Clean Energy Transitions in North Africa

As the necessity of energy system transformation gathers pace at a global level, North African countries are increasingly making efforts towards their respective clean energy transitions. Clean energy transitions offer opportunities for North African countries to transform their energy infrastructure in ways that can meet the region’s growing energy demand, create much-needed jobs and promote equitable socio‑economic development, diversify their economies, and build climate change resilience, all while achieving low-carbon, sustainable, inclusive economic growth. Decarbonisation pathways are also instrumental for North African countries to achieve their climate and economic development ambitions. The region’s long-term economic development and climate policy objectives, encompassed in countries’ nationally determined contributions (NDCs) and the United Nations’ Sustainable Development Goal (SDG) 7 and set out in the vision of the African Union’s Agenda 2063, will require a transformation in how energy is supplied and consumed across the region.

Projected growth in energy demand and a vast yet under‑exploited abundance of low‑carbon energy resources such as renewables, as well as the possibilities regarding energy efficiency, hold important potential for the region’s future energy systems. The continued deployment of renewable energy technologies beyond the power sector into the heat and transport sectors, as well as the rollout of sectoral and subsectoral energy efficiency policies, with many low-hanging fruits, are ways forward. There are also opportunities for North Africa’s important oil and gas sector to adapt and contribute to accelerating the region’s clean energy transitions. Applying integrated multisectoral approaches to future energy sector planning could improve resource efficiency, productivity and security, which may change the scale and type of the energy technologies deployed in the region. In turn, this will require an important scaling up of investment in energy infrastructure and technologies. Furthermore, North Africa has been identified as one of the world’s most susceptible regions to climate change. This vulnerability means that the region’s energy infrastructure planning must be climate-resilient and regionally integrated to ensure energy security.

This is more relevant than ever in light of the current Covid-19 crisis, which is substantially affecting energy systems around the world. While still ongoing, the crisis has already exacerbated energy challenges in the region. As North African countries plan on how to face these challenges, this report seeks to identify pathways and put forward recommendations to help accelerate the transition towards clean energy systems. Analysis and recommendations are based on the International Energy Agency (IEA) Africa Case scenario, which shows that clean energy transitions in North Africa are possible in ways that achieve sustainable economic development objectives. (The geographic scope of this report is Algeria, Egypt, Libya, Morocco and Tunisia.)

Policy makers can play a vital role in promoting low-carbon solutions and clean, sustainable, affordable, reliable and resilient energy technologies that support countries’ long-term economic and development ambitions. While still developing, the Covid-19 crisis has underscored the importance of a strong, resilient and sustainable energy sector. The crisis is affecting energy systems around the world, and presents North African countries with an imperative to re‑evaluate energy strategies and accelerate clean energy transitions in planning their economic recovery. The report is structured to consider central aspects of clean energy transitions, including SDG 7 subgoals, the oil and gas sector, interrelated water–energy–food nexus approaches, and climate change resilience, with key findings specified.

Energy access: North African countries have already achieved near-universal access to electricity and clean cooking (SDG 7.1) thanks to effective public policies promoting major grid extensions, dedicated rural electrification programmes, and the expansion of gas networks and liquefied petroleum gas (LPG) distribution. Since 2000, 20 million people have gained access to electricity, with rural areas progressing faster than in other regions of the world, presenting a global best practice. Today, access to clean cooking has become almost universal across the region, with the vast majority of North Africa's population relying on either natural gas or LPG. Challenges remain, including the need to ensure affordable access, with a limited burden on public finance and with a reliable quality of service and supply. The Covid-19 crisis may cause millions of people to slide back into poverty. Ensuring that the poorest continue to be able to pay and do not lose access to essential energy services will be a key objective in the months and years to come.

Renewable energy: The goal to scale up renewable energy (or SDG 7.2) is set to be the driving force of North Africa’s clean energy transitions. While renewable energy consumption remains largely untapped across the region relative to its potential, several countries have made substantial progress in developing their vast renewable resources. Over the last decade, renewable electricity in North Africa has grown more than 40%, driven by the rapid expansion of wind, solar photovoltaic and solar thermal. Renewables play a minor role in the transport sector across the region, with still few electric vehicles that can use renewable power and low levels of biofuels. Yet the region’s abundance in renewable energy resources, among the highest potentials in the world, makes significant further development and growth possible, with a strong need to increase deployment beyond power and into industrial heating and transport sectors, including technologies such as green hydrogen. System integration practices will become important as systems accommodate higher shares of renewables. Within the region, the portfolio of policies has evolved as the technologies have matured and the costs have fallen. The current support systems based on long-term power purchase agreements provide investors with long-term certainty, coupled with an element of competition that drives cost-effectiveness. There is scope to accelerate deployment by increasing the level of ambition and developing policies that help address certain challenges. The latter include improved access to affordable financing, effective auction design, improved regulatory frameworks, and implementing cost-reflective energy tariffs. Especially in light of Covid-19-related decreases in investment, more capital needs to be mobilised towards low-carbon generation in North Africa, particularly on generation capacity, transmission and distribution electricity networks, and strengthening of grids.

Energy efficiency: Progress on SDG 7.3, focusing on improving energy efficiency, has been stagnant across North Africa. Energy intensity improvements have not been as strong as in other parts of the world over the past decades. Yet energy efficiency improvements can both help to unlock a range of economic, social and environmental benefits, and play a major role in the post-Covid-19 crisis recovery period. Policy packages combining incentives, information and regulation can maximise the benefits from energy efficiency across North African countries, especially regarding certain “low-hanging fruit” opportunities in the industry, buildings and transport sectors and subsectors. The industry sector, for example, while not the largest energy-consuming sector, represents the largest energy savings potential by 2030 under the IEA Africa Case. Appliances, equipment and lighting also drive much of the residential and commercial energy consumption in North Africa. Opportunities for further action include the combination of minimum energy performance standards (MEPS), energy efficiency standards and labelling programmes, and incentives, which have proven to be effective policy measures in countries all over the world. While most North African countries have adopted MEPS and labelling, more work is needed to fully unlock the benefits of energy-efficient appliances. Governments can also incentivise energy efficiency to consumers through technology replacement programmes, e.g. investments in accelerated replacement or scrappage programmes for appliances. More important are the opportunities for job creation from energy efficiency for sustainable economic recovery. The latest IEA Sustainable Recovery report estimates that appliance replacement programmes would globally create between 7 and 16 jobs across for every million dollars spent. In industry, motor replacement, heat recovery or heat pump programmes could deliver substantial job creation while also achieving significant environmental benefits. The implementation of regulations, such as MEPS for motors and appliances, alongside incentive programmes can help to go beyond short-term impact and drive a longer-term transformation, locking in jobs, utility bill savings, and economic and environmental benefits. Energy efficiency is a key area to create jobs in short terms – especially in buildings - in larger and smaller North African citie where Covid-19 may cause unemployment.

Oil and gas sector: Oil and gas resources have long been a central element in the economic growth for North African countries, notably Algeria, Libya and Egypt. Oil and gas export markets are becoming increasingly competitive, for a combination of reasons. Owing to the impact of Covid-19 on global oil and gas demand and a surge in global supplies, there is more than ever a compelling case for faster implementation of reform initiatives to achieve economic diversification and industrial development, including reforming inefficient and wasteful subsidies. While this requires broad-based efforts beyond the energy sector, putting in place a mechanism to ensure effective and transparent hydrocarbon revenue management is the essential first step. Maintaining upstream investment to ensure adequate production, especially for gas, also remains vital to provide stability for the economy. However, this needs to be accompanied by greater efforts to reduce the environmental footprint of oil and gas operations, given that the emissions intensities of oil and gas production in North Africa are among the highest in the world. Reducing methane emissions is particularly important. The combined methane emissions in Algeria, Egypt and Libya amounted to around 10 million tonnes in 2019, approximately 12% of global oil and gas methane emissions. The region also accounts for over 10% of the flared gas volumes globally, which represents a major wasted economic and environmental opportunity. The IEA estimates that some 40-55% of methane emissions in the region could be avoided at no net cost, meaning that there are ample, cost-effective opportunities to reduce the region’s methane emissions.

Water–energy-–food nexus: The interlinkages between water, energy and food production and consumption demonstrate the need to integrate a nexus approach and climate-smart agriculture in favour of security of resources in water-scarce, energy-intensive and agriculture-focused North African countries. Applying an integrated multisectoral approach to clean energy transitions in the region can illuminate opportunities to deploy clean energy technologies and to improve resource efficiency, productivity and security. A holistic view on improving efficiency offers up solutions to save energy, reduce emissions and improve resource use. Reducing water losses saves water and energy. Energy efficiency reduces energy demand and greenhouse gas emissions and saves water. Efficient irrigation saves water and energy. Additionally, increasing the efficiency of power plants and deploying advanced cooling systems reduces water demand. It is thus essential to factor water-related issues into energy policy decisions and focus on sound water management. Solutions include a greater shift towards renewable-based desalination. There is also a significant opportunity to increase the productivity of agriculture and reduce its energy intensity by replacing diesel-based irrigation systems with solar-powered ones.

Climate resilience: North Africa is one of the most vulnerable regions to climate change. These changing patterns of climate are likely to affect all stages of the entire energy value chain in the countries of the region, requiring the energy sector to adapt. Because of these vulnerabilities, North Africa countries should ensure that climate-resilient energy practices and infrastructure are at the core of their clean energy transitions pathways. Enhanced climate resilience of energy systems can bring multiple benefits to the region. Resilient energy systems support the achievement of SDGs, ensuring uninterrupted energy supply against increasing climate hazards. Furthermore, resilient energy systems can minimise socio‑economic costs from the shocks of extreme weather events, enabling the continuous provision of public services. Governments can enhance climate resilience by supporting a systematic and comprehensive assessment of potential climate impacts into energy systems. Based on the assessment results, governments can develop policies, regulations, incentive mechanisms and guidelines to integrate climate resilience considerations into central planning and encourage private investment in building resilience.

The Covid-19 pandemic triggered an unprecedented economic shock with profound implications for energy systems around the world. While first and foremost a global health crisis, related confinement measures have had major implications for global economies and their energy sectors. It has highlighted how indispensable electricity is both in responding to the pandemic and in maintaining the daily functioning of integrated energy-dependent modern economies and societies. International Energy Agency (IEA) analysis based on the Global Energy Review 2020 finds a historic drop in both global energy demand and carbon emissions. Although this crisis is still ongoing, the pandemic, lockdown and economic impact are certain to shape global energy policy going forward, including for North African countries. Reliable, affordable and secure power is essential for an effective response to the health crisis, for energy security, for economic activity and to power future economic growth. In this respect, clean energy transitions take up a vital place in planning countries’ economic recovery, in all regions of the world.

At the time that this report was completed, the pandemic had not yet ended, but all five North African countries that are the focus of this report (Algeria, Egypt, Libya, Morocco, Tunisia) had introduced movement restrictions and confinement policies that affected their economies. Services, tourism and industrial sectors, which are the main contributors to the regional economy, have been severely affected by Covid-19-related restrictions. According to the African Development Bank 1, regional economic growth is expected to see a decline of between ‑0.8% and ‑2.3% for 2020, depending on how long the pandemic lasts. The energy sector was affected by plummeting demand, as populations went into confinement and restaurants, shopping malls and, in some countries, factories closed down to prevent the spread of the virus. Countries such as Egypt and Morocco saw a drop in electricity consumption – Egypt’s dropped by 12% and Morocco’s by 14% – with shifting demand loads, mostly moving towards residential use. While resilient overall, the region’s energy systems faced operational pressure from excess generation capacity. Another impact was that the economic crisis has made it difficult for some customers to pay their bills, reducing revenue for utilities. Some countries provided power for free, adding pressure on the financial health of utilities and state budgets. At time of writing, Morocco for example had 11 million outstanding electricity bills. Moreover, the crisis has led to delays in energy investment and planned projects due to slumps in the supply chain and demand.

The Covid-19-related shutdowns across the world have also severely affected the demand for oil, as transport and industrial activities ground to a halt with as many as 4.5 billion people around the world in confinement. This drop in demand, which peaked at a decline of over 20 million barrels per day in April, led to the oil price losing up to 70% of its value compared with the start of 2020. The historical collapse in demand and prices took a heavy toll on oil and gas revenues for North African producer economies such as Algeria and Libya, which depend on hydrocarbon exports to maintain foreign currency reserves, pay salaries and provide essential services to their populations, especially health care, education and sanitation. The net oil and gas income in Algeria and Libya fell by some 75-90%, putting severe strains on these countries’ ability to counter the economic damages during the pandemic.

Meanwhile, IEA data warn of a decrease in energy investments in North Africa for both oil and gas as well as for the electricity sector in 2020, with worrying implications for clean energy transitions and security, as illustrated in Figure 1. Countries now face tighter credit conditions in accessing finance given restricted fiscal space, as recent events brought a repricing of risk across the global economy and energy sector. Furthermore, reduced revenues further impact utilities’ ability to spend on expanding future generation capacity. This goes against the need to invest in energy systems of the future in terms of cleaner generation capacity as well as in resilient networks to carry growing energy demand of the future.

The crisis also affects other sectors as well as climate resilience. Expected impacts from confinement measures include supply chain issues such as reduced agricultural production and delays in transporting agricultural goods to demand centres. Fiscal limitations and drained budgets may in turn affect the ability to invest in projects related to the water–energy–food nexus or limit the deployment of new technology or upgrading of facilities. As one of the regions most vulnerable to climate change, North Africa’s climate-related stresses are likely to continue with increased frequency and intensity. The adverse impacts of climate change on public health conditions, through for example more extreme weather events and more challenging living conditions, could further stress health care systems in North African countries that are already stretched to the limit due to Covid-19. Reliable energy services based on climate-resilient energy systems play a central role in protecting public health against the pandemic as well as climate change.

The present crisis provides an opportunity for North African countries to re‑evaluate energy strategies and accelerate their clean energy transitions. Countries can take advantage of the momentum from the crisis to build up a resilient, secure and clean energy sector that will help deliver a transformative economic recovery in a post-Covid-19 world. By accelerating transitions, the region can fully tap its energy sector potential to deliver a sustainable low-carbon economic recovery that creates much-needed new jobs and promotes long-term inclusive growth and socio-economic development.

The IEA recently published Sustainable Recovery, a World Energy Outlook Special Report, which provides a pathway of recommendations for just such a sustainable economic recovery. By putting clean energy transitions at the heart of their economic recovery plans, countries can boost their economies, create needed new jobs, and deliver a resilient and clean energy sector, while reducing emissions.

Countries can reorient economic stimulus packages to make clean energy transitions part of the architecture of their economic recovery plans. The region’s vast untapped renewables and energy efficiency potential represents a major lever to ensure that the post-Covid-19 recovery unlocks the sustainable socio‑economic benefits of a clean energy transition. This can be done by accelerating the build-up of low-carbon renewable energy and energy efficiency sectors as sources for economic growth and job creation to support sustainable economic recovery. While all fuels and technologies have suffered during the crisis, renewable energy has been the most resilient of energy sources. The energy efficiency agenda, meanwhile, highlights vast potential for job creation across the region, especially in industry, buildings and transport. Both sectors can create jobs, support economic development, increase the competitiveness and resilience of local industry, and improve energy affordability, while freeing up funds for other parts of the economy including health, education, housing and transport. IEA estimates based on Sustainable Recovery 2 place the worldwide job creation potential at 7 to 16 jobs per million USD invested in energy-efficient appliances, and 9 to 30 jobs per million USD invested in making buildings more energy efficient.

The Covid-19 crisis also underlines the strategic importance of broader reform initiatives to diversify hydrocarbon-dependent economies. The risks associated with undiversified economies have long been recognised, and the plunge in the global oil price during 2014 and 2015 was a wake-up call for many producer governments. However, many North African producers are still as dependent on hydrocarbon revenues today as they were several decades ago, and public finances are generally in worse shape than they were just five years ago, leaving these countries even less able to absorb the shock and invest in much-needed new low-carbon infrastructure. Economic transformation and diversified growth are essential not only to deal with the changing dynamics of global energy, but also to generate opportunities for growing populations at a time when large numbers of young people are increasingly entering the workforces of all African countries. The reform process will be complex and challenging, but a well-functioning oil and gas sector can be a durable asset for today’s producers, providing some of the capital and expertise that can support more diversified and sustainable growth.

Despite the investment drop in 2020, maintaining energy investments at appropriate levels is key to ensuring the essential resilient energy systems of the future. Countries should prioritise investments in electricity generation capacity, power networks and also transmission, in order to guarantee the creation of energy systems that can support future economic growth. To that end, mobilising more capital towards low-carbon generation capacity and strengthening the transmission, distribution and grid infrastructure across North African countries are key. That will in turn require the continued strengthening of countries’ policy and regulatory environments. More than ever, policy signals will be critical to attract private-sector capital needed to bridge the clean energy investment gap, and regional collaboration will be key to realising energy transitions that can power the recovery.