Blog: An Interview with Yomi Ogedegbe

By Humphrey Olugbue

This transcript is part of a series of Top Voice interviews brought to you by IBR Group International on the topic of sustainability. To learn more about our Top Voices in Sustainability interviews or to discover how you can contribute, please contact us directly.

Q1: Tell us a bit about your role as an independent energy consultant. What particular projects are you involved in the power sector?

For the past twenty years, I have worked in the energy sector with both public service organisations and international donor funded programs. My primary expertise is on policy and governance frameworks and I worked with two DFID (now UKFCDO) energy projects focused on infrastructure and the oil and gas sector, respectively. I also worked with the Tony Blair Institute as the Resident Energy Advisor under the Power Africa Senior Advisors Group, a cooperative agreement between USAID and TBI. My support on those projects ranged from advising on legal, policy, commercial and regulatory issues in the power sector to supporting and advising on the restructuring of the petroleum industry as well as the Petroleum Industry Bill.

As an independent energy advisor, I have provided support on different projects - on one project, I advised on legal, policy and regulatory requirements for putting in place more sustainable energy technologies for a government ports authority. `I advised on contractual arrangements for the Nigerian electricity supply industry on behalf of a UKFCDO technical assistance facility. I also provided policy and governance support on power sector issues for different private sector companies.

Q2: How do you believe the Electricity Power Sector Reform Act (EPSRA) has benefited the Nigerian power sector since its enactment?

I think the EPSRA transformed the Nigerian power sector in a major way. It created pathways to new institutional arrangements and reformed the market structure to allow for private sector participation as well as wholesale and retail competition in the sector. It established a federal electricity regulatory commission with a mandate for technical and economic regulation. It also established a liability management company to which liabilities of the erstwhile national utility was transferred thus giving investors a clean balance sheet for the privatized companies. Furthermore, it created the rural electrification agency to address power challenges to rural and underserved communities, which has opened up the space for off-grid renewable power projects. Lastly, it provided the legal basis for the establishment of a bulk trader to (i) undertake bulk purchase and resale of electricity and (ii) drive private sector investments in the industry by executing bankable power purchase agreements. All these initiatives set the stage for an electricity industry with sustained power supply based on clear contractual and trading frameworks. However, these have not materialized nor benefitted the Nigerian populace as envisaged due to various challenges.

While there have been private sector entrants in the industry, there remain significant barriers to the effective development of the sector. These include policy, legal, regulatory, pricing and market related issues. On the policy side, there needs to be a review of sector policies to reflect current realities and ensure better objectives coordination. Contract performance and enforcement is a key challenge considering the fact that not all the power purchase agreements are fully activated. There is also the issue of the tariff methodology put in place by the regulator, which calls for bi-annual minor reviews and are not aligned with the pricing adjustments in the power purchase agreements and vesting contracts. Lack of adequate investments remains a key challenge. The energy sector is one of the largest contributors to GHG emissions so it is critical that urgent action is taken to mitigate emissions while ensuring Nigerians have access to clean energy. Some steps to achieving this include strengthening the regulatory framework, tariff cost-reflectivity, and revisiting the renewable energy policy to ensure it attracts private sector investment. Sustainable pathways in the power and oil & gas industries also need to be created to transition to cleaner energy.

Q3: In line with the 7th Sustainable Development Goal on Clean and Affordable Energy, across Sub-Saharan Africa, there are many distributed solar and O&M startups (Zola, Azuri, Rensource and many others) taking advantage of the off-the-grid market for electricity. How important is this revolution in electricity provision in your opinion?

It is of the utmost importance. All countries are in agreement that human activity has contributed significantly to anthropogenetic climate change and we cannot continue to operate as we did in the past. The sad fact is that while developing countries did not contribute as much to global emissions as some developed countries, they unfortunately are facing a majority of the negative impacts from climate change. It is, therefore, important that all nations work together to take action on climate change and support developing countries in doing so. A key step can include adopting climate mitigation strategies such as adopting renewable energy sources for power generation. This is key to reducing GHG emissions in the continent.

It's great to see many developing countries taking advantage of renewable energy for their off-grid electricity markets, however, most of these nations are yet to fully maximize its benefits due in part to the fact that a lot of investment has been skewed against some of the poorer developing countries, which is something that will need to be addressed at the national level. Countries need to put in place enabling policy and regulatory environments along with financial instruments aimed at mitigating risk to attract private investors. Debt financing for off-grid solutions will be critical if they are to be significantly scaled up to meet sustainable development goals.

Q4: How are US states approaching the breadth and significance of the global decarbonisation challenge?

When considering decarbonization, we are looking at transportation, electricity, buildings and industrial sectors. The 2021 SDG Report released on June 14, 2021 revealed that the United States is:

1. On track to achieve SDG6 (Clean Water and Sanitation), SDG 9 (Industry, Innovation and Infrastructure) and SDG 11 (Sustainable Cities and Communities) though challenges remain

2. Moderately improving on SDG 7 (Clean and Affordable Energy) and SDG17 (Partnerships for the Goals) with significant challenges remaining

3. Stagnating on SDG 13 (Climate Action) with major challenges remaining

The move to a net-zero carbon future in the United States has not been without challenges. Former President Trump withdrew from the Paris Agreement and repealed some environmental protection laws. This delayed progress towards the SDG goals in the US. However, it was not all bad news because 25 States under the US Climate Alliance (formed in response to President Trump's decision) pledged to uphold the Paris Agreement emission reductions. States like California, New Jersey, New York, Massachusetts and Colorado, among others have been quite progressive in this regard.

Since President Biden took office, however, the United States has rejoined the Paris Agreement and the US Climate Alliance has pledged to forge a new state-federal partnership to meet the climate crisis. More States need to step up action to meet the SGD goals. It is important that local governments are part of the state-federal partnership as local governments play a critical role in mitigating and adapting to climate change. It is also important that cross-sectoral partnerships are put in place to address interdependencies towards achieving climate goals.

Q5: How valuable a policy do you consider the Contracts for Difference (CfD) scheme in the United Kingdom to be as a means of compensating renewable energy providers?

The CfD scheme is the primary mechanism for supporting low carbon electricity generation in the UK. Presently, the scheme is the most feasible path for renewable projects to be bankable. They are long-term contracts between a generator and the low carbon contract company that protects the generator from price volatility for the duration of the contract at a pre-agreed strike price. Consumers also benefit from this scheme because they are insulated from paying increased costs when electricity prices are high.

While it is a useful scheme, it has not applied to all types of renewables since 2015, which means established renewables like solar and onshore wind do not benefit from the scheme in the same way a less established renewable like an offshore wind project would. This is however expected to change under the Fourth allocation round scheduled for December 2021. Considering the need to take steps to achieve net zero by 2050 and the role a diverse energy mix can play in achieving this, Pot 1 'established' technologies (onshore wind, solar and waste energy) will now form part of the fourth allocation round, which should give more renewable developers greater confidence and interest in developing such projects, and will lead to cheaper clean energy.

Q6: The IEA's recent clean energy investment report on financing clean energy transitions in emerging and developing economies calls for a "focus on channeling and facilitating investment into sectors where clean technologies are market-ready" - what do you believe are the headwinds, tailwinds or otherwise, if any, to the adequate financing of clean and affordable energy in Africa?

The IEA report states that annual clean energy investment in emerging and developing economies needs to increase by more than seven times - from less than USD150billion last year to over USD1trillion by 2030 to put the world on track to reach net-zero emissions by 2050.

I think it's interesting that the IEA finally made this pronouncement in 2021 considering the fact that the Paris Agreement has been in place since 2015 but that is a discussion for another day.

The Paris Agreement has been advocating this for years. Renewable energy is clean technology and its cost has decreased significantly however there has not been full scale up of renewable energy projects as one might expect given its benefits mostly due to financing challenges. In terms of what tailwinds or headwinds exist to adequate financing, I think the answer has partly been covered in my previous responses but to summarize:

Tail winds foster greater growth or opportunities. Renewable energy costs are gradually becoming competitive with fossil fuel projects due to new technologies so it is becoming more cost effective to invest in solar as opposed to a coal plant. ESG related goals has further strengthened the case for renewable projects as institutional investors and funds are increasingly looking to invest in green projects so there are opportunities for clean tech projects. However, if EMDEs are to attract private investment for clean and affordable energy, they need to put in place appropriate enabling environments for such investments to thrive. These include low interest rates for debt financing, and investor friendly policy, legal and regulatory frameworks.

Conversely, head-winds slow investment in renewable projects. Factors that could cause this include continued focus on oil by governments in place of scaling up of green projects. Oil prices have rebounded so oil rich nations derive much needed revenue from oil sales so there is not exactly a lot of incentive for them to pivot from oil to cleaner technologies.

As the IEA report rightly points out, countries are not starting from the same place and many do not have access to funds needed to rapidly transition to a healthier and more prosperous energy future. This means that developing nations need the space to transition from cleaner transition fuels to fully green technologies.

Q7: It's widely known amongst pressure groups and climate-focused NGOs that there is a financing gap in accomplishing SDG7. Where do you see new finance positioning itself along the spectrum of affordable and clean energy?

The Sustainable Development Goals (SDGs) have been underfinanced with a gap of USD 2.5 trillion per year. According to the IEA, the overall financing requirement to meet SDG7 across renewable energy, energy efficiency and universal access is USD 1.3 to 1.4 trillion per year until 2030.

In terms of where new finance will be required, new financing will be critical during the early stage of the project lifecycle. Risk mitigation instruments such as currency hedging instruments will also play an important role in mobilizing private investment for renewables. Low-cost financing will also be essential for private investors to access local debt.

Note that even with the right amount of financing in place, some countries will need to take extra steps to address project risk if they are to attract private sector renewable energy investment. As I discussed earlier, not all developing countries have been able to attract private sector investment for renewable energy projects so policy, regulatory, currency and political risk will need to be mitigated.

Lastly, it is important to ensure that disbursements at the national level are improved to ensure finance is disbursed as and when needed.

Thank You