- Africa and its 54 countries have a significant role to play in the energy transition.
- But its success depends on how governments harness legal frameworks to support investment in renewables.
- Here are six ways legislation can promote renewable energy investment.
Africa has a crucial role in the global energy transition, which places a responsibility on African countries to deploy the instrumentality of the law to drive investments in the renewable energy industry. For example, to boost renewable energy investments in Rwanda, the government issued the Rwanda Energy Feed in Tariff regulations in 2012 to create an enabling environment for renewable electricity power generation and an increase in renewable energy investments. That decision, alongside other innovative steps, has helped increase electricity access in Rwanda from 6% in 2009 to 75% in 2024. Its Ruzizi III hydro project has added 145MW to the country’s total electricity generation, which now stands at 332.6 MW.
Rwanda was able to accelerate renewable energy investments because there were effective laws in place to support energy generation. Other African governments will need to review their laws to create an enabling environment for investments in the renewable energy sector. Global and regional laws that support climate change adaptation efforts will be critical to Africa’s role in the energy transition.
What is the legal and economic landscape in Africa?
African countries are making efforts to invest in renewable energy to develop their economies and achieve net zero in relation to the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement. Notably, Mauritania in Northwest Africa, is executing a green hydrogen project that is expected to generate $34 billion in investment, which would significantly improve the nation’s economy.
However, more can be done to accelerate renewable energy investments, as most African countries are yet to adopt the UNFCCC and ancillary legal frameworks. Once domesticated, these global legal treaties will become internally binding on countries.
The African Free Trade Continental Agreement (AfCFTA) is another key legal framework for Africa’s energy transition, which over 48 countries have ratified. Accra, in Ghana, hosted the AfCFTA Guided Trade Initiative (GTI), which involved 12 African countries serving as pilots for the trade policy environment. Once the agreement becomes operational across more than 50 state parties, it will catalyze the free flow of investments in renewable energy in Africa.
Additionally, the Convention of the African Energy Commission seeks to promote cooperation within the African Union (AU) to develop the continent’s energy capabilities. But financial cooperation between AU member states should include more private-sector engagement. For example, a few weeks ago, Coscharis Technologies Limited (a subsidiary of the Coscharis Group) recently finalized plans to execute a $4 billion renewable energy project to revolutionize Nigeria’s power sector. This is the largest green energy project in West Africa, which will harness solar energy to reduce the country’s dependence on fossil fuels. This kind of investment in Africa highlights what’s possible when the private sector is encouraged and their role is seen as critical.
6 ways the law can help promote renewable energy investments in Africa
- Legislation can be used to stipulate the percentage of a national budget needed to address climate change. This will prioritize the generation of renewable energy and kick-start investments in that space. For example, Tanzania has secured $786 million from the IMF to fund its 2024 budget for climate change , while Nigeria has allocated 2.2% of its 2024 national budget of $17 billion to climate change.
- African countries need to make laws that require commercial banks to maintain a fund or account that provides loans to small and medium scale enterprises that wish to invest in renewable energy. Stringent penalties, such as temporary seizure of banking licenses or suspension from operation, can be stipulated for banks that fail to comply. For instance, in India, the Reserve Bank of India (RBI) promotes renewable energy through its inclusion of renewable energy under the priority sector lending (PSL) categories. This mandates banks to allocate a certain percentage of their lending to renewable energy projects, ensuring that the sector receives the necessary financial support.
- More African governments should embrace tax laws to incentivize private-sector renewable energy generation. This can be done through tax concessions and waivers on duties. It would also make it easier to do business in African countries, attracting foreign direct investment in renewable energy. For instance, the tax regime for renewable energy in Norway consists of a commendable corporate income tax of 22% for hydropower and wind power.
- For countries to promote renewable investments in Africa, there is a corresponding duty to promote the rights and welfare of the communities in which the renewable energy projects will be sited. Without such provisions made by law, residents of communities could frustrate renewable energy investments. Hence, monitoring of compliance with Environmental Impact Assessment (EIA) requirements should be improved, and national institutions and security agencies must ensure that companies comply with EIA requirements.
- Furthermore, African countries following the legal doctrine of dualism must move from ratification of global climate treaties to domesticating them so that they become binding for countries and their citizens.
- African countries can ensure that consumer protection laws stipulate stringent penalties for anti-competition schemes or practices that promote the importation of fossil fuels over the production of renewable energy.
Ultimately, efficient laws must be the pedestal upon which other renewable energy reforms and solutions can thrive. This means that African governments must utilize efficient laws in conjunction with policies, national institutions, stakeholders and security agencies to ensure an increase in renewable energy investments to solve the climate crisis.
Source: WEF