African electrical energy debate pits velocity in opposition to scale | USAEMALL.com

Welcome back. On Wednesday, ExxonMobil revealed plans to build its first commercial gas power plant to supply electricity directly to an artificial intelligence data centre. The oil major will face off with nuclear energy companies vying to serve Big Tech’s exploding appetite for electricity, at a time when US power demand is expected to surge 16 per cent over the next five years, according to a recent study.

This rush of electricity buildout in the US stands in contrast to much of sub-Saharan Africa, where energy supply has been failing to keep pace with population growth. A new World Bank initiative aims to tackle that — but its limited funding highlights trade-offs between economic growth models that emphasise household access to electricity, versus industrial power. Thanks for reading.

International development

What kind of electricity powers economic growth?

In 2022, the number of sub-Saharan Africans without electricity grew for the first time in more than a decade, a study by the International Energy Agency and others found, as population growth outpaced the expansion of energy access. It’s one signal that the push to “ensure access to affordable, reliable, sustainable and modern energy”, one of the UN’s sustainable development goals, is regressing in some of Africa’s fastest-growing nations.

The World Bank recently raised its ambitions to tackle this challenge, pledging $20bn to an effort to deliver electricity to an additional 250mn people in sub-Saharan Africa by the end of the decade. The bank has touted solar power projects that operate off-grid as “the most cost-effective way” to reach nearly half of the 660mn Africans who are expected to lack electricity in 2030.

But while the World Bank has publicly focused on solar as a low-cost way to give many African households the ability to turn on a light or charge a phone, some in African governments say investments in large-scale generation projects that will power industry are just as crucial. Critics of the World Bank’s approach said more support was needed for debt-laden utilities and transmission infrastructure. They warned that the current approach could short-change economic growth and job creation.

It’s a debate with big implications for the world’s least industrialised continent — as well as for investors in African energy.

Energy for job creation?

In the 1960s, the World Bank, the US and the UK financed the building of Ghana’s Akosombo Dam, a power plant that sits astride the Volta river as it crashes towards the Atlantic Ocean.

The project helped power the west African country’s growing aluminium industry, as well as steel production and the processing of products such as cocoa, which help more revenue from Ghana’s raw materials trade stay in the country. The dam continues to produce the cheapest electricity in the country, at four cents per KWH, according to Ishmael Ackah, executive secretary of Ghana’s Public Utilities Regulatory Commission.

To power the country’s manufacturing ambitions, Ghana should consider adding more hydropower, as well as gas-fired electricity and nuclear energy, Ackah told me. However, he said, because development banks are being pushed to integrate climate change into their mandates, “some of these arguments, especially for gas, have become difficult. So solar has been the focus.”

Nuclear financing in particular has been verboten at the Bank, though that may be changing, and it has faced pressure in more recent years to halt financing for new fossil fuel projects due to their carbon emissions.

Advocates of solar energy emphasise that it can be installed quickly to serve households in rural areas that lack transmission. Home solar power systems sold by fast-scaling companies including Sun King have brought electricity to millions of households.

“You can argue we should be more ambitious to get grid-connected access universally, but we’ve got to start somewhere,” said Sarah Malm, executive director of Gogla, an international off-grid solar industry association.

Plus, reforming debt-laden African utilities is a Herculean undertaking. Andy Herscowitz faced similar debates when he oversaw Power Africa, an Obama-era US government programme. He is now leading the Mission 300 Accelerator, which is backed by philanthropies including the Rockefeller Foundation, to support the World Bank target.

“We struggled with on-grid. Not because we didn’t want to do it, but because utilities themselves were struggling,” he said of Power Africa. The programme later faced criticism for overstating its impact, including by counting solar lanterns — which typically deliver a few watts of power — as electricity “connections”.

Everyone I interviewed emphasised that both off-grid and grid-connected solutions were necessary. Erik Fernstrom, who runs the World Bank’s energy program for eastern and southern Africa, said funding would be roughly split between grid and off-grid. “Every reasonable and least-cost [way] to reach people will be supported,” he said. “But we have seen that growth [in grid electricity] is very linear. It’s hard to exponentially increase utilities in Africa by connecting [power lines] and putting poles out.”

“Grid is so important, but it takes years,” Malm added. “No one says a solar lantern is all you get in perpetuity. It’s where you start. If you live in Kenya, you get a solar lantern, you get a phone, you get digital access, access to M-Pesa [payments system], all of a sudden, you’re able to pay for things. You’re already an entrepreneur at that point.”

But sceptics argue that the emphasis on individual initiative and entrepreneurship risks glossing over the most reliable path to growth and job creation: value-added manufacturing.

“Energy is a binding constraint to development goals. If we are to unleash economic growth at the rate that we need, we need abundant, reliable, affordable energy,” Olu Verheijen, special adviser to Nigeria’s President Bola Tinubu on energy, told me.

Mini-grids and off-grid solar can help power small businesses and make farms more efficient, Ackah said, but there is no substitute for reliable power for large industrial users, which create jobs and attract clusters of upstream and downstream industries.

“We want to be sure we are not just providing lighting to read and write, but to also industrialise, so that those who read and write and go to school get jobs after completing,” he said.

Smart reads

On the block UK ministers are preparing to hold the country’s biggest-ever renewable energy auction.

Metal moment Mining company Rio Tinto will invest $2.5bn in its first commercial-scale lithium production project.

On the slide BP’s paring of its green energy business is doing little to halt its share price decline.