We have not yet given the full extent of the economic damage, but we know that the impact of the war on energy prices and supply uncertainty is already there. This “tax” on the world will ultimately result in slower economic growth and soaring lighting and heating costs. Food production will become more expensive; the poorest will therefore have to choose between the basic necessities of food, heating and lighting.
All of this would be avoided were it not for the global reliance on fossil fuels supplied by a handful of unstable countries.
The effects of energy scarcity and rising prices will be felt everywhere, but they will be felt most deeply in Africa and in all developing markets that lack access to reliable and affordable energy. These markets rely heavily on already expensive fossil fuels like diesel and kerosene to power their homes and businesses.
Unfortunately, people living in the African, Asian, and Latin American markets I refer to are already paying some of the highest rates in the world for a painful, intermittent power source.
In addition, the inhabitants of these countries can pay up to 20% of their income in energy costs. We are now asking them to pay exponentially more in a world where the energy freedom brought by alternatives to carbon-based energy sources is just trying to catch up. It is untenable.
As I write this, the benchmark Brent Crude price is $102 from around $80 at the start of 2022. It peaked around $123 in March 2022. a significant increase, this greatly obscures the impact it is having on developing markets.
In Nigeria, for example, market prices for diesel have risen from 275 naira per liter in January to nearly 600 naira per liter today, peaking at over 700 naira. During my visit to Abuja, the capital of Nigeria, last month, I saw long queues at gas stations which reminded me very much of the gas crisis in the United States of 1973, where my father and I would sit for hours waiting to fill up.
The people of Nigeria, heavily dependent on diesel generators, already paying a significant percentage of their income in energy costs, have just seen their energy bills increase by two to three times. This backdrop is playing out across the world and impacting the peoples of the world who do not have the necessary resources.
We know it will take some time. Announcements banning Russian oil and gas – now or in the near future – are plentiful from the US, UK and EU. The EU is seeking to reduce its heavy reliance on Russian gas by 80% by winter this year. We also know that we will get through this episode, that prices will stabilize and that at some point in the future everything will repeat itself.
It is important not to ban fossil fuels. We may even have to become more dependent on them in the short term to manage these extraordinary events. It is in the longer term that we must adopt the combination of renewable energies and distributed energy as a means of energy independence. Strengthen the resilience of the global energy system and reduce our exposure to events such as the war in Ukraine.
Of all the great things delivered by distributed renewables, including cost reductions through solar generation, reduced carbon emissions through the inclusion of renewables, it’s actually energy independence that the world needs so much today and tomorrow.
To be overly dependent on one provider would be unwise, especially if that provider is volatile and potentially hostile. Conversely, a balance between various energy sources, both domestically and internationally, is more stable and predictable. A relatively peaceful world, free of energy-threatening wars, allows economic growth to lift the poorest out of poverty. But if wars cannot be avoided, we should at least ensure that energy supplies are not interrupted.
Seeking to diffuse indigenous energy production via renewables was once seen as the way to combat future climate change – now it can be seen additionally as a way to achieve energy independence.
Written by Bill Lenihan, CEO of ZOLA Electric
*Views expressed in this article are those of a Business Insider Africa contributor. It does not represent the views of the Business Insider Africa organization.
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