According to a new report published by the International Energy Agency (IEA) and the African Development Bank (AfDB), in order to unlock a wave of clean energy spending in the continent, rapid action is required to improve access to capital and ease financing costs
Fatih Birol, IEA executive director, and Akinwumi Adesina, AfDB president, launched the Financing Clean Energy in Africa report at the Africa Climate Summit, which is running from 4-6 September in Kenya.
“The African continent has huge clean energy potential, including a massive amount of high-quality renewable resources. But the difficult backdrop for financing means many transformative projects can’t get off the ground,” remarked 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.”
According to IEA, even though the continent accounts for nearly 20% of the world’s population and has access to enormous resources, only 2% of global clean energy spending is directed towards it with overall energy investment significantly struggling in recent years. To meet Africa’s development ambitions, international energy access, climate goals, and to fulfil its renewables potential, this investment needs to more than double by 2030, with two-thirds going to clean energy.
Funding has been restricted by a range of problems raising perceived risk such as the war in Europe and higher borrowing costs following the pandemic so that the cost of capital for utility-scale clean energy projects in the region is at least two to three times higher than in advanced economies.
Based on a review of 85+ case studies, the report explores ways to address these issues to help lower the cost of capital and support the creation of investable projects. To do this, a range of instruments needs to be scaled up including the provision of more early-stage financing and the greater use of tolls that can reduce perceived investment risks in order to attract private capital. IEA states this will require the engagement from both public and private sectors as well as support from foreign and domestic institutions.
“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,” surmised 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.”
According to the report, nearly US$25bn is required in spending per year to 2030 in order to deliver modern energy to all Africa. Although this sounds daunting, it is a small amount in the context of global energy spending but, in order to unlock it, requires a different kind of finance due to the need of small-scale (often rural) projects. To do so, the international community has a major role to play (according to IEA) with concessional finance serving as a crucial catalyst. In additional, local financial institutions will play a vital role over the long-term with finance originating or disbursed through local channels needing to increase nearly threefold by the end of the decade.
There have been several significant announcements made at Africa Climate Summit this year such as the unveiling of the new 'Africa Sunshot' initiative to develop 2,500 net-zero minigrids across the region in five years. Find the full story here: https://www.africanreview.com/energy-a-power/power-generation/africa-sunshot-initiative-to-scale-africa-s-minigrid-industry
