A groundbreaking report released today at the Africa Climate Summit in Nairobi by the International Energy Agency (IEA) and the African Development Bank Group (AfDB) emphasizes the urgent need to double clean energy investment in Africa by 2030. The IEA report, titled ‘Financing Clean Energy in Africa,’ identifies real and perceived financial barriers hindering the continent’s clean energy ambitions. These barriers, coupled with rising borrowing costs due to the Covid-19 pandemic and geopolitical conflicts, have restricted Africa’s access to affordable capital.
Africa, home to nearly 20% of the world’s population and abundant energy resources, currently receives just 2% of global clean energy investments. To meet its development goals, international energy access targets, and climate objectives, Africa must more than double its energy investment by 2030, with the majority directed towards clean energy sources.
Africa faces multiple risks, both actual and perceived, coupled with increased borrowing costs due to the Covid-19 pandemic and the Ukraine conflict. Consequently, the availability of affordable capital for energy development in Africa is constrained. The ‘Financing Clean Energy in Africa’ report reveals that the cost of capital for large-scale clean energy projects on the continent is two to three times greater than in advanced economies. This financial burden hinders the pursuit of economically viable projects that could provide accessible and low-cost energy solutions.
The IEA report’s analysis draws from over 85 case studies conducted across the continent and more than 40 interviews with key stakeholders. It underscores the imperative to reduce the cost of capital and facilitate the creation of attractive investment projects. Achieving this requires the expansion of various financial instruments, including early-stage financing and risk mitigation tools to attract private investment. Public and private sector collaboration, along with support from both foreign and domestic institutions, is deemed essential to make these solutions viable.
Speaking at the report’s launch, President William Ruto of Kenya emphasized the need for urgent action, stating, “Urgent action is needed to dramatically increase clean energy investment in Africa, which has fallen short despite the immense opportunities. Yet this report is not simply a catalog of Africa’s challenges. Instead, it is an inspiring testament to the innovative spirit of our continent, with a vast array of solutions emerging from Africa’s entrepreneurial minds.”
IEA Executive Director Fatih Birol commented, “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. 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.”
AfDB President Akinwumi Adesina echoed the concerns, saying, “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. 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.”
The report’s recommendations align with the Sustainable Africa Scenario outlined in the IEA’s Africa Energy Outlook 2022 report. This scenario considers the unique requirements of different African countries and sectors, charting a path to fulfill all African energy-related development objectives, including those under the UN Sustainable Development Goals.
According to the report, approximately USD 25 billion per year will be needed to provide modern energy access to all Africans by 2030, a relatively small figure compared to global energy spending. However, the nature of this finance must adapt to support small-scale projects, particularly in rural areas where consumers have limited ability to pay.
To bridge the financing gap, the report underscores the importance of concessional finance, which can act as a catalyst for private-sector investment. It calls for USD 28 billion per year in concessional capital to mobilize USD 90 billion in private-sector investments by 2030, marking a more than tenfold increase from current levels.
Additionally, the report highlights the crucial role of local financial institutions in achieving long-term sustainable development goals in Africa, emphasizing the need for a nearly threefold increase in finance originating from or disbursed through local channels by the end of the decade. ‘Financing Clean Energy in Africa’ underscores the IEA’s ongoing commitment to addressing Africa’s energy challenges and the importance of international collaboration in driving clean energy investments on the continent.