A lot of buzz has been generated in the Eastern Africa region by recent news of potentially commercially viable fossil fuels being discovered in Kenya and Uganda. While such new developments if indeed proved to be readily utilizable will offer hope for enhancing energy security, promoting industrial development, and providing local benefits including community shared revenues accrued from their exploitation, local employment, stimulation of local business activities, and improved infrastructure and skills development, there is some concern that there will be a reduced incentive to further invest in renewable energy sources.
Let’s examine the Kenyan case. In 2011, the government introduced a zero-rate (0%) import duty on renewable energy equipment and accessories, and additionally removed Value-Added Tax (VAT) on renewable energy materials, equipment, and accessories. Prior to this year 2011, there was a 16% VAT on renewable energy materials. One such instance of the many inconsistent ad hoc policies on renewable energy that characterize a majority of African states has recently played out in the country where the VAT at 16% has now been placed back on solar since September 2013.
With such potentially positive domestic policy change now reversed, coupled with the global rise in solar prices, climate compatible development (CCD) is not guaranteed as it seems to have been overshadowed by interests of business actors such as the Kenyan Renewable Energy Association (KEREA) which lobbied successfully for the zero-tariff policy, alongside the big importers and manufacturers of solar and groups such as the Solar Technicians Association. The serious momentum that had been created earlier including development of solar water heating regulations (with a proposal that all owners of existing and new buildings that require more than 100 liters of hot water per day be required to install and use a solar water heater) will, without question, be negatively affected.
While the African oil and gas sector generally encounters hurdles such as delays in passing new laws leading to regulatory uncertainty, fraud, corruption, theft, poor infrastructure and lack of technical expertise, the East African region is nevertheless keen to portray itself as an emerging oil and gas hub. Tanzania and Mozambique are already producing natural gas and there is hope in Kenya and Uganda that they too will soon become oil and gas exporters. This therefore calls for strategic choices to be made about the use of the fuels as part of the broader international and domestic development goals.
One such choice is to export them and generate revenue that could be used to invest in domestic renewable energy generation, benefiting economies’ competitiveness in the longer term. Another is to construct a refinery so that they could be utilized domestically to substitute for imports which are currently the sole source of such fuels in these countries. All in all, while it is not inevitable that renewable energy investments in the region will decline in absolute terms, some of the ingredients that will foster such an outcome are already in place.