Sorry, Mr. Obama, Africa needs coal

Africa faces a dilemma: It's vulnerable to climate change but needs coal to grow robustly. So which way are Africans going?

Africa is the kind of place that makes power companies rub their hands with glee. Economies there have grown steadily, an average 6 percent per year, even though nearly half of the continent’s 1.2 billion people have no electricity. Just think what a little power would do for growth – and the business opportunities for providing that power!

“If you are in the power generation business, [Africa] sounds pretty attractive,” said Jeffrey Immelt, General Electric’s chief executive, at a conference in Washington last week on African power. GE plans to plow $2 billion into the continent by 2018.

But there’s a hitch. For Africa to reach its growth potential, it will need coal. Because of climate concerns, President Obama has stopped US government financing of overseas coal projects that don’t include carbon capture. That pushes Africa into the middle of an ongoing debate: Is development or climate more important? Africans need the first and they’re vulnerable to the effects of the second (especially drought).

“Climate change is real and Africa stands to suffer the most from this,” said John Dramani Mahama, president of Ghana, at last week’s conference. “We are looking for power from a multiplicity of sources. Yes, we have some plans to develop coal.”

“We need 20-times more power than we have today,” said Ashish Thakkar, chief executive of the Mara Group, an African conglomerate.

Mr. Obama’s new Power Africa Initiative commits the US to spend more than $7 billion over the next five years to add more than 10,000 megawatts of cleaner electricity generation. In its first phase, it will work with  six countries: Ethiopia, Ghana, Kenya, Liberia, Nigeria, and Tanzania. But meeting the continent’s overall demand with renewable energy alone, or perhaps in conjunction with natural gas, will be difficult.

“If we say no coal and no nuclear, then we are not serious,” says Jim Yong Kim, president of the World Bank. “We know that intermittent energy [alone] will not lead to economic development. We have made a clear commitment to battle climate change. [But we are also] serious about African access to energy. In certain places where the only option is coal, we have to look at that.”

Just this month, the World Bank committed $5 billion in technical and financial support for the six African countries. In fiscal 2013, the bank approved $8.2 billion for 95 projects in Africa, with energy and mining accounting for a sizable share of that. The bank says that it is committed to financing more sustainable energy deals, although it will consider fossil-fueled projects that use best available technologies.

That stance puts it at odds with the Obama administration. In 2010, for example, the World Bank approved a $3.75 billion loan to build a coal plant in South Africa that was highly efficient but didn’t include carbon capture. While the United States voiced concerns over the loan, it abstained from voting. In the end, bank officials agreed to the deal.

The US government’s stance on coal may become less relevant, however, since many African nations are wooing investment from private energy firms. Governments are reforming their economies by shedding state controls and opening borders. In the case of Ghana, it means trimming the national debt, reducing government subsidies and increasing revenue collections tied to utilities.

“We have seen growth of 6 percent,” said Sospeter Muhongo, energy minister for Tanzania. “We want to move to 8 to 9 percent. To do that, we have to factor in population growth. We will use natural gas. We will use coal.”