Prof. Rene Kemp & Jacinta Ndichu UNU-MERIT Dakar, Nov 25, 2013

DIFFUSION STRATEGY OF GREEN TECHNOLOGY AND GREEN INDUSTRY IN AFRICAA 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 Ndichu UNU-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 equallyunable to match growing demand from current economic and population growth

Energy efficiency problems • Manufacturing sector characterised by old inefficient machinery • Reliance oninefficient, 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 onlyfrom 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 variability • Exploitation in some areas needs international cooperation due to the cross-boarder nature of resources

High potential of SSA RE resources underutilised Geothermal - 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 largepotential: waste and byproductscanbeused as biofeeds. Co-generationpotentialexists 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 noemmisions, minimiseuse 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 diversifiedandlarger... Both markets are..... small, young & vibrant: 56% in Kenya established after 2008 & 68% in Nigeria between 2000-2012, 14% after 2010 promising: In Kenya beginnings of innovation in technology adaptation and business strategies for RETs are evident

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

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.

EE Adoption in Kenya & Nigeria • In both countries low levels of EE tec adoption was observed

Driving factors of RE & EE adoption Key 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 & Ke Important 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: • Low technological base as reflected in proportion of local technology content for both technology types Sources 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 Kenya both countries reported anticipated future growth for the same

Barriers of RE & EE adoption in Nig & Ke • 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 & innovation Innovative 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 • Intersectorallearning & knowledgesharing; 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 bothlocal & foreign consultuancy engineering and electrical firms as well as foreign ones (India)

Technical Cooperation for Energy solutions Local Multinational tea fatory Sri lankan Tea Sector Imenti Small Hydro project Ke Gov, UNEP-GEF, UNDP Knowhow exchange Learning by observation -Technical Expertise - Policy framework African Dev Bank Local Bank 50% $$$$ ImentiTeaFactory Farmers (ownedbyImenti Farmers) 50% $$$ in equity Risk mitigation instruments for $$$ Ke Gov Electricty Technology, Expertise Local & Foreign civil enginners, electrical firms excess electricity $$$ National Grid Operator

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 • Initialcosts of smallhydro project are quite high forsmallscale producers and initiallyfacedresistancefrom 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 line Sept 2012 Dec 2012 Jan 2013 Febr 2013 May – June 2013 June 2013 Aug 2013 Sept 2013 Nov 2013 Start of the project Final version of report Workshop in Brussels Report about analytical framework 2nd workshop in Brussel Field-work Policy makers workshop in Nairobi Vienna workshop 1st draft report

Prof. Rene Kemp & Jacinta Ndichu UNU-MERIT Dakar, Nov 25, 2013