Capital barriers in Africa could ‘fracture’ the energy transition #NewsMarket

Good morning, and welcome back to Energy Source, coming to you from Wallingford, Connecticut, where Norwegian manufacturer Nel just opened its expanded factory for electrolysers to produce green hydrogen. The advancement arrives as the US hydrogen sector has largely come to a standstill due to muted demand and uncertain tax credit rules.

The Financial Times has a story out this morning on Chinese electric vehicle and self-driving start-ups turning to the market to raise cash. Horizon Robotics began trading today, raising $696mn in its initial public offering, Hong Kong’s largest so far this year. The listing comes as financing for start-ups in smart car technologies dries up.

Today’s newsletter dives into the capital barriers stalling Africa’s energy transition. Our second item is an interview with shale magnate Harold Hamm, a prominent donor to Donald Trump’s presidential campaign. He spoke about what a Trump victory would mean for US energy and democracy.

Thanks for reading,

Amanda

Lack of affordable financing threatens Africa’s energy transition

Africa’s energy transition is a story of abundance and scarcity. The continent is home to the world’s best solar and wind resources but makes up only 1 per cent of global installed capacity and 2 per cent of clean energy spending. Meanwhile, more than 600mn of its people lack access to power, a number that has increased in recent years, according to the International Energy Agency.

A critical bottleneck: lack of affordable financing. African countries pay double or triple the cost for capital compared with developed countries such as the US and Japan, making it difficult to attract much-needed investment for renewables. The IEA warned earlier this year that private sector spending must more than double by the end of the decade to meet the continent’s energy needs.

“The cost of capital has implications for where we are going to fund investments,” said Lily Odarno, the Africa director of energy and climate innovation at the Clean Air Task Force, an environmental non-profit. “The biggest losers here will be, on the clean energy side, where you have higher upfront costs.”

The problem is compounded by the lack of data on the affordability of capital across African countries, which can lead to higher than expected costs and worsen the debt burden.

CATF released a report this morning showing in detail for the first time the variation in the rate of return investors require to finance a new project. The report, seen first by Energy Source, found that the weighted average cost of capital was 18 per cent across the African continent, falling to 13 per cent by 2070.

Investment costs were much higher in east and west Africa compared with north Africa. While the cost of capital averaged 12 per cent last year in Libya, it was almost 25 per cent in Malawi.

The current design of private financing, which prioritises locations with lower investment costs, could exacerbate disparities on the continent, the CATF authors warn. At the 2021 UN COP26 climate summit, rich nations promised to double funding for climate adaptations in developing countries by 2025 after having missed their 2020 target of providing $100bn a year.

“We are going to end up with a very fractured transition and an unequal transition,” said Odarno. “At the highest level, it’s important for us to keep in mind that historically, the structure for the disbursement of climate finance has really not been equitable, and we do stand the risk of deepening those inequities even more and deepening the debt burdens of countries as well.”

The report’s authors emphasise the importance of economic development, which if successful can bring down the cost of financing, as well as greater collaboration between governments, the financial sector and multilateral institutions. They recommend new instruments to encourage African investment, including mandatory offtake agreements and government debt guarantees. (Amanda Chu and Aanu Adeoye)

US democracy ‘would be safe’ under Trump, says shale boss

With just days to go before the US election, the FT held a summit this week on the energy transition, where delegates and attendees talked about what a Donald Trump presidency would mean for the sector.

One prominent speaker at the conference who probably knows more than most about the direction of a future Republican administration was Harold Hamm, the shale oil magnate and prominent Trump donor. He has put about $3mn into Trump’s campaign and helped co-ordinate fundraising activities by the oil industry on behalf of the former president.

Hamm has been a vocal critic of the Biden administration’s energy policies, particularly its restrictions on offshore oil leasing, pause of approvals for new liquefied natural gas facilities and releases from the strategic petroleum reserve following Russia’s full-scale invasion of Ukraine. He argues record oil production over the past four years was achieved due to the platform laid by the former Trump presidency, rather than by Biden.

Hamm told the conference he has no plans to join a future Trump administration as energy secretary, instead naming North Dakota governor Doug Burgum or Chris Wright, the founder and chief executive of Liberty Energy, as strong candidates.

It is worth noting that Hamm, who backed Trump in 2016 and 2020, briefly cooled on his 2024 presidential pick last year when he urged him to end the “division and chaos” and retire. But when Trump won the Republican nomination, Hamm swung back in support of Trump, who has placed energy policy at the centre of his campaign.

Asked whether he had concerns about Trump’s refusal to accept the results of the 2020 election or the former president’s role in the January 6 2021 attack on the Capitol, Hamm replied that American democracy “would be safe” under the Republican’s leadership.

Hamm, who is founder and executive chair of Continental Resources, also hit out on European politicians and companies that he said had prematurely sought to transition away from fossil fuels without considering energy security.

“When you have to shut down your manufacturing because you don’t have enough energy, that’s a huge problem,” Hamm said, adding that some European governments had “bet on the wrong horse”.

He was also dismissive of European rivals such as BP, which had sought to transition away from fossil fuels and are now rapidly reversing course. It is perilous for oil companies to back away from everything they know well and this backfired on a lot of them, said Hamm.

“We’ve seen some companies that jump totally into it, like BP . . . and then realise that, whoa, it wasn’t just ‘Beyond Petroleum’, it is beyond profit,” he said, referring to the company’s early 2000s slogan. “It was beyond a lot of good things that they needed for their investors to stay with them, and so now BP means ‘back to petroleum’.” (Jamie Smyth)

Power Points

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.