Clean Energy
Investment for
Development in
Africa
Status and opportunities
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INTERNATIONAL ENERGY
AGENCY
Clean energy investment for development in Africa Abstract
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IEA. CC BY 4.0.
Abstract
This report on financing clean energy investments in Africa was requested by the
Italian presidency of the Group of Seven (G7) to support the presidency’s new
Energy for Growth in Africa initiative. This initiative builds upon existing G7 efforts
to promote energy and climate investment in Africa and seeks to develop bankable
clean energy projects, attract public and private capital, encourage concessional
finance, and overcome investment barriers across Africa. This report aims to
inform the G7 initiative by providing an overview of the energy-related investments
needed to achieve all African energy and climate-related goals, including universal
energy access and its nationally determined contributions, by 2030. It then
explores how clean energy projects can best be financed, focusing on three key
investment pillars: household access to modern energy; the electricity sector; and
emerging industries. Finally, it identifies the main types of initiatives needed to
develop human and institutional skills and capabilities across Africa, without which
the financing of clean energy will remain a challenge in many countries. With
energy vital to Africa’s long-term prosperity and the need for investment in clean
energy technologies in Africa never being more urgent, this report comes at a
critical time and lays the foundations for coordinated financing efforts between
governments of African countries and developed nations, international financial
institutions, and development organisations.
Clean energy investment for development in Africa Table of contents
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IEA. CC BY 4.0.
Acknowledgements, contributors
and credits
This study was prepared by the Directorate of Sustainability, Technology and
Outlooks in co‐operation with other directorates and offices of the International
Energy Agency (IEA). Daniel Wetzel, Head of the Tracking Sustainable
Transitions Unit and Carlo Starace co-ordinated the production of the report.
Trevor Morgan provided writing support to the report and carried editorial
responsibility.
Key IEA contributors to the report include: Nouhoun Diarra, Darlain Edeme, Emma
Gordon, Martin Kueppers, Isabella Notarpietro, Carlo Starace, and Gianluca
Tonolo. Sylvia Beyer, Yunyou Chen, Roland Gladushenko, Luca Lo Re, Vera
O’Riordan and Nikolaos Papastefanakis provided essential support.
Other valuable contributions were made by Araceli Fernandez Pales and Uwe
Remme.
Erin Crum was the copyeditor.
Valuable comments and feedback were provided by other senior management
and numerous colleagues within the IEA, in particular, Laura Cozzi.
Thanks go to the IEA’s Communications and Digital Office for their help in
producing the report and website materials, particularly Poeli Bojorquez, Curtis
Brainard, Astrid Dumond, Liv Gaunt, Grace Gordon, Julia Horowitz, Oliver Joy,
Jethro Mullen, Clara Valois and Therese Walsh.
The work was commissioned by the 2024 Group of Seven (G7) Presidency of Italy.
The work reflects the views of the International Energy Agency Secretariat but
does not necessarily reflect those of individual IEA member countries or of any
particular funder, supporter, or collaborator. None of the IEA or any funder,
supporter or collaborator that contributed to this work makes any representation
or warranty, express or implied, in respect of the work’s contents (including its
completeness or accuracy) and shall not be responsible for any use of, or reliance
on, the work.
Clean energy investment for development in Africa Table of contents
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Table of contents
Executive summary .................................................................................................................. 6
Introduction ............................................................................................................................. 10
Chapter 1. The outlook .......................................................................................................... 12
The Sustainable Africa Scenario ................................................................................................. 12
Hurdles to ramping up clean energy investment ......................................................................... 17
Chapter 2. Access to energy ................................................................................................. 20
Key targets and investment needs .............................................................................................. 20
Financing vehicles and instruments ............................................................................................. 22
Chapter 3. The electricity sector ........................................................................................... 26
Key targets and investment needs .............................................................................................. 26
Financing vehicles and instruments ............................................................................................. 28
Chapter 4. Emerging industries ............................................................................................ 34
Key targets and investment needs .............................................................................................. 34
Critical minerals ........................................................................................................................... 34
Financing vehicles and mechanisms ........................................................................................... 41
Chapter 5. Mobilising investment ......................................................................................... 43
Creating a conducive investment ecosystem .............................................................................. 43
Better leveraging public funds to attract private capital ............................................................... 44
Integrating cross-cutting developmental objectives ..................................................................... 52
Required capacity-building initiatives ........................................................................................... 55
Annexes ................................................................................................................................... 58
Annex A – Abbreviations and acronyms ...................................................................................... 58
Annex B – Units of measure ........................................................................................................ 60
Clean energy investment for development in Africa Executive summary
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IEA. CC BY 4.0.
Executive summary
Increasing energy investment is at the heart of enabling
African prosperity
Africa’s aspirations for greater economic and social development depend
on access to affordable, reliable, modern and sustainable energy. Despite
immense energy resources, Africa remains energy poor. Today, around
600 million Africans still lack access to electricity and more than 1 billion still cook
their meals over open fires and traditional stoves using wood, charcoal, kerosene,
coal and animal waste. The consequences are dire in terms of health, education,
climate, and economic and social development, with many of these impacts
disproportionally affecting women and children. A lack of reliable and affordable
energy restrains Africa’s farmers from higher productivity; hinders industry, where
energy prices and affordability remain key determinants in competitiveness; and
limits the ability of countries to attract and cultivate new sectors of their economies.
Enhancing Africa’s energy systems can address these issues, but
mobilising more investment remains challenging. Today, Africa accounts for
around 20% of the world’s population but attracts less than 3% of spending on
energy. Energy investment on the continent has been falling since its peak in 2014
and is down by 34%. Increasing investment in domestic energy systems faces
hurdles, notably a shortage of bankable projects and the high cost of capital, which
can be two to three times higher for renewable projects in Africa than in advanced
economies. Overlapping crises have also raised the bar for attracting new capital
to Africa. Currently, 21 African countries are in or are at high risk of being in debt
distress, weighing heavily on public balance sheets and those of state-owned
enterprises (SOEs). At the same time, higher interest rates have increased the
expectations on returns in commercial markets. For clean energy projects in
emerging market and developing economies, this has resulted in an increase in
expected returns greater than those in advanced economies.
Meeting growing energy demand from African countries requires a more
than doubling of annual energy investment by 2030, of which three-quarters
is in clean energy. The IEA’s Sustainable Africa Scenario lays out a pathway in
which Africa achieves all its energy-related goals in full and on time, including its
pledges on climate and access to electricity and clean cooking, and aligns with
the goals of the African Union’s Agenda 2063: The Africa We Want
. In this
scenario, energy investment in Africa grows to almost USD 240 billion annually by
2030. This report – commissioned by Italy’s G7 Presidency in support of its new
initiative: Energy for Growth in Africa – lays out key areas for investment that are
Clean energy investment for development in Africa Executive summary
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consistent with the objectives set by countries in Africa and supports the
realisation of the Dubai Consensus’s objectives of tripling renewable capacity and
doubling energy efficiency by 2030. The report also highlights financing
mechanisms best suited to ensure these investments materialise in a timely
manner.
Investments in energy access and the power sector
remain the top priority for new energy infrastructure
Extending access to electricity and clean cooking remains the most
important lever for growth and development, and is central to a just energy
transition. From 2023 to 2030, around USD 22 billion per year is required to
connect all African homes and businesses to electricity, while USD 4 billion per
year is needed to provide them with clean cooking solutions. In total, the needed
annual investments in access for Africa equate to less than 1% of current energy
investment worldwide. There are also affordability challenges to consider; only half
of households without electricity access today would be able to afford basic energy
services without additional financial support, and even fewer would be able to
afford modern cooking solutions. A number of private companies based in Africa,
many of which are small and medium-sized enterprises, are offering innovative
solutions beyond traditional public-sector-led approaches but scaling them
requires more financing and specialised incentives to reach rural areas. Recent
multilateral efforts are attracting greater political attention to energy access and
bringing in new concessional and commercial funding, including the USD
2.2 billion in new financing mobilised at the Summit for Clean Cooking in Africa.
Around half of the energy investment required in Africa to 2030 is needed in
electricity, where policies play a key role in attracting more investment. Total
electricity sector investment increases from just under USD 30 billion in 2022 to
more than USD 120 billion in 2030 in the Sustainable Africa Scenario, with around
50% going towards renewable generation alone. Africa is home to some of the
most cost-competitive renewable resources in the world, with 60% of the best solar
resources globally, and many countries are home to high-potential resources for
hydropower, geothermal, and wind. Utility-scale renewable power projects, often
based on power purchase agreements, have found a foothold in markets with
access to commercial finance in Africa, where around 80% of clean power projects
by volume have reached investment decisions in the last five years. However, less
developed markets, where three-quarters of African people live today, face greater
perceived investment risks, especially where utilities are not seen as a credible
off-taker. Authorising the use of concessional agreements or other regulatory
carve‐outs for private investors can help attract new capital to debt-distressed
utilities, as can tariff reform, though such approaches need to guard against the
real risks of offering terms that are ultimately costly to consumers and
governments.
Clean energy investment for development in Africa Executive summary
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New industries, including those related to clean energy
technologies, can support Africa’s growing energy
sector
Developing industry goes hand-in-hand with the expansion of Africa’s
energy system. By 2030, Africa is projected to build more floor area than exists
in Japan and Korea today. Accordingly, demand for steel and cement is set to
grow considerably from today’s levels, alongside rising demand for irrigation
pumps, cold chains, data centres and mining. Productive uses – which include
industry, agriculture, freight, and public and commercial buildings – make up
nearly half of the growth in electricity demand in Africa over the last ten years.
These are often large and reliable customers that can financially encourage the
development of new energy infrastructure. Based on today’s prices, these uses
cover two-thirds of Africa’s electricity expenditure, despite only representing just
over half of Africa’s electricity demand. If structured well, development financing
support for African industries can play a dual role: creating reliable off-takers for
new energy projects, while also providing the right incentives to install the efficient
equipment that will underpin the energy systems of the future. This is increasingly
important for new steel plants, with some countries currently electing to use coal-
based technologies instead of hydrogen-ready, natural gas-based technologies
which are cost-competitive for countries with easy access to natural gas.
Critical minerals and the manufacturing of clean energy technologies
present practical opportunities to cultivate a growing industrial base.
Revenues from the production of copper and key battery metals in Africa are
already estimated to be more than USD 20 billion annually. The current pipeline
implies a 65% increase in market value is possible by 2030, with significant
potential for further growth given that investment in mineral exploration is on the
rise again. New manufacturing plants for clean energy technologies and solutions
to improve energy access are being developed across the continent as well,
including some backed by the development finance institutions of G7 members.
Additionally, low-emissions hydrogen production from announced electrolyser
projects in Africa could reach 2 Mt by 2030 if all projects come to fruition.
Investments in these fast-growing sectors can help diversify global supply chains
and reduce import burdens for Africa. If well-designed, these projects could also
be powered by energy investments that serve Africa’s wider domestic energy
needs, and ensure their development creates jobs, supports local communities,
and meets important health, safety, and labour criteria.
Boosting energy investment relies on private sector
participation, which concessional finance can help
unlock
Private sector spending needs to grow 2.5 times between 2022 and 2030 to
meet Africa’s energy investment needs. In the Sustainable Africa Scenario,
USD 190 billion of private capital is required by 2030, growing from around
Clean energy investment for development in Africa Executive summary
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USD 75 billion today. Concessional capital from international sources will play a
key role in mobilising this increase, with an estimated USD 30 billion per year for
clean energy projects required to mobilise commercial funding over the 2023-2030
period.
Blended finance, a proven tool, can attract commercial financing that is up
to seven times the level of concessional funding from donors. Blended
finance – whereby donors, development finance institutions (DFIs) and
philanthropies use their funds to improve the risk-return profile of projects and
attract private capital to a project – will be crucial to achieving the level of
investment needed in the Sustainable Africa Scenario. The number of deals using
blended finance in Africa has grown since 2014, with the volume doubling from
2019 levels to reach more than USD 3 billion in 2021. Other instruments have also
demonstrated their ability to improve the risk-return profile of energy investments,
including green, social, sustainable and sustainability-linked (GSSS) bonds;
carbon credits and voluntary carbon markets; syndication platforms and pooled
investment vehicles, and instruments to address currency risk.
Connecting concessional finance with the right projects
remains a barrier but can be addressed
Ongoing initiatives within the G7 can be reinforced with targeted technical
assistance and improved coordination. G7 countries have reiterated their
commitment to mobilise more energy and climate investment in Africa in the
Climate, Energy and Environment Ministers’ Meeting Communiqué
, including
reinforcing capacity building efforts. Over the past 10 years, advanced economies
have provided, on average, USD 2.4 billion of development assistance to Africa’s
energy sector annually. Our tracking shows that G7 members have programmes
operating in nearly every country in sub-Saharan Africa with the aim of delivering
greater energy and climate-oriented investments. These include Global Gateway,
Just Energy Transition Partnerships, and the Partnership for Global Infrastructure
and Investment. Many of these initiatives face similar challenges, notably
developing a pipeline of bankable projects and guiding them through the higher-
risk development and construction phases. A survey of ongoing activities,
however, highlights several effective approaches that can help to address these
gaps – notably capacity building with African governments and small and medium-
sized enterprises (SMEs), and developing new financing vehicles that absorb
early-stage development risk. Scaling these efforts will be key to unlocking more
finance for Africa’s energy sector, and to ensuring these investments realise the
full suite of economic, development, energy security, health and climate benefits.
Clean energy investment for development in Africa Introduction
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Introduction
Energy is vital to Africa’s long-term prosperity. It can unlock sustainable economic
growth, improve human well-being, and enable healthier and more productive
lives. The recent energy crisis, following on the heels of the Covid-19 pandemic
and ensuing global economic disruption, has hit many African countries hard.
Access to modern energy services remains a pressing concern, primarily in sub-
Saharan countries, where half the population still lacks electricity, and four out of
five people do not have access to clean and healthy cooking methods. Soaring
energy prices and the financial difficulties of electricity utilities have recently
reversed the progress that had been made in expanding energy access. There
has never been a more urgent need for a concerted push for investment in clean
energy technologies to ensure universal access to modern energy, drive economic
and social development, and eradicate the poverty that persists across much of
Africa.
This investment will not happen on a sufficiently large scale without strong
interventions by the governments of African countries and the assistance of
developed nations, international financial institutions and development
organisations. Financing Africa’s energy development is a massive undertaking
and must overcome several hurdles – notably the high cost of capital faced by
investors in energy projects and a lack of bankable projects. Evidence of this can
be seen in Africa’s ability to attract financing to its energy sector: while Africa
accounts for around 20% of the world’s population, it attracts less than 3% of its
spending on energy, and energy investment in the continent has been falling in
recent years. Mobilising international funding, notably concessional finance, will
be crucial.
This report aims to provide an overview of the energy-related investments that are
needed to meet the targets set out by African countries in their nationally
determined contributions (NDCs) under the Paris Agreement, their net zero goals,
the United Nations Sustainable Development Goal 7
(SDG 7) on access to
affordable and clean energy, and the 2023 Nairobi Declaration on climate change.
The report also analyses how clean energy projects would need to be financed
and the supporting policies and measures required to make that happen, focusing
on three key investment pillars: household access to modern energy; the electricity
sector; and emerging industries, including manufacturing of clean energy
technologies, hydrogen and related fuels, and critical minerals. Finally, the report
identifies the main types of initiatives needed to build human and institutional skills
and capabilities in Africa, without which the financing of clean energy will remain
constrained in many countries.
Clean energy investment for development in Africa Introduction
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This report on financing clean energy investments in Africa was requested by the
Italian Presidency of the Group of Seven (G7). African development is a major
focus of Italy’s G7 agenda, exemplified by the Italy-Africa Summit held in January
2024, which was attended by high-level representatives from 46 African countries,
major international organisations – including the IEA – international financial and
development institutions, multilateral development banks, and leaders of the
European Union.
The Italian G7 Presidency's new initiative, Energy for Growth in Africa, aims to
build upon existing G7 efforts to promote sustainable energy in Africa by
leveraging programmes from advanced economies, such as the Mattei Plan, to
direct development and climate funding towards financing vehicles that could
attract further private capital. Announced at the Climate, Energy and Environment
Ministers' Meeting on 29-30 April 2024 and launched at the G7 Summit on
13-15 June 2024, with the IEA as a knowledge partner and the United Nations
Development Programme (UNDP) as the implementation partner, this initiative
seeks to develop bankable clean energy projects, attract public and private capital,
encourage concessional finance, and overcome investment barriers across Africa.
This report aims to inform the G7 initiative by providing an overview of the energy-
related investments needed in the IEA’s Sustainable Africa Scenario (SAS). The
SAS is a pathway developed by the IEA that envisions the continent achieving all
its energy and climate-related goals, including universal energy access and its
NDCs, by 2030.
Clean energy investment for development in Africa Chapter 1: The outlook
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Chapter 1. The outlook
The Sustainable Africa Scenario
Energy and investment trends
The Sustainable Africa Scenario (SAS), first set out in the IEA’s Africa Energy
Outlook 2022, describes a realistic pathway for the continent to achieve the
energy-related goals set out in Sustainable Development Goal 7, including
universal access to modern energy by 2030, as well as fulfilling all announced
climate pledges, including conditional NDCs, in full and on time.
1
This requires a
steep increase in investment, a shift away from export-oriented projects towards
clean energy projects predicated on local demand, and enabling a greater role for
decentralised systems. This hinges on tapping into a range of new capital sources
and financing approaches.
Providing modern energy services to the 600 million Africans still lacking electricity
and the more than 1 billion without access to
clean cooking remains the priority of
the SAS. Economic growth across the region also drives higher demand for
modern energy from industry, transport and agriculture in this scenario. Modern
primary energy supply rises to 2030, an increase that is propelled mainly by
renewables accounting for more than four-fifths of the total, though oil use also
rises sharply, primarily due to strong growth in transport demand.
In the SAS, electricity use grows across all end-use sectors, with households
contributing more than half of the growth. In total, demand surges by more than
60% between 2022 and 2030 to 1 160 TWh, driven largely by more than a
doubling of household use of air conditioners, fans and refrigerators. The share of
electricity in total final energy consumption jumps from 10% to 20%. Renewable
energy generation, mainly from solar PV, accounts for most generating capacity
additions as declining costs drive rapid global uptake. By 2030, solar and wind
together provide 27% of the continent’s power generation, compared with barely
5% in 2022.
Energy trends to 2030 are very different across Africa. Although modern
renewables grow fastest everywhere, oil and gas continue to dominate energy
1
In the rest of the world, it is assumed that all announced global commitments to reach net zero emissions are fully
implemented, as per the Announced Policies Scenario. See the latest edition of the IEA’s World Energy Outlook
(WEO) for
further details.
Clean energy investment for development in Africa Chapter 1: The outlook
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supply in North Africa and coal in South Africa, while renewables become the
dominant fuel category in sub‐Saharan Africa.
Tot
al energy investment in Africa was already declining prior to the Covid-19
pandemic (Figure 1.1). Historically, fossil fuel supply – primarily oil and gas
production – has dominated energy investment in Africa, and a sharp fall in
upstream investment explains most of the fall in overall capital spending since
2015. Investment fell even lower in 2020, and while it has been increasing slightly
year-on-year since then, in 2022 the almost USD 90 billion invested in energy was
equal to around 3.5% of Africa’s GDP, well below percentages seen in the decade
prior.
Figure 1.1 Energy investment in Africa by type, 2014-2023
IEA. CC BY 4.0.
Overall energy investments in Africa were on a downward trend in the 2015-2020 period,
although they have begun most recently to pick up
In the SAS, energy investment in Africa picks up in the period to 2030, driven by
a surge in clean energy spending (Figure 1.2). Clean energy investment rises to
reach nearly three-quarters of energy investment by the end of this decade. Still,
around 30% of total spending goes to fossil fuel supply over the 2022-2030 period.
Total annual investments in renewables and power grids see a substantial climb,
jumping from almost USD 39 billion in 2023 to an average of USD 172 billion in
2028-2030.
30
60
90
120
150
180
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Clean energy Fossil fuel-related
Billion USD (2022, MER)
Clean energy investment for development in Africa Chapter 1: The outlook
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Figure 1.2 Average annual energy investment in Africa by sector and share by type of
energy and investor in the Sustainable Africa Scenario
IEA. CC BY 4.0.
Annual capital spending on energy grows more than double, reaching an average of
USD 225 billion in 2028-2030, with three-quarters of the investment in clean energy
Renewable generation and power grids together account for close to 70% of the
clean energy investment needed over 2023-30 in the SAS and over 80% of all
new power generation capacity added over 2023-30. Solar remains the largest
growing source, as Africa is home to 60% of the best solar resources
globally, yet
only 1% of installed solar PV capacity today. By 2030, solar PV – already the
cheapest source of power in many parts of the continent – outcompetes all other
generating technologies continent-wide. These capacity additions call for large
investments in grid infrastructure, both to expand network capacity and to upgrade
grids to provide adequate flexibility and support the integration of renewables,
including through the installation of digital technologies (see Chapter 3). Regional
interconnections need to be strengthened and their operations better integrated to
effectively manage the impact of intermittency of renewable power generation on
the stability and reliability of national power systems. Dispatchable power
providers such as hydropower, natural gas, battery and pumped-hydro storage
are also needed to provide flexibility.
Investment to reach the goal of universal access to modern energy averages
USD 26 billion per year over 2022-30 in the SAS, accounting for around 15% of
total African energy investment. Of this investment, USD 22 billion per year goes
to electricity access, while around USD 4 billion is channelled to provide
individuals with clean cooking devices. Mobilising this level of investment is
contingent on a major policy push for access projects, involving the establishment
of national targets and action plans that clearly lay out the role of different energy
access solutions and providers, coupled with new financing solutions to support
2028-30
2025-27
2023
50 100 150 200 250
3% 4% 5% 6% 7%
Billion USD (2022, MER)
Share of GDP
Fuel supply
Power
End use
Share of GDP
Investment by sector and share of GDP
Shares by type of energy
Investment
Fossil fuel-related
Clean energy
Energy share
Clean energy investment for development in Africa Chapter 1: The outlook
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the effective use of public funds and attract private capital where possible (see
Chapter 2). Investment is also needed to drive the switch to electric two- and three-
wheelers, as well as green public transport such as electric buses and urban rail
systems, and the use of renewables in buildings and industry for heating and
cooling.
Sources of finance
In the SAS, private investment increases 2.5 times between 2022 and 2030 in
absolute terms, buoyed by policy reforms and the use of concessional capital from
development finance institutions (DFIs) to de-risk projects. Concessional financing
takes many forms but typically involves several broad instruments including grants
that do not need to be repaid, loans with very favourable interest rates or
guarantees whereby a third party agrees to cover losses in case repayments
cannot be made. DFIs
2
play the dual role of investing their own capital, both in
projects via debt and equity and in early-stage development financing, while also
using their concessional funds to mobilise private capital (Figure 1.3). Finance for
energy projects in Africa from DFIs in advanced economies has largely been
stable at around USD 11 billion annually, while Chinese DFI activity boomed in
the middle of last decade at USD 14 billion but has fallen back substantially in
recent years (Box 1.1). In total, an average of around USD 30 billion per year of
concessional finance is required in the SAS between now and 2030 to help attract
the USD 190 billion of private capital for energy projects in 2030 needed in that
same scenario.
Today, DFI finance plays a particularly prominent role in renewable power
generation, including that related to electricity and clean cooking access projects,
and emerging technologies (such as low-emissions hydrogen). State-owned
enterprises (SOEs) retain a key role in grids and storage, although achieving the
necessary level of investment relies on improving their financial health, which has
deteriorated in many cases
in recent years, most likely requiring grants and other
forms of concessional support from DFIs and donors.
2
Multilateral development banks (MDBs), other international and regional financial institutions, national development banks
and export credit agencies.
Clean energy investment for development in Africa Chapter 1: The outlook
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IEA. CC BY 4.0.
Figure 1.3 Sources of finance for clean energy investments in Africa by sector,
provider and instrument in the Sustainable Africa Scenario, 2030
IEA. CC BY 4.0.
The private sector plays the main role in all energy investment categories except grids
by 2030, with equity remaining important for new technologies and end-use sectors
Note: SAS = Sustainable Africa Scenario; DFI = development finance institution.
Source: IEA (2023), Financing Clean Energy in Africa
.
Scaling up investment in energy hinges on mobilising capital providers and
financing instruments to match the capital structure of energy companies and
assets. As with most project finance investments, debt plays a large role in most
clean energy developments. Commercial debt in Africa can be expensive and in
short supply since debt markets are small outside South Africa, while public debt
has become increasingly unsustainable in many economies. Currently, 21 African
countries are in or are at high risk of being in debt distress, weighing heavily on
public balance sheets and those of SOEs. At the same time, higher interest rates
have increased the expectations of returns in commercial markets. For clean
energy projects in emerging market and developing economies this has resulted
in an increase in expected returns greater than those in advanced economies.
However, alternative financing approaches exist, each utilising different debt-to-
equity ratios according to the stage of the project. While the role of debt increases
in the SAS, equity remains essential where risks are higher, such as in new
markets and for novel technologies. Equity capital is limited in most African
countries, with many of the equity funds which currently finance energy projects
funded by DFIs. Other sources of equity include corporate balance sheets and –
for start-ups and small and medium-sized enterprises – private equity and venture
capital firms.
50% 100%
Low-emissions fuels
Other end use
Efficiency
Grids and storage
Renewable power
Private
DFIs
Public
Debt
Equity
By provider
50% 100%
By instrument
Clean energy investment for development in Africa Chapter 1: The outlook
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Hurdles to ramping up clean energy
investment
Improving access to affordable finance is key to achieving the huge increase in
investment in clean energy projects required to put Africa on a sustainable
development path. At present, there are several hurdles to financing such projects,
reflected in the high cost of capital relative to other parts of the world; the
weighted
average cost of capital for renewable generation projects in Africa is currently at
least two to three times higher than in the advanced economies and China (see
Figure 1.4). This is due to the greater risks, real or perceived, of investing in Africa.
Box 1.1. Chinese investment in Africa’s energy sector
The involvement of the People’s Republic of China (hereafter “China”) in African
economies took off in the early 2000s, and the country became the continent’s
largest trading partner in 2009. China is now the fourth‐largest investor in Africa
and accounts for about one‐fifth of all lending, much of which goes to energy and
infrastructure projects. China committed to USD 150 billion in loans to Africa
between 2000 and 2018, roughly a quarter of which were in the energy sector.
However, lending to African power projects fell from its peak of almost
USD 14 billion in 2016 to USD 2 billion in 2019 as China’s policy banks focused
more on domestic projects.
Financing from China has primarily been in the form of large low-cost loans from
development banks and energy- or construction-oriented SOEs. The level of
lending has led to concerns around the sustainability of debt, particularly as
Chinese loans are generally exempt from the restructuring arrangement of the
Paris Club – a group of officials from major creditor countries whose role is to
develop co‐ordinated solutions to address payment difficulties in debtor countries.
Several African countries have been forced to renegotiate repayment terms,
notably in the case of loans to railways in Kenya and Ethiopia. Default risks on the
continent are rising due to the combination of increased debt since the Covid‐19
pandemic and inflationary pressures.
Changing dynamics point to a shift in China’s dealings with Africa. At the Forum on
China Africa Cooperation in November 2021, China’s president announced a one‐
third reduction in public financing to Africa and emphasised the growing role of
Chinese private investment, although no specific targets have been announced.
Together with China’s move away from funding coal plants abroad, this is likely to
result in more emphasis on renewable energy projects by Chinese developers.
Source: IEA (2022), Africa Energy Outlook 2022
Clean energy investment for development in Africa Chapter 1: The outlook
PAGE | 18
IEA. CC BY 4.0.
Figure 1.4 Cost of capital ranges for solar PV and storage projects taking final
investment decision in 2022
IEA. CC BY 4.0.
The cost of capital for solar PV and storage projects in EMDE is at least twice the value
in advanced economies, despite relatively larger interest rate hikes in advanced
economies
Notes: Values are expressed in nominal, post-tax and local currency. WACCs for solar PV projects represent responses for
a 100-megawatt (MW) project and for utility-scale batteries a 40 MW project. Values represent average medians across
countries. Advanced economies represent values in the United States and Europe.
Source: IEA (2024), World Energy Investment 2024; IEA (2024), Cost of Capital Observatory
.
Higher costs of capital act as a brake on private sector involvement as they make
projects either unaffordable or unviable for the investor. They can also leave
countries trapped in a loop of higher risks, higher costs, energy deficits and
deepened reliance on fossil fuels, which typically require less upfront investment.
A high cost of capital has a particularly large impact on capital-intensive
investments such as renewable power projects, including off-grid solutions. As a
result, it raises overall power generation costs, which are either passed on to
customers or absorbed by governments as subsidies.
The cost of capital largely reflects two sets of risks: those associated with the
country (the base rate) and those associated with the sector, project or company
(the premium). These risks vary considerably across the continent; some
countries have investment-grade credit ratings and/or a well-developed energy
sector, while others are plagued by social and political conflict or instability and
low economic growth, and thus struggle to attract investment. Costs also vary by
capital provider and currency, depending on whether the provider is taking on
currency risk, their familiarity with the local market and the base rate in their
country of origin, as well as according to the company or project that is seeking to
raise capital. Larger international companies are able to tap into concessional
finance from DFIs and donors or cheaper capital in international markets more
3%
6%
9%
12%
15%
Solar PV
Storage
Emerging market and
developing economies
Advanced economies
Clean energy investment for development in Africa Chapter 1: The outlook
PAGE | 19
IEA. CC BY 4.0.
easily. Meanwhile, local companies more reliant on domestic capital markets can
struggle to access both early-stage financing to make projects bankable and
sufficient affordable capital to develop projects.
Certain investment risks originate from outside the energy sector, but there are
financial tools, policy measures and technical assistance that can help mitigate
project-specific risks and help ensure more projects reach financial close. The
main energy sector-specific factors driving higher costs of capital for clean energy
projects according to a survey of investors
are regulatory risk (e.g. changing
regulations, government renegotiations of contract terms), off-taker risk (e.g. no
credible buyer, utility financial distress), land acquisition risks, and transmission
risks (e.g. delays in interconnection or not being able to reliable deliver energy to
the grid due to network issues). Addressing these risks will be key to the focus of
the new G7 initiative, Energy for Growth in Africa.
Clean energy investment for development in Africa Chapter 2: Access to modern energy services
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IEA. CC BY 4.0.
Chapter 2. Access to energy
Key targets and investment needs
Ensuring that everyone has access to modern energy services remains the
primary developmental goal for Africa. According to IEA data, around 600 million
Africans lack access to electricity and more than 1 billion Africans – roughly two-
thirds of the population – still cook their meals over open fires and traditional
stoves, using wood, charcoal, kerosene, coal and animal waste. Most of these
people are in sub-Saharan Africa, concentrated in just five countries: Democratic
Republic of the Congo, Ethiopia, Nigeria, Tanzania and Uganda.
The consequences of such “energy poverty” are dire. A lack of electricity
undermines public health, education and communication and holds back
economic and social development. Poor air quality due to cooking indoors using
traditional fuels is the second-leading cause of premature deaths across the
continent. Women suffer the most, both directly from the pollution and from
forgoing opportunities to pursue schooling, employment and revenue-generating
economic activities as they spend five hours a day on average gathering fuel and
tending to cooking fires. A lack of clean cooking
also contributes to deforestation,
environmental degradation and climate change.
Africa was already well off track to reach the Sustainable Development Goal 7
(SDG 7) target, set in 2015, of universal access to modern energy by 2030 at the
beginning of 2020 and the Covid‐
19
pandemic. The recent energy crisis has set
back progress even more, despite a modest tick upward during 2023. Current
government policies fall far short of what is required to meet that goal, and without
additional measures, 550 million people will still be without access to electricity
and around 1 billion still without access to clean cooking even in 2030. Political
momentum is growing to resolve these issues, notably for clean cooking, with
renewed focus within the G7, G20, and Conference of the Parties (COP), and
USD 2.2 billion of new financial commitments
announced at the Summit on Clean
Cooking in Africa, convened in Paris on 14 May 2024. Still more is required to get
Africa on track to achieve universal access to modern energy services by 2030 –
a central pillar of the Sustainable Africa Scenario (SAS).
For every African to have access to electricity by 2030 (SDG 7.1), almost
70 million people, or 5% of the current total population, including 60 million from
rural areas, would need to gain access each year on average from 2023. In rural
areas, where more than 80% of Africans without electricity access live today,
progress needs to be even faster. Rural customers predominantly gain access
Clean energy investment for development in Africa Chapter 2: Access to modern energy services
PAGE | 21
IEA. CC BY 4.0.
through stand‐alone and mini‐grid systems, which can provide first access quickly
and represent roughly two‐thirds of new connections by 2030 in the SAS
(Figure 2.1).
Figure 2.1 Africans gaining access to modern energy by type and technology in the
Sustainable Africa Scenario, 2023-2030
IEA. CC BY 4.0.
Universal access to electricity is achieved largely through off-grid solutions, while
access to clean cooking comes mainly through improved cookstoves and LPG
Note: LPG = liquefied petroleum gas.
Source: IEA (2022), Africa Energy Outlook
2022.
Achieving universal access to clean cooking fuels and technologies by 2030
(SDG 7.2) in Africa requires an abrupt reversal of current trends; the population
without access has been climbing continuously. In the SAS, 130 million Africans
(including 80 million in rural areas) gain access to clean cooking each year
between 2023 and 2030 – roughly 10% of Africa’s current population each year.
Around 40% of the people gaining first‐time access to clean cooking by 2030 do
so with the use of solid biomass in improved biomass cookstoves, which is
generally the cheapest and most practical means of providing clean cooking in
rural areas. One‐third of the people gain access via LPG, 10% via electricity, 10%
via biogas from biodigesters and 6% via ethanol. In urban areas, LPG represents
a practical, quickly deployable clean cooking solution; however, more African
households adopt electric cooking after 2030 as electricity becomes more reliable
and connections are strengthened.
On average, around USD 22 billion per year in investment is required to connect
Africans to electricity sources and USD 4 billion per year to provide them with
clean cooking devices over 2023-30 in the SAS. These are modest sums – less
than 1% of current energy investment globally – and would bring enormous
42%
31%
27%
Electricity:
Grid
Mini-grid
Stand-alone
Clean cooking:
Improved cookstoves
LPG
Electricity
Biogas
Ethanol
Electricity
90 million
people
gaining
access per
year
41%
33%
10%
10%
6%
Clean cooking
130 million
people
gaining
access per
year
Electricity
Clean cooking
Clean energy investment for development in Africa Chapter 2: Access to modern energy services
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IEA. CC BY 4.0.
benefits, such as better health, improved conditions for women and children, and
general economic development. However, mobilising this investment represents
a massive undertaking for the poorest African countries in view of the limited public
funds and local private capital at their disposal. Current investment falls far short
of these levels: in 2019, it amounted to just 10% of the average needs for
2023-2030 in the case of electricity and 3% for clean cooking (Figure 2.2). In the
case of electricity access, the bulk of investment to 2030 is needed for
decentralised mini-grids and stand-alone systems, mostly solar photovoltaic (PV)
based. For clean cooking, end-use equipment requires the most finance, with
infrastructure in fuel supply, delivery and supply chains needing about 40% of the
annual investment.
Figure 2.2 Annual investment in and people gaining access to electricity and clean
cooking in Africa in the Sustainable Africa Scenario, 2019 and 2023-2030
IEA. CC BY 4.0.
To achieve universal access, investment in electricity access infrastructure needs to
increase sevenfold and investment in clean cooking over twenty-fold
Note: Historical data for investment in access to electricity comprise not only first access projects, but also investment aimed
at improving the level of access for households already with access.
Sources: IEA (2023), A Vision for Clean Cooking Access for All
; IEA analysis based on SE4All and Climate Policy Initiative
(2021), Energizing Finance: Understanding the Landscape.
Financing vehicles and instruments
There is a range of financing vehicles and instruments available for energy access
projects, but in general, a high share of it would need to be concessional to
address the affordability gap that many African households face. While
accompanying infrastructure for grids and fuel distribution rely on a wider set of
30
60
90
10
20
30
2019 2023-2030
Billion USD (MER, 2022)
Historic Grid
Infrastructure Mini-grids
Stand-alone End-use equipment
People gaining access (right axis)
60
120
180
2
4
6
2019 2023-2030
Million people
Electricity
Clean cooking
Clean energy investment for development in Africa Chapter 2: Access to modern energy services
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IEA. CC BY 4.0.
financing approaches and tools, they can also benefit from any measures that
improve end-user payment reliability (Table 2.1).
Table 2.1 Common financing instruments by type of energy access project and
project stage
Project type Development Operation
Grids
Grants
Concessional equity and debt
Corporate cash flow
Viability gap funding
Corporate bonds (if credit rating
allows)
Mini-grids
Grants
Concessional equity and debt
Commercial debt
Viability gap funding
Private equity (PE)/venture capital
(VC)
Commercial debt
Results-based finance
Aggregation/securitisation
Corporate (growth) equity and, where
possible, public listing
Stand-alone solar
Technical assistance and grants
Concessional equity and debt
Corporate equity (PE/VC)
Concessional or commercial debt
Results-based finance
Aggregation/securitisation
Corporate (growth) equity and, where
possible, public listing
Carbon markets
Clean cooking
Technical assistance and grants
Concessional equity and debt
Corporate equity (PE/VC)
Carbon markets
Results-based finance
Aggregation/securitisation
Notes: Equity can be concessional if it is provided in a subordinated or first-loss capacity, or if it has lower return expectations
or a longer time period to exit. Aggregation and securitisation refer to the pooling of assets and selling the cash flows to
investors to raise capital, generally via an asset-backed security or a bond. Viability gap funding refers to the practice of
providing grants or concessional short-term loans to projects that are economically beneficial but not financially viable.
Results-based financing refers to approaches where payments are made, usually by governments, donors or development
finance institutions (DFIs) to the private sector, on the achievement of predefined results.
Source: IEA (2023), Financing Clean Energy in Africa
.
The primary hurdle to attracting finance for expanding energy access is
affordability, especially in rural areas. As a result, government affordability support
and concessional financing are essential if all households are to gain access by
2030. It is estimated that due to affordability constraints, only around half of the
new electricity access connections providing the most basic energy services
3
in
the SAS are likely to be commercially viable without incentives such as reduced
connection charges, lower tariffs and subsidised electrical appliances. The
situation is similar for clean cooking access projects where the upfront cost of
stoves and the cost of fuels, such as electricity, LPG and charcoal, undermine
adoption. For example, LPG is one of the key solutions to closing the access gap,
3
The basic bundle includes more than one light point providing task lighting, phone charging and a radio. For further
information on these definitions see Guidebook for Improved Electricity Access Statistics
.
Clean energy investment for development in Africa Chapter 2: Access to modern energy services
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IEA. CC BY 4.0.
yet only one-fifth of the population without access could afford to switch to LPG at
current tariffs if they were given access to affordable credit to purchase the LPG
stove and cylinder. Excluding current affordability support, only 5% of those
without access today could afford LPG cooking.
Making electricity affordable requires a combination of well-targeted government
incentives covering grid and off-grid solutions (potentially involving cross-
subsidisation), de-risking instruments such as grants, existence of productive uses
as anchor loads and tariff reforms. Traditionally, many African countries have
subsidised domestic energy by setting prices at below-market levels, but this has
often led to electricity utilities and other energy companies – usually state-owned
enterprises (SOEs) – failing to recover their costs, resulting in rising debt, falling
investment and an inability to expand new connections fast enough. Making clean
cooking affordable on the other hand typically requires the upfront costs of
acquiring the equipment to be subsidised. Solutions based on “PayGo” models
,
where families pay as they use gas, or models based on smaller gas cylinders that
reduce the cost of each refill, have proven successful in some markets, including
Kenya and South Africa, but usually need to go together with subsidised prices.
Adequately funded national access programmes, involving transparent subsidy
mechanisms, are an important prerequisite. Currently, only 41% of the people
without access to electricity in Africa and 55% of those without access to clean
cooking are in countries with programmes that provide affordability assistance to
consumers for access. Developing integrated energy strategies is a fundamental
building block to attract supporting investment by providing greater certainty to
investors.
Governments also have a major role to play in funding access projects. Grid
extensions are generally the responsibility of SOEs, so are indirectly publicly
funded. This is expected to remain the case in the medium term: roughly four-fifths
of grid investments are carried out by public utilities in 2030 in the SAS (see
Chapter 3). Private sector financing is set to take on a larger role, though this is
likely to be limited to countries that have relatively well-developed power systems
and a stable regulatory environment. It also requires governments to make private
involvement legally viable by authorising the use of concessional agreements or
other regulatory carve‐outs for private sector investment and ownership, and as a
matter of best practice should be accompanied by auctions and competitive
tenders.
Some successful grid extension programmes have combined central government
and local community financing, ensuring local engagement. For example, in 2020,
Ghana introduced the Self-Help Electrification Scheme
, which allowed
communities to be connected to the grid earlier if they could provide poles for low-
voltage lines and guarantee that at least 30% of the households in the community
Clean energy investment for development in Africa Chapter 2: Access to modern energy services
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IEA. CC BY 4.0.
were ready to start using the electricity provided. Some countries, such as
Côte d’Ivoire, have implemented the option of on-bill repayment of connection
costs, reducing the upfront burden and permitting many households to connect to
the grid legally.
Mini-grid projects also typically depend on public sector assistance to support the
relatively high upfront costs and to ensure a tariff structure that is both cost-
reflective and sensitive to what end users can afford. When it comes to stand-
alone systems providing electricity, their inherent small scale often poses a barrier
to finance. Traditional channels of energy financing are not well adapted to support
these smaller, higher-risk projects, or to finance small and medium-sized
enterprises and local start-ups. These companies often struggle to access DFI
capital or other international sources of finance and, therefore, rely more on local
commercial banks. As a result, many of them operate as retail businesses, which
can attract more private capital but need to focus on the most profitable projects.
There will need to be an increase in patient equity and affordable local currency
debt, as well as an emphasis on early-stage financing, to support the development
of bankable projects. An alternative approach would be an
energy-as-a-service
model via public-private partnership, whereby the government leverages DFI
capital to buy the solar home systems from a private developer, and the
households pay affordable tariffs for the use of energy (and providing for
equipment maintenance) under a long-term contract.
In view of the constraints on public spending and the difficulties facing SOEs,
especially electricity utilities, international concessional capital from DFIs and
private donors will need to continue to play a critical role in de-risking access
projects and leveraging private sector finance, especially for projects aimed at the
poorest households in the most remote regions that would otherwise struggle to
attract investment. Concessional financing needs to be focused on projects where
their presence can crowd in commercial financing. In the case of clean cooking
projects, the share of private capital in international financial flows to Africa has
been growing in recent years, in part thanks to the leveraging effect of
concessional capital from DFIs and growing funds from carbon markets.
Given the limited availability of concessional finance and the large amounts of
capital needed to expand access projects, it is vital that concessional funds from
DFIs and philanthropies are used in such a way as to mobilise the maximum
amount of private capital by improving the risk-return profile of projects and
lowering the cost of capital. A number of so-called blended finance instruments
can be used to stimulate private investment in access projects, including
guarantees or other risk-sharing and liquidity support to mitigate risks, or providing
grants to support project preparation and project structuring (see Chapter 5).
Clean energy investment for development in Africa Chapter 3: The electricity sector
PAGE | 26
IEA. CC BY 4.0.
Chapter 3. The electricity sector
Key targets and investment needs
The electricity sector lies at the heart of the energy transition and is central to
achieving universal access to modern energy services. In many African countries
today, the sector is suffering from years of under-investment and poor operational
and financial performance, including large network losses, low collection rates,
widespread under-recovery of costs and unmet demand. Major reforms and new
sources of finance will be needed to bring about a step increase in investment in
generating capacity, transmission and distribution.
Ensuring universal access to reliable electricity for all households, schools,
hospitals, companies and businesses, together with an underlying shift towards
the electrification of energy end uses, means electricity becomes the fastest-
growing component of final demand in Africa in the Sustainable Africa Scenario
(SAS). Electricity demand surges by around 60% this decade from a little over
700 TWh in 2022 to more than 1 160 TWh in 2030, driven by both households
gaining access and greater use of electricity in industry and other productive uses.
The majority of this increase in demand is met by increased generation from
renewables – primarily hydropower (160 TWh to 312 TWh in 2022-30), solar PV
(16 TWh to 215 TWh) and wind (25 TWh to 156 TWh). This shift towards
renewables is driven by falling costs and policies promoting low-emissions energy,
capitalising on Africa's abundant resources. By 2030, solar PV and wind combined
contribute 38% to total power generation – eight times more than in 2022.
Installed power generation capacity in Africa doubles in the SAS, from 278 GW in
2022 to 510 GW in 2030, with a profound shift in the type of power plants built
across the continent. Renewables account for 80% of the generating capacity
additions. Solar PV leads the way, with 120 GW of capacity added between 2022
and 2030 – over 40% of the total increase in capacity. It overtakes hydropower
before 2030 and approaches natural gas as the largest source of power
generation capacity (Figure 3.1). Wind power capacity also expands rapidly,
especially in North and East Africa, where resources are located close to demand
centres. Hydropower also remains a cornerstone, with several large‐scale projects
currently under development to provide affordable and dispatchable electricity.
Natural gas-fired capacity continues to grow, but more slowly than in recent years.
The relative stability of the oil-fired plant fleet hides different regional dynamics,
with an increase in capacity related to expanded access in sub‐Saharan Africa
offset by a decline in North Africa.
Clean energy investment for development in Africa Chapter 3: The electricity sector
PAGE | 27
IEA. CC BY 4.0.
Figure 3.1 Installed power generation capacity in Africa by source in the Sustainable
Africa Scenario, 2010-2030
IEA. CC BY 4.0.
Solar PV, hydropower and wind capacity surpass that of coal and oil this decade, while
the dominant position of natural gas is overturned in the 2030s
Source: IEA (2022), Africa Energy Outlook 2022.
The rapid growth in the share of intermittent renewables has implications for the
operation of power systems, which must be managed in conjunction with efforts
to shore up electricity reliability. A range of assets and measures are developed
to improve reliability and improve system flexibility in the SAS from now to 2030,
including hydropower facilities (including pumped storage), gas-fired power plants,
geothermal plants and energy storage. Improvements in grid operation in terms of
scheduling and dispatch are also needed to make the most of these dispatchable
resources. Battery storage deployment remains modest to 2030, but accelerates
quickly thereafter, mainly to provide short‐duration flexibility and provide stable
power supply in both on-grid and off-grid applications.
Electricity sector investment accounts for around half of all energy investment by
2030 in the SAS (Figure 3.2). Total electricity sector investment rises from an
estimated USD 30 billion in 2022 to USD 120 billion in 2030, with renewables
accounting for over half of this amount. Solar PV accounts for the bulk of this
investment.
30
60
90
120
150
2010 2015 2020 2025 2030
GW
Natural gas
Solar PV
Hydro
Wind
Coal
Oil
Other renewables
Bioenergy
Nuclear
Clean energy investment for development in Africa Chapter 3: The electricity sector
PAGE | 28
IEA. CC BY 4.0.
Figure 3.2 Electricity sector investment by sector in Africa in the Sustainable Africa
Scenario, 2022-2030
IEA. CC BY 4.0.
Reaching the continent's Sustainable Development Goals, including energy access and
climate targets, will require nearly a fivefold increase in electricity sector investment by
2030. This increase is driven mainly by clean energy and infrastructure
Note: STEPS = Stated Policies Scenario; SAS = Sustainable Africa Scenario. Grid investment excludes that related to
extending electricity access.
Supporting these capacity additions requires large-scale investments in grid
infrastructure, not just to expand networks to meet the needs of newly connected
customers and rising demand from existing ones, but also to upgrade them to
provide adequate flexibility, support the integration of digital technologies to
improve real-time awareness of the situation on the grid and improve the ability
for dispatchers to operate the grid. The achievement of universal access to
electricity by 2030 is a significant driver of electricity sector investment, accounting
for 13% of the total over 2023-2030, compared with barely 4% in 2019-2022.
Maintenance and modernisation of existing infrastructure
represents almost a
quarter of total capital spending on grids to 2030, helping to reduce network losses
in 2030 by 30% compared with 2022. The financial difficulties experienced by
many utilities over several years have hampered investment in new transmission
and distribution assets as well as the maintenance of existing ones, resulting in a
deterioration in operational performance, including increasing network losses.
Most utilities report losses of at least 10%, with an average of 15% across the
continent in 2020 – more than double the global average of 7%.
Financing vehicles and instruments
The way electricity sector investment in Africa is financed must evolve to support
the near-tripling of investment by 2030 and a shift towards renewables and
networks in the SAS. The types of financing instruments typically used for power
and network projects vary markedly according to the type of projects, the
technology involved, the maturity of the market and the project stage (Table 3.1).
50
100
150
2022 2030
Billion USD (2022)
Other
Grids and storage
Access
Fossil fuel generation
Renewables:
Wind
Hydro
Solar
Other Renewables
Clean energy investment for development in Africa Chapter 3: The electricity sector
PAGE | 29
IEA. CC BY 4.0.
For instance, solar PV and wind projects can benefit from technical assistance in
early development stages and concessional equity and debt during their
development, but once they are operational with a proven performance, they can
be refinanced on commercial capital. Arrangements for private investments are
also an important factor. Several models to facilitate private sector participation in
the power sector are in operation across the continent, including long-term
concessions; build, own, operate and transfer (BOOT) projects; merchant plants,
long-term power purchase agreements facilitated by auctions, and transmission
lines; and dedicated lines for independent power projects.
Table 3.1 Common financing instruments for power generation and networks by
technology and project stage
Technology Development Construction Operation
Solar PV/wind – nascent
market
Technical assistance
grants; seed grants
Concessional equity
Corporate cash flow
Concessional debt
Viability gap funding
Corporate equity (private
equity [PE]/venture
capital [VC])
Commercial debt
Aggregation;
securitisation
Solar PV/wind –
developed market
Corporate cash flow
Equity
Project finance
Commercial debt
Corporate equity
(PE/VC)
Commercial debt
Refinance via corporate
bond (if credit rating
allows; on local markets
ideally)
Geothermal and hydro
Technical assistance
grants in new markets,
such as resource
potential assessment
Equity
Funding from state-
owned enterprises
(SOEs)
Project finance
Concessional debt
Corporate equity
(PE/VC)
Commercial debt
Refinance via corporate
bond
Transmission and
distribution
Grants
Corporate cash flow
Concessional equity
Grants
Viability gap funding
Concessional debt and
equity
Corporate bond (if credit
rating allows; on local
markets ideally)
Notes: Equity can be concessional if it is provided in a subordinated or first-loss capacity, or if it has lower return expectations
or a longer time period to exit. Viability gap funding can take several forms but refers to the practice of providing grants or
concessional short-term loans to projects that are economically significant but not financially viable. Aggregation and
securitisation refer to the pooling of assets and selling the cash flows to investors to raise capital, generally via an asset-
backed security or a bond. Viability gap funding refers to the practice of providing grants or concessional short-term loans to
projects that are economically beneficial but not financially viable.
Source: IEA (2023), Financing Clean Energy in Africa
.
Utility-scale renewable power projects
Utility-scale renewable power projects, especially in less mature markets, are
often hard to finance due to higher risks in the development and construction
phases. This means that higher levels of equity financing, as well as public
spending and/or concessional support from development finance institutions
(DFIs), are needed. Geothermal and hydropower projects, which have more
specific geological and hydrological requirements for their successful
development, have an additional risk phase during the exploration and scoping
Clean energy investment for development in Africa Chapter 3: The electricity sector
PAGE | 30
IEA. CC BY 4.0.
that is greater than that required for wind and solar. Hydropower projects also
require long due diligence, permitting and environmental licensing procedures.
This can present a major hurdle, particularly for large projects such as the
proposed Grand Inga Dam project in the Democratic Republic of the Congo,
which
has been stalled for years due to its large scale (40 GW) and the associated need
for both transmission works and cross-border agreements, as well as ongoing
discussions regarding its potential environmental impact.
Many African countries still rely on concessional support for the development of
their large renewable projects. As a result of the limited availability of concessional
finance, investment in such projects has so far been concentrated in countries with
access to commercial capital due to their broader access to finance (Figure 3.3).
There is a need to increase the amount of funding to lower-income countries,
accompanied by support to strengthen the regulatory environment and build
institutional and technical capacity within these countries. There are signs of
progress here; for example, lower-income countries are seeing a shift from
licensed schemes to competitive bidding, which accounted for 20% of renewables
projects in 2017-2018, rising to 90% in 2019-2021. Programmes such as the
African Development Bank (AfDB) Desert to Power Initiative
, which began working
with five countries in the Sahel and is now entering a second phase in East Africa,
demonstrate the value of a co-ordinated approach that includes working with
governments on national sector roadmaps, as well as supporting individual
projects through viability gap funding.
Figure 3.3 Clean power project financing by ability to access commercial capital in
Africa, 2017-2022
IEA. CC BY 4.0.
Renewable power investments are concentrated in larger economies with greater access
to commercial capital, with poorer countries forced to rely on limited concessional
capital finance
Note: MER = market exchange rate; PV = photovoltaics.
Sources: IEA analysis based on IJ Global and WB PPI.
10
20
30
40
5
10
15
20
2017-
2018
2019-
2020
2021-
2022
2017-
2018
2019-
2020
2021-
2022
Hydropower
Grids and
storage
Wind
Solar PV
Renewables
capacity
(right axis)
Billion USD (2022, MER)
Countries reliant on
concessional capital
Countries with access to
commerical finance
GW
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In more developed African countries, especially those with strong renewables-
related regulations and existing projects, a major barrier to their widespread
adoption is concern over non-payment of offtake agreements (electricity supply
contracts). Aside from cultivating a reliable, paying customer base to buy this
energy, other measures can help overcome this risk. These include measures that
ensure utilities are not over-contracted for energy that will not get used, such as
the creation of realistic integrated resource plans with clear capacity targets by
technology type. It can also be improved through contract structures that assume
some of the offtake risk, which includes introducing independent power producer
frameworks and power purchase agreements (PPAs) which have contracts that
have the governments or international development financiers absorb some of the
repayment risk. Still, regulators must also ensure that risks are shared in a
balanced way between sellers and purchasers of electricity to avoid putting too
much risk on utility off-takers and government backstops, many of whom are
already in financial difficulty. Greater transparency around financial terms,
including any de-risking or credit enhancements provided by DFIs, can help in this
regard.
Once countries already have a developed market for renewables projects, the
pipeline of new projects can rely increasingly on commercial debt with partial
assistance from the public sector, even in the development and construction
phases. This opens the country up to a larger pool of capital providers while also
freeing up DFI or donor capital to invest in more nascent markets. It also creates
opportunities to refinance projects, allowing concessional finance providers to exit
the investment and be replaced by private investors. For example, the 380 MW
Benban Solar Park project
in Egypt was originally funded with equity from the
private sector and debt solely from multilateral development banks (MDBs). In
April 2022, Scatec and its partners
refinanced the non-recourse project debt
through the issuance of a 19-year, USD 335 million green project bond. This
transaction – the first of its kind in Africa – reduced the project’s financial costs
over its lifetime while freeing up MDB capital to reinvest elsewhere.
Distributed renewable power for businesses
African grids are prone to frequent power outages. As a result, many end users,
ranging from small and medium-sized enterprises (SMEs) and smallholder
farmers through to large commercial and industrial firms, are forced to operate
diesel generators as a backup. In recent years, as the cost of solar PV modules
has fallen and diesel prices have risen, the market for distributed solar PV supplied
to businesses has grown.
Projects to supply distributed solar power are generally financed on the
consumer’s own balance sheet or via off-balance sheet arrangements, such as
third-party ownership supported by corporate PPAs. In the latter case, the end
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user is often a creditworthy business, but such third-party arrangements are also
suited to cash-constrained companies, including SMEs. Most distributed solar and
battery systems sold under these arrangements have, to date, been concentrated
in Egypt, Nigeria and South Africa. However, projects with similar arrangements
are planned or are underway in at least 12 other countries across the continent
.
National policies, particularly around third-party ownership, interactions with utility
distribution and billing systems, and tax exemptions for importing solar equipment,
will play an important role in supporting the further growth of the distributed solar
PV market in these applications, to reduce risks to subsequent grid investments
undermining the project economics of these systems.
Grids and storage
Public utilities will need to be responsible for much of the investment in upgrading
electricity systems across the African continent, accounting for 80% of grid
investment in 2030 in the SAS. This is a daunting prospect given their perilous
financial state today. Poor payment collection rates, illegal connections, cost
increases (including the cost of capital), operational problems and supply chain
constraints are reducing cash flows and driving up debt in many countries,
especially in sub-Saharan Africa. Private sector financing will therefore need to
take on a larger role, although this is likely to be limited to countries that have
relatively well-developed power systems, a stable regulatory environment and the
legal frameworks in place to allow for private sector participation in their power
sector. In addition to providing new sources of finance,
private operators generally
outperform their public counterparts across a range of technical and commercial
indicators. Nonetheless, it is important that moves to open up transmission and
distribution are accompanied by strong regulation, in part to ensure that private
operators invest in less-profitable areas such as the electrification of rural areas.
In many countries, boosting private investment requires authorising their
participation, whether through the use of concession agreements or other
regulatory carve‐outs for private sector investment and ownership, which should
be accompanied by auctions and competitive tenders to ensure these processes
are managed fairly and efficiently. Although private participation in generation in
Africa has been increasing gradually in recent years, with over half of African
countries now allowing it, private operators of both transmission and distribution
assets are present in only three countries
– Côte d’Ivoire, Gabon, and Zambia.
Several other countries are exploring ways to open networks to private investors,
but public concessional finance is likely to be necessary to de‐risk projects,
particularly in the early stages. For example,
Gridworks, an investment platform
owned by the DFI British International Investment, is working with the Ugandan
government on a pilot for private investment in transmission, while the Kenyan
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government signed an agreement with India’s POWERGRID in 2022 to create
Africa’s first independent power transmission project.
Digitalisation, including outage management systems and smart metering,
accounts for a small share of total grid investment in the SAS but makes a
disproportionately large contribution to reducing network losses, particularly
non-technical (mainly due to poor collection rates and theft). These losses were
estimated to cost African utilities in total around USD 15 billion in 2020
alone.
Several countries have already begun piloting these measures, notably smart
metering (Benin, Kenya), smart substations (Senegal, Democratic Republic of the
Congo), fibre optic communication added to transmission lines (Ethiopia, Kenya)
and the use of thermal-based tools with drones to support routine inspection of
hotspots on the grid (Ghana, Kenya). Much of this investment is likely to occur via
public utilities, but it can also be supported by the private sector, where their
participation in electricity networks is permitted. Robust planning to signal to the
market that there is a strong pipeline of potential projects is necessary to attract
private investors.
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Chapter 4. Emerging industries
Key targets and investment needs
As in the rest of the world, an emerging set of industries based on various energy
technologies will need to play an increasingly important role in Africa over the
coming decades as the energy transition advances. They include the mining and
processing of critical minerals; the production of low-emissions steel and cement;
the production of hydrogen and hydrogen-based fuels; and the manufacturing of
clean technologies such as vehicle batteries, solar PV panels, wind turbines, heat
pumps, fuel cells and electrolysers. For now, Africa has a significant presence only
in the mining of critical minerals, notably cobalt, platinum group metals (PGMs),
manganese and copper. However, some parts of Africa have effectively parlayed
their low-emissions power mix, growing workforce, and competitive costs into
attracting new investment in related industries, such as in Egypt, Kenya
and
Morocco. Within the broader context of Africa’s growing industries, including in
steel, cement, textiles, paper and agriculture, industrial energy demand growth
can be seen as an opportunity – anchoring new energy infrastructure on these
clients as reliable, paying sources of demand. Productive uses – the grouping to
describe energy use linked to economic activity – made up nearly half of the
growth in electricity demand in Africa over the last ten years, and pay two-thirds
of Africa’s electricity bills, despite only making up just over half of Africa’s electricity
demand. This section explores opportunities to develop these new industries with
an eye for how their development supports African and global energy objectives.
Critical minerals
Expanding the extraction of critical minerals to meet rapidly growing global
demand represents an enormous economic opportunity for Africa. Production of
mineral resources is already a vital source of income for Africa, representing
around 8% of government revenues in resource‐rich African countries.
In 23
African countries, minerals represent over 30% of total product exports. The
mining sector has also been one of the main recipients of foreign direct investment
in the region.
Several African countries are endowed with large mineral resources, many of
which are critical to various clean energy technologies. For some minerals such
as cobalt, PGMs and manganese, the region is already a major supplier to the
global market (Figure 4.1), as reiterated also in the IEA’s latest report Global
Critical Minerals Outlook 2024. The Democratic Republic of the Congo accounts
for about 70% of global cobalt production, though only a small amount is
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processed in the country (the bulk of it is exported to China for processing). It is
also Africa’s leading producer of copper and among the top five producers
worldwide, and could be among the top three in 2030
. South Africa dominates
global supplies of PGMs and is also a leading producer of chromium and
manganese. There are also substantial untapped resources of other minerals
such as lithium and nickel. Africa's lithium mining is expanding, led by Zimbabwe,
with planned projects in Ethiopia, Mali, Namibia, the DRC, and Ghana, potentially
boosting production to 53-70 kt by 2030, despite possible delays from price
volatility. The continent also holds a sizeable share in the production of other
mineral resources such as bauxite and graphite (such as in Uganda).
Figure 4.1 Share of African global production of selected minerals, 2023
IEA. CC BY 4.0.
Africa is already a major producer of key critical minerals today, holding in some cases
more than half of known global reserves
Notes: DRC = Democratic Republic of the Congo. Anticipated supply includes existing production and that from projects that
are currently planned or under construction.
Source: IEA (2022), Africa Energy Outlook
2022.
The extraction of critical and other minerals needed for clean energy technologies
across the continent is expected to grow strongly in the coming years, especially
cobalt, led by the Democratic Republic of the Congo and Zambia. Revenues from
copper and key battery metals production in Africa are already estimated at over
USD 20 billion annually, and the current pipeline would imply a 65% increase in
market value by 2030.
There is enormous potential for expanding output as global demand for those
minerals soars in parallel with that for clean energy technologies, which will be
outlined in the IEA’s upcoming Critical Minerals Security Mechanisms Research
Study. This expansion will require large-scale investments in mines as well as a
range of supporting infrastructure such as ports, roads, railways and power supply.
20%
40%
60% 80% 100%
Copper
Bauxite
Chromium
Platinum
Graphite
Manganese
Cobalt
DRC
Morocco
South Africa
Mozambique
Madagascar
Gabon
Ghana
Côte d'Ivoire
Guinea
Zambia
Zimbabwe
Share of reserves
Batteries
Other low-emissions
technologies
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Improving the quality of geological surveys to gain a better understanding of the
resource potential, robust governance, transparent regulatory frameworks and
adequate incentives will also be needed to stimulate investment. All of this
necessitates the strengthening of the capacity of local authorities to design,
monitor and regulate resource developments and processing, as well as
transparent mineral wealth management systems to translate mining revenues
into widespread economic prosperity and use them to support the diversification
of the economy. The environmental and social effects of exploiting mineral
resources also need to be managed carefully, both to protect local communities
and to gain public acceptance for future projects.
Steel and cement
While almost 20% of the global population resides in Africa, in 2022 the continent
accounted for just over 5% of global cement production and 1% of global steel
production, almost a third of which is from scrap-based electric arc furnace. In the
Sustainable Africa Scenario (SAS), economic development drives up building and
infrastructure needs greatly on the continent, with Africa set to build more floor
area by 2030 than currently exists in Japan and Korea. This drives up the demand
for steel and cement on the continent considerably, with steel production growing
by over 40% and cement production increasing by almost 35% by 2030
(Figure 4.2) to meet the rising demand. Increasing the production of these
products in Africa could bring a suite of benefits for African countries, such as
reducing import dependency for steel, increasing the security of supply and
creating employment opportunities.
Figure 4.2 Steel and cement production in Africa in the Sustainable Africa Scenario,
2022-2050
IEA. CC BY 4.0.
Driven by economic development, steel and cement production increase rapidly to meet
rising demand for infrastructure
2022 2030 2040 2050
0.5
1.0
1.5
2.0
2.5
3.0
Steel
Cement
Material production (indexed to 2022)
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The production of steel and cement is currently dominated by emissions-intensive
processes which rely on fossil fuels. While there is limited production of low-
emissions steel and cement in Africa, there are a few plans to invest in these
sectors in the foreseeable future, such as in Mauritania and South Africa for steel
and Ghana for cement. While decarbonising steel and cement production is
important to avoid locking in emissions-intensive assets for decades, meeting the
rising production demand for steel and cement via low-emissions technologies in
the near term is challenging, as these technologies have higher upfront costs and
are not yet demonstrated at scale. For example, in 2030 steel production pathways
based on low-emissions hydrogen are expected to be considerably more costly
than those of natural gas.
As new production expands in Africa, there are opportunities, however, to ensure
the latest steel and cement production developed is as efficient and future-proof
as possible. For steel production, for instance, the emissions intensity of natural
gas-based direct reduced iron-electric arc furnace (DRI-EAF) routes is less than
half that of coal-based routes, such as blast furnace-basic oxygen furnace (BF-
BOF) and coal-based DRI-EAF (Figure 4.3). Additionally, gas-based DRI
processes can be more easily shifted to low-emissions hydrogen without
substantial retrofits. Such an approach has been adopted by countries such as
Uganda, which through its recently drafted Energy Transition Plan is planning to
focus all new steel-producing plants on using natural gas instead of coal by the
end of this decade. While serving domestic markets and reducing import
dependency should be the priority, for countries with good iron ore and low-
emissions hydrogen resources, there could be opportunities to export higher-value
products like low-emissions steel to foster economic growth. In Namibia, for
example, German developers are exploring a novel technology to produce low-
emissions iron (the precursor of steel) using renewable energy, while
in
Mauritania, ArcelorMittal is evaluating the potential to develop a DRI production
plant that would take advantage of Mauritania’s potential for renewable electricity
generation and low-emissions hydrogen production. Foreign offtake can also help
enhance the creditworthiness of the project and help lower the cost of capital for
such projects.
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Figure 4.3 Global average direct and indirect emissions intensities in crude steel
production via key decarbonisation pathways
IEA. CC BY 4.0.
In 2030, the emissions intensity of natural gas-based DRI production routes is more than
half of that of coal-based routes. By 2050, hydrogen-based DRI process create
opportunities for net zero emissions crude steel production
Notes: PCI BF-BOF = blast furnace-basic oxygen furnace with pulverised coal injection; DRI-EAF = direct reduced iron-
electric arc furnace; H2 = hydrogen-based; NG = natural gas-based; Scrap EAF = scrap-based electric arc furnace. All
process routes use zero scrap, apart from the Scrap EAF route, which uses 100% scrap.
Source: IEA (2022), Achieving Net Zero Heavy Industry Sectors in G7 Members
.
For cement production, combustion emissions account for around 30-40% of total
emissions, while process emissions – the more difficult to abate – account for the
remainder. Today, much of Africa’s cement production uses biomass residues
along with coal and oil products to manage seasonal availability of biomass.
Developing more stable biomass stocks, and firing with gas, for instance, can be
cheaper and reduce emissions. Reducing the clinker content through substitution
with alternative materials, such as calcined clay, can also reduce process
emissions. To fully decarbonise cement production, carbon capture, utilisation and
storage (CCUS) technologies are needed to capture CO
2
process emissions.
While CCUS technologies are currently not economically feasible for facilities in
Africa, the technology could create opportunities for carbon credit purchases to
finance projects, particularly given that power systems in Africa have historically
had a significant amount of underutilised capacity and a high share of renewables.
Low-emissions hydrogen
It is a similar picture regarding the production of low-emissions hydrogen and
hydrogen-based fuels such as ammonia, which are globally at a very nascent
1 000
2 000
3 000
2020 2030
2050 2020 2030
2050 2020 2030 2050 2020 2030 2050
Indirect emissions (electricity)
Indirect emissions (fossil fuel and raw material supply)
kg CO2-eq/t crude steel
PCI BF-BOF
NG DRI-EAF
H2 DRI-EAF
Scrap EAF
Net zero emissions
Direct emissions
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stage of development. Today’s most common applications for low-emissions
hydrogen include fertiliser production and oil refining, as well as use of ammonia-
based fuels in shipping and ammonia-blending with coal in electricity generation.
In principle, Africa is well-placed to develop a hydrogen industry given its large
potential wind and solar resources (Figure 4.4), and low-emissions hydrogen
production from announced electrolyser projects in Africa could reach 2 Mt by
2030 if all projects come to fruition. However, this would require massive
investment in production and export facilities, as well as in renewables‐based
electricity production, power grids, seawater desalination and CO2 transport and
storage. However, some models, such as the project being developed in Namibia,
are exploring how a firm hydrogen offtake agreement could lower risk and
financing costs for accompanying renewable energy investments and could allow
for overbuilding these projects to supply power to the broader grid.
Figure 4.4 Delivered costs of low-emissions hydrogen from selected producer regions
delivered to Northern Europe, 2030
IEA. CC BY 4.0.
Africa has potential to export low-emissions hydrogen, especially as ammonia,
produced from renewable electricity to demand centres in Europe at competitive prices
Notes: H
2
= hydrogen; LH
2
= liquefied hydrogen; NH
3
= ammonia; RE = renewable energy; NG = natural gas; CCS = carbon
capture and storage.
Source: IEA (2023), Financing Clean Energy in Africa
.
Clean technologies manufacturing
As of today, Africa is a very minor player in the manufacturing of clean energy
technologies, which is dominated by China and, to a lesser extent, North America
and Europe. African countries rely heavily on imports for some key clean
technology, such as solar home systems – an essential technology for achieving
universal access to electricity (see Chapter 2). To help make them affordable, they
1
2
3
4
5
LH₂ NH₃ LH₂ NH₃ LH₂ NH₃ LH₂ NH₃ NH₃ LH₂ NH₃ NH₃ H₂ H₂ H₂
USD (2020)/kg H₂
Production (RE) Production (NG + CCS) Conversion
Import/export terminals Transport Reconversion
North Africa
Southern
Africa
Northern
Europe
Middle East
Australia
Southern
Europe
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are typically exempt from duties and value‐added tax, but this measure
undermines efforts to nurture domestic production. Most African companies
involved in producing solar home systems focus on the assembly of batteries and
PV panels, which are no longer produced on the continent. A few companies
pioneered production of solar panels as early as 2011 in Kenya and 2012 in South
Africa but have since turned away from manufacturing to focus on distributing
panels in partnership with Southeast Asian manufacturers. However, there are
plans to build new production facilities, such as in Burkina Faso. In 2022, the
Democratic Republic of the Congo and Zambia set up a
common governance
structure – the DRC‐Zambia Battery Council – to create a business environment
conducive to the development of a battery value chain based on their indigenous
critical mineral resources.
Clean cooking equipment and fuels also face similar challenges. Often exempted
from tariffs to help manage affordability, increasingly domestic efforts are focusing
on developing local manufacturing of stoves and developing strong local supply
chains, as is the case with Burn Manufacturing, which
is expanding its stove
manufacturing facilities to other countries in Africa.
Expanding manufacturing centres to meet domestic demand would require major
investments in energy, transport and digital infrastructure. Dedicated industrial
parks with reliable and affordable supplies of energy and other services can be a
way to attract anchor industries. The reliability of electricity supply is particularly
important to attract industry, increase productivity, reduce costs and cut
emissions; many African manufacturers currently rely on inefficient diesel or
gasoline generators to provide backup power.
Productive activities
Other productive activities, including light industry, commercial businesses and
agriculture, are set to demand more energy, and can also be the target of
modernisation efforts that could switch processes to electricity. Industry in total
currently accounts for two‐thirds of energy demand for productive uses, with
services (commercial and public buildings, and desalination) contributing a quarter
and agriculture less than one‐tenth. Total energy consumption for productive uses
across Africa rises by a quarter over 2023‐2030 in the SAS, with the use of almost
all major fuels increasing in all three productive sectors.
This growth can be directed increasingly towards electricity, with the right
measures in place to keep electricity rates affordable, improve reliability and
address the upfront investment hurdles for many of the small and medium-sized
enterprises that would be making these investments. Key productive uses where
the right policies could drive greater electrification include switching irrigation
pumps from diesel to pumps powered by solar and batteries; expanding cold
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chains to allow for safe, hygienic transportation of agricultural products to urban
centres; data centres; and industries such as paper and textiles. Support would
be needed from financing institutions to address the high upfront costs of these
modernisation efforts, even if the most efficient, modern and sustainable options
are lower-cost over their lifetime. Many productive uses demonstrate a higher
ability to pay for electricity and can improve the economics of the overall power
sector.
Many industries will also continue to rely on biomass, notably brickmaking, paper
and pulp, food processing, and textiles, given the ample supply of biomass waste.
Local authorities can assist in ensuring a continuous supply of biomass and waste
to industrial plants, but also developing reliable supply chains for other modern
fuels needed when by-products are unavailable. This can help reduce pressure to
use other unsustainably harvested biomass, including wood and charcoal.
Ethiopia, Morocco and Rwanda have implemented policies that support industrial
growth using more sustainable technologies
.
Financing vehicles and mechanisms
Stimulating investment in emerging energy industries in Africa, as well as
stimulating the growth of clean tech demand, calls for both broad economic
reforms to create a more attractive business environment for private investors and
a change in the way projects are financed, in particular through the greater use of
concessional finance and new financial instruments such as climate finance. The
main constraint to financing now is not the supply of private finance, but rather the
absence of bankable projects, in turn caused by the absence of a robust policy
and regulatory framework, policy predictability and a strong political commitment
to an announced energy transition pathway. Deep-seated economic policy
reforms must, therefore, be the first step in the process of attempting to secure
investment in these industries.
Economic development in Africa is gradually driving up the pool of available
domestic capital, but most domestic financial markets remain underdeveloped and
ill‐equipped to channel this capital into emerging clean energy projects, while
foreign investors are in many cases discouraged by excessive country and project
risk. Mobilising private capital to support investments in emerging industries will,
therefore, often rely on bilaterally negotiated agreements with international
partners, of which government partners could bring concessional and climate
finance to bear, especially in the near term for clean technology and access-
related manufacturing investments, critical mineral processing, and projects that
can demonstrate clear emissions reductions (Table 4.1). This calls for the
expansion of existing financing instruments and the introduction of new ones, as
well as innovations in establishing efficient platforms and partnerships. By
contrast, mining projects are likely to continue to depend on equity finance at the
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exploration and development/construction phase and on corporate cash flow for
operations. Securing foreign demand for large low-emissions hydrogen projects
will be necessary initially to provide the stable revenue stream needed to mobilise
investors at the necessary scale.
As with investments in the electricity sector and related to extending energy
access, concessional finance will undoubtedly need to play a major role in getting
projects in non-mining emerging energy sectors off the ground given the limited
scope for debt financing. As these public and philanthropic funds are limited, they
need to be used strategically to leverage high multiples of private funding and to
support high-impact development projects where risks are too high to attract
sufficient capital from the private sector.
Table 4.1 Common financing instruments for emerging energy industries by project
stage
Industry Development Construction Operation
Critical minerals
Equity of mining juniors
and corporate cash flow
Mining juniors acquired
by majors and projects
developed using
corporate cash flow;
equity from downstream
offtake agreement
Corporate cash flow
Low-emissions
hydrogen
Government grants,
Concessional debt from
multilateral development
banks
Concessional and
commercial debt, equity,
grants,
green/sustainable bonds
Corporate cash flow
Revenue from
government subsidies
Steel and cement Corporate balance sheet Concessional debt Corporate cash flow
Clean tech
manufacturing
Concessional equity
Private equity/venture
capital
Concessional debt Corporate cash flow
Notes: Mining juniors, often funded by speculative stock market investors, are small project development companies
intervening in early development phases such as exploration and prefeasibility/feasibility studies, which are characterised by
lower capital requirements and a higher level of risk, due to inherent geological incertitude, commodity price fluctuations and
long lead times.
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IEA. CC BY 4.0.
Chapter 5. Mobilising investment
Creating a conducive investment ecosystem
Many clean energy projects in Africa today – especially in sub-Saharan countries
– rely on concessional funding, with development finance institutions (DFIs)
among the largest energy investors on the continent. Yet the total investment this
funding is mobilising is far from sufficient to meet the needs of the energy transition
to put Africa onto a truly sustainable development path. There is an urgent need
to step up this funding and tap into the range of sources of financing available for
such projects on a much larger scale, in particular from private lenders. Enhanced
commitments by donors and DFIs are an essential condition to scaling up clean
energy investment, particularly in energy access projects, but they must be
accompanied by improvements to their existing delivery channels, changes to
their business models to take a more active role in riskier early-stage project
development, and a greater focus on how to mobilise more private investment.
This is all the more pressing in the case of fragile and conflict-prone countries,
where other sources of capital are severely lacking.
In parallel, host countries themselves have a role to improve the overall investment
climate, lower the cost of private capital and encourage the development of local
capital markets in order to attract more private capital. In the longer term, there
will be a growing need to secure financing from institutional investors for clean
energy projects in the electricity sector and emerging energy industries via tools
such as sustainable debt issuances. Private equity and venture capital will also
need to play an important role in funding start-ups, including companies that are
tackling energy access gaps or providing innovative solutions to develop local
clean energy-related industries. And local banks and institutional investors will
need to contribute more to clean energy projects as the transition advances. All
this hinges on building the human and institutional skills and capabilities in
government, the energy sector and the local financial community.
A set of high-level cross-cutting developmental objectives that governments (of
both donor and host countries), DFIs and other providers of concessional capital
should take into consideration in financing clean energy projects in Africa are
outlined below. The aim should be to encourage equitable African-driven
investments that create lasting and inclusive social and economic developmental
benefits. The types of technical and institutional capacity-building initiatives
specific to the energy sector that are needed to assist African countries in securing
those investments are identified, and examples of successful programmes are
provided.
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Better leveraging public funds to attract
private capital
Concessional and blended finance
Concessional finance will be critical to many types of clean energy investment,
notably those related to energy access, the electricity sector and nascent energy
industries. DFIs and philanthropies need to use it in ways that help to mobilise the
maximum amount of private capital by de-risking investment through
co-investment or blended finance. This finance involves the use of concessional
development capital to mobilise private capital by improving the risk-return profile
of projects and lowering the cost of capital, using guarantees or other risk-sharing
and liquidity support to mitigate risks, or providing grants to support project
preparation and project structuring.
DFIs have played a crucial role in financing energy projects in Africa from 2013 to
2022. Overall, global (excluding the People’s Republic of China [hereafter
“China”]) DFI financing is more diversified and steadily increasing support for
renewable energy, whereas China's financing is characterised by large, targeted
investments in specific years (Figure 5.1). The level of global DFI financing in
energy has been relatively static over the last decade, spread across various
sectors with 30% of it in transmission and distribution in 2022 and with solar PV
almost doubling. In contrast, Chinese DFI financing exhibits significant volatility,
with sharp peaks followed by rapid declines, driven by central government policy
on lending abroad. China's investments have focused heavily on fossil fuel
projects, although going forward the government has announced its intention to
focus on greener investments, including in sectors such as transmission and
distribution and transport.
Overall, while DFIs, including in China, have committed to reducing their financing
to fossil fuels – particularly coal and oil – the data do not yet show a significant
increase in clean energy spending. This is in contrast to the overall trend in energy
investment, which has seen total spending increase from over USD 2 billion in
2013 to nearly USD 3 billion in 2023, driven by a near-tripling of clean energy
investment.
Clean energy investment for development in Africa Chapter 5: Mobilising investment
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IEA. CC BY 4.0.
Figure 5.1. Development finance institution spending in energy by source and sector in
Africa, 2013-2022
IEA. CC BY 4.0.
While global development financing in energy for Africa has increased with a focus on
renewable energy and transmission, China's spending shows significant volatility with
large investments in specific years and a declining trend
Note: MER = market exchange rate.
Source: IEA analysis based on OECD (2023), Development finance assistance
.
Today, G7 countries together provide roughly USD 80 billion in financing to Africa
from their bilateral development finance institutions, of which around 6% goes to
energy. Much of this capital today focuses on technical assistance, supporting an
enabling environment for better energy and climate investments. In some regions,
these efforts are bearing fruit, and in these leading markets a shift towards
concessional finance used to mobilise additional investments, such as low-cost
debt, equity and guarantees, could be instrumental to achieving the doubling of
energy investment needed on the continent. An examination of ongoing G7
initiatives in the energy and climate sectors (Table 5.1) shows that a significant
portion of official development assistance (ODA) is directed towards relatively
developed economies such as Egypt, Nigeria and South Africa, which are among
the four countries with the highest GDP in Africa. Other overseas development aid
efforts are also ongoing and could also be leveraged with a wider view of energy's
role in development, such as in the context of a lack of clean cooking access which
carries grave impacts on health, gender equality and the environment.
2013 2015 2017 2019 2021
2
4
6
8
10
12
14
16
2013 2015 2017 2019 2021
Billion USD (2022, MER)
Buildings Transport Industry
Transmission & Distribution Hydro Wind
Solar PV Coal Oil and gas
World (excluding China)
China
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Table 5.1 Official development assistance received and number of initiative
participations for selected African countries, 2022
ODA
USD Million
LDCs
Non-LDCs
500-600 Egypt (3), Nigeria (3)
300-400 South Africa (4)
200-300 Mozambique (3), Tanzania (3), Niger (2) Kenya (5)
100-200
Senegal (7), Benin (4), Ethiopia (4),
Burkina Faso (3), Guinea (3), Zambia (3)
Morocco (3), Côte d'Ivoire (5)
<100
Democratic Republic of the Congo (3),
Rwanda (3), Togo (3), Uganda (3), Djibouti
(2), Guinea-Bissau (2), Liberia (2), Malawi
(2), Mali (2), Mauritania (2), Sierra Leone
(2), Somalia (2), Sudan (2), The Gambia
(2), Chad (1), Madagascar (1)
Ghana (5), Tunisia (3), Cameroon (2),
Namibia (2), Cabo Verde (2),
Zimbabwe (1), Algeria (2), Congo (2),
Angola (2)
Notes: LDCs = Least Developed Countries. The number of G7 initiatives having active or past projects on energy in these
countries is included in parentheses. G7 initiatives included in this count are: the Clean Energy for Development: A Call for
Action initiative, G20 Compact with Africa, Global Gateway, Just Energy Transition Partnerships, "Mattei Plan" for
development in African continent states, Partnership for Global Infrastructure and Investment, and Power Africa. LDC = Least
Developed Countries.
Source: IEA analysis based on OECD (2023), Development finance assistance
.
A number of different blended finance instruments can be used (Table 5.2). In
structuring blended finance projects, the choice of instrument is determined largely
by the rationale for using concessional funds, reflecting the project-specific
investment risks or market barriers. This helps ensure that the minimum amount
of concessional funding needed to attract the required amount of private capital is
used.
Table 5.2 Blended finance instruments
Instrument Characteristics
Concessional loan
Concessional senior loan, priced below market, or subordinated loan in liquidation
and/or in payments to all senior lenders, also priced concessionally.
Guarantee
First loss cover, up to an agreed maximum amount. Can be protected as a
(funded or unfunded) guarantee on a single loan, or as a pooled first-loss
guarantee on a portfolio of loans.
Liquidity support guarantee can be provided on a revolving standby letter of credit
that can be drawn by the project company if the off-taker fails to honour its
payment obligation.
Concessional equity
Lower-priced equity with a lower internal rate of return to offer affordable equity
funding, or subordinated equity with cash waterfall (distribution of all proceeds
including exit and dividends according to a waterfall).
Investment grant
Performance-based incentive (PBI): rebates to provide incentives and
disincentives to achieve desired outcomes or results (e.g. tie at least a portion of
payments to achievement and aim to reward innovation and successful
implementation).
Viability gap funding: capital grant provided up to certain percentage of total
investment costs for projects that are not commercially viable yet due to long
gestation period.
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Instrument Characteristics
Bond investment
Similar to a loan, can be traded privately or publicly, offshore or onshore. Can be
used with PBIs.
Local currency
support
Concessional funds to provide fully or partially subsidised currency hedge, or
concessional loan with a subsidised spread (or with a swap-cost buy-down) to
absorb the high cost of currency hedge.
The long-term objective of blended finance is to achieve commercial sustainability
with concessional support reducing over time. Experience has shown that blended
finance can leverage or crowd in commercial financing of up to seven times the
amount of concessional funds from donors. Yet despite the clear potential of
blended finance, it does not always attract much private capital in practice; expert
interviews highlighted that blended finance is most often used by DFIs and
multilateral development banks (MDBs) to de-risk their own capital. The
requirements for investment returns at these institutions result in most of their
concessional support going to projects where they are the dominant financier,
instead of targeting the concessional capital to de-risk projects. Blended finance
has been growing strongly in sub-Saharan Africa in recent years, reaching over
USD 3 billion and accounting for 45% of all transactions worldwide in 2021
(Figure 5.2).
Figure 5.2. Blended finance by region across developing economies in Africa
IEA. CC BY 4.0.
The use of blended finance instruments has been steadily increasing, with sub-Saharan
Africa now accounting for over 40% of transactions listed
Note: Some projects at a global level are excluded here. MER = Market exchange rate
Source: IEA (2023), Financing Clean Energy in Africa
.
10%
20%
30%
40%
50%
1.5
3.0
4.5
6.0
7.5
2019 2020 2021
South Asia
Latin America and the
Caribbean
Europe and Central Asia
East Asia and Pacific
Middle East and North Africa
Sub-Saharan Africa
Share of Sub-Saharan Africa
(right axis)
Billion USD (2022, MER)
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A leading example of the use of blended finance for emerging energy industries
in Africa is the funding of research and development and feasibility studies for
Namibia’s Green Hydrogen Strategy, which targets production of 10 Mt to 12 Mt
per year of hydrogen equivalent by 2050. In May 2023, Namibia signed a feasibility
and implementation agreement with Hyphen, a German company, to develop a
2 Mt/year low-emissions ammonia project involving investment of roughly
USD 10 billion – equal to close to 80% of the country’s GDP in 2022. The country
also mobilised concessional funding of EUR 540 million (USD 579 million) from
the European Investment Bank and Invest International, a Dutch firm, to finance
its industrial clean energy ecosystem and to fund a potential equity share in the
project. Mauritania and Egypt have also signed agreements with private
developers for major hydrogen projects and memoranda of understanding with
potential off-takers, while South Africa announced in June 2023 its intention to
launch a new hydrogen blended finance fund (SA-H2) to accelerate the
development of low-emissions hydrogen with support from Denmark.
In designing blended finance deals, ensuring the right proportion of concessional
funding that is used is critical; it needs to be high enough to attract private capital
while still ensuring the most efficient use of concessional capital. Part of the
challenge is the limited availability of data on how these deals have been
structured, which reduces the replicability of deals. Broadly, though, more than
half of the blended finance transactions for all climate-related projects include
concessional loans, whereas only about 20% utilise guarantees and risk insurance
and another 20% use technical assistance grants. A shift towards guarantees and
insurance would help to leverage higher amounts of private capital and require
less concessional funds as the provision of a guarantee would require holding just
25-30% of the amount in reserve, therefore allowing more projects to be
supported.
Innovative financial instruments
Several other financial instruments will be needed, in addition to or in combination
with concessional and blended finance, as well as new platforms and partnerships
to mobilise private capital at scale in emerging industries in Africa. These include
green, social, sustainable and sustainability-linked (GSSS) bonds; carbon credits
and voluntary carbon markets; and co-investment, syndication platforms and
pooled investment vehicles. These instruments are primarily aimed at attracting
foreign private capital but could later draw on domestic banks and capital markets,
especially where revenue streams are typically denominated in local currency.
This would require developing domestic bond, equity and derivatives markets (e.g.
currency swaps).
GSSS bonds have the potential to attract more private climate financing into
African energy projects, including in emerging industries. Africa has so far
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managed to attract very little GSSS finance: in 2022, a total of USD 1.9 billion of
GSSS bonds were issued in Africa. Since 2014, issuers from just nine different
sub-Saharan African countries have entered the GSSS bond market. This is
partially explained by the fact that many African countries do not have a well-
functioning capital market and only 13 sub-Saharan African countries have
international market access. Developing a GSSS bond market could facilitate the
diversification of the financial sector.
Sovereign green bonds hold the potential for stimulating green corporate bonds
and domestic currency financing from both local and international sources.
Several emerging economy governments have used green bonds to raise local
currency financing for infrastructure projects, and even without an investment-
grade rating, they have benefited from a “greenium”.4 Green bonds are likely to
be most applicable to countries that have reasonable debt sustainability and have
a growing domestic capital market. The Nigerian government launched the Green
Bond Market Development Programme in 2017, resulting in two sovereign
issuances in 2017 and 2019 – the first of their kind in Africa – with a combined
value of around USD 70 million, and four corporate issuances totalling
USD 72 million. Both bonds achieved a greenium and were used to support
projects in renewable energy, primarily rooftop solar and rural electrification, and
afforestation. However, questions have been raised about the implementation of
projects and reporting has not been made available on the environmental impact
of the bond proceeds. Ensuring best practices on reporting would increase
confidence in the market, particularly among international investors.
Alongside more traditional green bonds, there has also been a rise in sustainability
and sustainability-linked bonds. They can be particularly useful for sovereign
bonds since fungibility rules can prohibit the issuance of “use of proceeds” bonds
(where, in the case of liquidation, the lenders have recourse to the issuer’s other
assets). In 2021, Benin became the first country in Africa to issue a sustainability
bond – a EUR 500 million bond with a 12.5-year tenor that was reportedly three
times oversubscribed and attracted a greenium of 20 basis points.
Carbon credit markets have the potential to channel more private capital into clean
energy investment in Africa, but stronger application of methodology standards
and monitoring, reporting and verification processes is needed for them to grow
from today’s low base. Credits used to comply with greenhouse gas emissions
mitigation targets in other countries could be a valuable revenue stream for African
countries. Project developers can generate and sell credits either under the
international crediting mechanisms of the United Nations Framework Convention
on Climate Change (UNFCCC) (including the Clean Development Mechanism
4
The amount by which the yield on the green bond is lower than that on a conventional bond, i.e. the premium the investor
is prepared to pay for the perceived benefits of investing in that green instrument.
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[CDM] under the Kyoto Protocol and through the Article 6.4 mechanism under the
Paris Agreement), or via voluntary carbon markets – independent crediting
programmes, self-regulated and managed by non-governmental entities (such as
Verra or Gold Standard).
Article 6 voluntary co-operation provides new opportunities for African countries
to engage in carbon markets. They can exchange Internationally Transferred
Mitigation Outcomes (ITMOs) with other countries (under Article 6.2) or issue
credits in the Article 6.4 mechanism. Voluntary co-operation under Article 6.2 has
already started, though agreement on specific operational details was not reached
at the 28th Conference of the Parties (COP28) in December 2023. At least
42 African countries have expressed their interest in or intention of participating in
the Article 6 mechanisms in their latest nationally determined contribution (NDC)
submissions, with the majority seeing themselves as a seller of credits. Financial
flows under Article 6 could reach up to USD 245 billion, or over one-fifth of total
clean energy investment needs, by 2030 and close to USD 2 trillion, or one-third,
by 2050 (Figure 5.3). While these investment flows would apply across all sectors,
they could nonetheless be an important investment source for emerging energy
industries in Africa.
Additional revenues from credits issued in voluntary carbon markets, purchased
by non-state actors, can also play a role in fostering clean energy solutions in
Africa, although these have largely been for nature-based solutions to date. Still,
carbon credits are a meaningful source of revenue for clean cooking developers.
At the Summit for Clean Cooking in Africa, over 50 organisations decided to
establish a Carbon Credit Task Force committed to creating demand for high-
integrity carbon credits from clean cooking activities, and endorsed the update of
methodologies that address the concerns of carbon credit integrity, with many
organisations signalling their intention to back the Clean Cooking Alliance-led
Clean Cooking and Climate Consortium (4C) initiative.
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Figure 5.3. Article 6 financial flows and CO2 emissions reduction potential in Africa in
the Sustainable Africa Scenario
IEA. CC BY 4.0.
Article 6 financial flows could reach over 20% of investment in clean energy in Africa in
2020-30 and roughly 30% in 2020-2050
Note: The estimation of Article 6 financial and mitigation potential is from the research project “Modelling the Economic
Benefits of Article 6” by the International Emissions Trading Association (IETA) and the Center for Global Sustainability at
the University of Maryland. Levels reported represent upper bands of the scenarios included in the model. The model
simulates demand and supply of credits through Article 6 co-operation by countries, and presents some limitations, such as
the assumption that all revenues from Article 6 co-operation are reinvested in increased mitigation ambition.
Source: IEA analysis based on data from Yu et al. (2021),
The Potential Role of Article 6 Compatible Carbon Markets in
Reaching Net-Zero.
Other financing platforms and mechanisms could help drive investment in
emerging energy industries in Africa in the long term. Project aggregation
platforms and securitisation vehicles can help overcome the asymmetry between
the relatively small size of most such projects in Africa and the relatively large
minimum investment size that major institutional investors require. Aggregation
and securitisation, whereby assets are pooled into a special purpose vehicle to
create a tradable asset-backed security, can be an effective means of raising debt
from capital markets in local currency. These platforms can pool and de-risk large
numbers of smaller projects and thereby create standardised investment-grade
multi-asset portfolios, reducing transaction costs, diversifying risk and attracting
interest from institutional investors. DFIs have a long track record of syndicating
investment opportunities in emerging economies, including support for clean
energy projects. Co-investment models have been central to this, enabling private
investors to broaden the types of risk they are willing to consider by leveraging
DFI expertise and financial resources.
2
4
6
8
To 2030To 2030 To 2050
Finance requested for
mitigation in NDCs
Conditional mitigation
pledged in NDCs
Unconditional mitigation
pledged in NDCs
Clean energy investment
need in SAS
Article 6 potential
Financial flow potential
Trillion USD (2022)
4
8
12
16
2020-
2030
2020-
2030
2020-
2050
Net mitigation potential
Gt CO
2
2020-
2030
2020-
2030
2020-
2050
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Integrating cross-cutting developmental
objectives
Africa’s social and economic development is heavily intertwined with its energy
development. Universal access to modern energy service, more reliable electricity
and less volatile energy pricing would all contribute to improving the welfare of
Africans and accelerating economic development across the continent. Seizing
this opportunity calls for an economic transformation that goes beyond energy
supply, covering an expansion of key industries, including fertiliser, steel and
cement, as well as the manufacture and assembly of appliances, low-emissions
vehicles and other clean energy technologies. That would generate wealth, create
jobs and reduce Africa’s burden of imports generally. This economic diversification
is an integral part of the SAS.
Achieving that economic transformation requires large amounts of investment in
all parts of the energy system, alongside investment in building infrastructure
within and between African markets, including transport links and
telecommunication networks, as well as energy networks. All those investments
should be African-driven, inclusive and aligned with social and economic
developmental goals, chief among which are boosting local employment, involving
local actors and enterprises and supporting local value chains. Another important
consideration in this regard is the need to ensure that the provision of energy
services is as efficient as possible, thereby contributing to development by both
lowering their cost to end users and reducing climate and broader environmental
impacts.
Creating jobs and local value chains
Employment is a primary developmental consideration in Africa. There is
enormous pressure to create productive and well-paid jobs in all African countries
in the face of rising population and widespread underemployment and poverty.
The continent has the youngest population in the world, with around 15 million
people joining the labour force each year. The unemployment rate across Africa
has been broadly stable at around 7% since 2020, slightly above the global
average, but rates are much higher in certain countries, including South Africa,
where it is over 32%. Unemployment increased everywhere as a result of the
Covid‐19 pandemic. Most African countries are characterised by
underemployment, widespread informal employment and limited social system
protection. Over 80% of employed Africans work in the informal sector, where
wages are low and jobs less secure. Around 45% of them work in agriculture,
earning on average just one dollar per day, while 13% work in manufacturing and
38% in services.
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Building a clean energy system in Africa offers major opportunities to stimulate the
creation of decent jobs that require wide‐ranging skills. According to official data,
around 2 million Africans were employed in the energy sector in 2019, accounting
for just 0.5% of the total labour force, but total energy‐related employment may be
as high as 11 million when informal jobs, such as firewood and charcoal
production, are included.
Employment in Africa’s energy sector will undoubtedly grow rapidly in the coming
years and decades as the demand for energy services rises and power capacity
expands. In the SAS, almost 4 million energy‐related jobs in total are created
across the continent over 2023‐2030, largely as a result of providing universal
access to modern energy to households in sub‐Saharan Africa and the rapid
deployment of clean energy technologies. But this is contingent on governments
developing the human resources, as well as physical infrastructure, required for
the local assembly of clean energy technologies. Shortages of skilled labour for
large‐scale renewable capacity installations could emerge in the coming years.
With increased digitalisation and automation, it is crucial that governments and
companies boost education and training to ensure that more workers can
participate in the clean energy sector.
The development of value chains and associated jobs goes beyond the energy
sector itself, as it would stimulate economic activity across the economy,
especially in the communities where energy production and access to households
and local businesses are established. The number of jobs created this way is
potentially far greater than those in the energy sector itself. The expansion of
reliable and affordable electricity supplies, in particular, is a key driver of economic
activity, higher incomes and employment. For example, access to electricity would
allow households to power small appliances such as sewing machines or
refrigerators, which can support entrepreneurial opportunities – especially for
women. Expanding the electricity supply to non‐residential uses such as
agriculture would also create jobs. Larger-scale infrastructure developments that
electrify the entire agricultural value chain can bring additional benefits for
agricultural employment and productivity.
Making transitions just and inclusive
Putting people and inclusivity at the centre of all clean energy transitions is key to
the successful implementation of energy and climate policies. Host governments
and international partners must ensure that their clean energy transition strategies
are people-centred and truly fair and take account of the needs and rights of all
members of society. Africa’s energy transition will bring profound shifts in the
sector’s employment, including massive new opportunities for job creation in clean
energy but declining job opportunities in existing sectors, including the fossil fuel
industry and the supply of traditional fuels.
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It is vital that this transition involve the creation of decent work opportunities,
support for workers who lose their jobs, effective social dialogue among all
affected groups and respect for fundamental labour principles and rights. An
important first step is comprehensive stakeholder engagement with the goal of
reaching a broad consensus around the transition. The long-term aim should be
to make the new energy workforce more inclusive and gender-balanced and
ensure equal opportunity for all. In most cases, this will require the development
of new programmes of education, certification and vocational training along with
targeted upskilling or reskilling programmes for the existing workforce. South
Africa is already taking this approach (Box 5.1).
Prioritising energy efficiency
Energy efficiency is a critical consideration in development planning. Africa is set
to experience an unprecedented increase in energy demand over the coming
decades, driven primarily by rapidly growing economies and populations. Steering
investment towards the most efficient sources of energy supply and end-use
technologies in the buildings, transport and productive uses sectors would have a
massive impact on both the overall need for energy and the costs of providing
energy services, as well as investment needs. In the SAS, energy efficiency-
related capital spending rises sevenfold to around USD 43 billion in the second
half of the current decade, driven by surging demand for housing combined with
stronger building codes and minimum energy performance standards (MEPS),
Box 5.1. Support for coal workers in South Africa
Retraining programmes targeting coal workers for jobs in renewables, ecotourism
and agribusiness are at the heart of South Africa’s Just Transition Strategy. Under
a partnership agreement, the governments of France, Germany, the United Kingdom
and the United States, and the European Union, are making available USD 8.5 billion
in the form of grants and highly concessional loans to support the closure of Eskom’s
coal plants and just energy transition initiatives, including developing green
hydrogen and boosting electric vehicles. Mpumalanga, where 90% of the country’s
coal production and 70% of its coal-fired power generation are concentrated, will be
the region most affected by the phase-down of coal in South Africa. The region
already suffers from high unemployment, so generating new jobs is the focus of
transition management discussions. Even in regions where coal phase-out is not
immediately looming, it is critical to begin planning early as implementation and
training workers for alternate employment can take years.
Source: Center for Strategic and International Studies (2021), Understanding Just Transitions in Coal-Dependent
Communities
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purchases of more efficient and electrified vehicles, appliances and cooling
systems, and electrification and efficiency improvements in industrial processes.
Policy action to reduce investment risk and the use of public capital to leverage
private sources and harness new financing structures will be needed to make this
happen, accompanied by robust enforcement of MEPS and measures to prevent
imports of inefficient second-hand vehicles and appliances, including screening
and testing, and link investment and purchase incentives to efficiency.
Energy efficiency finance is still a nascent market in most African economies and
is yet to be prioritised for concessional and commercial capital. The complex and
relatively small-scale nature of energy efficiency projects – combined with low
awareness about their potential, risks and business models – requires a more
systemic approach. Projects often need de-risking, standardisation and
aggregation mechanisms to mitigate transaction and financing costs that reflect
higher risk perception among local financial institutions. Initially, this is likely to
require grants and equity capital as markets and business models develop. The
role of DFIs in providing catalytic capital for energy efficiency, including the
creation of energy service companies (which supply energy efficiency
improvements on a third-party basis and are compensated based on the energy
savings achieved) will be key.
Required capacity-building initiatives
Capacity building is a vital component of efforts to kick-start Africa’s transition to
a clean and sustainable energy system. That transition is currently severely
constrained by a lack of well-trained professionals and officials, and a broader lack
of awareness among local populations about clean energy solutions. Capacity
building needs to cover high-level professionals in the public and private sectors,
civil society, and academic and research institutions. It is for the African people
themselves to shape their transitions, create the institutions and frameworks
needed to guide it, and build and operate the physical infrastructures. This cannot
happen where there are no resources, most importantly workers, equipped with
the requisite skills and knowledge to perform those tasks.
This calls for a sustained collective effort to build the human and institutional skills
and capabilities needed to develop policy and regulatory frameworks, prepare
projects, secure the financing needed to get them off the ground, and operate,
manage and maintain those assets once they are built. For example, many mini-
grid projects in rural areas have failed in the past due to a shortage of local skilled
personnel to maintain the equipment, deterring investors from financing new
projects. Reinforcing or creating rural electrification and clean cooking agencies
by providing training and funding positions within these agencies, which are often
understaffed, could remedy this. In addition, funding the establishment of field
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offices in rural provinces can improve the standing of programmes among the local
population, which may be mistrustful of centralised efforts.
Institutional capacity remains a major hurdle in Africa, reflected in the lack of
detailed government strategies and roadmaps in the countries where progress is
least advanced. This often results in costly short-term solutions and disappointing
outcomes. For example, even if all the finance that we project will be needed to
meet the goal of universal access by 2030 is forthcoming, finding the projects and
facilities by which to disburse those funds will be difficult, especially given the
limited number of projects that are currently ready to be financed. The increase in
the activities of local green banks and micro‐finance institutions across the
continent will undoubtedly help support off-grid and clean cooking enterprises, but
large government programmes administered by utilities and dedicated
government agencies will also need to play an important role to reduce the
perceived risks by creating an investment climate that is conducive to attracting
private capital.
The need to build capacity is particularly crucial in the electricity sector in view of
its central role in the clean energy transition and its large share of overall
investment needs. In government, there is a particular need for officials in energy
and finance ministries to develop skills in electricity policy formulation,
implementation and monitoring, based on an understanding of investors’
requirements for participating in new renewable and off-grid projects and the
measures needed to de-risk private financing. Regulatory commissioners also
need specific training in tariff-setting, licensing, regulatory decision-making
procedures and implementing regulations. Regulatory bodies also need their
technical staff to be equipped to set targets, standards and monitoring measures
to evaluate equipment quality such as batteries and meters.
5
The technical and financial weaknesses in electricity utilities also need to be
addressed, through providing training in organisational management as well as
technical capacities to oversee least-cost integrated electrification plans, carrying
out integrated power system planning across all segments, managing contractual
arrangements and drawing up efficient procurement procedures. Distribution
companies need training in implementing off-grid solutions and coordinating them
with conventional distribution activities based on international best practices.
A variety of tools are available to enhance human and institutional capacity.
Structured in-depth training sessions, seminars, workshops and on-the-job
tutoring for national energy planning practitioners, both in-country and online, can
be an effective approach to develop the skills needed to implement an enabling
5
The AfDB’s Electricity Regulatory Index (ERI) assesses the quality of electricity regulatory frameworks of African countries
on an annual basis, including the degree of independence and regulatory outcomes, and proposes areas to improve among
those countries evaluated.
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policy and regulatory framework, collate and analyse field data, draw up national
and regional plans and programmes, access international funds, and prepare
access projects in partnership with electricity utilities and local enterprises, banks,
and academic and research institutions. Partnerships between academic bodies
in advanced economies and those in African countries have also proven effective
in raising awareness of the solutions to raising energy access and developing
analytical and planning capabilities.
Several international bodies, including the IEA, other governmental organisations,
development agencies, DFIs and MDBs, as well as private foundations and
industry associations, already run programmes or provide assistance to countries
in Africa and other parts of the developing world in building capacity in the field of
access to clean energy. A number of universities, research centres, and
foundations in Africa and Europe are also developing capacity building
programmes on sustainable energy development. For example, the
Mediterranean Renewable Energy Centre (MEDREC) in Tunisia is seeking to
expand capacity building in sub-Saharan Africa, while the South African
Renewable Energy Technology Centre trains solar technicians, mostly women,
through local universities and is collaborating with other universities across Africa.
Various development institutes, including the Florence School of Regulation, the
Fondazione Eni Enrico Mattei and RES4Africa in Italy, GIZ, Get Invest, and the
European Union Technical Assistance Facility for Sustainable Energy for All
(SEforALL) also offer capacity-building programmes throughout Africa.
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Annexes
Annex A – Abbreviations and acronyms
BF
blast furnace
BOF
basic oxygen furnace
BOOT
build, own, operate and transfer
CCS
carbon capture and storage
CCUS
carbon capture, utilisation and storage
CDM
Clean Development Mechanism
CO
2
carbon dioxide
CO
2
-eq
carbon dioxide equivalent
COP
Conference of the Parties
DFI
development finance institution
DRC
Democratic Republic of the Congo
DRI
direct reduced iron
EAF
electric arc furnace
EMDE
emerging market and developing economies
G7
Group of Seven
G20
Group of 20
GDP
gross domestic product
GSSS
green, social, sustainable and sustainability-linked
IEA
International Energy Agency
IETA
International Emissions Trading Association
ITMOs
Internationally Transferred Mitigation Outcomes
LDCs
Least Developed Countries
LH
2
liquified hydrogen
LPG
liquefied petroleum gas
MDB
multilateral development bank
MEDREC
Mediterranean Renewable Energy Centre
MEPS
minimum energy performance standard
MER
market exchange rate
NDC
Nationally Determined Contributions
NG
natural gas
NH
3
ammonia
ODA
official development assistance
OECD
Organisation for Economic Co-operation and Development
PayGo
Pay-As-You-Go
PCI
pulverised coal injection
PE
private equity
PGM
platinum group metals
PPAs
power purchase agreements
Clean energy investment for development in Africa Annex
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PV
photovoltaic
RE
renewable energy
SAS
Sustainable Africa Scenario
SDG
Sustainable Development Goals
SMEs
small and medium-sized enterprises
SOEs
state-owned enterprises
UNDP
United Nations Development Programme
UNFCCC
United Nations Framework Convention on Climate Change
USD
US dollar
WACC
weighted average cost of capital
VC
venture capital
Clean energy investment for development in Africa Annex
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IEA. CC BY 4.0.
Annex B – Units of measure
Emissions
kt CO
2
-eq
thousand tonnes of carbon-dioxide equivalent
Energy
TWh
terawatt-hour
Mass
Mt
million tonnes (1 tonne x 10
6
)
Mt/year
million tonnes per year
Power
MW
megawatt (1 watt x 10
6
)
GW
gigawatt (1 watt x 10
9
)
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