TotalEnergies leads partnership for African clean energy

From the newsletter

Global oil and gas company TotalEnergies, the UAE’s clean energy leader Masdar, and renewable energy investment platform EPointZero have signed an agreement to drive access to clean energy in Africa and Asia. The alliance promises to unlock investments for the sector that has been struggling to finance mega projects.

• Africa is adopting renewables at a pace slower than its fast-growing population. Nigeria, Ethiopia, and DR Congo are the biggest target markets that the partnership could explore.

• TotalEnergies has financed some renewable energy projects in Africa. However, their continued investment in oil and gas raises concerns. Will these conflicting interests slow down the adoption of renewables?

More details

• The partnership of the three giant companies brings a pool of billion dollars available for financing renewable energy projects. TotalEnergies has set an ambitious plan to achieve carbon neutrality by 2050. It is building a competitive portfolio of renewable and flexible assets to provide low-carbon electricity. As a global multi-energy company, TotalEnergies operates in approximately 120 countries across five continents. 

• This gives them an understanding of the market which will play well with the investment platform they are creating with the partners. Under the agreement, Masdar and TotalEnergies will provide clean electricity for local communities in Africa and Southeast Asia. TotalEnergies and EPointZero will explore partnership opportunities to support India’s clean energy ambitions.

• Africa receives a very small portion of global funding for energy transition, with estimates showing that it receives less than 2% of global renewable energy investments. However, this is changing, with many global companies with substantial financial backing entering Africa. Abu Dhabi-based AMEA Power, and recently, Chinese Neosun Energy and US-based Energy America are some companies to enter the market.

• Given that Africa imports almost all of its renewable energy technologies, having companies with more mature supply chains enter the financing market will bring more reliable supply chains. This can help improve efficiency and lower prices.

• However, the involvement of companies like TotalEnergies, with interests in various energy sectors, including fossil fuels, raises concerns about potential conflicts of interest. Masdar's financial backing could also be linked to fossil fuels. These conflicting interests could hinder green energy investments in Africa. For example, companies with investments in fossil fuels may prioritise those interests over renewable energy, slowing the transition to clean energy.

• Furthermore, there are potential downsides to increased competition. It could lead to market consolidation, with larger companies acquiring smaller ones, potentially reducing consumer choice. Additionally, powerful companies could exert undue influence on policy decisions and block the development of a fair and competitive market.

• Despite these challenges, increasing the supply of clean energy is crucial given Africa's rapidly growing population. Scaling up renewable energy is essential to match population growth. Much of the progress made in the past five years toward increasing access to electricity has been reversed due to population growth outpacing electrification rates.

Our take

• Africa has plenty of renewable energy resources. It is estimated to have roughly 39% of the global renewable energy potential, yet only less than 1% has been tapped. The main reason for this is the lack of capital to bankroll large projects. The partnership between the three major energy companies will play a big role in rolling out large renewable energy projects.

• This does not mean that all of Africa offers attractive investment opportunities. Market challenges vary, but some countries, like Nigeria and Ethiopia, are becoming increasingly attractive. These two countries account for about a quarter of the 600 million people in Africa without electricity.

• Governments need to update their policy and regulatory frameworks to allow for public-private partnerships. About 10 African countries, including Kenya, Nigeria, South Africa, Morocco, and Zambia, currently have this framework in place. Without proper policies, the ambition of such partnerships can be limited.