The 27th Conference of the Parties (COP) of the United Nations Climate Change Conference (UNFCCC) is set to take place from the 6th to 18th of November 2022 in Sharm el-Sheikh, Egypt. 196 countries will again gather to discuss the progress made implementing commitments from the last COP. The COP presents countries of the world the opportunity to meet and discuss the problem of climate change facing the planet. 

Adetayo

Nnanke

<h1>Introduction</h1>
The 27th Conference of the Parties (COP) of the United Nations Climate Change Conference (UNFCCC) is set to take place from the 6th to 18th of November 2022 in Sharm el-Sheikh, Egypt. 196 countries will again gather to discuss the progress made implementing commitments from the last COP. The COP presents countries of the world the opportunity to meet and discuss the problem of climate change facing the planet. At last COP in Glasgow, Scotland, the UK led an aggressive campaign to ensure parties make firm commitments in line with the Paris Convention, however, the results from that COP are mixed. But where is Africa is all of these?
<h1>Key Commitments Made at COP26</h1>
In 2015, at the Paris Convention (COP21), parties agreed on a new international climate agreement that aims to keep global warming at 1.5oC - 2 oC in accordance with the recommendations of the Intergovernmental Panel on Climate Change. COP26 represented another milestone in the climate change journey for countries around the world, especially African countries. COP26 saw developed countries make more commitments towards mitigating the impact of climate change.
At COP26, parties agreed on a number of issues: global warming needed to be kept at 1.5oC above pre-industrial levels; use of unabated coal power will be phased down and inefficient fuel subsidies phased out; the EU and the US launched the Global Methane Pledge with the goal of cutting methane emissions by 30% by the year 2030; more than 100 countries, including Brazil, Russia, Canada, and the Republic of Congo, announced the Glasgow Leaders’ Declaration on Forests and Land Use pledging to end deforestation by 2030; car manufacturers such as Ford, General Motors, Volvo, and Mercedes Benz agreed to only sell zero-emissions cars by 2040; and countries pledged to contribute to the Adaptation Finance. The COP also saw massive participation of the private sector with financial institutions promising to mobilise more than $100 trillion to finance the energy transition.
<h1>Highlighting the COP27</h1>
Commitments are a good way to go and indicate the intention of parties to make progress towards a set goal. However, in the case of climate change, mere commitments are insufficient. Actions are needed at this critical time in human history. Below are some of the reasons Africa should lead conversations at the COP27 in Egypt.
Underdevelopment and poverty. Many African countries are third world countries with many barely making it to the middle of the United Nations Human Development Index. Underdevelopment and poverty are glaring realities in many African countries with citizens largely living below poverty line and with many lacking access to basic amenities including electricity supply.
Africa contributes the least greenhouse gases yet is the continent most affected by it. Against the backdrop of underdevelopment and poverty prevalent in many African countries is the reality of coping with the effects of climate change. Climate change is attributed largely to the greenhouse gases created by the industrial activities of developed countries. Africa is its entirety accounts for 3.8% of the entire greenhouse gases produced by the world. Declared by the United Nations as a climate change hotspot, an entire continent bears the brunt of the impact of climate change. Experts have indicated that Africa is the most vulnerable continent to climate change impacts under all climate scenarios above 1.5 degrees Celsius.
Africa is experiencing urgent and apparent effects of climate change. Desertification is fast creeping in on Africa’s forested areas. According to the UN, around 46% of Africa’s land is impacted by desertification. Africa’s agricultural sector is critical to the economies of all African countries as more than 70% of Africans are dependent on agriculture for their livelihoods. Increased desertification means less land for agricultural purposes for a continent on the verge of food crisis.
Africa is not the climate change culprit. The world has already acknowledged that Africa is not the culprit when it comes to climate change and greenhouse gases. The entire continent produces a small percentage of the greenhouse gases produced by China alone yet is most vulnerable to the effects of climate change. Not being the guilty party means that the continent is entitled to take the reins in directing the climate change conversations in its favour.
Climate change adaptation needs funding. Behind the rhetoric on climate change adaptation strategies is the reality that the wheels of climate change adaptation can only be efficiently oiled by the financial contributions of the industrialised nations. The issue of climate change mitigation funding has been a thorny issue in COP conversations since COP21 and has remained unresolved ever since. Industrialised nations are reluctant to remit pledged funds and Africa is in the unfortunate position of being unable to fund home-grown adaptation solutions. The funding issue has created a clear dichotomy between the Global North, who are industrialised, wealthy and clear participants in the climate change crisis and the Global South, undeveloped, poor and helpless in the face of the climate change crisis.
<h1>Conclusion</h1>
This year, COP27 will be held on African soil in Egypt. It presents yet another opportunity for African countries to lead the climate change conversations and to tell their stories. Africa must understand that it will be a herculean task to make industrialised nations remit their pledges to aid Africa in its climate change adaptation journey. Therefore, innovative solutions need to be worked around. For instance, a particular percentage could be imposed as climate change mitigation tax on transactions and trade done by industrialised nations with African countries. In 2021 alone, China’s trade with Africa was valued at US $176billion. 10% climate change adaptation tax on that amount would amount to $US17.6billion. Africa should also explore the option of partnering with other industrialised countries that are sympathetic to its cause to act as collection agents.
On the other hand, African leaders also need to do better regarding accountability, transparency and the fight against corruption. Contributors to adaptation finance need the confidence that the taxes, grants or funds in whatever dimension will be put to the agreed purpose and not diverted for personal gains. Negotiations take a while and COP27 is clearly not the end of the road, but African voices need to be the loudest and be heard if the UNFCCC desires to make progress. Time is fast running out.
Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Energy &amp; Sustainability writers, their opinions do not necessarily represent those of illuminem.

COP27: Why Africa Needs to be at the Forefront of the Climate Change Conversation

Africa is endowed with a large capacity for solar energy. Seven of the ten countries with the highest supply of sunshine in the world are located on the African continent. The continent is also home to about 770 million people who lack access to power. Does Africa present an investment opportunity for power businesses? Yes, it does.

Africa is endowed with a large capacity for solar energy. Seven of the ten countries with the highest supply of sunshine in the world are located on the African continent. The continent is also home to about 770 million people who lack access to power. Does Africa present an investment opportunity for power businesses? Yes, it does. The quantum of sunshine the continent receives makes it fecund for solar power investment and not just on a small scale. Africa needs huge solar farms the likes of Bhadlar Solar Park, India (2.25GW), Pavagada Solar Plant, India (2 GW) and BenBan Solar Park, Egypt (1.65GW). The continent also needs small scale solar plants and distributed rooftop solar panels. In this article, we discuss key factors to be considered by a potential investor or project developer intent on going into solar power business in Africa.
<h1>Business Considerations</h1>
Business Plan. Like every other business, entering into a solar power business requires a business plan. A business plan is a document that outlines the ‘what,’ ‘why,’ ‘how’ and ‘when’ concerning the business. The business plan explains what the business is, describes the reason for setting up the business, what differentiates the business from the competition, and how the business will be operated.
Financial Plan. Essential to the business plan is a financial plan. The financial plan helps determine if the business is sustainable and profitable. Where it is profitable, it gives the initial investor confidence. Where it is adverse, investors will be reluctant to invest in the business idea. There are three major parts – cash flow statement or projection, income statement and balance sheet. In essence, the financial plan or statement keeps the business founder on track to financial health as the business matures.
<h1>Regulatory Considerations</h1>
Business Registration. Governments require that business entities must be licenced before commencement of operations. Different countries in Africa have different timelines for business registration. In Ghana, it takes between 7 and 21 days to have a business registered. In Rwanda, it takes 1 to 2 days from the date of submission of business registration documents to have a business registered. In Mali, it takes about a month. In addition to registration timeline, the cost of registration is also important. The cost of registration varies between countries and may be influenced by whether the services of a lawyer are employed or if done by the individual. Whatever the case may be, the cost of registration forms part of the financial plan.
Tax Registration. In many African countries, tax registration is done alongside company registration. In Nigeria, a Tax Identification Number is given alongside the incorporation certificate. In Uganda, it takes between 3 and 30 days to obtain a Tax Identification Number. Tax registration is key for every business.
<h1>Commercial Considerations</h1>
Market Size. Africa is made up of over 1.4 billion people with slightly over 40% of this population having access to energy. Energy is essential for development and the people and governments understand the impact of energy access on economic growth. For instance, Nigeria is the largest user and importer of back-up diesel and gasoline generators on the continent with Nigerians spending an annually estimated USD12 billion on buying and operating small generators. Over 22 million homes and small businesses rely on small generators for back-power. With the national grid frequently collapsing, Nigerians resort to alternative power sources. The market for solar on the continent is huge.
Price. Solar power needs to be competitively priced. The business owner needs to take into consideration the cost of initial business investment and the price of the services and find a balance. The service must not be over-priced such that Africans cannot afford it and must not also be underpriced such that the business cannot break even.
Affordability. Pricing needs to take into consideration the capacity of the population to pay for the service. Many African countries are low-income countries with a considerable portion of the population living below poverty line. An investor will therefore need to adapt his business modeling to the current economic realities on the continent in mapping out the timeline for profit plough-back. Prices have to be affordable for a business to break into the power market.
<h1>Legal Considerations</h1>
Business Structure. The structure of the business is an important consideration when going into the business of solar power. Whether the business should be a limited liability company, a sole proprietorship, a public liability company or a partnership depends on the business owner and the way he wants to manage his liabilities and risk exposures. Each form of business structure provides a different tax structure and it is important to understand which is most beneficial as the structure of the business will determine the business’s liability issues. In many cases, solar businesses are registered as limited liability companies with the liabilities of the promoter or developer separate from that of the company.
Contract and Contractual Obligations. The business of solar power involves entering into contracts with third parties. Depending on the structure of the business, the developer will have to enter into power sale and purchase agreements, equipment purchase and supply agreements, installation agreements, facility agreements, grid connection agreement (where it is to be connected to the grid), operations and management agreement, etc. These agreements come with their own obligations which need to be fulfilled by the developer during the term of the business.
Licences. Entering into solar power business requires obtaining licences from the government. Depending on the scale of the business, licences vary. A developer of a huge solar farm may have to obtain a power generation licence and a business involved in the trading of solar panels may have to obtain a trading licence. Dealing in the manufacture of solar components may require obtaining a manufacturing licence. Whatever the case, licences are an important part of the legal considerations in setting up a solar business.
Intellectual Property. Business ideas need to be protected. Intellectual property (IP) represents ideas and creations that can be legally owned. Intellectual property is a core asset of any business – it can include things like the business name, the brand name, domain and products created during the business or the innovative ways used to produce them. In many cases, the solar company would need to develop and protect its own in-house know-how around design optimisation – what factors to consider when selecting a site, the topography of the solar array, storage and design, as well as project development and asset management – that it will leverage in order to differentiate itself from the competition.
Land Rights. Establishing a solar power plant requires an understanding of the land rights of the locale where the plant is to be established. Different laws govern land rights across the continent and it is important that these laws are taken into consideration before setting up the plant.

Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Energy &amp; Sustainability writers, their opinions do not necessarily represent those of illuminem. This article is also published by <a href="info@brooksandknights.com ">Brooks and Knights Legal Consultants</a> (BKLC) as part of its Power Business Series.

Setting Up a Solar Power Plant in Africa: Key Considerations

Nigeria’s power development journey since 2005 reflects an emphasis by the Federal Government on the development of on-grid solutions over other solutions to provide electricity throughout the nation. This is in spite of the fact that on-grid solutions have consistently proven an inadequate and insufficient solution to the problem of blackouts and unreliable electricity.

Nigeria’s power development journey since 2005 reflects an emphasis by the Federal Government on the development of on-grid solutions over other solutions to provide electricity throughout the nation. This is in spite of the fact that on-grid solutions have consistently proven an inadequate and insufficient solution to the problem of blackouts and unreliable electricity. The alternative to on-grid solutions is the introduction of off-grid solutions across the entire electricity supply chain. In the distribution sector, this means developing a well-structured independent electricity distribution network (IEDN). Considering Nigeria’s Sustainable Development Goals (SDG) 7 commitment, are IEDNs the way to go?
<h1>Nigeria’s Current Electricity Distribution Structure</h1>
The electricity framework which presently subsists was developed by the FG in 2005 to unbundle the electricity sector and it favors the entrenched distributed networks that supply electricity to massive franchise areas under licenses issued by the Nigerian Electricity Regulatory Commission (NERC). Revenue burdens on the whole electricity value chain are placed on these power distribution companies who are responsible for funding their operations and liabilities as well as remit payments for services provided throughout the value chain. Tariff is centrally determined by the NERC based on several macroeconomic indices which are subject to regular fluctuation. These indices include gas price, local inflation, USD exchange rate, US inflation rate and available generation capacity. Under the multi-year tariff order structure, tariff should be reviewed and updated annually in line with those indicators.
<h1>Nigeria’s Electricity Distribution Structure and its Problems</h1>
Nigeria’s current electricity distribution structure has characteristics which happen to also be the bane of the structure:
<ol><li>Franchise areas covered under Distribution Licences are too vast to cover all at once and immediately, without steady growth and profitability. Many of the successor-Discos were artificially granted coverage areas without previous experience and with insufficient workplans with no viable paths to profitability. This has proven an unwise approach to electricity distribution.</li></ol>
<ol><li>The tariff structure previously emphasized a subsidized electricity tariff model where high-end customers subsidize the cost of power to lower income customers and the overall cost of electricity is partly subsidized by the government when tariffs are not cost-reflective. This has beleaguered the electricity value chain and the Federal Government’s purse. Since the summer of 2021, Nigeria has steadily moved toward a cost reflective tariff model, which in turn has meant tariff increases across the different tariff bands. This measure has been unpopular due to the general economic conditions in the country. With an upcoming election, power will be a significant point for election campaigns this season, especially in light of general popular and political unwillingness to move the market toward cost-reflective tariffs. This concern is particularly due to the centralized nature of electricity supply and distribution and tariff setting in the country.</li></ol>
<ol><li>The Multi-Year Tariff Order (MYTO) annual review has not been strictly adhered to and the macroeconomic indices priced into the tariff have fluctuated faster than NERC has updated the tariff. As NERC has sought to update tariffs more regularly, this has led to regular and significant increases in tariff over the past several months and in light of the macroeconomic conditions, has placed a heavy burden on average Nigerians especially those in lower income communities.</li></ol>
<ol><li>Despite the increasing tariff, power supply has remained erratic and unreliable. In April 2022, the grid collapsed twice, subjecting major portions of the Nigerian economy to power blackouts. These blackouts were further exasperated by severe fuel scarcity which was caused by a variety of factors including the importation of a bad batch of petrol, the Russia-Ukraine crisis and its effect on global oil markets, rising FX cost and US inflation. In addition to grid collapse, distribution licensees have also employed load shedding due to abysmally low power generation.</li></ol>
The effect of these on general productivity across the country cannot be over-emphasized. Between 2010 and 2019, Nigeria was subject to about 206 grid collapses and electricity blackouts. According to research on electricity blackouts and productivity in Nigeria, a 1% increase in electricity blackout will lead to a 104% decrease in productivity. There is therefore a nexus between resolving the electricity issue and increasing productivity and GDP in Nigeria. Achieving SDG 7 is clearly a central imperative for Nigeria.
<h1>SDG 7 and Nigeria’s Electricity Distribution Model</h1>
What is SDG 7? SDG 7 calls for affordable, reliable, sustainable, and modern energy for all. Making significant strides in achieving SDG 7 in Nigeria bodes well for the general African context of sustainability due to the country’s significance with respect to population and GDP across the continent.
A key part of SDG 7 is access to reliable electricity. In the Nigerian context, affordable and reliable have proven difficult to achieve. The apparent outworking of the current regulatory framework has worked against the achievement of these objectives. The unbundling and privatization of the power sector assets undertaken under the EPSRA of 2005 brought with it technical and commercial issues that have proven difficult to surmount. Across the electricity value chain, debt, inefficient assets and operational constraints have bogged down electricity security. This has effectively stunted the achievement of SDG 7 through grid power and opened the option of considering the viability of off-grid solutions for the purpose.
One viable off-grid solution that has been as a successful supplement to achieve SDG 7 under the current framework are independent distribution networks. In rural areas, the current structure is presently being supplemented by developmental investment in mini grids in order to achieve reliable, modern and affordable electricity. Mini grids are independent distribution networks which under Nigerian law are required to supply power below 100Kw. This capacity is sufficient for rural electricity needs where power requirements mostly cover lighting and the charging of small electrical devices. However, mini grids are insufficient for urban and suburban requirements, and in light of migration patterns and population density, solving the SDG 7 question for rural areas alone is counterproductive and unsustainable in the long run. Therefore, considerations must be made toward achieving electricity security in urban contexts.
Under Nigerian law, off-grid electricity generation and Independent Electricity Distribution Networks (IEDNs) provide a solution for urban and suburban settlements.
<h1>Achieving SDG 7 in Urban Areas Using Off-Grid Generation and IEDN</h1>
IEDNs are the licence structures created by NERC to support power distribution in the franchise areas of Power Distribution Licensees. They may either be isolated from the grid or embedded on to the grid. Either way, the purpose of an IEDN is to distribute electricity, either generated by itself or purchased from a Distribution Licensee, to a small, localized area. The IEDN model is more attractive for urban and suburban regions because of its capacity. IEDNs must have a minimum distribution capacity of 5MW.
The IEDN Model provides a sturdier bridge to achieving SDG 7 for a number of reasons:
<ol><li>IEDNs can test run smaller service areas in order to achieve commercial viability and profitability. This makes them a more attractive and manageable investment and the existing grid system.</li></ol>
<ol><li>An IEDN with its own generation capacity controls and administers the entire electricity value chain and is unbothered by the different and sometimes contrasting interests that plague the existing on-grid value chain.</li></ol>
<ol><li>IEDNs are not plagued by the legacy debts of grid operators and can price tariff in a manner that adequately combines cost-reflective and service-reflective parameters. In urban and suburban centers, reliable power supplied at cost reflective rates, especially using cheaper fuels such as gas, is affordable and a boost to productivity and economic capacity in the long run.</li></ol>
<ol><li>IEDNs with their generation capacity are better able to implement sustainable practices and incorporate renewable and/ or climate mitigation technologies to their operations, given their size, scale and control. The incorporation of these technologies further achieves the ‘modern’ energy component of SDG 7.</li></ol>
<ol><li>Achieving the electricity and energy goals of SDG 7 in urban areas must primarily be a commercial enterprise, with a profit driven mindset, in order to achieve scalability and in turn manage the future requirements of subsidized energy prices in urban low-income communities. The IEDN model achieves this.</li></ol>
<h1>Roadblocks: IEDNs Versus Successor DisCos in Nigeria</h1>
The apparent monopoly of successor DisCos over franchise areas has created problems for the distribution network and served as a stumbling block for new entrants. This is more so as the law permits NERC to grant licence to a prospective IEDN in only two instances: where there is no existing distribution system in the area to be served by the IEDN or where the NERC is satisfied that the infrastructure of a DisCo is unable to meet the electricity demands of the customers in the area. In many cases, these conditions are hard to fulfil in the urban areas that are adequately covered by existing distribution networks. In suburban and rural areas which are not connected to the grid, many areas have some form of distribution infrastructure or the other. The DisCos argue that they are expanding their infrastructure and therefore the case for an IEDN would not hold.
<h1>Conclusion</h1>
Achieving SDG 7 is an important policy objective for Nigeria. For urban and suburban communities, this means resolving the lack of adequate power delivery from the grid, for commercial, industrial and residential areas. The present electricity distribution model that grants an apparent monopoly to successor Discos has not delivered on its objective of powering Nigeria. It is therefore important for policy thinkers, business operatives and investors to consider alternate models to achieve this goal. IEDNs are an attractive and workable option for this purpose, however, they may be hindered by DisCos seeking to enforce their apparent franchise monopolies. Regulatory frameworks must be updated to accommodate this option without the burden of litigious pushback from the successor DisCos. This option is beneficial to the Nigerian economy and will speed up the process of achieving SDG 7 in the country.
Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Energy &amp; Sustainability writers, their opinions do not necessarily represent those of illuminem.

Are Independent Distribution Networks a Viable Solution for Achieving SDG 7 in Nigeria?

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Adetayo Adetuyi

Adetayo Adetuyi

COP27: Why Africa Needs to be at the Forefront of the Climate Change Conversation

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