A new report jointly released by the International Energy Agency (IEA) and the African Development Bank Group (AfDB) emphasizes the urgent need for swift action to enhance access to capital and reduce financing costs in order to stimulate increased clean energy investment in Africa. The report was unveiled during a special event at the Africa Climate Summit in Nairobi, featuring IEA Executive Director Fatih Birol and AfDB President Akinwumi Adesina.
Despite Africa's substantial population size and abundant resources, it currently attracts only about 2% of the world's clean energy investments, a disparity that hinders the continent's sustainable development goals and global energy access and climate targets. To align with these objectives, energy investment in Africa must more than double by 2030, with a significant portion directed toward clean energy projects.
Numerous challenges, both real and perceived, have hindered investment in African projects, compounded by increased borrowing costs due to events such as the Covid-19 pandemic and the conflict in Ukraine. Consequently, affordable capital for energy developers in Africa remains limited. According to the report titled "Financing Clean Energy in Africa," the cost of capital for utility-scale clean energy initiatives in Africa is at least two to three times higher than in advanced economies, obstructing the realization of financially viable projects capable of delivering cost-effective energy solutions.
The report delves into innovative strategies to address this issue, drawing from a review of over 85 case studies across Africa and more than 40 interviews with key stakeholders. Lowering the cost of capital and facilitating the creation of investable projects will necessitate the expansion of various financial instruments. These include increasing early-stage financing and deploying tools to mitigate perceived investment risks, thereby attracting private capital. Achieving this goal will require active involvement from both the public and private sectors, as well as support from foreign and domestic institutions.
Kenya's President William Ruto stressed the urgency of boosting clean energy investment in Africa, highlighting the report's inspirational focus on solutions emerging from Africa's entrepreneurial spirit.
IEA Executive Director Fatih Birol underscored Africa's immense clean energy potential but noted the financing challenges that hinder transformative projects.
AfDB President Akinwumi Adesina pointed out that the current shortfall in clean energy investment in Africa jeopardizes sustainable development goals and global climate efforts. He emphasized the report's significance as a tool for African policymakers and a source of valuable insights for developers and capital providers.
The report's analysis builds on the Sustainable Africa Scenario outlined in the IEA's Africa Energy Outlook 2022, considering the diverse needs of African countries and sectors. This scenario provides a pathway to achieving all energy-related development objectives in Africa, including those under the UN Sustainable Development Goals and climate pledges.
To provide modern energy access to all Africans by 2030, an annual investment of nearly USD 25 billion is required. While this amount is relatively modest on a global scale, it necessitates a different approach to finance due to the prevalence of small-scale projects in rural areas with limited consumer capacity to pay.
The international community plays a vital role in scaling up clean energy investment in Africa, with concessional finance serving as a catalyst. The report indicates that concessional capital of around USD 28 billion per year is needed to mobilize USD 90 billion of private sector investment by 2030, representing a significant increase from current levels.
Furthermore, the report emphasizes the essential role of local financial institutions in achieving sustainable development in Africa. To meet energy and climate objectives, financial flows originating from or channeled through local institutions must nearly triple by the end of the decade.
"Financing Clean Energy in Africa" underscores the IEA's ongoing commitment to African energy matters, with Egypt, Kenya, Morocco, Senegal, and South Africa all part of the IEA Family, highlighting the organization's expanding involvement in addressing Africa's energy challenges.