DIFFUSION STRATEGY OF GREEN TECHNOLOGY AND GREEN INDUSTRY IN AFRICA

A Pilot Study of Renewable Energy Technology Market, and Energy Efficiency Adoption in Cassava and Maize Processing Industry in Kenya and Nigeria

Prof. Rene Kemp & Jacinta NdichuUNU-MERIT

Dakar, Nov 25, 2013

What the study is about

• The market for modern renewable energy technologies (RET) in Sub-Saharan Africa, and

• The uptake of energy efficiency (EE) measures in two agro-industrial sectors (cassava processing and maize milling) in two African countries (Nigeria and Kenya)

Why RE & EE tecs for SS Africa?

i) Important role of energy in SSA’s social economic development

ii) Low access to grid electricity 600 million have no access most of whom in the rural This proportion expected to grow in the future

iii) High reliance on traditional biomass resources for energy 700 Mio rely on biomass (EAI, 2012) biomass resources are diminishing as a result of

population growth and climate change Scarcity of trational biomass fuels has resulted in high

costs and grerater energy poverty

Why RE & EE tecs for SS Africa?

iv) Energy use is known to be inefficient in SSA, but not much is known about drivers/challenges of EE technologies

v) Current trends will aggravate the situation in future Economic growth Population growth Rural-urban migration into Climate change

SSA Energy supply challenges• Infrastructural systems: Inefficient grids, long distance transmission,

efficient generation, transmission & distribution result in energy losses. SSA Av. Losses 11% against a global av. of 9%, Some countries its as high as 41%.

• Human capacity: poorly qualified personnel, unprofitable management of energy agencies & poor maintenance of grid systems.

• High costs: Average cost of electricity is USD 0.18 per kilowatt-hour (about twice as expensive as elsewhere). back-up generators that cost USD 0.40 per kilowatt/hour Economic losses of power outages 2% of GDP, and 6 16% in lost ‐

turnover for enterprises (WB 2009) Losses are higher for SMEs

• Electricity grids unable to meet current demand• Grid expansion efforts equally unable to match growing demand from

current economic and population growth

Energy efficiency problems• Manufacturing sector characterised by old inefficient

machinery• Reliance on inefficient, energy intensive production

methods, resulting in high production costs• EE not widely recognised as a manufacturing

principle (54% & 57% of firms Nig &Ke considered it important)

• High costs neccessary for replacing old machinery• Lack of financial access for adoption EE technologies• Low technological base & weak innovation systems

High potential of SSA’s RE resources underutilised

Hydro - Currently provides 70% of SSA electricity BUT only from 5% of exisiting resource.

Countries with the highest potential include D. R. Congo with 40,000MW, Angola, Cameroon, Gabon, Mozambique, Niger, Egypt, Zambia, Ethiopia & Madagascar

Hydro resource is subject to climate variabilityExploitation in some areas needs international

cooperation due to the cross-boarder nature of resources

High potential of SSA RE resources underutilisedGeothermal - Combined capacity of 14,000MW most of which is in Ethiopia & Kenya, others are Tanzania, Eritrea

Biomass - Provides 80% of SSA’s energy needs. There is need to shift from traditional biomasss (wood, charcoal)

to more sustainable energy sources

Agro industry has large potential: waste and by products can be used as biofeeds. Co-generation potential exists in sugar, coffee, palm oil, fruits, vegetable, meat & dairy sectors.

Wind - Estimated capacity of 93,900MW

Solar –high solar radiation in most of SSA

RE & EE tecs as solutions to access & sustanable energy supply

• RETs whether adopted for national grids or for private use, are low cost in the longterm

• RETs offer low cost energy infrustructure (Small Grids) where scattered settlement patterns imply expensive grid development costs.

• RETs offer environmental returns as they have no emmisions, minimise use of biomass

• In agro-industry use of waste and by products as feedstocks results in material reuse & efficiency

• REs plant generate employment and incomes• Energy efficiency can offer economic savings

RETs Adoption: Findings from Kenya

Kenya’s RET market more diversified and larger...

Both markets are..... small, young & vibrant: 56% in Kenya established after 2008 &

68% in Nigeria between 2000-2012, 14% after 2010promising: In Kenya beginnings of innovation in technology

adaptation and business strategies for RETs are evident

34%

37%

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biomass

solar

generators of electricity from RET

wind power

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Finance

RE Adoption: Findings from Nigeria

• In Nigeria, solar is the main technology marketed

• Other RETs distributed by firms dealing in solar, but to a less extent

Solar system Biomass Wind Power Mini-hydro0

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Origins of RETs adopted in Ke & Nig

• China and India are the main sourcing countries **role of similar developmental contexts between countries important for

transfer & diffusion)• EU and other developed countries to a lesser extent, mostly for large RE projects.

This could change in the future as awareness of RET & quality appreciation grows.

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Frequency

EE Adoption in Kenya & Nigeria

• In both countries low levels of EE tec adoption was observed

Driving factors of RE & EE adoptionKey drivers: Nigeria - unreliable power supply; Kenya - volatility in foreign exchange

Other drivers influential in both countries : Access to finance, VAT & duty exemptions, presence of a national RE strategy, packaging RETs with finance & suportive services, presence of a regulation framework

Regulations and licensing procedure in place for: Renewable Energy Auditors Energy Audit Firms Solar Water Heating Technicians Solar PV Technicians

Packaging of biomass & solar RETs more developed with training, maintenance, and financial services included

Drivers of EE Tecs: high energy costs in-house knowledge about energy management availability of local technical expertise

Barriers of RE & EE adoption in Nig & KeImportant barriers for RETs:• Unfavourable business climate • high tariffs • lack of technical competence• Access to finance Major barriers for EE Tecs: initial set-up costs of EE technology high cost of maintaining the EE measures

Barriers of RE & EE adoption in Nig & Ke

Common barriers for RE and EE Tecs in both countries:i) Low technological base as reflected in proportion of local

technology content for both technology typesSources of EE Technology used

Barriers of RE & EE adoption in Nig & Ke

• Limited RET innovations observed in both countries. • RETs are largely foreign with limited local content noted in biogas

Foreign-domestic composition of RETs in percentage (Inner circle Nig, outer Kenya)

beginnings of growth in domestic content observed in Kenyaboth countries reported anticipated future growth for the same

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7.3 Based on foreign technology only

Involves domestic tech-nology to a small degree

Involves domestic tech-nology to a large degree

Primarily based on domestic technology

No response

Barriers of RE & EE adoption in Nig & Keii) Weak systems of innovations – Reflected by poor interaction between

various actors.

** In Kenya the situation is worse than in Nigeria that has a slightly better technological base for agro-processing

Types of organization involved in successful EE projects

Interactions of drivers and barriers• Drivers such as unstable exchange rate, high oil prices, power

outages, access to finance are also an integral part of unfavourable biz environment, a leading barrier observed in both countries.

• Tariff reductions act as both a driver for imports and a barrier for locally made RETs (Kenya)

• Presence of FiTs is a driver but prices are still cited as being low hindering adoption commercial investments.

• Lack of technical info on RETs is a barrier that undermines effects of credit availability(hesitation to lend), policy makers understanding of profitability of large RE plants

SMEs Learning, knowhow & innovationInnovative approaches were being adopted by RET distributors

Adaptation of foreign RETs using local materials (biomass), In Nigeria development of solar products was noted though not suitable for commercialised

Innovative financing arrangements Climate Innovation Centre in Nairobi was noted an important platform for

knowledge sharing & learning, policy lobbying, access to green finance Strong cooperation among biogas suppliers is enabling resource & knowhow

pooling necessary for larger projects, cooperation for importation of goods Business strategies such as targeting cooperative groups, and agricultural sectors RET sourcing methods used by small distributors e.g. combined imports, African

networks based in China Clustering was observed amongst RET suppliers in Lagos

Focus on a single RET allowed better understanding and more innovative capabilities particularly in:

RET improvement Understanding market needs

Technical cooperation

Findings highlight the need for technical collaboration especially between 1st & 2nd line actors in sectoral innovation systems.

Traditional cooperation frameworks (development aid, CDM) are less effective especially for SMEs as they fail to provide an effective conduit for intellectual property rights & protection

Ineffectiveness of cooperation frameworks has resulted in an emergent trends where both government & business try to address these short comings

Models of Technical cooperation• Development aid - large RE projects• Development finance institutions-often

participating DFI bring its own RET• South-South cooperation• Intra Africa cooperation – Africa Power

pools• Going- out-Model – as used by China and

now other countries as well• Enterprises' initiatives e.g. Barclays club in

Ghana, Nigeria & Kenya

Case study:RET Adoption in Kenya’s Tea Sector

General Context of Kenya’s Tea Sector

• Kenya is 3rd tea producer & 1st exporter of tea in the world; contributed 26% of Kenya’s Forex in 2012

• Production is by 565,000 small holder farmers, supports livelihoods of 3 million persons

• Processing takes place in 65 tea factories, factory energy needs range between 0.3-0.7 MW

• Tea sector has a well organized and functioning governance structure

Energy & Technological context in the Tea Sector

• High costs of production 30% as at June 2013 most of which is energy On average a factory spends approximately 46,000 USD

per month

• Oil price and exchange rate fluctuations have a direct effect on electricity costs during low hydrology Can cause prices to increase by a margin of 28-80% Production costs rose by 79.4% between 2001-2010

• Over 70% of boilers in factories designed to use furnace oil and wood fuel

Energy & Technological context in the Tea Sector

• Heavy reliance of wood fuel as a source of energy. • Factories are increasingly acquiring land for wood

plantations An estimated 3400 hectares of wood plantations Although attempts to use fuelwood sustainably are being

made, boilers used for wood combustion are not efficient

• The sector has resonably good vintage of processing machinery, usually imported from China and India

• The sector has low levels of technical expertise and experiences high turnover of scientists

Technical Cooperation for Energy solutions• Inter sectoral learning & knowledge sharing; factory owners learning from a

multinational in Kenya and from a trip to Sri-lanka

• Dev agencies (AfDB, UNEP-GEF, UNDP, & East Africa Tea Association collaborated on a project to green the Tea industry in E. Africa (Kenya, Malawi, Rwanda, Tanzania and Uganda)

• Numerous Feasibilities studies conducted for small hyro projects in all countries.

• Studies have resulted in development of 12 small hydro projects with a combined capacity of 34 MW in Kenya alone.

• In Kenya other studies have been conducted on viability of RE resources such as solar and wind.

• Technical cooperation has resulted in effective technical advisory support to recipient countries

• Project development is done by both local & foreign consultuancy engineering and electrical firms as well as foreign ones (India)

Technical Cooperation for Energy solutionsLocal Multinational

tea fatory

Sri lankan Tea Sector

Imenti Small Hydro project

Ke Gov, UNEP-GEF, UNDPKnowhow exchange

Learning by observation

-Technical Expertise- Policy framework

African Dev Bank

Local Bank50% $$$$

Ke GovRisk mitigation instruments for

$$$

Imenti Tea Factory Farmers

(owned by Imenti Farmers)

National Grid Operator

50% $$$ in equity

Electricty

excess electricity

$$$

Local & Foreign civil enginners, electrical firms

Technology, Expertise

Arranging Finance for Small Hydro Power Stations

• The first small hydro plant at Imenti Tea Factory with a capacity of 1 MW plant cost farmers USD 2.3 Million with a pay back period of 6-7 years

• Initial costs of small hydro project are quite high for small scale producers and initially faced resistance from farmers.

• Farmers set aside a portion of their monthly & annual payments to form raising 50% of total funds needed

• KTDA acted as credit guarantor and secured multilateral funding, Government offers risk mitigation instruments.

• Factory electricity needs of 0.4-0.5MW are now met at no cost, excess electricity exported to the grid

• Reliance on grid electricity, oil and wood fuel is drastically reduced

• Factory reduced energy costs by 60%, and is using incomes from energy sales to offset loan

Key findings• The RET sectors are young and growing. Solar and biomass are

the biggest RET markets with solar PV being based on foreign technology and biomass mostly based on domestic T and know how

• There is a need for foreign T to be more adapted to African needs and a need to upgrade African T. Technical cooperation should be based on this insight.

• Energy costs are a significant cost item for many agro-industrial sectors but few companies have adopted sophisticated energy efficiency measures. The main reason for this is that the system of innovation for energy efficiency is weakly developed

Policy Recommendations

• creation of special points for interaction with green innovators with focus placed on innovation systems and not on singular problems.

• Education should be integrated with national innovation systems with a framework to link private sector to education systems

• Fiscal reform and charges (including carbon pricing) – such as preferential tax treatment of green technology associated industries, removal of fossil fuel subsidies, or earmarking tax revenues to promote green technology objectives

Policy Recommendations• development of favorable legal frameworks &

policy environment to foster equal partnerships and collaboration between indigenous private sector actors and foreign investors is key

• Policies can aim to attain RET and EE technology adoption without undermining economic gains

The research team• The research teams involves development specialists,

innovation researchers and policy experts from Africa and Europe and is led by UNU-MERIT

Time lineSept 2012

Start of the project

Report about analytical framework

Workshop in Brussels

Dec 2012

Jan 2013

Policy makers workshop in Nairobi

Febr 2013

2nd workshop in Brussel

May – June 2013

Field-work

June 2013

Sept 2013

1st draft report

Vienna workshop

Aug 2013

Nov 2013

Final version of report