Analysing the efficiency of renewable energy consumption among oil‐producing African countries

• Published date: 01 September 2016
• Author: Oluwafisayo Alabi,Abraham Lartey,Ishmael Ackah
• DOI: http://doi.org/10.1111/opec.12081
• Date: 01 September 2016

Analysing the efficiency of renewable

energy consumption among oil-producing

African countries

Ishmael Ackah*, Oluwafisayo Alabi** and Abraham Lartey***

*Head of Policy Unit, Africa Centre for Energy Policy, Avenue D, Hse. No.119 D, North Legon Box CT2121

Cantonment, Accra-Ghana, Accra, Ghana. Email: Ackish85@yahoo.com;

**PhD Student, Strathclyde Business School, University of Strathclyde 199 Cathedral St, Glasgow G4 0QU

Glasgow, UK. Email: ayosave@yahoo.com

***Research Assistant, Policy Unit, Africa Centre for Energy Policy, Avenue D, Hse. No.119 D, North

Legon, Box CT2121 Cantonment Accra-Ghana. Email: abrahamlartey06@yahoo.com

Abstract

Africa’s growth over the past two decades has been unprecedented. However, access to modern

forms of energy seems to be a major hurdle for most African countries even though renewable

energy sources abound. It has been argued that, knowledge of demand determinants and estimates

help to guide investment and policy design in the energy industry. This study therefore examined the

efficiency of renewable energy consumption. Furthermore, it investigated the effect of carbon

emissions, GDP per capita, energy resource depletion and human capital development on renewable

energy demand in 10 African countries. A dynamic panel generalised method of moments, panel

fixed-effect and a panel random-effect models were applied. The results suggest that economic

growth, energy prices, carbon emissions and energy resource depletion significantly affect

renewable energy demand in one or all the models. The study recommends that to promote

renewable energy consumption, economic welfare of the population should be enhanced.

1. Introduction

The global demand for renewable energy has been increasing over the past decade due to

several factors. On the demand side, environmental concerns, access and continual

supply are the key factors (Akansu et al., 2004), whereas on the supply side, investments

and carbon emission reduction targets seem to be the main drivers. Renewable energy

has been the fastest growing source of energy consumption in the World growing at a

rate of 3 per cent per annum (IEA, 2009). Since Africa experiences continual sunshine

almost all year round, abound water bodies and wind, renewable energy is the ultimate

choice to solve the challenge of energy access and reliable energy supply (Ackah and

Kizys, 2015). In addition, by using renewable, Africa can play a key role in global effort

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to combat global warming. This is because renewable energy is carbon neutral and

inexhaustible (Akansu et al., 2004; Olah et al., 2008 and Adom et al., 2012).

Environmental challenges such as global warming, acid rain and depletion of the

ozone layer have often been associated with energy consumption (Sardianou, 2007).

Several economic and regulatory incentives have been designed to encourage

renewable energy production and consumption in Africa. For instance, the IEA

(2014) reports that, Nigeria has a renewable energy target of 23 per cent for

electricity generation by 2025 and has initiated a feed in tariff for that purpose.

Egypt has renewable energy target of 20 per cent by 2020 and uses a feed in tariff.

Tunisia and Ghana have 10 per cent target by 2020 and uses import tax and feed in

tariff, respectively. Although the Democratic Republic has no formal renewable

energy target, it uses regulatory instruments and energy auditing to encourage

renewable energy production and consumption. Finally, Algeria has a renewable

energy target of 20 per cent in total power generation by 2030. These targets suggest

the importance African governments attach to renewable energy.

According to Apergis and Payne (2012), the increased growth in renewable energy

consumption has been due to environmental concerns about fossil energy consumption,

volatility of oil prices and energy security concerns. This means there is the urgent need to

explore and apply sustainable instruments and tools in understanding the limitation to the

expansion of renewable energy in developing countries. One of such instruments is the

Product Generalization Dematerialization (PGD) analysis. This analytical technique

(PGD) was developed by Ziolkowska and Ziolkowski (2010) and is a conceptual approach

that extends the analysis of sustainable use of natural resources over time. Within the

existing literature there are various definitions of the concept which are outlined and

discussed in the work of Ziolkowska and Ziolkowski (2010). However, due to the objective

of this study we apply the definition by Bernardini and Galli (1993) where dematerial-

isation is defined as the reduction in the energy intensity of economic activities measured by

taking the ratio of physical energy consumption to income (GDP).

The (PGD) indicator can be viewed from two main perspectives namely materialisation

and dematerialisation. Materialisation measures the higher amount of energy consumed

within a given/certain period. On the other hand dematerialisation reflects energy

consumption on lower level in a given base year that is a reduction in energy relative to

population for a given base year (Sun and Meristo, 1999).

In this study, four distinct models are applied to examine the effect of economic

growth, energy resource depletion, carbon emissions, energy prices and capital and

human capital development depletion in 10 African countries. The models include a

product generation dematerialisation model (PGD), a dynamic panel GMM, fixed-effects

model and a random-effects model. The results will help to recommend renewable

energy policies and guide investment decisions.

©2016 Organization of the Petroleum Exporting Countries OPEC Energy Review September 2016

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