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A new mega energy project pinpoints Africa's climate challenge
Will political leaders grab specific opportunities to go beyond ambitious speeches and show real-world results?
Green Rising
October 05, 2023
Hello - thanks for your interest in our coverage of the Africa's green economy. This week we follow the trajectory of climate action from words to deeds. Impending government decisions on renewable power and carbon markets will impact not just the continent's progress but perhaps its credibility. Time for follow-through. See above… South African president Cyril Ramaphosa taking action (thanks to AI).
⏳ Today’s reading time: 4 mins
LOGISTICS UPDATE | Thursday 05 October
📅 Next: Middle East and North Africa Climate Week (Oct 8-12)
🏦 Once more: The annual shindig of the IMF in Marrakech (Oct 9-15)
⚡ Even more: Green Energy Summit in Cape Town (Oct 10-11)
AND FYI…
🌱 Reading material: Africa AgriFoodTech Investment Report 2023
📢 Job announcement: CAP-A picks a board chair, Yemi Osinbajo
🌿 Job Opportunity: Apply for a position at Koko Networks
1. Bold renewables plan or puffy fantasy?
The energy community scratched its collective head this week when news broke of a new wind farm three times bigger than anything currently run in Africa.
The news: Parastatal KenGen will build a 1,000 megawatt (MW) facility in northern Kenya's Marsabit county, so reported Bloomberg, calling it "Africa's biggest wind farm".
Expected completion date is 2028.
To be funded by 75% debt and 25% equity.
By comparison: It’s big indeed (also see chart above).
Total African wind power capacity is just 6,500 MW.
Africa’s currently biggest farm (Turkana in Kenya) produces 300 MW.
Egypt has plans for a 500 MW facility, by far its biggest.
Why it matters: Renewables have struggled with government support. So the move by KenGen could signal a new era, given its state links.
Kenya’s government has so far failed to issue new power purchase agreements (PPA).
Even completed projects such as the Menengai geothermal plant can't get online.
Industry reaction: Renewables insiders speaking to Green Rising were skeptical:
“This is hot air”
“Not happening any time soon”
“We’ve heard this before”
Obstacle course: There are doubts beyond thin government support.
Struggling KenGen is seen as unlikely to raise $250 million or more in equity needed to fund the Marsabit farm.
It usually takes a decade to build a 1,000-MW facility, making 2028 completion unlikely.
Okay, but: The project is still possible – with political will. Egypt has got large plants on the grid in five years.
The agenda: Kenya aims for 100% renewable energy by 2030 (currently 92%).
Wind makes up only 15-20%, yet the potential is undoubted.
Why now: Wind farming economics have improved.
Cost per MW / h is expected to drop from $48 in 2019 to $30 in 2030.
Better energy storage makes unreliable generation less problematic.
Why them: Established in 1954, KenGen is older than the Kenyan state, which owns 70%.
The parastatal has strong relationships with large international funders.
The impact: Progress in agriculture, carbon markets and electric vehicles matters a great deal for Africa's climate. But renewable energy is hardest and most important. Why?
It has the greatest multiplier effect, boosting many other industries.
It has the most entrenched interests - see Eskom in South Africa.
It needs the largest amounts of capital compared to other climate sectors.
Marsabit test: Whether the new mega wind farm gets built will say a lot about African climate action.
2. How to tax carbon markets without killing them
Investors and developers are nervously watching momentum towards substantial taxation of African carbon ventures. Government decisions could boost or doom the sector.
The news: Kenya plans to impose a 25% tax on carbon credit revenues. Other African countries are on a similar path.
Why it matters: Percentages are important, but what is being taxed matters even more. Revenue taxes impact ventures differently than profit taxes.
The governments' side: The argument for taxing revenues is based on a pragmatic approach. It focuses on:
Urgency: Carbon developers may take years to become profitable but African treasuries need income now to fund infrastructure and skilling.
Transparency: Many developers are incorporated outside Africa, making it hard for tax authorities to judge profitability and hold payers to account.
What they say: Proponents of taxing revenues point out that:
Royalties in the mining and hydrocarbon sector often work similar to a revenue tax.
Earmarking of revenue taxes for green purposes would benefit all including investors.
Why not: Opponents of taxing revenues also reason pragmatically. They point out:
Taxing profits would mean sharing risk with the state, making investment more likely.
Revenue taxes change the basic economics of carbon ventures, making many outright unattractive for investors.
The most vulnerable projects often happen to be the ones with the greatest benefits for local communities thanks to ongoing investment in local services.
A warning: Investors and developers are hardly disinterested observers. Still, they are adamant that revenue taxes are counter-productive. "We'll simply go elsewhere," one said.
Stepping back: Both sides of the debate have legitimate interests that need to be satisfied for African carbon markets to work well in the long term.
Governments do need cash sooner rather than later and should ensure that transactions boost their treasuries continuously.
Developers are right to say that ensuring solid economics and a measure of risk-sharing with official partners would boost investment.
Towards a solution: Compromise is messy but seemingly unavoidable. Some pointers:
Governments could make a amount of revenue tax-free for a certain period or up to a certain level, relying on a profit tax in the startup phase.
Carbon developers may be offered better terms if they agree to increased transparency vis-a-vis local tax authorities.
Having variable tax rates rather than a single bracket would boost the economics of marginal projects while growing the tax take.
3. Q&A: Climate leaders with answers
Credit: Alliance Bioversity & CIAT
Suzanne Ngo-Eyok is a Senior Vice President at Conservation International
Q: What art best captures Africa’s climate crisis? A: Crude pottery. The aridity of the land comes through… cooked by fire. I recommend the work of Etiye Dimma Poulsen.
Q: What African country should outsiders visit to learn about climate? A: Cameroon, my motherland, is called “L’Afrique en miniature” (“a model of Africa“). All the African ecosystems can be observed as well as the adverse effects of climate change.
Q: What climate action have you taken recently? A: Banning single-use plastic from my life.
Q: What is your earliest conscious memory of the climate crisis? A: The rising temperature in Yaoundé. When I was a child, it was chilly at night. People never used AC in their house. Now Yaounde is hot and sticky.
Q: Who are your climate role models? A: Young African activists such as Elizabeth Wathuti who are putting themselves out there.
4. Media monitoring
Women in focus: The World Bank and USAID have new funds and programmes to empower women amid climate change in Africa.
Timely move: Ahead of its annual meeting in Marrakech, the IMF approves $1.32 billion for climate resilience in Morocco.
COP28 cheat sheet: The AfDB has issued its country reports on climate change financing needs. The Rockefeller foundation calls for African climate solutions.
Carbon credits: The UAE inked a $1.5 billion carbon deal in Zimbabwe, fitting in with growing global interest in Africa’s carbon markets.
Oil wrath: Four environmental groups are suing TotalEnergies, alleging "climaticide" over a project in Tanzania and Uganda.
Don’t have time to read 100+ media sources every day? We’ve done the reading for you. Check out our full media monitoring here
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Thanks to the Green Rising team for putting this together.