To meet Africa’s growing energy demand, substantial investments in clean energy projects and swift action to address financial barriers are crucial for achieving the necessary investment levels.
Concessional Financing Dominates
Currently, many clean energy projects in Africa, particularly in sub-Saharan countries, rely on concessional financing, with development finance institutions (DFIs) being among the largest energy investors on the continent.
However, according to the International Energy Agency (IEA), this investment is far from sufficient to meet the needs of the energy transition and set the continent on a path towards truly sustainable development.
Urgent Need to Increase Funding
In its latest report on clean energy investments in Africa, the IEA emphasizes the urgent need to increase funding and tap into the diverse range of available financing sources for larger-scale projects, particularly from private lenders.
Strengthened commitments from donors and DFIs are essential to boost investments, especially in energy access projects.
However, the IEA suggests that these commitments should be accompanied by improvements in existing distribution channels and modifications to business models, enabling them to play a more active role in developing riskier projects. This is particularly crucial in fragile and conflict-affected countries where other sources of capital are severely lacking.
Host Countries’ Role in Improving Investment Climate
Host countries themselves have a vital role to play in enhancing the overall investment climate, reducing the cost of private capital, and fostering the development of local capital markets to attract more private investment.
In the long term, securing funding from institutional investors for clean energy projects in the electricity sector and emerging energy industries will become increasingly necessary. This can be achieved through tools like sustainable debt issuances.
Additionally, private equity and venture capital will need to play a significant role in financing startups, particularly those addressing energy access issues or offering innovative solutions for developing local clean energy industries.
Strengthening Local Capacity
Finally, local banks and institutional investors will need to contribute more to clean energy projects as the transition progresses. However, the IEA emphasizes that this hinges on developing human and institutional skills and capacities within the government, energy sector, and local financial community.