A new analysis offers creative ideas for African nations to increase investment necessary to meet the continent’s energy and climate goals.
According to a recent report from the International Energy Agency (IEA) and the African Development Bank Group (AFDB), immediate action is required to enhance access to credit and reduce financing costs. At a special event held as part of the Africa Climate Summit in Nairobi today, the study was introduced by IEA Executive Director Fatih Birol and AFDB President Akinwumi Adesina.
Despite having about 20% of the world’s population and abundant resources, Africa receives only around 2% of global renewable energy spending. Overall energy investment on the continent has suffered in recent years, despite the fact that it has to more than quadruple by 2030 to satisfy African economic aims, as well as international energy access and climate goals, with nearly two-thirds going to clean energy.
A variety of real and perceived hazards affecting African projects, as well as rising borrowing prices as a result of the Covid-19 outbreak and Russia’s war in Ukraine, indicate that there is a limited pool of inexpensive funding available to African energy companies. The cost of finance for utility-scale clean energy projects on the continent is at least two to three times higher than in advanced economies, according to the report Financing Clean Energy in Africa. This discourages developers from pursuing economically viable initiatives that provide affordable energy alternatives.
Based on an examination of more than 85 case studies from around Africa and more than 40 interviews with key stakeholders, the report explores innovative approaches to addressing this dilemma. Lowering the cost of capital and promoting the development of investable enterprises will necessitate the expansion of a variety of instruments. In order to attract private money, these include providing more early-stage financing and making more use of instruments that might minimise perceived investment risks. This will necessitate active participation from both the public and commercial sectors, as well as the backing of international and domestic institutions.
“Urgent action is required to dramatically increase clean energy investment in Africa, which has fallen short despite enormous opportunities,” said Kenyan President William Ruto. “However, this report is more than just a list of Africa’s problems.” Instead, it is an uplifting monument to our continent’s innovative spirit, with a diverse range of solutions emerging from Africa’s enterprising minds.”
“Africa has enormous clean energy potential, including a vast amount of high-quality renewable resources.” However, the tough financing environment means that many transformative initiatives will not be able to get off the ground,” stated IEA Executive Director Fatih Birol. “This report, which builds on the IEA’s landmark Africa Energy Outlook 2022, shows what is needed to lower barriers to investment, allowing African countries to tap accessible and affordable solutions to match their clean energy ambitions.”
“The current shortfall in clean energy investment in Africa puts at risk the achievement of a host of sustainable development goals and could open new dividing lines in energy and climate as clean energy transitions gather speed in advanced economies,” said AfDB President Akinwumi Adesina. “This report, which makes a compelling case for Africa to receive a bigger share of global climate financing, serves as an informative tool for policymakers in Africa, while best practice cases from the African Development Bank provide valuable insights for developers and capital providers.”
The report’s analysis is based on the IEA’s Africa Energy Outlook 2022 report’s Sustainable Africa Scenario. This scenario takes into account the various needs of different African countries and industries and puts out a plan to meet all African energy-related development goals. This covers the UN Sustainable Development Goals, such as universal access to modern energy by 2030, as well as meeting all previously declared climate targets in full and on time.
Delivering modern energy to all Africans will cost almost USD 25 billion per year until 2030, according to the analysis. This is a minor sum in the context of global energy spending, about similar to the investment required to construct one new LNG terminal each year. However, given the requirement for small-scale projects, frequently in rural regions, and consumers with limited financial means, it necessitates a fundamentally different sort of financing.
The international community can play a significant role in increasing clean energy investment in Africa. According to the paper, concessional finance – or assistance from development finance institutions and donors – can act as a critical catalyst. It concludes that about USD 28 billion in concessional capital is required each year to mobilise USD 90 billion in private sector investment by 2030, a more than tenfold increase from now.
