacity more than doubled from 1226GW to about 2,799gigawatts. New and ongoing generation projects also account for about 82% of RE technologies, implying substantial growth of renewable energy across the world.
In Africa, RE growth has not been as high, but evidence of progress is remarkable, especially for the period between 2010 and 2019. 53 of the 54 countries submitted Nationally Determined Contributions with climate adaptation measures at the fore. Generation capacity has grown from about 5000 gigawatts per hour in 2010 to over 25000gigawatts per hour by 2019.
Despite this, increased awareness and an increasing market for cleaner energy options present vast opportunities for Africa to develop the necessary technological and knowledge capacities needed for the continent to grow. And with the Africa Continental Free Trade Area in sight, the ambiance is created for state parties to benefit from trade in RE technologies, particularly solar PV.
This means that Africa as a continent does not need to be a mere consumer of technology at the bottom end of the value chain but a full participant and beneficiary of innovation and manufacturing.
That Africa needs to be a partaker of the economics in the value chain to benefit from both meeting the target of environmental conservation and sustainability, and climate adaptation, and also gain financially from this transition.
“Current efforts for most African countries have been more of adoption than innovation,” said Charles Gyamfi Ofori, Policy Lead at the Africa Centre for Energy Policy at the 7th Africa Oil Governance Summit.
“Adoption because most of the technologies consumed on the continent are more import-based. There are not many companies on the continent that have aligned or participated along the value chain for most renewable energy technologies,” he explains.
Even where companies are participating, they are mostly at the lower ends of the value chain, for instance, the module assembly end of the solar PV value chain. “These low-hanging services do not offer the ability and opportunity to benefit from the full complement of the RE technology value chain.
He gives a classical example of the oil and gas sector where Africa continues to be a net exporter of crude and a vastly next importer of petrochemicals products, which situation does not allow countries to benefit from the crude oil.
This, he stresses, need not be replicated for this transition, hence the need for competencies and approaches to be developed to be part of this value chain.
Africa Continental Free Trade Area;
What the AfCFTA is about, succinctly put, is to create a single market for goods and services, facilitated by the movement of persons to deepen the economic integration of the African continent.
It further seeks to create a liberalized market for such through successive rounds of negotiations and contribute to the movement of capital and natural persons while facilitating investment building on initiatives and developments in state parties and related regional bodies.
Specifically; the Free Trade Area will progressively eliminate tariffs and non-tariff barriers to trade in goods, and likewise, liberalize trade in services. Now to be able to engage in this market, stakeholders would have to particularly understand what the rules of engagement, of origin are–value-added rule, and rules on change in tariff heading and specific services; and also what requirements in terms of investments and such that have to be satisfied to be able to benefit from the opportunities that this Agreement presents.
For instance, not every product or service would be deemed to qualify for preferential treatment under the Agreement, or the removal of any trade barrier. Stakeholders would have to understand these peculiarities, build their competencies and maximize what they can.
For the RE sector, the AfCFTA presents an increase in demand for RE technologies with an opportunity to ensure intra-African trade of such technologies, in this instance Solar PVs. Then there’s leveraging the Free Trade Area which seeks to provide a liberalized market for AU member states, with the reduction of tariff and non-tariff trade barriers.
Governments would therefore have to explore how the mechanism of the Agreement can be used to facilitate trade in renewable energy technologies while ultimately developing a well-integrated RE industry, working through the continental market presented.
That notwithstanding, all stakeholders would have to assess which aspect of the Solar PV qualify for preferential treatment under the Agreement, and what major cost factors are required for the solar PV value chain.
Solar PV Value Chain;
The recognizable solar photovoltaic panels we know result from a series of intense industrial processes beginning with the extraction of the raw material silicon, found in silica sand or quartz which are abundant in almost all parts of the earth.
Production continues with the manufacture of solar grade silicon, which is metallurgical grade-MG silicon, about 98% pure silicon that goes through further purification to obtain Polysilicon of about 99.99% pure silicon. This subsequently gets molded into blocks-ingots and sliced into thin wafers, which form the building blocks for solar cell manufacture and module assembling.
These wafers are the primary elements in the manufacture of solar cells which effectively convert the sun’s energy to electricity. The production process gets rounded up with the assembling of the solar modules, an interconnected array of solar.
Save the extraction process, every other stage of the manufacturing cycle is a purely industrial venture, one that requires capital-intensive inputs for equipment, power, and other production costs. Solar cell manufacturing requires the highest capital expenditure.
For instance, about $900m is required for producing a one-gigawatt solar capacity. Such financial incapacity would explain why most of Africa is subjugated to the bottom end of this value chain, preferring to be involved in the assembling process which requires the least capital expenditure or largely remain just consumers.
However, assembly generally does not qualify for preferential treatment under the AfCFTA. Moreover, the integrated process is power intensive because of the chemical processes. The polysilicon and metallurgical silicon processes, for instance, are the most power-intensive processes in this aspect. Such an industry would hence be too much for countries with high costs of power.
Without a doubt, no one stakeholder or country on the continent can assume participation in all the various stages of the Solar PV value chain. What any state or entity can do is identify where its strengths and competencies lie along the chain and take advantage of the opportunities as they exist.
Countries with comparatively lower costs of power, say less than five cents/kWh-Algeria, Sudan, Ethiopia, Angola and Zambia can reasonably get involved in this section of the value chain. Along the solar cell manufacturing process, aluminum is employed in the Solar PV production of the panels.
Countries such as Ghana, Guinea, and Mozambique have the raw material for this – the bauxite that is used in making alumina for aluminum – in abundant reserves. Yet, this process is also capital and power intensive and may not be able to be taken up by these states, which have higher power costs. They could, however, supply the resource to their counterparts.
Africa can ultimately benefit from the economics of energy transition if, it positions itself to create an integrated renewable energy industry; create the necessary environment for investment generation for renewable energy businesses to thrive, and promote intra-continental trade of solar PV technologies through the AfCFTA.
But this would require that state parties possess an understanding of the rules of origin and product specifications under the Agreement that provide preferential treatment and enables any country’s eligibility to benefit. It is also important for each country to understand its core competencies to know where along the value chain it can fare best.