World Energy Council report highlights the critical global and regional energy issues

January 2015 – Energy leaders see energy price volatility and the future of a climate framework as their top critical uncertainties, according to the latest research by the World Energy Council.

World Energy CouncilThe 7th annual edition of the World Energy Issues Monitor, entitled “Energy price volatility: the new normal”, is a barometer of the top issues set to shape the energy sector for the year ahead. This year the report has gathered the views of more than 1,000 energy leaders, including ministers and chief executives from nearly 80 countries.

The Africa Energy Indaba, held annually in Johannesburg, South Africa, is the African regional event of the World Energy Council. 2015 is the Council’s Year of Africa, which will kick off at the Sandton Convention Centre when the Indaba takes place during the week of the 17th February.

The report will be presented and debated in detail during the upcoming Indaba, with the Chair of the World Energy Council, Madame Marie-José Nadeau and Secretary General, Christoph Frei, as well as a number of global energy luminaries attending the event in South Africa, placing the nation’s critical energy future in the global spotlight.

In Africa, market-distorting energy subsidies and difficult access to capital markets are also key issues.  In South Africa, energy leaders recognise the potential impact that unconventional gas could have on the economy but there remains significant uncertainty with regards to the mineral bill and also the geological reality of the resource. This uncertainty is only heightened by the sharp drop of the oil price over the last year.

Christoph Frei, Secretary General of the World Energy Council, comments ahead of the Africa Energy Indaba: “Africa is at the centre of a new energy opportunity. In sub-Saharan Africa alone, about US$1 trillion will be invested in electricity generation by 2050, while it has already seen almost 30% of global oil and gas discoveries in the last five years. The key challenge for Africa is to ensure that this new energy opportunity is unleashing the local value chain. This is the crucial issue that we will be addressing with ministers and business leaders at the Indaba.”

The 2015 World Issues Monitor report highlights the uncertain impact of volatile energy and commodity prices, which has now established itself as the number-one issue for energy leaders worldwide. Energy leaders are worried about the recent sharp plunge in the oil price to its five-year low. They are kept busy by the continual reduction in the cost of renewable energy technologies, which have increased their share in the energy mix, but have also put strains on the energy system. In some parts of the world that do not have viable energy storage solutions, the grid is not yet able to cope with large shares of intermittent forms of energy and lacks effective market signals to deliver back-up capacity or storage.

Christoph Frei comments:

“High price volatility has become the new normal facing energy leaders. This is the context in which we expect them to take investment decisions at an unprecedented scale. The unprecedented uncertainty, the need to redefine infrastructure resilience in response to emerging risks, the expectation of changing market designs and evolving business models, as well as the changing geopolitical balance have all placed energy among the top strategic issues globally for at least the next decade. The importance of choosing smart policy options and innovation strategies has become greater than ever, and balancing the energy trilemma must be at the very centre of efforts of energy leaders.”

After price volatility, the Issues Monitor finds that climate framework is perceived as the next most critical global uncertainty ahead of a climate agreement being reached at the Conference of the Parties meeting (COP-21) in Paris at the end of this year. African leaders do see climate framework as a critical uncertainty but this issue is considered to have lower impact as they are more worried about the physical impacts of climate change, such as extreme weather events, rather than about the uncertain outcomes of climate negotiations.

What the 2015 Issues Monitor says about AFRICA:

The main contextual observations for this year’s Issues Monitor in the region demonstrate that Africa’s economy is successfully weathering the global recession, and is taking tentative steps towards a more sustained growth. The US is showing growing interest in Africa, scaling up the Power Africa Initiative, and endorsing a series of public-private-partnership (PPP) deals to boost trade and investment. Furthermore, Africa’s potential and prospects for further oil and gas discoveries remain largely positive and can offer huge opportunities. The Ebola outbreak in three countries in West Africa and the related health crisis are negatively impacting the local social and economic development and could have lasting consequences in affected countries and beyond.

The top critical uncertainties in 2015 are: high energy price and commodity price volatility, energy subsidies and capital markets.

Energy and commodity prices continue to be volatile, adding to the uncertainty of global market behaviour. Budgets of low-income households are affected and energy affordability has become a serious concern. Consequently, governments of some countries, facing growing public pressure, resort to subsidies to mitigate social concerns. Recourse to the capital market is becoming increasingly crucial to finance urgent and growing needs of infrastructure projects.

Large-scale hydro, extreme weather risks and China/India are the most important need-for-action issues to be tackled for the African region; while energy poverty is still looming and remains unsolved.

Africa has always displayed its strong inclination for large-scale hydro, but there is still much to do – only 7% of the potential is developed. Bold actions, sound public policies and an effective business environment are all required in order to finally allow the sustainable development of these infrastructures. The immediate interest of Africans, with regard to climate change, is rather focusing on its visible disastrous consequences including extreme weather events, instead of uncertain and complex global climate negotiations. Furthermore, the mutual interest of strengthened China – Africa partnership grows over the years and begins to bear fruit for both sides.

Whilst a number of the above issues went through relative change, year-on-year to move towards the top of energy leaders’ agendas in Africa, a number of issues did undergo a lower relative change over time. This mostly related to those which remain critically uncertain, such as energy prices, capital markets, energy poverty and energy efficiency – but also, some high impact issues, such as talent, large-scale hydro, trade barriers and energy-water nexus, and China/India, because there is still much to do by energy leaders to push them forward with bold actions and stronger policy support.

In terms of the overview in the movement of issues for energy leaders in Africa: renewable energy is more prominent and action-oriented, with less uncertainty. Large-scale hydro, at the top of the African Union’s political agenda, is clearly gaining more impact. Energy efficiency maintains its position as an indispensable and critical tool for the energy system, requiring pressing and bold actions. Nuclear: after some positive signs of confidence that emerged the last year, this issue is moving again into the weak signals area.

Unconventionals continue to deliver weak signals. Due to the absence of sustained achievements in recent years to support their wide deployment, expectations with regards to biofuels are diminishing and they are again relegated into the weak signals.

When comparing the Africa region as a whole to the maps of the non-OECD countries, it appears that there are similar views and a strong correlation with regards to most relevant issues. In comparison to the global perspective there are however stronger differences. Against non-OECD countries, the main differences appear with regards to decentralised systems, climate framework, LNG and sustainable cities.

On the geopolitical side, US policy is again gaining ground this year as the US indeed reaffirmed its strong commitments to play a further role and gain an important part in the growing trade opportunities with Africa. Furthermore, Middle East dynamics reflected the positioning that although some MENA countries continue to be affected by political instability and social unrest, there is a general move towards an improvement of economic activities going forward (with the exception in Libya, where a lasting civil war takes its toll).

Climate framework and all the political debates around the search for a global agreement became a less immediate concern for Africans. Rather, extreme weather events / patterns, with severe and frequent growing risks, are tangible and immediate threats, mostly impacting Africa which is one of the most vulnerable continents.

Renewable energies, albeit from a low base and still relatively expensive overall, have become an unavoidable option for Africa. Bold actions must be taken to strengthen their place in the energy mix of the continent.

Regional interconnection remains high in the agenda and a key priority of African energy leaders and the African Union. The Programme for Infrastructure Development in Africa (PIDA) has been initiated to facilitate its achievements and to get priority infrastructure projects on track.

Finally, on the technology side – biofuels, after gaining momentum the last year, is again pushed into its 2012 position among the weak signals while carbon capture and storage (CCS) continues to see little potential and prospects to be deployed in the near term.

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