Energy Transition: A historic opportunity for Africa

In depth
This article is part of the dossier: Africa must invest in Africa
Amir Ben Yahmed
By Amir Ben Yahmed

Managing Director of Jeune Afrique Media Group and Chairman of the Africa CEO Forum

Posted on Friday, 10 June 2022 11:29

A worker walks past a dome holding liquefied natural gas, on the vessel KARMOL LNGT Powership Asia, one of 37 floating storage and regasification units (FSRU) in the world, as it docks at the Cape Town port en route to Brazil, in Cape Town, South Africa, April 19, 2022. REUTERS/Shelley Christians

A radical change has taken place during the last few months within the old debate surrounding natural gas.

Only last November, gas was on its way to being banned, with many voices calling for the reduction of subsidies granted to its production during the COP26 climate forum. Three months later, in early February, the European Commission enthroned gas, which emits half the greenhouse gases of coal and 30% less than oil, as a “transition energy”, and labelled it as “green” for the purpose of gas-fired power plant investments under certain conditions.

Three weeks later, Russia launched a large-scale invasion of Ukraine, drawing condemnations from across the world and destabilising energy markets. With Russia providing 40% of the EU’s gas needs, the energy source found itself at the centre of diplomatic wranglings, fueled by Moscow’s repeated threats to shut off the supply.

European countries reacted differently to the looming threat.

A varied response

While Germany experienced weeks of domestic political turmoil over their dependence on Russia, Italy was quicker to react, immediately looking southwards for an alternative to eastern gas. The Mediterranean nation, which takes 45% of its gas from Russia, already signed supply agreements with Algeria, Egypt, the Republic of Congo, and Angola in an attempt to curb that amount.

Gas financing, which had become scarce in recent years, is suddenly finding its way back to Africa. Even before this reversal, a study by the Norwegian firm Rystad Energy published last February estimated that the continent, whose coasts are rich in natural gas deposits, could see its production double from 1.3 million to 2.7 million barrels of oil equivalent by 2030.

The European U-turn on gas holds great promise for Africa but also serves as a greater reminder of the potential the continent holds in the process of energy transition and the fight against climate change. Its main advantage consists of mining resources like cobalt, copper, graphite, nickel, aluminium or lithium, which form the basic elements of a notably metal-hungry energy transition. A solar power plant requires three times more metal than a gas turbine to produce one terawatt of electricity, while a wind farm uses four times more. From Guinea to Tanzania, Gabon, South Africa and Zambia, these “green” metals, which are also essential components in manufacturing batteries for electric vehicles, are present in abundance.

Best foot forward

Then there is its potential for hydrogen production. Reasonable land costs, sunshine, and proximity to Europe with its growing demand should in theory allow it to provide large-scale hydrogen production at a competitive price. There are already a dozen green hydrogen projects currently in development in countries like Egypt, Namibia and Mauritania. Admittedly, hydrogen is still years away from becoming a profitable and sufficient energy vector, but it is a new window that is opening.

These new venues are not, however, the “new paths to African prosperity” that organisations like the Africa CEO Forum are calling for. While this promised windfall is good news at the end of a period that has strongly affected the continent’s public finances, Africa must not repeat the mistakes of the past in betting its future on raw materials. The global market for electric vehicles, which is particularly hungry for cobalt, could represent more than $1.3 trillion by 2030, just under a third of the GDP of Africa as a whole in 2021. Governments and economic leaders must seize the opportunity of this emerging industry and consider the best strategy to capture part of this added value on African soil. While ambitious, such a plan is far from being impossible.

According to UNECA, producing batteries in the DRC would cost 30% less than in the United States, and 20% less than in China. South Africa and Morocco have already embarked on the production of electric vehicles. According to different estimates, Africa would need more than 2 million trucks to make the African Continental Free Trade Area (AfCFTA) effective. “Why wouldn’t these trucks be electric trucks produced in Africa?” recently wondered Dr Vera Songwe, Secretary-General of UNECA. Similarly, the strong comeback of African gas in global politics must serve the electrification of the continent. African leaders can now ensure that this local dimension exists in gas projects; rather than committing to projects that ignore the socio-economic impact, international financiers could grant preferential conditions to more virtuous ambitions.

Finally, Africa must defend its interests and make its voice heard to fight against the establishment in Europe and the United States of new tariff barriers in the name of the environment. These protectionist strategies, which are seen by some in Brussels and Washington as easy ways to clear the Western conscience, only serve to hamper the investment capacity of African companies and make the transition even more difficult.

“Historic chance”

In these battles, the development of infrastructure essential to the emergence of regional markets of sufficient size will be key. Resolute and continuous political leadership will also be essential. In a recent development on this front, the DRC and Zambia signed a cooperation agreement this April which seeks to facilitate the development of the value chain of electric batteries on their soil.

This global green transition is a multifaceted, generational opportunity for Africa, a historic chance. Its mineral, gas, renewable energy, green hydrogen and forest heritage resources must contribute to the industrial transformation that it has not yet successfully achieved. The process should continue to accelerate, driven in part by the increased accessibility of cutting-edge technological breakthroughs available throughout the world.

COP27 will take place next November in Cairo and presents itself as a perfect opportunity for the continent to move forward in this direction and help reconcile energy transition and economic transformation. It is up to the continent, particularly its pan-African investors and national champions, to strike a delicate balance: making green transformation a source of growth and industrial transformation, and making its deposits the source of local and regional development. After two years of a pandemic that has unsettled economies, and while a raging war brought economic sovereignty back to centre stage, the continent’s ambition to create new paths to prosperity is strong.

 

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