Africa’s economic and social development aspirations are intrinsically linked to its access to affordable, reliable, modern, and sustainable energy. Despite possessing immense energy resources, Africa remains one of the most energy-poor continents. Currently, around 600 million Africans lack access to electricity, and more than a billion still rely on traditional stoves and open fires using wood, charcoal, kerosene, coal, and animal waste for cooking. The implications of this energy poverty are severe, affecting health, education, climate, and overall economic and social development, with women and children disproportionately bearing the brunt of these challenges.
The lack of reliable and affordable energy stymies agricultural productivity, hampers industrial competitiveness due to high energy costs, and limits African countries’ ability to attract and nurture new economic sectors. It is creating a cycle of underdevelopment and poverty that is difficult to break without substantial improvements in the energy sector.
The Need for Enhanced Energy Investment
Mobilizing more investment in Africa’s energy systems is critical but challenging. Although Africa accounts for about 20% of the global population, it attracts less than 3% of global energy investment. Since peaking in 2014, energy investment on the continent has declined by 34%. Key obstacles include a shortage of bankable projects and the high cost of capital, which is two to three times higher for renewable projects in Africa than in advanced economies. Additionally, overlapping crises, including political instability and economic challenges, have complicated attracting new capital.
Currently, 21 African countries are either in or at high risk of debt distress, which heavily impacts public balance sheets and those of state-owned enterprises (SOEs). Furthermore, higher interest rates have raised expectations on returns in commercial markets, particularly for clean energy projects in emerging and developing economies.
Pathway to Sustainable Energy Investment
Meeting the growing energy demands of African countries requires more than doubling annual energy investments by 2030, with three-quarters directed towards clean energy. The International Energy Agency’s (IEA) Sustainable Africa Scenario provides a pathway for Africa to achieve its energy-related goals in full and on time. This scenario aligns with the African Union’s Agenda 2063 goals, which envisions a prosperous Africa based on inclusive growth and sustainable development. Under this scenario, energy investment in Africa would grow to nearly $240 billion annually by 2030.
Extending access to electricity and clean cooking solutions is crucial for growth and development and central to a just energy transition. From 2023 to 2030, around $22 billion per year is needed to connect all African homes and businesses to electricity, while $4 billion per year is required to provide clean cooking solutions. These annual investments represent less than 1% of current global energy investment.
However, affordability remains a significant challenge. Only half of the households without electricity access today could afford basic energy services without additional financial support, and even fewer could afford modern cooking solutions. Innovative solutions from private companies, including small and medium-sized enterprises (SMEs) in Africa, address these issues but require more financing and specialized incentives to scale, especially in rural areas.
Around half of the required energy investment in Africa by 2030 is needed in the electricity sector, with policies playing a vital role in attracting more investment. Total electricity sector investment is projected to increase from under $30 billion in 2022 to over $120 billion in 2030. Renewable generation alone would account for about 50% of this investment. Africa boasts some of the world’s most cost-competitive renewable resources, including 60% of the best solar resources globally and significant potential for hydropower, geothermal, and wind energy.
New Industries and Clean Energy Technologies
Developing industries are essential to expanding Africa’s energy system. By 2030, Africa is expected to build more floor area than exists in Japan and Korea today, driving considerable growth in demand for steel, cement, irrigation pumps, cold chains, data centers, and mining. Productive uses, which include industry, agriculture, freight, and public and commercial buildings, have driven nearly half of the growth in electricity demand in Africa over the past decade. These uses, often large and reliable customers, can financially incentivize the development of new energy infrastructure.
The production of critical minerals and the manufacturing of clean energy technologies offer practical opportunities to cultivate a growing industrial base in Africa. Revenues from producing copper and key battery metals are already estimated to exceed $20 billion annually. Investment in mineral exploration is rising, suggesting significant potential for further growth. New manufacturing plants for clean energy technologies and solutions to improve energy access are also being developed across the continent.
Mobilizing Private Sector Participation
Private sector spending needs to increase 2.5 times from 2022 to 2030 to meet Africa’s energy investment needs. Concessional capital from international sources will play a key role in mobilizing this increase, with an estimated $30 billion per year required to mobilize commercial funding over this period.
Blended finance, where donors, development finance institutions (DFIs), and philanthropies use their funds to improve the risk-return profile of projects and attract private capital, will be crucial. The number of deals using blended finance in Africa has grown significantly, with the volume doubling from 2019 to more than $3 billion in 2021.
Overcoming Barriers to Investment
Connecting concessional finance with the right projects remains a challenge but can be addressed through targeted technical assistance and improved coordination. G7 countries have reiterated their commitment to mobilize more energy and climate investment in Africa, reinforcing capacity-building efforts and developing new financing vehicles to absorb early-stage development risk.
Increasing energy investment is fundamental to enabling African prosperity. By addressing the barriers to investment and leveraging innovative financing mechanisms, Africa can achieve its energy-related goals, improve the quality of life for its people, and set a path toward sustainable economic development. The future of Africa’s energy landscape holds immense potential, but realizing this potential will require concerted effort, strategic investment, and international cooperation.
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- Source: https://www.environmentenergyleader.com/2024/06/empowering-africa-through-enhanced-ene-https-www-environmentenergyleader-com-2024-06-empowering-africnergy-investment-rgy-investment/