Abstract
As the world races to meet the Sustainable Development Goals (SDGs) by 2030, there is a growing recognition of the importance of ongoing initiatives. This blog highlight some of the initiatives taking place in Africa and Asia that is specific to affordable and clean energy. To provide country-specific background on the regulations surrounding the power sector in the two continents, the authors of this blog give an overview of the energy regulations of Ethiopia and India. Thereafter the blog mainly focuses on the impact of the African Continental Free Trade Area (“AfCFTA”) on energy trade in Africa.
Keywords: “AfCFTA”; “IEX”; “Trade”; “Power”; “SDGs”.
Exploring Regulations surrounding the Power Sector in India and Ethiopia – An Overview
The Indian Energy Sector
The Indian power sector uses a number of fuels. These include traditional sources like coal, oil, and gas, as well as environmentally friendly sources like solar, wind, biomass, industrial waste, and small hydro plants. Electricity is included on theconcurrent list in India’s Constitution. As a result, in India, both the Parliament (Central) and the State Legislatures (State) can legislate on electricity-related issues, subject to the laws made by Parliament, which take precedence over the laws made by the State Legislature. TheElectricity Act of 2003 governs electricity generation, transmission, distribution, trading, and use in India. The generation of electricity (except hydro) is a non-licensable activity. Electricity demand in India is expected to rise in tandem with increased electrification and economic growth. The Government of India (in consultation with state governments and theCentral Electricity Authority (“CEA”) publishes theNational Tariff PoAlicy and the National Electricity Policy on a regular basis in order to develop an electricity system based on the most efficient use of resources such as coal, natural gas, nuclear, hydro, and renewable sources of energy.
The CEA is a statutory body established by the Electricity Act that advises the Government of India on policy, safety requirements, and technical standards. When theCentral Electricity Regulatory Commission (“CERC”) and theState Electricity Regulatory Commissions (“SERCs”) make their regulations, the Government of India in consultation with the states and the Central Electricity Authority (“CEA”) establishes policies {such as theNational Training Policy (“NTP”) andNational Electricity Policy} to serve as a guideline for the CERC and the SERCs.
In terms of renewable energy promotion, theMinistry of New and Renewable Energy (“MNRE”) is the Government of India’s designated agency for the following: Solar energy.
- Bio-gas units
- Small hydroelectric power {large hydropower projects have also been classified as a renewable energy source, but they are supervised by theMinistry of Power (“MoP”)}
- Tidal energy
- Geothermal energy
SECI, a government enterprise under MNRE’s control, assists MNRE in the implementation and facilitation of schemes such as theJawaharlal Nehru National Solar Mission (“NSM”) and schemes for wind projects and solar-wind hybrid projects.
In an effort to boostCross Border Electricity Trade (“CBET”), and to create a premier market for the trade of energy, theIndian Energy Exchange (“IEX”) was introduced. Currently, it has expanded beyond India to other South Asian regions.
Ethiopian power sector
Ethiopia’s power sector is a regulated market that has been reforming since 2013. Ethiopia, at present, has one of the lowest rates of electrification in Sub-Saharan Africa. The majority of its110 million people rely on traditional biomass energy sources. Commercial energy sources such as electricity and petroleum are used to make up the gap. The country has an abundance of renewable energy resources and the capacity to generate over 60,000 megawatts (“MW”) of electricity from hydroelectric, wind, solar, and geothermal sources. Renewable energy, specifically hydropower, accounts for 98 percent of Ethiopia’s current installed capacity. At present, there are no coal-fired power plants in the country it does, however, have 300 million tonnes of coal and 253 million tonnes of oil shale reserves that have yet to be exploited. Demand for electricity has been steadily increasingas a result of Ethiopia’s rapid GDP growth over the previous decade.
The Energy Proclamation No.810/2013 (as amended) andEnergy Regulation No. 447/2019 regulate the energy sector in Ethiopia. Furthermore, the Ethiopian government has approved a10-year Perspective Development Plan for the duration of 2021-2030. In relation to the energy sector, the development plan has set out key goals such as the achievement of equitable access to energy, attracting private financing for the expansion of infrastructure, and increasing private sector investment through public-private partnerships.
The key regulatory authorities of the energy sector in Ethiopia are theMinistry of Water and Energy (“MoWE”) and theEthiopian Petroleum and Energy Authorities (“EPEA”). MoWE is responsible for ensuring the provision and distribution of power from water, wind, and other renewable energy sources, and EPEA is mainly responsible for licensing and supervising parties who operate within the energy sector of Ethiopia.
The generation of electricity is an investment sector that is open to both foreign and domestic investors. However, the transmission and distribution of electricity in the national grid being reserved for domestic investors. Currently, transmission and distribution are carried out by monopoly through the government enterprises theEthiopian Electric Power (“EEP”) and theEthiopian Electric Utility (“EEU”), respectively.
Introduction to the Energy Market in Africa
The population of Africa is approximately16% of the population of the world. However,75% of the world’s population that does not have access to electricity lives in Sub Sahara Africa. One initiative that is put in place toward reaching the SDGs for the African continent is to use regional trade integration to intensify the energy sector and existing power pools, as well as to improve the utilisation of the region’s abundant renewable energy resources to meet the region’s vast demand.
Economic integration and power pooling are few of the strategies of the African continentto strengthen the energy sector. There have been several regional economic integration initiatives in Africa aimed at achieving sustainable development in the continent. In this century, a country’s level of electrification is linked to its level of economic development. Regional economic integration efforts in Africa date back to the formation of the Southern African Customs Union and the EastAfrican Community in 1910 and 1919 respectively. In 1991 the African Economic Community Treaty (the Abuja Treaty) was focused oncontinental economic integration. Currently, there isno African State that is not a signatory to at least one Regional Economic Community (REC) on the continent.
Before power pooling was implemented,energy trade between African states was based on bilateral treaties. Among other things, the intention of developing power pools in Africa is toincrease generation capacity, improve transmission infrastructure and increase energy trade. Power poolingcreates a network among the member states and the market for energy. Currently,there are five power pools in Africa: (i) theSouthern African Power Pool (“SAPP”) (ii) theWest African Power Pool (“WAPP”) (iii) theEast Africa Power Pool (“EAPP”) (iv)Central African Power Pool (“CAPP”) and (v)Maghreb Electricity Committee (“COMELEC”).
Nonetheless, power pooling in Africa has not reached its full potential due to multiple challenges. Some of these constraints are:
a. Lack of sufficient infrastructure – the countries that take part in the power pooling projects face financial constraints to fully fund infrastructure projects for the required amount of energy. Trade barriersfurther limit the amount of funding that can be provided by the private sector for such projects.
b. Regulatory and institutional constraints – the power pools are not supported by well-defined, predictable, and consistent energy policies as well as institutionsthat are efficiently harmonized at a country and at the sub-regional level.
In response to the challenges that the energy market in the continent, the African Union Development Agency, and the African Development Bank had released a recommendation for a continental electricity master grid and market in 2020.
Introduction to the AfCFTA
TheAfCFTA enteredinto force on 30 May 2019. Trading under the AfCFTAcommenced on 1 January 2021. The scope of application of the AfCFTA includes trade in goods, services, investment, competition, and intellectual propertyamong member States of the African Union. When fully operational, the AfCFTA is expected to eliminate tariffs on90% of goods traded in Africa. It has the ultimate objective of creating a single market, resolving the overlapping membership problems, integrating Africa economically as per the Pan African Vision, and creating acontinental customs union at a later stage.
The AfCFTA is governed by principles common to regional trade arrangements such as the Most-Favored-Nation (“MFN”) Treatment, National Treatment, sustainable liberalization, and reciprocity. The AfCFTA also accommodates special or differential treatment. The special treatment afforded to member States includes an additional transition period in the implementation of the AfCFTA.
Although the overlapping membership of States in differentRegional Economic Communities (“RECs”) is seen as one of the challenges of liberalizing trade, the AfCFTA plans to use the existing RECs as building blocks for liberalizing trade on the continent and follows the principle of preservation of the acquis. Furthermore, the AfCFTA is based on best practices among RECs, Member States and international conventions binding the African Union.
In addition to the removal of trade barriers, the implementation of the AfCFTA also provides an opportunity for the achievement of theSDG targets such as increasing exports from developing countries and the promotion of a universal trading system, employment creation and industrialization, creation of business opportunities for women and youth, poverty alleviation, and environmental sustainability.
What is the impact of the AfCFTA on the Energy Market in Africa?
It is expected that the AfCFTAwill have a positive impact on the energy market of Africa by facilitating the trade of oil, gas, and renewable energy across the continent. Trade barriers such as high import tariffs, among other things, have resulted in the export of natural resources, including oil and gas, beyond the continent and the resell of the processed version of those resources at ahigher price back into the continent. The AfCFTA could increase the trade-in of energy due to the diversity of renewable energy sources available in each member state of the African Union which avails the opportunityto diversify the energy mix and promote a green economy.
The AfCFTA caters to the following issues that are expected to boost the energy market:
a. Free movement – Less barrier in the flow of goods, people, and investment within the continent is expected to facilitate theease of access to technology, funding, and human capital for the energy sector.
b. Increase in investment – Economic integration and reduction of trade barriers are expected to attract private investments as well as development financing. The increase in investment would support the infrastructure projects required for the energy market as wellas ease the budget constraint of governments to support energy projects.
c. Coordinated policy and regulation – The AfCFTA obliges countries to align their regulations and policies with the common agendas of the agreement. This is expected not only toincrease transparency but also to increase coordination in the energy sector.
d. Single Electricity Market – Based on the AfCFTA, theAfrica Single Electricity Market (“AfSEM”) is one initiative launched in 2021to integrate the electricity market of Africa. The AfSEM is expected to foster energy security, bridge the electricity gap, optimize the continent’s resources, andcreate a competitive energy market among the member states of the African Union. The first phase of AfSEM is expected to beimplemented by 2023 and become fully operational by 2040.
Trade going Green- An Overview of “Green Trade” under the AfCFTA and IEX
Trade can be a driving force in the transition to a green economy and long-term development. There are a number of “green” sectors, for example, that provide many developing countries with opportunities to export a variety of products ranging from organically grown fruit to clean and environmentally friendly technologies.Trade finance, especially in the poorest countries, should encourage the development of environmentally friendly technologies and goods. Aid for Trade, also known as trade-related development cooperation, can assist exporters in those countries in making the most of their “green” export opportunities. In the following paragraphs, the authors explore “green trade” throughAfrican Continental Free Trade Area (AfCFTA) andIndian Energy Exchange (IEX).
At the virtual session convened on the side-lines of theWTO Public Forum on 1 October 2021, the speakers considered how AfCFTA implementation strategies can support the development of green and blue economy value chains, and deliberated on the actions needed by African policymakers and businesses to fully leverage the AfCFTA and advance the environmental agenda
“The AfCFTA provided the continent with an opportunity to tackle climate change by supporting a shift in production patterns away from a reliance on extractives and commodities,” said Mr. Stephen Karingi, Director of the Economic Commission for Africa’s (“ECA”) Regional Integration and Trade Division.
Mr. Hermogène Nsengimana, Secretary-General of the African Organization for Standardization (ARSO), for his part, stated that the full and proper implementation of the AfCFTA necessitates standardisation in the social, economic, and environmental spheres. Mr. Nsengimana, who is advocating for the use of theEcoMark certification system as a tool for AfCFTA implementation, stated that launching such a scheme promotes the AfCFTA’s goal of deepening economic integration through the free movement of goods and services. “Eco-labeling standards are established for goods and services that meet environmental, societal, economic, and legal standards, thereby raising the profile of African products and their market access potential,” he explained.
The Indian Energy Exchange (IEX), in 2021,launched green energy trading on its power trading platform, the first of its kind in the country. TheCentral Electricity Regulatory Commission (“CERC”) has approved the establishment of a ‘green term-ahead market’ on IEX. Ittrades in four types of green term-ahead contracts: Green Intra-day contracts, Day-ahead Contingency contracts, Daily contracts, and Weekly contracts. There are contracts for both solar and non-solar energy. It is worth noting that IEX already has a trading platform for ‘Renewable Energy Certificates’ and is the first physical trading of renewable energy with the green term-ahead market.
Disclaimer
The information contained in this article is for general information purposes only. The views, thoughts, and opinions expressed in the article belong solely to the author, and not necessarily to their employers, organizations, committees or other groups or individual to which they are affiliated.
About the Authors
Ms. Deborah Haddis Berhanu is a legal professional based in Ethiopia. She has expertise in providing investment structuring advice on cross border transactions, regulatory due diligence investigations, and transactional documents.
Ms. Aribba Siddique is a 3rd year student at Amity Law School Kolkata, and is an Associate Editor at IJPIEL.Ms. Ananya Seth is an Associate (Banking & Finance) at ASA Legal, Delhi.
Editorial Team
Managing Editor: Naman Anand
Editors-in-Chief: Jhalak Srivastav and Akanksha Goel
Senior Editor: Hamna Viriyam
Associate Editor: Aribba Siddique
Junior Editor: Harshita Tyagi
Preferred Method of Citation
Deborah Haddis Berhanu and Aribba Siddique, “Trade, Power, and Sustainable Development Goals – discussing AfCFTA and IEX” (IJPIEL, 27 May 2022)
<https://ijpiel.com/index.php/2022/05/27/trade-power-and-ustainable-development-goals-discussing-afcfta-and-iex/>
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