Swift action to improve capital access and reduced financing costs are crucial to boosting clean energy spending in Africa, a report has found.
Energy investment in the continent needs to more than double by 2030 to meet African development ambitions and climate goals, with nearly two thirds going to clean energy, the International Energy Agency and the African Development Bank Group said in a report on Wednesday.
“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 Fatih Birol, the agency's executive director.
Despite having 20 per cent of the world’s population, the region only receives 2 per cent of the global investment in clean energy.
A range of “real and perceived” risks are affecting energy projects in Africa as well as higher borrowing costs following the Covid-19 pandemic and Russia’s ongoing war in Ukraine, the report found.
The cost of capital for utility-scale clean energy projects in the region is at least “two to three times higher” than in advanced economies, preventing developers from pursuing commercially viable projects, it said.
“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.
The agency and the AfDB said lowering capital costs and supporting investment-worthy projects would require scaling up several instruments, including early stage financing and the use of tools that can reduce perceived investment risks.
Delivering modern energy, which includes fossil fuels and renewable energy, to all Africans will require nearly $25 billion in spending per year until 2030, according to the agency.
“This is a small amount in the context of global energy spending – equivalent to the investment needed to build one new LNG [liquefied natural gas] terminal a year,” the report said.
“But it requires a very different type of finance, given the need for small-scale projects, often in rural areas and for consumers with limited ability to pay.”
Concessional finance – funding from development finance institutions and donors – of about $28 billion per year is required to mobilise $90 billion of private sector investment by the end of this decade, the report said.
To meet energy and climate goals, funding sourced from or distributed through local channels must nearly triple by 2030, it added.
“Urgent action is needed to dramatically increase clean energy investment in Africa, which has fallen short despite the immense opportunities,” Kenyan President William Ruto said in the report.
Africa’s installed renewable energy capacity is set to grow to more than 530 gigawatts by 2040, from about 54 gigawatts in 2020, according to the International Renewable Energy Agency.
Developing countries require an investment of about $1.7 trillion per year in the clean energy sector but only managed to attract foreign direct investment worth $544 billion in 2022, Unctad, the UN intergovernmental organisation that promotes the interests of developing countries in world trade, said in its World Investment Report in July.