African MPs discuss the potential of auctions for procurement of renewable energy

In February and March, the Climate Parliament hosted two virtual parliamentary roundtables with MPs from Kenya, Malawi, South Africa, Tanzania, Uganda and Zimbabwe, in collaboration with Oxford Policy Management (OPM), in the context of the Energy for Economic Growth (EEG) research programme. The discussions focused on energy interconnections between the Southern African Power Pool (SAPP) and the Eastern Africa Power Pool (EAPP), and on the potential of renewable energy auctions.

Our first roundtable featured guest speaker Dr. Ranjit Deshmukh, Assistant Professor in the Environmental Studies department at the University of California Santa Barbara. Ranjit has been developing modeling tools to help regulators and policymakers decide where to make investments in renewable energy generation, and to understand the best locations to run transmission lines, both of which can improve energy supply in Africa through international grids.

Regional supergrids are key to ensuring the transition to clean energy: the wider the area over which we harness renewable energy, the cheaper and the more reliable the energy becomes. Linking the best locations for solar and wind power to centres of high demand will therefore not only help decarbonise our energy system, but also considerably reduce the cost of energy. The agreement to link up the SAPP and EAPP, to create the African Continental Power System Masterplan setting up a continental grid, and the African Single Electricity Market (AfSEM), are all very concrete projects that will allow us to trade energy across borders and increase the number of hours of sunlight and wind for everyone.

As Dr Ranjit argued during the course of our roundtable, these are reasons why even though developing countries bear little responsibility for climate change compared to the developed world, they should not shy away from turning to renewable energy and pursuing it as fast as possible: even putting the climate argument aside, it does make economic sense to turn to clean energy as it is becoming much cheaper than fossil fuels. If we consider all the benefits in terms of health, local air and water pollution, then the costs decrease even further. Indeed, fossil fuels are a heavily subsidised industry – estimated by the IMF at $5.9 trillion in 2020 – with about 70% of that amount from undercharging for the environmental and health costs associated with the use of these fuels. A price that the States and the citizens, and not the polluters, eventually pay.

The second roundtable, with guest speaker Dr Wikus Kruger, Researcher and Course Convenor at the Power Futures Lab at the Graduate School of Business of the University of Cape Town, focused on renewable energy auctions. As an expert on power investments in Africa, Wikus has been studying renewable energy auctions held all over the world, to see what lessons Africa can learn to design auctions that deliver large-scale solar, wind and other renewable energy at the lowest possible price.

In simple terms, a renewable energy auction is a competitive process for procuring electricity generated by renewable energy. Energy project developers bid against each other to supply energy through long-term contracts at the lowest possible price. Renewable energy auctions have revealed that renewable energy is becoming the cheapest source of power generation. We have seen record prices of US dollar 2.5 cents in Ethiopia for solar energy, and 2 to 3 cents for solar and wind in South Africa. In the most recent bidding process for a coal-fired power station in South Africa six years ago, the winning bid was awarded for no cheaper than 7 to 8 cents, which is two to three times as much as renewable energy.

The MPs acknowledged the huge opportunity that renewables offer to make their constituents richer by decreasing the costs of energy. But for countries that are extremely reliant on coal, this represents a dramatic economic shift which needs to be monitored closely. In South Africa, while unemployment rates are already very high, many workers and their families depend entirely on the mining and fossil fuel industry to live. But as our speaker emphasised, we need to separate the decommissioning of fossil fuel jobs from investment in clean energy sectors. These issues are often played against each other, but it is not either one or the other. The energy transition is a reality, and as renewables keep getting cheaper, turning away from fossil fuels is only the most economically rational choice for investors.

To encourage their country to exploit the full economic potential of renewable energy auctions, parliamentarians can play an important part elaborating plans, setting high targets and climate ambitions which can translate into procurement processes. MPs also have a crucial role in ensuring their countries pursue a just transition, to make sure no one is left behind and every individual can be retrained to keep contributing to the economy. The renewable energy sector is associated with a higher job intensity than fossil fuels, and MPs can push for new projects to be designed and assessed not only based on price, but also on how many jobs they create, how much ownership is in the hands of local communities, and to what extent women and youth can participate.