Blog: Steering the Energy Transition to Foster Domestic Economic Transformation

16 February 2024
Clean energy being generated by wind turbines in a field at sunset supervised by operative with a laptop.

By Victor Kitange, Economic Adviser, Oceans and Natural Resources, Lead – Commonwealth Sustainable energy Transition Agenda & Chilenye Nwapi, Legal Adviser, Oceans and Natural Resources.

The global energy transition entails energy system transformations that bring along significant economic opportunities in the supply and deployment of clean energy technologies in individual countries across the globe. The economic opportunities created in the provision of goods and services vary across the different parts of the energy value chain including project planning, production, processing, manufacturing, procurement, transportation, construction, installation, operation and maintenance, and decommissioning.

Driving the energy transition through domestic suppliers

For activities of the energy value chain implemented in-country, the participation of domestic suppliers in the provision of goods and services will be critical in driving the energy transition. According to the IEA (2023), nearly 60 percent of the energy jobs cannot be offshored. If the COP28 target to triple the renewable energy deployment to keep the 1.5°C global warming target within reach were to be achieved, a large and skilled domestic workforce will be needed to fast track the energy transition. Thus, countries need to adopt and implement measures to build national capabilities in domestic supplies and a knowledgeable and skilled workforce required to accelerate the transition. 

Clean energy operative working at either sunrise or sunset with solar panels whilst examining a light bulb

Energy transition for jobs and growth

According to IRENA (2021), the energy transition will generate up to 122 million energy sector jobs globally by 2050 (of which 43 million will be in renewables). In 2021, the number of people employed in the renewable energy sector reached 12.7 million compared to 12 million in the preceding year. Of this global total, China accounted for 42 percent, reflecting its strengths in installation markets and equipment manufacturing (IRENA, 2022).

Decentralisation of the energy system

The global energy transition has seen increasing decentralisation of the energy system, growing use of bidirectional energy flow between household to power grids, and more integration of renewable energy sources. This has enabled renewable energy producers, including households, to generate revenue from energy exports to power grids or to realise financial savings from self-generated electricity. Incentivised by policy support measures such as feed-in tariffs and net metering, households, businesses, schools, and religious and government institutions have been encouraged to install solar PV systems to generate renewable energy. For example, under the Canada Greener Homes Initiatives, the Canadian Government is providing grants and interest free loans to homeowners to incentivise investment in clean energy technologies and energy-saving systems.

Renewable energy exports and economic opportunities

Increasing renewable energy exports has encountered challenges in most countries. Given its intermittency, increased renewable energy exports may face a limit to ensure reliability and stability of grid power supply. Unlocking this barrier may require significant capital outlay in grid infrastructure, including investing in energy storage and enhancing grid flexibility. It may also require policy support such as tariff policy adjustments and buy-in by key stakeholders.

The energy transition is also creating economic opportunities in the electrification of domestic transportation networks. The use of bidirectional energy flow has also enabled the provision of energy services including energy storage to grid networks from electric vehicles (EVs). In-country value addition opportunities are found in the manufacturing, installation, and operation of EV charging points. It is worth noting that for countries where the grid networks are not yet smart and the EV infrastructure and ownership are limited, such opportunities may be few or non-existent.

Clean energy technologies for off grid solutions

Economic opportunities for domestic suppliers exist in the deployment of clean energy technologies for off grid solutions to close a large energy access gap in developing countries. According to the 2023 energy progress Report (tracking SDG7), energy access gap in 2021represented a sizable market of 675 million people without access to electricity and 2.3 billion people without access to clean cooking. By 2030, about 1.9 billion people may still be without access to clean cooking. According to the IEA,  nearly 300 million people need to gain access to cleaner cooking technologies each year to ensure universal access by 2030, with sub-Saharan Africa accounting for half of the total. The IEA also notes that cleaner cooking technologies could employ1.5 million people in stove production and sales, fuel delivery, etc. and investment in clean cooking stoves, equipment, and infrastructure by 2030 would need to reach USD 8 billion annually to achieve universal access to clean cooking by 2030.

Progressive development of domestic capabilities

Increasing demand for critical materials required to build and sustain the emerging low carbon energy system is creating economic opportunities for domestic suppliers in countries rich in critical minerals. However, large upfront risk capital outlay, specialised technologies, and managerial skills required to undertake large-scale critical mineral exploration and production operations can be a challenge to domestic participation. Thus, a host country has to rely on foreign investments including global supply chains to develop its critical mineral resources. This kind of environment tends to keep out participation by domestic suppliers or limit it to a narrow range of low value supplies and job opportunities. It is critical that countries establish appropriate frameworks capable of facilitating progressive development of domestic capabilities and participation in the critical mineral industry value chain.

The need for increased participation of domestic energy suppliers

Participation by nationals to take full advantage of the economic opportunities created in new jobs, decent incomes, and value addition industries, including economy-wide spill-over effects, however, is not automatic. Left on their own device markets will not automatically maximise such opportunities for domestic suppliers and while the government has a role to play to correct market failures and level the playing field, the risk of government-induced failures also looms large. Emphasis should therefore be put on establishing an appropriate local content framework that can facilitate increased participation of domestic suppliers and in-country value addition. Such a framework would guide all market actors while providing specific safeguards against government failures, including the risk of regulatory capture and patronage. 

Read part two

Blog: Steering the energy transition towards a local content development framework