Ghana, a nation of 30 million people with an average income of only around $5 per day, is focused single-mindedly on creating prosperity for its citizens. Ghana has many of the elements in place to become a development success, including a ready workforce and access to regional markets.
So what’s holding the country back? Energy poverty—and misguided thinking about the way power drives economic development. Approaches popular among international finance and aid agencies are creating risks that Ghana and similar countries, representing at least three billion people worldwide, could become stuck in feel-good, small-bore approaches that cannot scale and cannot create prosperity.
By one measure, Ghana is nearing the finish line. Its national household electrification rate has hit 85 percent. Sometime in the very near future, that figure will approach 100 percent, and, at least according to the United Nations’ Sustainable Development Goals, Ghana will be declared a modern energy success.
Yet, at a recent workshop in Ghana’s capital Accra, there was little celebrating. Instead we heard about how employers in the country pay some of the world’s highest prices for power and suffer regular outages. The expensive and unreliable power system is having a direct effect on economic growth and job creation.
It wasn’t supposed to be this way. Energy investments were expected to undergird Ghana’s industrialization. Seventy years ago, the government partnered with the United States, the World Bank and the Kaiser corporation—in a deal signed by Presidents Kwame Nkrumah and John F. Kennedy—to build the Akosombo dam. The anchor customer was the Volta Aluminum Company (Valco), a large smelter to export alumina and become the backbone for local industry.
Today, Akosombo is still the single largest source of power for Ghana, but the lack of low-cost reliable power means that Valco is barely operating at just 20 percent of capacity, idling nearly 1,000 workers and destroying at least 50,000 downstream jobs. The problem is far more widespread than one idle industrial plant; the most recent World Bank enterprise survey reports that firms experienced an average of more than eight power outages per month. Recent tariff adjustments have put the price for industrial power at about $0.23 per kilowatt hour, among the highest rates in the world. It’s no wonder that the cost and reliability of power is a top constraint to job creation.
And yet, as Ghana plans for its long-term power needs, international financial institutions and aid agencies routinely insist on limiting its options for new energy projects. The country has abundant resources, including untapped hydro, wind, solar and plenty of new offshore gas. Yet, new project finance for large-scale hydro is almost impossible to secure except from China. And the World Bank and other donors are actively exiting the gas sector. This will leave countries like Ghana with a very narrow range of choices to power their future.
One fashionable suggestion is to prioritize small off-grid solutions. Ghana, it is often argued, could skip the grid, sidestep its indebted utility, and avoid the costs of big power plants by just generating power directly at peoples’ homes via small rooftop units or solar lanterns. These approaches work well for very rudimentary electricity, especially in remote places. But the evidence is clear that solar home systems and lanterns have no measurable effect on jobs or incomes.
Ghana’s dilemma is emblematic of how misunderstanding the energy and development challenge is creating real harm to millions of people. Myths about energy poverty are erecting roadblocks for emerging economies and preventing them from harnessing energy to build more prosperous societies. Worldwide, some three billion people live in places where the lack of reliable, affordable energy is a first order constraint to starting a business or finding a job. Here are five common myths that underpin these roadblocks:
Myth 1. Lights equal modern energy. Lighting is the most obvious use of electrical power. Lights are a potent symbol of technology, wisdom and even divinity. We even say “the lights went out” when we mean the power is off. But lighting is a small fraction of electricity use—just 8 percent in the United States—and shrinking every day as we transition to LEDs and more efficient technologies. Modern energy means energy at scale for telecommunications, food production, heating and cooling, data and virtually everything we use each day. If we only cared about lighting, everyone could live with a solar panel on their roof. But if we care about a prosperous competitive economy, then we need modern energy systems that deliver far more.
Myth 2. Energy access can solve energy poverty. The United Nations call for “modern energy for all” as a Sustainable Development Goal in 2015 was great news. Yet, the metric selected for success was basic electricity in every household. Every person deserves to have power at home. But this is not even close to the same as living in an economy with a modern reliable energy system. Indeed, residential electricity accounts for just 5 percent of global energy consumption. The rest of all that energy is used in industry, commerce and other ways that power economies and create jobs. It’s like declaring education is only about understanding basic grammar; it’s important but very far from what it means to be educated.
Myth 3. Emerging markets don’t need big power because they will leapfrog heavy industry. No economy has ever reached prosperity without industrialization, which also means very high energy consumption. Every single high-income country in the world uses at least 4,000 kilowatt-hours of electricity per person each year. The U.S. uses more than 12,000. Yet Ghana averages less than 500, while Nigeria is under 150 and Tanzania is less than 100. Even if these countries somehow skipped industrialization and jumped straight to a services economy, they would still need lots more cheap power to run all those office buildings, computers, data centers and air conditioners.
Even smartphones use far more energy than people think. Yes, they can be recharged with a small low-watt system, but charging is less than 1 percent of the energy needed for a smartphone to function. The other 99 percent is to build the phone and run the cell towers and data centers. Even a postindustrial services-based economy needs a high-energy future.
Myth 4. Climate change will affect Africans the most so they will have to consume less energy. Even though rich countries have generated most of the emissions that have caused climate change, poor countries will bear the brunt. Storms, heat and drought will all be far worse in Africa than in Europe or North America. But large quantities of energy will be needed for climate adaptation. Resilient infrastructure to survive extreme weather will be built with vast amounts of concrete and steel. Rising temperatures will spike demand for cold storage and air conditioning. Drought will require pumped irrigation for agriculture and desalination for clean water. All these technologies of climate adaptation are highly energy-intensive.
So, climate change means Africans will need more energy, not less. To try to deny African countries the energy they need isn’t a step forward; it’s penalizing Africans twice.
Myth 5. We already have all the technology we need. It’s an invigorating time to work on global energy, in part because things are changing so quickly. In addition to traditional power sources of coal, gas, and hydro, we now have low-cost solar and wind, geothermal, advanced nuclear, and many new applications for gas. New business models are enabling off-grid power for homes, mini-grids for remote communities and new payment systems for consumers. Remote sensors, satellites, geospatial analysis, big data and smart grids are fundamentally changing the energy sector, creating all kinds of exciting new opportunities to solve energy poverty. The urgency of addressing the dual challenges of energy poverty and climate change means we must deploy what’s available now.
But at the same time, we absolutely must keep investing heavily in R&D. It’s especially important that we focus innovation on the markets where most energy infrastructure will actually be built over the next two or three decades, which is mainly in Asia and Africa. That’s because we know that what works best in Los Angeles or London will not be exactly the same as what does in Nairobi or New Delhi.
Which takes us back to West Africa. Ghana is ramping up economic growth and poised to be a regional powerhouse. The government aims to leverage the country’s natural resources and human capital to build a prosperous fully employed society. This will require a modern power system that delivers low-cost reliable power using Ghana’s own natural gas, hydro and large-scale solar potential, while also exploring future options like advanced nuclear. To succeed, Ghana will need its international partners to shed these five myths, not remain stuck with romantic notions of pastoral African poverty or what it takes to truly end poverty in our lifetimes.