Africa’s new energy projects will help boost the continent’s economic development, as well as its transition to cleaner energy, writes Kwaku Boakye-Adjei.
Kwaku Boakye Adjei is a director of the Tema LNG Terminal Company.
Africa’s transition to cleaner energy has been accelerating over the last decade as the continent ramps up its production capacity to match its ever-growing needs. With strong demand expected to continue rising, driven by population growth, increasing urbanisation, industrialisation and trade, Africa’s new energy projects are a vital part of the global battle against climate change.
However, the impact of COVID-19 on the global economy has brought Africa’s switch from fossil fuels to renewables into sharp focus. A study by the University of Oxford published this month showed that Africa is highly unlikely to meet its ambitious targets for the use of renewables, which are now only expected to account for less than 10% of Africa’s energy generation by 2030.
In particular, countries are struggling to meet their own state budgets, let alone fund renewables projects that have high start-up costs.
More than ever before, governments must now seek to balance environmental concerns with the requirement to stimulate struggling economies quickly. Countries across the continent face a battle to match the needs and standards of living expected by increasingly power-hungry and globally-connected populations.
Africa’s economic development remains hampered by the problems of the power sector. According to the UNDP, over 600 million Africans did not have access to electricity in 2018, and those that do often have an unreliable, irregular and expensive supply of power.
Families are forced to rely on traditional and heavily polluting fuels for domestic energy, like diesel, charcoal and wood. Investors are deterred from entering markets, concerned that irregular power will damage returns.
With 52 out of 55 African Union nations committed to addressing climate through the ratification of the Paris Agreement, Africa does not and should not need to sacrifice economic development on the altar of environmental impact.
Natural gas is able to overcome many of these challenges and must be an integral part of Africa’s energy future. Found in abundance throughout the continent, which holds roughly 7% of the world’s reserves, gas represents a cost-effective and environmentally-friendly way to both meet Africa’s current energy needs and act as a pathway to renewables.
The Tema LNG terminal in Ghana, sub-Saharan Africa’s first LNG receiving facility, is part of this solution. When it comes online in March 2021, it will receive, regasify, store and deliver roughly 1.7 million tonnes of LNG a year – 30% of Ghana’s general capacity.
The facility will connect Ghana to a year-round reliable global supply of cheap energy that displaces environmentally damaging fuels and provides stability to a host of users, whether major industrial businesses or domestic consumers.
As well as direct economic benefits from the low cost of LNG, Ghana has also now positioned itself as the LNG hub for West Africa.
Other countries across Africa would do well to emulate Ghana’s lead, where investors are willing to commit to major infrastructure projects thanks to sound decision-making and policy formation built on a stable economy and the strong rule of law.
When other fundamentals such as high demand are present – as they are throughout Africa almost without exception – it is up to the state to demonstrate the business case for transformative infrastructure projects.
However, even well-intentioned, hugely beneficial projects struggle to get off the ground. Projects in developing nations in Africa are often held to environmental, social and governance (ESG) standards expected of those in well-developed, ‘Western’ countries, meaning that investment that could have a significant developmental impact grinds to a halt.
This is unacceptable and only increases the divide between the richest and poorest countries, and forces Africa to look to alternative sources of finance like China.
It is neither desirable nor practical to restrict the development of a continent when such an important source of clean and cheap energy is so readily available.
Environmentalists, and especially ESG professionals at financial institutions providing finance to Africa-focused companies, must accept the role that gas can play in creating a sustainable energy environment in Africa.