The Energy Revolution: Lessons from History and Uganda’s Path Forward

 In the early 19th century, the UK was the only country with significant coal extraction. Coal provided 95 percent of Britain’s primary energy, and British coal accounted for more than 90 percent of the fuel’s global production. In contrast, the rest of the world relied on traditional sources such as wood, charcoal, straw, and dried dung for fuel. Economies of these traditional low-energy soci- eties were stagnant or growing at a fraction of one percent a year. In 1800, wood supplied more than 90 percent of France’s energy.

The transition from wood to coal marked the modern world’s first energy revolution. In the 1830s, high-pressure steam engines began to power the first railroads and oceangoing ships, while increasingly efficient stationary steam engines provided energy for industrial use. By the mid-1870s, coal supplied more than half of all primary energy in France. The US reached a tipping point between biomass and fossil fuels in 1884, Japan in 1901. At that time, coal and crude oil also began to provide more than half of the world’s final energy consumption.

The second modern energy revolution began in 1882 with Edison’s pioneering electricity generating plants. Over the following 50 years, electricity illuminated cities, electric motors transformed industries and transportation, and electric elevators made high-rise construction possible. Additionally, innovations like refrigerators, electric stoves, and small appliances revolutionized kitchens. Concurrently, fossil-fuel-based mechanization of agriculture, including steel implements, tractors, combines, and fertilizers, reduced the labor force required by rapid industrial growth and urbanization began to create a new world of rising life expectancies, higher incomes, better housing, increased education and affluence.

The third modern energy revolution was the rise of refined oil products. Except for the US, where large-scale oil production was driven by pre-WWII discoveries in California and Texas and by early and rapid automobilization, this revolution had to wait until after 1950. The exploitation of giant oilfields in the Middle East and the need for higher-quality fuel for post-war reconstruction in Europe and Japan, combined with the availability of large oil tankers, rising ownership of automobiles, and extensive construction of new pipelines and refineries, made crude oil the world’s most important fossil fuel.

By 1965 its global consumption had surpassed coal and by 1973 crude oil, with 42 percent, provided the highest share of the world’s primary energy. OPEC’s two rounds of oil price rises cut that share, and eventually the fourth modern energy revolution got underway with the rising reliance on natural gas. Its widespread use became possible with the construction of transcontinental pipelines that spanned North America and connected Siberia with Europe and China, with the exploitation of abundant offshore resources in the Gulf of Mexico, North Sea and Persian Gulf and with the reliance on large liquefied natural gas tankers whose deployment turned gas into a fungible commodity delivered from Qatar to Tokyo and from Texas to Latvia.

The decades after World War II saw significant growth in the generation of hydroelectric and nuclear power, but fossil fuels have remained the dominant source of energy. In 1950, excluding traditional biomass fuels and with 1kWh of non-thermal primary electricity equal to 3.6 MJ, fossil fuels provided about 98 percent of the world’s primary energy. By the year 2000, this dependence had only slightly decreased to about 90 percent. China’s economic modernization slowed this decline, as the country became the world’s largest producer of coal and the largest importer of hydrocarbons. This raises the question: What would happen if the entire continent of Africa increased its use of fossil fuels, similar to what China did?

The rapid oxidation of carbon from burning fossil fuels generates CO2. Global emissions of this gas have increased significantly, from 29 million tons in 1800 to nearly 2 billion tons by 1900, and to almost 26 billion tons in 2000. By 2018, emissions reached a record high of about 37 billion tons. While a large portion of these emissions has been absorbed by the ocean and biosphere, atmospheric concentrations of CO2 have risen from about 280 parts per million (ppm) in 1800 to 410 ppm by the beginning of 2019. This is an unprecedented increase, considering that concentrations remained stable between 275–280 ppm for the past millennium. In 1896, Svanté Arrhenius calculated that doubling atmospheric CO2 might raise average temperatures by 5–6 °C, which aligns with today’s climate models. In 1957, Suess and Revelle highlighted that humanity was conducting a large-scale geophysical experiment not seen in the past or reproducible in the future. Although scientists have been aware of global anthropogenic warming for over a century, the issue gained wider attention in the late 1980s and is now a significant public and political concern.

The solution seems simple: replace fossil fuels with non-carbon energy sources. The Earth receives enough solar radiation that capturing just 0.1 percent of it could meet a global demand ten times higher than today’s energy use. However, like previous efforts, global decarbonization – the fifth energy revolution – will take significant strides to achieve its goal of eliminating fossil fuels and replacing them with a mix of renewable electricity, hydrogen, and nuclear power. I try to make a case for finance.

Uganda is one of the fastest-growing countries in the world. Sustaining this growth would lead to a significant economic transformation for the country. Although Uganda is still a low-income country, with a GDP per capita 40% below the sub-Saharan Africa average, its real GDP has been growing by around 6% annually over the last two decades. The IMF is predicting similar growth in the near future, which needs to be sustained to achieve Uganda’s development and poverty reduction goals, including attaining upper-middle-income status by 2040. To meet these ambitions, Uganda’s energy systems need to modernize and expand rapidly. This includes providing universal access to electricity and cleaner cooking by 2030, modernizing and diversifying Uganda’s energy mix, promoting its efficient use across all sectors to support industrial growth, poverty reduction, and socio-economic transformation, as well as ensuring secure and affordable energy supply, among other objectives.

Uganda needs to focus on developing its energy systems, as its electricity access rates are currently low at around 45%. Despite recent progress due to government programs, modern energy consumption per capita remains significantly lower than in advanced economies. Currently, 90% of the country’s final energy consumption comes from solid biomass such as firewood, charcoal, and bagasse used in buildings and industry. Before the Covid-19 pandemic, electricity access rates were improving at 5% annually. To achieve universal access to electricity by 2030, over 800,000 households would need to be connected each year. Kenya, Rwanda, Bangladesh, and India have achieved similar rates of progress in the past. The transition plan aims to reach around 45% of those without access through grid connections, leaving the majority of connections to off-grid systems by 2030. Extending electricity access to rural areas is crucial for modernization, improving economic productivity, access to information, and enabling a more decentralized economy. It can also power agricultural pumps and cold-chain infrastructure, improving agricultural production and connecting farming to commercial markets.

The power sector is crucial to Uganda’s energy systems, with all growth being met by low-emissions sources. By 2040, electricity will become the single largest source of energy consumed, reaching 56% of total final consumption by 2050. Currently, the grid is already 99% renewable, with only a small amount of oil-based generation used in critical situations. Low-emissions energy sources will maintain this share all the way through to 2050, even as generation grows nearly forty-fold. Solar power is the leading source of low-cost generation, with country-wide solar resources surpassing those of global leaders such as Spain. By 2050, hydro and geothermal resources combined will account for over one-quarter of generation and, along with battery storage, will play an important role in integrating solar and wind power.

Uganda will need to attract investment for energy and related plans, in line with power generation and electricity access. The country needs to prioritise and commit to significant annual investments of around USD 850 million per year if it is to achieve universal access to electricity by 2030, in line with UN Sustainable Development Goal 7 (SDG7). Achieving the investment needs requires the mobilisation of multiple sources of finance, therefore significant attention needs to be paid to attracting private institutions, especially to the power sector. Securing diverse streams of capital is needed given the investment scale but it also helps spread risks in a more balanced manner across players, reducing pressure on public finances and ensuring that energy services remain affordable for end users.

Across sub-Saharan Africa, the private sector accounts for just over half of energy investments by 2030. Currently in Uganda, the private sector is largely limited to the oil and gas sector in the energy system. Increasing the role of the private sector is key, given the much greater pool of finance available from these providers. This will be particularly true in the power sector where the bulk of investment needs are concentrated. Development finance institutions accounted for around 80% of power financing over the last ten years, whereas the private sector provided just 10% of capital, with the remainder coming from domestic state-owned enterprises.

Concessional support is essential for leveraging private finance in the energy sector across Africa. The International Energy Agency (IEA) estimates that nearly USD 30 billion of concessional finance will be needed to mobilize a total of USD 90 billion in private finance for energy-related investments by 2030. This funding is crucial for supporting pre-development activities, creating a pipeline of viable projects, and conducting feasibility studies and project preparation. Concessional support also helps to reduce project risks through instruments such as subordinated debt, equity, guarantees, and providing affordable capital for lending. Attracting concessional support requires strong partnerships with donors and international efforts to enhance climate finance flows from developed to developing nations, including through negotiated arrangements for climate finance, as seen in various Just Energy Transition Partnerships worldwide.

A recent trend is the increasing use of equity financing. Equity providers are willing to take on more risk than debt lenders, making this type of financing particularly important for newer firms or markets that are still in their early stages of development in Uganda. It’s crucial to increase the availability of equity to support the off-grid space, providing seed capital for start-ups and growth equity for the mini-grid sector. In emerging market and development economies, equity is generally in shorter supply, especially since Development Finance Institutions (DFIs), which play a dominant role in these markets, are more focused on debt. It’s essential to ensure that equity and debt are available at affordable rates to achieve the required investment levels and keep energy prices down, given the presence of cost-reflective tariffs.

It’s essential to consider the potential for increased involvement of domestic financial institutions and pan-African commercial banks. Currently, international companies and investors have been the primary players in the oil and gas sector, as well as in the power sector, representing about 90% of the investment over the last decade. However, it’s crucial to involve domestic capital in off-grid projects, where local small and medium-sized enterprises can contribute significantly if they have access to affordable debt from commercial banks. Additionally, institutional investors, such as the country’s growing pension funds, can provide long-term capital for large-scale projects or grids. Since domestic finance institutions are not very involved in the country’s energy sector at present, concessional funding can be used to provide support such as capacity building, on-lending facilities for commercial banks, and guarantee products for pension funds.