寄稿The Energy Transition:
The View from Africa
Rebecca Major, Partner, ParisPaul Morton, Of Counsel, Paris
Herbert Smith Freehills
The energy transition is at the top of agendas aroundthe world and the momentum behind this transformation will reshape the global energy sector. Africa
is no exception to this, but local economic, politicaland social factors will mean a different kind of energy transition for the continent. At the same time,
Africa is well placed to make a significant contribution to the global push towards sustainability.
In the run up to TICAD 8 in Tunisia at the end ofAugust1, we are currently discussing the following“Top 10” of African issues and opportunities withour clients.

1. Increasing access to energy andgrowing demand
Africa faces a major challenge to combat low levels of electricity access across much of thecontinent: the energy transition in Africa is as muchabout increasing electrification rates as it is aboutchanging the way electricity is produced. Highrates of urbanisation and population growth are also contributing to big increases in projected energy
demand – the International Energy Agency predicts
that energy demand in Africa will grow twice as
fast as the global average2. Energy supply will needto increase significantly to meet these challenges:
it is estimated that to meet its development objectives, generation capacity will need to double by2030 and increase five-fold by 20503. With anabundance of renewable resources (particularly hydro and solar) and falling technology costs,
１ Tokyo International Conference on Africa
https://www.mofa.go.jp/afr/af2/page24e_000325.html
２ Africa Energy Outlook 2019.
３ PWC, Africa Energy Review 2021.

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renewable energy will play a major role in this effort, although Africa will also continue to source
electricity from coal, oil and gas.

2. COP26 and climate change
The costs of adapting to the effects of climatechange will be significant for Africa (for example,droughts affect hydro plants across many countries
on the continent). The costs of implementing the requirements of the Paris Agreement and Glasgow
Pact are also significant for Least Developed Countries (LDCs), particularly in Africa. Mitigating thecost of climate change and implementing measures
to combat climate change therefore remain a major
challenge for Africa. Measures taken outside Africa
to combat climate change may also indirectly havea significant effect on African economies. For example, the European Union Carbon Border
Adjustments mechanism will require EU importers
to buy carbon certificates corresponding to the carbon price that would have been paid had the goods
been produced under the EU’s carbon pricing rules.
This is likely to have a significant impact on morecarbon-intensive economies in Africa. At the sametime, these commitments will create opportunities
in other areas (see points 3 and 4 below).

3. Continuing opportunities for off-gridand mini-grid (C&I) investments
The growing demand for electricity, coupled withpoor grid infrastructure and other barriers (such as
credit issues with state-owned electricity compa-特集：革新フロンティアのアフリカnies) have pushed forward the off-grid and mini-gridsector, from individual roof-top solar PV businesses
to larger-scale commercial and industrial investments. Although East Africa has been at the forefrontof this trend, investors are increasingly targetingWest African markets as well. Industrial operations
such as mine sites are also looking to decarbonise byusing off-grid power solutions. In addition to hitting
decarbonisation targets, these solutions in many cases also offer the prospect of reduced costs (comparedto trucked diesel and HFO) and simplified logistics.

5. Challenges ahead for African oil andgas producers: The global
momentum away from fossil fuels will
put pressure on traditionally oil andgas focused African economies.

4. Part of the global move tosustainability: Africa forms anintegral part of the energy transitionfor Europe, the US and Asia.

• As oil majors come under pressure to deliver returns more sustainably, they are increasingly
focused on lower cost, lower emission projects –in many cases, this means reducing their exposure
to projects in Africa, which are generally more
expensive and more carbon-intensive4. This trend
is creating opportunities for new entrants in theupstream space, particularly smaller operators focused on improving operational efficiency.

• Africa is an important source of “transitional”
resources such as gas and uranium. For instance,
the region will continue to supply significant
quantities of piped gas to Europe and LNG
around the world. In addition to large existing
projects (such as those in Algeria, Nigeria, Equatorial Guinea, Egypt, and Angola), there aremajor new projects in the pipeline, in Senegal/
Mauritania (expected to come online in 2023), as
well as in Mozambique and Tanzania.
• The continent is rich in future-facing mineralssuch as cobalt, nickel, titanium, tantalum, manganese and copper. There is currently a significant
increase in interest in countries such as the Democratic Republic of Congo and Zambia that holdmajor reserves of these ‘critical’ minerals.
• Although a more nascent trend, a number ofcountries are looking at producing lower-cost,greener energy (from hydro and solar in particular) to produce cost-effective green hydrogen,which can then be exported. For instance, Egypt
has announced a planned investment of $40bn toimplement a hydrogen strategy for the country,
targeting a production of 1.4 GW by 2030. Namibia has also taken concrete steps to promote a
local hydrogen industry.

４• Although offset by the impact of wider geopolitical factors on energy markets (see points 7 and 8below), over the longer-term, countries that areheavily dependent on oil and gas revenues willneed to focus on decarbonising their upstream
projects and diversifying their energy sector.

6. Environmental, social andgovernance issues (ESG)
More broadly, ESG continues to be a key driver forclients in both their strategic investment decisions
and day-to-day operations. In addition to reputational concerns, companies are faced withincreasing regulatory pressure in areas such as supplychain transparency and diligence (see forexample the European Commission’s Proposal fora Directive on Corporate Sustainability Due Diligence). The ESG credentials of products in thefuture are likely to have an increasing influence on
where they can be sold and at what price.
ESG issues can be acute in African jurisdictions,particularly in the resources sector. In some cases
these concerns have led to investors to avoid or divest from certain jurisdictions or sectors (such ascobalt in the DRC as a result of issues aroundworking conditions and high incidence of child labour). However, we’re also seeing a growing
awareness of the limitations of this approach andthe recognition that engagement with the issues

See McKinsey & Company, “The future of African oil and gas: Positioning for the energy transition”

2022.717

may ultimately lead to a better overall outcome.
Navigating these questions in the face of an increasingly stringent regulatory environment will bea key challenge for investors.

cluding contract reviews and renegotiations and tax
re-assessments. New investors active in these jurisdictions need to ensure that engagements withtransitional authorities are as legally robust as possible to protect against future challenge.

7. Re-emergence of energy security
The invasion of Ukraine has put energy security
back at the top of the agenda. As Europe looks todrastically reduce its reliance on Russian oil andgas, the prospect of accessible supplies of gas (either by pipeline or LNG) is likely to refocus
attention on projects in Africa (in particular inNorth and West Africa). Similarly, demand for certain minerals, such as uranium from Niger andNamibia, will also increase as a result of geopolitical events in Europe.

8. Global geopolitics
Although the war in Ukraine is perhaps the starkest
illustration of the trend, the emergence of a morepolarised global political system is having a significant impact in Africa as the US, China, Russia andothers vie for influence. For example, as an important source of strategically important minerals, themining sector in the Democratic Republic of Congo is now a major focus of attention for global
powers looking to secure long-term supplies ofcritical materials for their economies. For investors, this can have concrete effects on investment
opportunities, how they are structured and how
they fare over the life of the project.

9. Security issues and politicalinstability in West Africa
The Sahel has been plagued by Islamist violence andresulting insecurity for many years. There have been
a number of coups d’état and other unconstitutionalchanges of government over the past 18 months, inmany cases as a result of the deteriorating security
situation. The military has taken power most recently in Burkina Faso (in January 2022), as well as in
the Republic of Guinea (September 2021) and Mali
(May 2021 and before that in August 2020). Chad iscurrently under a Transitional Military Council following the death of President Idriss Déby Itno in
April 2021. Frequent changes to the political orderpresent existing investors with increased risks, in18

2022.7The deteriorating security situation continues to affect projects in the region, from higher security risks
for personnel to increased costs for inputs such asfuel. In some cases, we are seeing projects changing
hands in favour of operators that are better equipped
to manage the security and political issues.

10.Need for clear, well adapted andstable policy environment
The energy sector is evolving rapidly. Although theenergy transition is creating opportunities, investors
are also taking greater risks on new technology andlower rates of return. Investors are also faced with anincreasingly complex web of legal and regulatory
constraints (from new laws to class actions) across a
range of jurisdictions. A workable and stable regulatory framework for their investments is therefore a
key consideration in deciding where to deploy capital.
Likewise, African policymakers are faced with significant challenges in the face of unprecedentedchanges in global energy markets to ensure that theenergy transition also achieves critical development objectives. Governments will need to beproactive in leveraging the opportunities that theenergy transition presents and meeting the specificchallenges that it brings for African economies.
<Biography>
Rebecca Major is a corporate partner specialising in the energy andnatural resources sectors and is the Head of Herbert Smith Freehills’
Paris Energy, Mining and Infrastructure team. Rebecca is experienced
in cross-border work, particularly in Europe and Africa (having
advised on deals in most of Africa’s 54 jurisdictions). She has alsoworked on a number of Government capacity building programmes inAfrica with the ALSF, GIZ/Connex and the ISLP. Rebecca was apartner at Herbert Smith Freehills Tokyo for 5 years.
Paul Morton is an Of Counsel based in Herbert Smith Freehills’ Parisoffice. Paul advises on corporate and projects matters, primarily in theenergy and resources sector. Paul is a member of the firm’s Africa
Group, and has spent three years based in the Herbert Smith Freehills
Johannesburg office.