Financing Clean Energy in Africa

Designing finance solutions for clean energy: solutions for key sectors

Summary

  • The doubling of energy investment in Africa seen under the Sustainable Africa Scenario (SAS) requires innovative solutions to fully mobilise capital from a range of providers – national governments, DFIs and private capital. Private capital plays a key role by 2030, increasing sixfold from today’s levels, but understanding where it can be deployed is essential to enable the design of targeted interventions. And there are still some countries and sectors where grants and concessional funding need to lead.
  • Achieving universal access to modern energy requires a major uptick in spending, reaching roughly USD 25 billion per year by 2030. Affordability constraints risk acting as a brake: only around half of the new electricity access connections providing the most basic energy services are likely to be affordable in the absence of additional financial support, such as subsidies, grants or tariff reform. Clean cooking projects beyond improved cookstoves face similar challenges. Grants, concessional capital and government support will therefore play a critical role, particularly in rural areas.
  • Investment in renewable power projects is set to triple by 2030 under the SAS. While investment has been growing, there is a risk that lower-income countries relying on concessional funds are left behind. These countries account for three-quarters of the region’s population, but, given their less developed regulatory environment and lower demand, attract only a small share of investment. Ensuring concessional capital is targeted to support these lower-income countries is vital.
  • Massive investment in Africa’s grids is critical to improve system reliability, expand access and facilitate the integration of variable renewables. The poor financial health of utilities has hampered investment to date, but models have emerged for greater private sector participation in this segment. Adoption of these models increases private sector investment in grids from 4% to 10% by 2030.
  • Energy efficiency is not currently a priority for many sources of concessional capital: it is only explicitly covered in around 15% of financing instruments. Efficiency plays a major role in the SAS, but higher upfront costs can complicate investment. Numerous innovative financing models are being trialled, from large-scale approaches to those targeting small and medium-sized enterprises and consumers, but many require policy support and concessional funding to achieve the necessary scale.
  • African countries can take advantage of growing global demand for critical minerals and low-emissions fuels to drive domestic industrial development, creating value-added activities within the mineral supply chain and pursuing long-term prospects for low-emissions fuels. Many of these projects can be financed by private actors, but low-emissions hydrogen will need substantial public support to gain momentum.
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