Swift action to improve access to capital and ease financing costs is essential to unlock a wave of clean energy spending in Africa, according to a new report from the International Energy Agency (IEA) and the African Development Bank Group (AfDB).
The report, titled “Financing Clean Energy in Africa,” was launched at a special event at the just concluded Africa Climate Summit in Nairobi with Akinwumi Adesina, President of the Bank, and Fatih Birol, IEA Executive Director.
It revealed that even though Africa accounts for almost 20 percent of the world’s population and has ample resources, it is the destination for around just 2 percent of global clean energy spending.
“Overall energy investment on the continent has struggled in recent years, while to meet African development ambitions, as well as international energy access and climate goals, it needs to more than double by 2030, with nearly two-thirds going to clean energy.
“A range of real and perceived risks affecting projects in Africa, as well as higher borrowing costs following the Covid-19 pandemic and Russia’s war in Ukraine, mean there is a limited pool of affordable capital that energy developers in Africa can tap.”
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According to the report, Financing Clean Energy in Africa, the cost of capital for utility-scale clean energy projects on the continent is at least two to three times higher than in advanced economies. This prevents developers from pursuing commercially viable projects that can deliver affordable energy solutions.
“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,” said 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 report’s analysis is based on the Sustainable Africa Scenario developed in the IEA’s Africa Energy Outlook 2022 report. This scenario considers the diverse needs of different African countries and sectors and lays out a pathway to achieve all African energy-related development objectives.
This includes those under the UN Sustainable Development Goals, such as universal access to modern energy by 2030, as well as fulfilling all announced climate pledges in full and on time.
“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.”
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The report’s analysis is based on the Sustainable Africa Scenario developed in the IEA’s Africa Energy Outlook 2022 report. This scenario considers the diverse needs of different African countries and sectors and lays out a pathway to achieve all African energy-related development objectives. This includes those under the UN Sustainable Development Goals, such as universal access to modern energy by 2030, as well as fulfilling all announced climate pledges in full and on time.
According to the report, the international community has a major role to play in scaling up clean energy investment in Africa.
“Concessional finance – or funding from development finance institutions and donors – can serve as a crucial catalyst,” the report stated.
The report also highlights the vital role of local financial institutions for sustainable development in Africa over the long term. To meet energy and climate goals, finance originating from or disbursed through local channels must increase nearly threefold by the end of the decade.
