Financing Clean Energy in Africa

Mobilising capital for a sustainable future

Summary

  • To mobilise the over USD 200 billion needed annually by 2030 under the Sustainable Africa Scenario (SAS), the full range of capital sources need to be deployed. Increasing concessional funding while simultaneously mobilising more private capital must be a priority; in parallel, strengthening domestic financial systems is vital to create sustainable long-term financing options.
  • Despite their importance, the amount of concessional funds is not increasing in Africa. They are also failing to target some of the riskiest areas where they are most necessary, such as early-stage project financing, new technologies, and fragile or conflict-prone countries. It is urgent to reorient these funds to increase their impact, including via the ongoing discussion around reforming multilateral development banks, and by reviewing how delivery mechanisms can be streamlined.
  • In more developed markets and technologies, mobilising private finance should be a core objective for concessional capital. Innovative, flexible options for credit enhancement abound, and using blended finance structures can adjust project risk–return profiles to appeal to private investors. Under the SAS, concessional funds to support private mobilisation increase tenfold to USD 28 billion by 2030.
  • Carbon markets can attract investment by supporting project revenue streams for a variety of projects. They can have a particularly strong impact on clean cooking, which already accounts for almost a quarter of credits issued from Africa in the voluntary market. However, to ensure the effectiveness of carbon markets, countries first need to adopt solid regulatory, monitoring and verification frameworks.
  • The global investor community also represents an important capital source, although investor expectations of project size and risk–return profile may mean they require blending with concessional sources in riskier areas. Investors can provide debt via the sustainable bond market and refinancing tools can be used to replace public or DFI capital in brownfield assets with private sources. Private equity and venture capital also play a key role in funding start-ups to support the development of local industry, including in relation to off-grid electricity and clean cooking solutions.
  • Although a small player now, over the long term domestic markets are fundamental to energy sector development. Under the SAS, finance originating from or disbursed through local channels increases nearly threefold by 2030. Developing green finance facilities provides a channel for finance while also supporting the creation of bankable projects and the development of capacity at other finance institutions. There are also innovative ways to tap into the growing domestic capital markets, particularly pension funds, such as local currency guarantees or securitisation of distributed energy assets.