African energy projects at risk as financiers keep off
By Mathew Ndungu, August 14, 2024Deprived of energy financing deals, Kenya and many African countries are missing out on a key pillar of social development as lenders withhold support for this essential commodity.
Experts warn that this has exacerbated poverty, inequality, youth unemployment, and climate change in these regions, further straining already fragile economies.
The ongoing energy crisis has highlighted the urgent need to rethink financing strategies in the region and the potential benefits of scaling up cheaper, cleaner energy sources. However, many African governments including Kenya still rely on fossil fuels as a cost-effective solution to alleviate energy poverty, and boost state revenues.
This comes at a time when President William Ruto has been vocal about the underfunding of Africa’s renewable energy development, calling for changes in the global financial architecture.
Ruto has noted that while 2023 saw the largest increase in renewable energy capacity globally—adding about 500 gigawatts with new investments worth $600 billion—Africa fared poorly, managing only three gigawatts of the global increase despite possessing the highest untapped renewable energy reserves in the world.
The increasing pressure on financial institutions to cut funding for high-carbon projects has created uncertainty about the future of Africa’s energy sector.
According to the African Energy Chamber (AEC), several Western banks and financial institutions are responsible for implementing policies that reduce support for fossil fuel projects in Kenya and neighbouring countries.
AEC Executive Chairman NJ Ayuk has criticised these institutions, stating, “As the international community moves to boycott investments in the African energy sector, African people and African development stand to suffer.”
The reduction in energy financing has led to a significant decline in investment in the region’s oil and gas industry, a sector crucial for its economic future and energy needs. The AEC has accused these institutions of practicing “financial apartheid,” arguing that while similar projects receive support in Europe, Africa’s high-cost energy projects are being neglected.
Ruto emphasised that Africa, which has the world’s greatest renewable energy potential and highest demand, currently accounts for only 1.6 per cent of the world’s total renewable energy capacity. He highlighted that Africa offers significant opportunities for wealthy investors from the Global North in clean energy, presenting a win-win outcome for both investors and the continent.
Green power generation
He also noted that African leaders, through the Nairobi Declaration, have set a target to increase the continent’s green power generation fivefold from 56 GW in 2022 to at least 300 GW by 2030.
Kenya has made significant progress in renewable and clean energy, with the country’s power grid being 93 percent green. The country has ambitious plans to expand its current grid from 3 GW to 100 GW by 2040, a goal that Ruto believes is realistic given Kenya’s abundant renewable energy potential. However, the decline in investment is already having noticeable effects, worsened by global shifts towards cleaner energy and the prioritization of environmental, social, and governance (ESG) practices.
The International Energy Agency (IEA) has added to these challenges by calling for an end to funding for oil and gas projects, highlighting a disparity. While natural gas is considered a ‘green’ energy source in Europe, it does not receive the same support in Africa. Ayuk criticised the IEA, stating: “The IEA has lost its relevance and its authority.”
Several key African energy projects are at risk due to the withdrawal of financial support. Major initiatives like TotalEnergies’ Mozambique LNG project, ExxonMobil’s Rovuma LNG project, Nigeria’s Train 7 LNG expansion, Senegal’s Sangomar oil field, Uganda’s Tilenga project, and the East African Crude Oil Pipeline (EACOP) require substantial financing to move forward.
Despite these setbacks, some projects are progressing. TotalEnergies is advancing its $20 billion Mozambique LNG project, aiming to develop the Golfinho and Atum fields with a production capacity of 12.88 million tonnes per year. Eni’s Coral South FLNG project in Mozambique has achieved a production capacity of 3.4 million tonnes per year.